[Federal Register Volume 78, Number 231 (Monday, December 2, 2013)]
[Rules and Regulations]
[Pages 72256-72320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28457]



[[Page 72255]]

Vol. 78

Monday,

No. 231

December 2, 2013

Part III





Department of Health and Human Services





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





Centers for Medicare & Medicaid Services





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





42 CFR Part 431





Medicare and Medicaid Programs; Home Health Prospective Payment System 
Rate Update for CY 2014, Home Health Quality Reporting Requirements, 
and Cost Allocation of Home Health Survey Expenses; Final Rule

  Federal Register / Vol. 78 , No. 231 / Monday, December 2, 2013 / 
Rules and Regulations  

[[Page 72256]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 431

[CMS-1450-F]
RIN 0938-AR52


Medicare and Medicaid Programs; Home Health Prospective Payment 
System Rate Update for CY 2014, Home Health Quality Reporting 
Requirements, and Cost Allocation of Home Health Survey Expenses

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

ACTION: Final rule.

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

SUMMARY: This final rule will update the Home Health Prospective 
Payment System (HH PPS) rates, including the national, standardized 60-
day episode payment rates, the national per-visit rates, the low-
utilization payment adjustment (LUPA) add-on, and the non-routine 
medical supply (NRS) conversion factor under the Medicare prospective 
payment system for home health agencies (HHAs), effective January 1, 
2014. As required by the Affordable Care Act, this rule establishes 
rebasing adjustments, with a 4-year phase-in, to the national, 
standardized 60-day episode payment rates; the national per-visit 
rates; and the NRS conversion factor. In addition, this final rule will 
remove 170 diagnosis codes from assignment to diagnosis groups within 
the HH PPS Grouper, effective January 1, 2014. Finally, this rule will 
establish home health quality reporting requirements for CY 2014 
payment and subsequent years and will clarify that a state Medicaid 
program must provide that, in certifying HHAs, the state's designated 
survey agency carry out certain other responsibilities that already 
apply to surveys of nursing facilities and Intermediate Care Facilities 
for Individuals with Intellectual Disabilities (ICF-IID), including 
sharing in the cost of HHA surveys. For that portion of costs 
attributable to Medicare and Medicaid, we will assign 50 percent to 
Medicare and 50 percent to Medicaid, the standard method that CMS and 
states use in the allocation of expenses related to surveys of nursing 
homes.

DATES: These regulations are effective on January 1, 2014.

FOR FURTHER INFORMATION CONTACT: Hillary Loeffler, (410)786-0456, for 
general information about the HH PPS.
    Joan Proctor, (410) 786-0949, for information about the HH PPS 
Grouper and ICD-10 Conversion.
    Kristine Chu, (410) 786-8953, for information about rebasing and 
the HH payment reform study and report.
    Mollie Knight, (410) 786-7948, for information about the HH market 
basket.
    Kim Roche, (410) 786-3524, for information about the HH quality 
reporting program.
    Lori Teichman, (410) 786-6684, for information about HH 
CAHPS[supreg].
    Jenny Filipovits, (410) 786-8141, for information about cost 
allocation of survey expenses.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of the Major Provisions
    C. Summary of Costs and Benefits
II. Background
    A. Statutory Background
    B. System for Payment of Home Health Services
    C. Updates to the HH PPS
III. Summary of the Provisions of the Proposed Rule
    A. ICD-9-CM Grouper Refinements, Effective January 1, 2014
    B. International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) Conversion and Diagnosis Reporting 
on Home Health Claims
    C. Adjustment to the HH PPS Case-Mix Weights
    D. Rebasing the National, Standardized 60-day Episode Payment 
Amount, LUPA Per-Visit Payment Amounts, and Nonroutine Medical 
Supply (NRS) Conversion Factor
    1. Rebasing the National, Standardized 60-day Episode Payment 
Amount
    2. Rebasing the Low-Utilization Payment Adjustment (LUPA) Per-
Visit Payment Amounts
    3. Rebasing the Nonroutine Medical Supply (NRS) Conversion 
Factor
    E. CY 2014 Home Health Payment Rate Update
    1. CY 2014 HH PPS Payment Update Percentage
    2. Home Health Care Quality Reporting Program
    3. Home Health Wage Index
    4. CY 2014 Annual Payment Update
    F. Outlier Policy
    G. Payment Reform: Home Health Study and Report
    H. Cost Allocation of Survey Expenses
IV. Analysis and Responses to Public Comment
    A. ICD-9-CM Grouper Refinements, Effective January 1, 2014
    B. International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) Conversion and Diagnosis Reporting 
on Home Health Claims
    1. International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) Conversiony
    2. Diagnosis Reporting on Home Health Claims
    C. Adjustment to the HH PPS Case-Mix Weights
    D. Rebasing the National, Standardized 60-day Episode Payment 
Amount, LUPA Per-Visit Payment Amounts, and Nonroutine Medical 
Supply (NRS) Conversion Factor
    1. Rebasing the National, Standardized 60-day Episode Payment 
Amount
    2. Rebasing the Low-Utilization Payment Adjustment (LUPA) Per-
Visit Payment Amounts
    3. Rebasing the Nonroutine Medical Supply (NRS) Conversion 
Factor
    E. CY 2014 Rate Update
    1. CY 2014 HH PPS Payment Update Percentage
    2. Home Health Care Quality Reporting Program
    3. Home Health Wage Index
    4. CY 2014 Annual Payment Update
    a. National, Standardized 60-Day Episode Payment Rate
    b. CY 2014 National, Standardized 60-Day Episode Payment Rate
    c. CY 2014 National Per-Visit Rates
    d. CY 2014 Low-Utilization Payment Adjustment (LUPA) Add-On 
Factor
    e. CY 2014 Nonroutine Medical Supply (NRS) Conversion Factor and 
Relative Weights
    5. Rural Add-On
    F. Outlier Policy
    1. Background
    2. Regulatory Updates
    3. Statutory Updates
    4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    5. Outlier Relationship to the Home Health Study and Report
    G. Payment Reform: Home Health Study and Report
    H. Cost Allocation of Survey Expenses
    V. Collection of Information Requirements
    VI. Waiver of Delay in Effective Date
    VII. Regulatory Impact Analysis
    VIII. Federalism Analysis
    Regulations Text

Acronyms

    In addition, because of the many terms to which we refer by 
abbreviation in this final rule, we are listing these abbreviations 
and their corresponding terms in alphabetical order below:
ACA The Affordable Care Act.
ACH LOS Acute care hospital length of stay.
ADL Activities of daily living.
AHRQ Agency for Healthcare Research and Quality.
APU Annual payment update.
BBA Balanced Budget Act of 1997 (Pub. L. 105-33, enacted August 5, 
1997).
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (Pub. L. 106-113, enacted November 29, 1999).
CAD Coronary artery disease.
CAGR Compound Annual Growth Rate.
CAH Critical access hospital.
CAHPS[supreg] Consumer assessment of healthcare providers and 
systems.
CBSA Core-based statistical area.

[[Page 72257]]

CASPER Certification and survey provider enhanced reports.
CHF Congestive heart failure.
CMI Case-mix index.
CMP Civil monetary penalties.
CMS Centers for Medicare & Medicaid Services.
CoPs Conditions of participation.
COPD Chronic obstructive pulmonary disease.
CVD Cardiovascular disease.
CY Calendar year.
DG Diagnostic group.
DHHS Department of Health and Human Services.
DM Diabetes mellitus.
DME Durable medical equipment.
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted February 
8, 2006).
FDL Fixed dollar loss.
FFP Federal financial participation.
FI Fiscal intermediaries.
FR Federal Register.
FY Fiscal year.
GEM General equivalency mapping.
HAVEN Home assessment validation and entry system.
HCC Hierarchical condition categories.
HCIS Health care information system.
HH Home health.
HHAs Home health agencies.
HHCAHPS[supreg] Home Health Care Consumer Assessment of Healthcare 
Providers and Systems Survey.
HH PPS Home health prospective payment system.
HHQRP Home Health Quality Reporting Program.
HHRG Home health resource group.
HIPAA Health Insurance Portability Accountability Act of 1996 (Pub. 
L. 104-191, enacted August 21, 1996).
HIPPS Health insurance prospective payment system.
ICD-9 International Classification of Diseases, 9th Edition.
ICD-9-CM International Classification of Diseases, 9th Edition, 
Clinical Modification.
ICD-10 International Classification of Diseases, 10th Edition.
ICD-10-CM International Classification of Diseases, 10th Edition, 
Clinical Modification.
ICF-IID Intermediate care facilities for individuals with 
intellectual disabilities.
IH Inpatient hospitalization.
IPPS Acute Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility.
LTCH Long-term care hospital.
LUPA Low-utilization payment adjustment.
MAC Medicare Administrative Contractor.
MAP Measure applications partnership.
MedPAC Medicare Payment Advisory Commission.
MEPS Medical Expenditures Panel Survey.
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173, enacted December 8, 2003).
MSA Metropolitan statistical areas.
MSS Medical Social Services.
NF Nursing facility.
NQF National Quality Forum.
NRS Non-routine supply.
OASIS Outcome & Assessment Information Set.
OBRA Omnibus Budget Reconciliation Act of 1987 (Pub. L. 100-2-3, 
enacted December 22, 1987).
OCESAA Omnibus Consolidated and Emergency Supplemental 
Appropriations Act (Pub. L. 105-277, enacted October 21, 1998).
OES Occupational employment statistics.
OIG Office of Inspector General.
OT Occupational therapy.
OMB Office of Management and Budget.
P4R Pay-for-reporting.
PAC-PRD Post-Acute Care Payment Reform Demonstration.
PEP Partial episode payment [Adjustment].
POC Plan of care.
PRRB Provider Reimbursement Review Board.
PT Physical therapy.
QAP Quality assurance plan.
QIES CMS Health Care Quality Improvement System.
PRRB Provider Reimbursement Review Board.
RAP Request for anticipated payment.
RF Renal failure.
RFA Regulatory Flexibility Act (Pub. L. 96-354, enacted on September 
19, 1980).
RHHIs Regional home health intermediaries.
RIA Regulatory impact analysis.
SCHIP State Children's Health Insurance Program
SLP Speech-language pathology.
SN Skilled nursing.
SNF Skilled nursing facility.
TEP Technical Expert Panel.
UMRA Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted 
on March 22, 1995).

I. Executive Summary

A. Purpose

    This rule updates the payment rates for home health agencies (HHAs) 
for calendar year (CY) 2014, as required under section 1895(b) of the 
Social Security Act (the Act), including the rebasing adjustments to 
the national, standardized 60-day episode payment rate, the national 
per-visit rates, and the NRS conversion factor, required under section 
3131(a) of the Patient Protection and Affordable Care Act of 2010 (Pub. 
L 111-148), as amended by the Health Care and Education Reconciliation 
Act of 2010 (Pub. L 111-152) (collectively referred to as the 
``Affordable Care Act''). This rule will also address: International 
Classification of Diseases, 9th Edition (ICD-9) Grouper refinements; 
implementation of the International Classification of Diseases, 10th 
Edition (ICD-10); a budget neutral adjustment to the case-mix weights; 
updates to the payment rates by the HH payment update percentage (for 
this final rule, the HH market basket); adjustments for geographic 
differences in wage levels; outlier payments; the submission of quality 
data; and additional payments for services provided in rural areas. 
This rule also clarifies state Medicaid program requirements related to 
the cost of HHA surveys.

B. Summary of the Major Provisions

    In this final rule, we will remove 170 diagnosis codes from 
assignment to diagnosis groups within the HH PPS Grouper, effective 
January 1, 2014. In addition, on October 1, 2014, we will begin the use 
of ICD-10-CM codes within the HH PPS Grouper.
    For CY 2014, we are adjusting the case-mix weights in order to 
reduce the average case-mix weight for CY 2012 from 1.3464 to 1.0000, 
in a budget neutral manner. As required by section 3131(a) of the 
Affordable Care Act, we are rebasing the national, standardized 60-day 
episode payment amount, the national per-visit rates and the NRS 
conversion factor. The rebasing adjustments will occur over the next 
four years. The rebasing adjustments will reduce the national, 
standardized 60-day episode payment amount in each year from CY 2014 to 
CY 2017 by $80.95, which is 3.5 percent of the national, standardized 
60-day episode payment amount as of the date of enactment of the 
Affordable Care Act ($2,312.94 in CY 2010). In each year from CY 2014 
to CY 2017, the rebasing adjustments will increase the national per-
visit payment amounts by 3.5 percent of the national per-visit payment 
amounts in CY 2010 as described in section IV.D.2. The rebasing 
adjustments will reduce the NRS conversion factor in each year from CY 
2014 to CY 2017 by 2.82 percent. We will use three LUPA add-on factors 
in calculating the LUPA add-on payment amount for LUPA episodes that 
are the only episode or the first episode in a sequence of adjacent 
episodes. We will update the home health wage index and increase 
payment rates for CY 2014 by 2.3 percent as described in section 
IV.E.4.
    We will continue work on the home health study required by section 
3131(d) of the Affordable Care Act, which will assess the costs 
associated with providing access to care to patients with high severity 
of illness, low income patients, and/or patients in medically 
underserved areas. Additionally, we will continue to use Outcome & 
Assessment Information Set (OASIS) data, claims data, and patient 
experience of care data, as forms of quality data to meet the 
requirement that HHAs submit data appropriate for the measurement of HH 
care quality for the annual payment update (APU) for

[[Page 72258]]

2014. We will implement two claims-based measures of quality for HH 
patients who were recently hospitalized, as these patients are at an 
increased risk of additional acute care hospital use. We are also 
reducing the number of HH quality measures currently reported to HHAs.
    Lastly, we will review each state's allocation of costs for HHA 
surveys for compliance with OMB Circular A-87 principles and the 
statutes in 2014 with the goal of ensuring full compliance no later 
than July 2014. This rule will clarify that a state Medicaid program 
must provide that, in certifying HHAs, the state's designated survey 
agency must carry out certain other responsibilities that already apply 
to surveys of nursing facilities (NF) and Intermediate Care Facilities 
for Individuals with Intellectual Disabilities (ICF-IID), including 
sharing in the cost of HHA surveys. For that portion of costs 
attributable to Medicare and Medicaid, we will assign 50 percent to 
Medicare and 50 percent to Medicaid.

C. Summary of Costs and Benefits

                                Table 1--Summary of Costs, Benefits and Transfers
----------------------------------------------------------------------------------------------------------------
       Provision description               Total costs            Total benefits               Transfers
----------------------------------------------------------------------------------------------------------------
CY 2014 HH PPS Payment Rate Update.  N/A....................  The benefits of this    The overall economic
                                                               final rule include      impact of this final rule
                                                               paying more             is an estimated $200
                                                               accurately for the      million in decreased
                                                               delivery of home        payments to HHAs.
                                                               health services.
Cost Allocation of HHA Survey        N/A....................  The benefits of this    If implemented in the
 Expenses..                                                    rule include            beginning of FY 2014 we
                                                               clarifying that state   project that aggregate
                                                               Medicaid programs       Medicare and Medicaid
                                                               must share in the       home health survey costs
                                                               cost of HHA surveys.    in FY 2014 would be
                                                               For that portion of     approximately $37.2
                                                               costs attributable to   million. As these costs
                                                               Medicare and            would be assigned 50
                                                               Medicaid, we would      percent to Medicare and
                                                               assign 50 percent to    50 percent to Medicaid
                                                               Medicare and 50         for each state, the
                                                               percent to Medicaid..   anticipated aggregate
                                                                                       Medicaid share would
                                                                                       amount to $18.6 million.
                                                                                       The cost of surveys is
                                                                                       treated as a Medicaid
                                                                                       administrative cost,
                                                                                       reimbursable at the
                                                                                       professional staff rate
                                                                                       of 75 percent. At this
                                                                                       rate the maximum net
                                                                                       state costs for Medicaid
                                                                                       matching funds incurred
                                                                                       in FY 2014 would be
                                                                                       approximately $4.65
                                                                                       million, spread out
                                                                                       across all states and 2
                                                                                       territories. However, the
                                                                                       proposed adherence date
                                                                                       of July FY 2014 would
                                                                                       reduce the Medicaid
                                                                                       aggregate share to $4.65
                                                                                       million and the state
                                                                                       Medicaid share to
                                                                                       approximately $1.16
                                                                                       million. The federal
                                                                                       Medicaid share will
                                                                                       reflect the remaining
                                                                                       $3.49 million, with an
                                                                                       adherence date of July FY
                                                                                       2014. Some state Medicaid
                                                                                       programs may currently
                                                                                       pay for HHA surveys to
                                                                                       some extent, but the
                                                                                       amount is unknown.
----------------------------------------------------------------------------------------------------------------

II. Background

A. Statutory Background of the Home Health PPS

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted 
August 5, 1997), significantly changed the way Medicare pays for 
Medicare HH services. Section 4603 of the BBA, added section 1895 of 
the Act, which mandated the development of the HH PPS. Until the 
implementation of a HH PPS on October 1, 2000, HHAs received payment 
under a retrospective reimbursement system.
    Section 1895 of the Act entitled ``Prospective Payment For Home 
Health Services'' mandated the development of a HH PPS for all 
Medicare-covered HH services that were paid on a reasonable cost basis. 
Section 1895(b)(1) of the Act requires the Secretary to establish a HH 
PPS for all costs of HH services paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires the following: (1) The 
computation of a standard prospective payment amount that includes all 
costs for HH services that would have been covered and paid for on a 
reasonable cost basis had the HH PPS not been in effect and that such 
amounts be initially based on the most recent audited cost report data 
available to the Secretary; and (2) adjustment of the standardized 
prospective payment amount to account for the effects of case-mix and 
wage levels among HHAs.
    Section 1895(b)(3)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the HH applicable percentage 
increase. Section 1895(b)(4) of the Act governs the payment 
computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act 
require the standard prospective payment amount to be adjusted for 
case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of an appropriate 
case-mix change adjustment factor for significant variation in costs 
among different units of services.
    Similarly, section 1895(b)(4)(C) of the Act requires the 
establishment of wage adjustment factors that reflect the relative 
level of wages, and wage-related costs applicable to HH services 
furnished in a geographic area compared to the applicable national 
average level. Under section 1895(b)(4)(C) of the Act, the wage-
adjustment factors used by the Secretary may be the factors used under 
section 1886(d)(3)(E) of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make additions or adjustments to the payment amount otherwise paid in 
the case of outliers due to unusual variations in the type or amount of 
medically necessary care. Section 3131(b)(2) of the Affordable Care 
Act, amended section 1895(b)(5) of the Act, so that if the Secretary 
provides for an outlier policy, total outlier payments in a given year 
would not exceed 2.5 percent of total payments projected or estimated 
and that the standard prospective payment (or amounts) are reduced by 5 
percent. The provision also made permanent a 10 percent agency-level 
outlier payment cap.
    In accordance with the statute, we published a final rule in the 
July 3, 2000 Federal Register (65 FR 41128) to implement the HH PPS. 
The July 2000 final rule established requirements for the new HH PPS 
for HH services as required by section 4603 of the BBA, as subsequently 
amended by section 5101 of the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act (OCESAA) for Fiscal Year 1999, (Pub. L. 
105-277, enacted October 21, 1998); and by sections 302, 305, and 306 
of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement

[[Page 72259]]

Act (BBRA) of 1999, (Pub. L. 106-113, enacted November 29, 1999). The 
requirements include the implementation of a HH PPS for HH covered 
services, consolidated billing requirements, and a number of other 
related policies. The HH PPS described in that rule replaced the 
retrospective reasonable cost-based system that was used by Medicare 
for the payment of HH services under Part A and Part B. For a complete 
and full description of the HH PPS as required by the BBA, see the July 
2000 HH PPS final rule (65 FR 41128 through 41214).
    Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 
109-171, enacted February 8, 2006) added a new section 1895(b)(3)(B)(v) 
to the Act, requiring HHAs to submit data for purposes of measuring 
health care quality, and links the quality data submission to the 
annual applicable percentage increase. This data submission requirement 
is applicable for CY 2007 and each subsequent year. If an HHA does not 
submit quality data, the HH payment update percentage increase is 
reduced by 2 percentage points. In the CY 2007 HH PPS final rule (71 FR 
65884, 65935), we implemented the pay-for-reporting requirement of the 
DRA, which was codified at Sec.  484.225(h) and (i). The HH quality 
reporting requirement was implemented on January 1, 2007.
    The Affordable Care Act made additional changes to the HH PPS. 
Section 3131(c) of the Affordable Care Act amended section 421(a) of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA) (Pub. L. 108-173, enacted on December 8, 2003) as amended by 
section 5201(b) of the DRA. The amended section 421(a) of the MMA now 
requires, for HH services furnished in a rural area (as defined in 
section 1886(d)(2)(D) of the Act) for episodes and visits ending on or 
after April 1, 2010, and before January 1, 2016, that the Secretary 
increase, by 3 percent, the payment amount otherwise made under section 
1895 of the Act.
    Section 3131(a) of the Affordable Care Act mandates that, starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment amount and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act mandates that 
this rebasing adjustment must be phased-in over a 4-year period in 
equal increments, not to exceed 3.5 percent of the payment amount (or 
amounts) as of the date of enactment (March 23, 2010) under section 
1895(b)(3)(A)(i)(III) of the Act, and be fully implemented in CY 2017.

B. System for Payment of Home Health Services

    Generally, Medicare makes payment under the HH PPS on the basis of 
a national, standardized 60-day episode payment rate that is adjusted 
for the applicable case-mix and wage index. The national, standardized 
60-day episode rate includes the six HH disciplines (skilled nursing, 
HH aide, physical therapy (PT), speech-language pathology (SLP), 
occupational therapy (OT), and medical social services (MSS)). Payment 
for non-routine medical supplies is no longer part of the national, 
standardized 60-day episode rate and is computed by multiplying the 
relative weight for a particular non-routine supply (NRS) severity 
level by the NRS conversion factor (See section IV.D.4.e. of this final 
rule). Payment for durable medical equipment (DME) covered under the HH 
benefit is made outside the HH PPS. To adjust for case-mix, the HH PPS 
uses a 153-category case-mix classification system to assign patients 
to a home health resource group (HHRG). The clinical severity level, 
functional severity level, and service utilization are computed from 
responses to selected data elements in the OASIS assessment instrument 
and are used to place the patient in a particular HHRG. Each HHRG has 
an associated case-mix weight, which is used in calculating the payment 
for an episode. Specifically, the 60-day episode base rate is 
multiplied by the case-mix weight when determining the payment for an 
episode.
    For episodes with four or fewer visits, Medicare pays national per-
visit rates based on the discipline(s) providing the services. An 
episode consisting of four or fewer visits within a 60-day period 
receives what is referred to as a low-utilization payment adjustment 
(LUPA) episode. Medicare also adjusts the national, standardized 60-day 
episode payment rate for certain intervening events that are subject to 
a partial episode payment adjustment (PEP adjustment). For certain 
cases that exceed a specific cost threshold, an outlier adjustment may 
also be available.

C. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in the Federal Register. 
The August 29, 2007 final rule with comment period set forth an update 
to the 60-day national episode rates and the national per-visit rates 
under the HH PPS for CY 2008. The CY 2008 HH PPS final rule included an 
analysis performed on CY 2005 HH claims data, which indicated a 12.78 
percent increase in the observed case-mix since 2000. Case-mix 
represents the variations in conditions of the patient population 
served by the HHAs. Subsequently, a more detailed analysis was 
performed on the 2005 case-mix data to evaluate if any portion of the 
12.78 percent increase was associated with a change in the actual 
clinical condition of HH patients. We examined data on demographics, 
family severity, and non-HH Part A Medicare expenditures to predict the 
average case-mix weight for 2005. We identified 8.03 percent of the 
total case-mix change as real, and therefore, decreased the 12.78 
percent of total case-mix change by 8.03 percent to get a final nominal 
case-mix increase measure of 11.75 percent (0.1278 * (1--0.0803) = 
0.1175).
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, we implemented a reduction, 
over 4 years, to the national, standardized 60-day episode payment 
rates. That reduction was to be 2.75 percent per year for 3 years 
beginning in CY 2008 and 2.71 percent for the fourth year in CY 2011. 
In the CY 2011 HH PPS final rule (76 FR 68532), we updated our analyses 
of case-mix change and finalized a reduction of 3.79 percent, instead 
of 2.71 percent, for CY 2011 and deferred finalizing a payment 
reduction for CY 2012 until further study of the case-mix change data 
and methodology was completed.
    In the CY 2012 HH PPS final rule (76 FR 68526), we updated the 60-
day national episode rates and the national per-visit rates. In 
addition, as discussed in the CY 2012 HH PPS final rule (76 FR 68528), 
our analysis indicated that there was a 22.59 percent increase in 
overall case-mix from 2000 to 2009 and that only 15.76 percent of that 
overall observed case-mix percentage increase was due to real case-mix 
change. As a result of our analysis, we identified a 19.03 percent 
nominal increase in case-mix. To fully account for the 19.03 percent 
nominal case-mix growth, which was identified from 2000 to 2009, we 
finalized a 3.79 percent payment reduction in CY 2012 and a 1.32 
percent payment reduction for CY 2013.
    In the CY 2013 HH PPS final rule (77 FR 67078), we implemented a 
1.32

[[Page 72260]]

percent reduction to the payment rates for CY 2013 to account for 
nominal case-mix growth from 2000 through 2010. When taking into 
account the total measure of case-mix change (23.90 percent) and the 
15.97 percent of total case-mix change estimated as real from 2000 to 
2010, we obtained a final nominal case-mix change measure of 20.08 
percent from 2000 to 2010 (0.2390 * (1--0.1597) = 0.2008). To fully 
account for the remainder of the 20.08 percent increase in nominal 
case-mix beyond that which was accounted for in previous payment 
reductions, we estimated that the percentage reduction to the national, 
standardized 60-day episode rates for nominal case-mix change would be 
2.18 percent. We considered proposing a 2.18 percent reduction to 
account for the remaining increase in measured nominal case-mix; 
however, we moved forward with the 1.32 percent payment reduction to 
the national, standardized 60-day episode rates in the CY 2012 HH PPS 
final rule (76 FR 68532).

III. Summary of the Provisions of the Proposed Rule

    The CY 2014 HH PPS proposed rule (78 FR 40272) included the 
following proposals and updates:

A. ICD-9-CM Grouper Refinements, Effective January 1, 2014

     We proposed to remove 170 ICD-9-CM diagnosis codes from 
assignment to one of our diagnosis groups within the HH PPS Grouper, 
effective January 1, 2014.

B. International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) Conversion and Diagnosis Reporting on Home 
Health Claims

     We notified the home health industry that on October 1, 
2014, we are implementing the use of ICD-10-CM codes within our HH PPS 
Grouper. We provided the industry with a link to the CMS Web site that 
contains the draft HH PPS Grouper ICD-10-CM translation list along with 
a proposed schedule for releasing the draft and final ICD-10-CM HH PPS 
Groupers.
     We notified HHAs that to ensure additional compliance with 
ICD-10-CM Coding Guidelines, we will be adopting additional claims 
processing edits for all HH claims effective October 1, 2014. The HH 
claims containing inappropriate principal or secondary diagnosis codes 
will be returned to the provider and will have to be corrected and 
resubmitted to be processed and paid.

C. Adjustment to the HH PPS Case-Mix Weights

     We analyzed preliminary 2012 claims data, which showed an 
average case-mix weight for 2012 of 1.3517. We proposed to reduce the 
average case-mix weight for 2014 from 1.3517 to 1.0000. We proposed 
that the decrease in the weights from 1.3517 to 1.0000 would be added 
back into the national, standardized 60-day episode payment amount and 
serve as the starting point for the rebasing adjustment calculation.

D. Rebasing the National, Standardized 60-day Episode Payment Rate, 
LUPA Per-Visit Payment Amounts, and Nonroutine Medical Supply (NRS) 
Conversion Factor

1. Rebasing the National, Standardized 60-Day Episode Payment Amount
    In the proposed rule, we estimated that the 2013 average cost per 
episode was $2,559.59. The 2013 estimated average payment per episode 
was $2,963.65. When comparing the 2013 costs to 2013 payments, we 
obtained a difference of -13.63 percent, or a reduction of 3.60 percent 
over four years in equal increments using a compound annual growth rate 
(CAGR) formula (($2,559.59/$2,963.65) 1/4 -1). Since the 
Affordable Care Act states that the adjustment(s) may be no more than 
3.5 percent in a given year, we proposed a reduction to the national, 
standardized 60-day episode rate of 3.50 percent in each year from CY 
2014 through CY 2017.
2. Rebasing the Low-Utilization Payment Adjustment (LUPA) Per-Visit 
Payment Amounts
    In the proposed rule, when comparing 2013 estimated average costs 
per-visit to 2013 payments per-visit for each of six disciplines, we 
obtained differences ranging from +19.48 percent for skilled nursing up 
to +33.11 percent for physical therapy. If the increases were phased-in 
over four years in equal increments using a CAGR formula, the annual 
increases would range from +4.55 percent for skilled nursing to +7.41 
percent for physical therapy. Since the Affordable Care Act states that 
the adjustment(s) may be no more than 3.5 percent in a given year, we 
proposed an increase to each of the six per-visit payment rates of 3.50 
percent in each year from CY 2014 through CY 2017.
3. Rebasing the Nonroutine Medical Supply (NRS) Conversion Factor
    In the proposed rule, when comparing the 2013 estimated average NRS 
payment per episode of $48.38 to the 2013 estimated average NRS cost 
per episode of $43.58; we obtained a difference of -9.92 percent 
(($43.58-$48.38)/$48.38). Phasing-in the 9.92 percent reduction over 4 
years in equal increments using a CAGR formula would result in an 
annual reduction of 2.58 percent. Therefore, we proposed to reduce 
payments each year, from CY 2014 through CY 2017, by 2.58 percent.

E. CY 2014 Home Health Payment Rate Update

    We proposed to continue to use OASIS data, claims data, and patient 
experience of care data as forms of quality data to meet the reporting 
requirement that HHAs submit data appropriate for the measurement of 
home health care quality for CY 2014 and each subsequent year 
thereafter until further notice. We proposed that the measures reported 
on Home Health Compare continue to meet the requirement to make data 
available to the public until further notice; we proposed to add two 
new claims-based measures: (1) Re-hospitalization During the First 30 
Days of a Home Health Stay, and (2) Home Health Emergency Department 
Use Without Readmission; and to reduce the number of home health 
quality measures currently reported to HHAs individually. We stated 
that we plan to include information regarding the requirements of the 
HH Conditions of Participation (CoPs) related to submission of OASIS 
assessments and the necessity of submitting both start of episode and 
end of episode assessments in order to calculate quality measures. We 
did not propose changes to HH CAHPS and we stated that we plan to 
continue this requirement and data collection activities.
    In the proposed rule, we stated that we would update the HH PPS 
payment rates by the HH PPS payment update percentage of 2.4 percent 
and we proposed, consistent with long-standing policy, to update the 
home health wage index using the pre-floor, pre-reclassified hospital 
wage index for 2014. We also proposed to offset the overall impact from 
the use of the updated wage index on the national, standardized 60-day 
episode payment rate and the national per-visit rates using a 
standardization factor. Finally, we proposed to create three LUPA add-
on factors, rather than a single LUPA add-on amount.

F. Outlier Policy

    We did not propose changes to our outlier policy.

[[Page 72261]]

G. Payment Reform: Home Health Study and Report

    Section 3131(d) of the Affordable Care Act requires the Secretary 
to assess costs associated with providing access to care for patients 
with high severity of illness, low income patients, and/or patients in 
medically underserved areas. It also gives the Secretary the authority 
to analyze other factors in the HH PPS and allows for demonstration 
authority to test the PPS changes. Finally, it requires the Secretary 
to make recommendations for legislation or administrative action, if 
needed, in a Report to Congress due no later than March 1, 2014. We 
provided an update on the status of the Report to Congress in the 
proposed rule.

H. Cost Allocation of Survey Expenses

    We proposed that Medicaid responsibilities for home health surveys 
be explicitly recognized in the state Medicaid program and that CMS 
will review each state's allocation of costs for HHA surveys for 
adherence to OMB Circular A-87 principles in 2014, with the goal of 
ensuring full adherence no later than July 2014. For that portion of 
costs attributable to Medicare and Medicaid, CMS will assign 50 percent 
to Medicare and 50 percent to Medicaid. This is the standard method 
that CMS and states use in the allocation of expenses related to 
surveys of nursing homes.

IV. Provisions of the Proposed Rule and Response to Comments

    We received approximately 84 timely responses, many of which 
contained multiple comments on the CY 2014 HH PPS proposed rule (78 FR 
40272) from the public. We received comments from various trade 
associations, HHAs, individual registered nurses, physicians, 
clinicians, health care industry organizations, and health care 
consulting firms. The following sections, arranged by subject area, 
include a summary of the public comments received, and out responses.

A. ICD-9-CM Grouper Refinements, Effective January 1, 2014

    As stated in the CY 2014 HH PPS proposed rule, CMS clinical staff 
(along with clinical and coding staff from Abt Associates (our support 
contractor) and 3M (our HH PPS Grouper maintenance contractor), 
completed a thorough review of the ICD-9-CM codes included in our HH 
PPS Grouper. The HH PPS Grouper, which is used by the CMS OASIS 
submission system, is the official grouping software of the HH PPS. As 
a result of that review, we identified two categories of codes, made up 
of 170 ICD-9-CM diagnosis codes, which we proposed to remove from 
assignment to one of our diagnosis groups within the HH PPS Grouper, 
effective January 1, 2014. The first category (Category 1 in Table 2) 
included ICD-9-CM codes that, based upon clinical judgment, were ``too 
acute'', meaning that this condition could not be appropriately cared 
for in a HH setting. These codes likely reflect conditions the patient 
had prior to the HH admission (for example, while being treated in a 
hospital setting). It is anticipated that the condition progressed to a 
less acute state, or is completely resolved for the patient to be cared 
for in the home setting (and that often times another diagnosis code 
will have been a more accurate reflection of the patient's condition in 
the home). The second category (Category 2 in Table 2) included codes 
that, based upon clinical judgment, reflect a condition that does not 
require HH intervention, would not impact the HH plan of care (POC), or 
would not result in additional resource use when providing HH services 
to the patient. Table 2 includes all 170 ICD-9-CM diagnosis codes that 
we proposed to remove from assignment to one of our diagnosis groups 
within the HH PPS Grouper, effective January 1, 2014, along with the 
category classification.

 Table 2--ICD-9-CM Codes Removed From Diagnosis Group Assignment in the
                  HH PPS Grouper as of January 1, 2014
------------------------------------------------------------------------
                                      ICD-9-CM Long
         ICD-9-CM Code                 Description           Category
------------------------------------------------------------------------
003.1..........................  Salmonella septicemia..               1
250.20.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, not stated as
                                  uncontrolled.
250.21.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  I [juvenile type], not
                                  stated as uncontrolled.
250.22.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, uncontrolled.
250.23.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  I [juvenile type],
                                  uncontrolled.
250.30.........................  Diabetes with other                   1
                                  coma, type II or
                                  unspecified type, not
                                  stated as uncontrolled.
250.31.........................  Diabetes with other                   1
                                  coma, type I [juvenile
                                  type], not stated as
                                  uncontrolled.
250.32.........................  Diabetes with other                   1
                                  coma, type II or
                                  unspecified type,
                                  uncontrolled.
250.33.........................  Diabetes with other                   1
                                  coma, type I [juvenile
                                  type], uncontrolled.
282.42.........................  Sickle-cell thalassemia               1
                                  with crisis.
282.5..........................  Sickle-cell trait......               2
282.62.........................  Hb-SS disease with                    1
                                  crisis.
282.64.........................  Sickle-cell/Hb-C                      1
                                  disease with crisis.
282.69.........................  Other sickle-cell                     1
                                  disease with crisis.
285.1..........................  Acute posthemorrhagic                 1
                                  anemia.
289.52.........................  Splenic sequestration..               1
333.81.........................  Blepharospasm..........               2
333.84.........................  Organic writers' cramp.               2
333.93.........................  Benign shuddering                     2
                                  attacks.
333.94.........................  Restless legs syndrome.               2
348.5..........................  Cerebral edema.........               1
401.0..........................  Malignant essential                   1
                                  hypertension.
414.12.........................  Dissection of coronary                1
                                  artery.
447.2..........................  Rupture of artery......               1
493.21.........................  Chronic obstructive                   1
                                  asthma with status
                                  asthmaticus.
530.21.........................  Ulcer of esophagus with               1
                                  bleeding.
530.4..........................  Perforation of                        1
                                  esophagus.
530.7..........................  Gastroesophageal                      1
                                  laceration-hemorrhage
                                  syndrome.
530.81.........................  Esophageal reflux......               2
530.82.........................  Esophageal hemorrhage..               1
531.00.........................  Acute gastric ulcer                   1
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
531.01.........................  Acute gastric ulcer                   1
                                  with hemorrhage, with
                                  obstruction.

[[Page 72262]]

 
531.10.........................  Acute gastric ulcer                   1
                                  with perforation,
                                  without mention of
                                  obstruction.
531.11.........................  Acute gastric ulcer                   1
                                  with perforation, with
                                  obstruction.
531.20.........................  Acute gastric ulcer                   1
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.21.........................  Acute gastric ulcer                   1
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
531.31.........................  Acute gastric ulcer                   1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.40.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
531.41.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage, with
                                  obstruction.
531.50.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  perforation, without
                                  mention of obstruction.
531.51.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  perforation, with
                                  obstruction.
531.60.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.61.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
531.71.........................  Chronic gastric ulcer                 1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.91.........................  Gastric ulcer,                        1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
532.00.........................  Acute duodenal ulcer                  1
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
532.01.........................  Acute duodenal ulcer                  1
                                  with hemorrhage, with
                                  obstruction.
532.10.........................  Acute duodenal ulcer                  1
                                  with perforation,
                                  without mention of
                                  obstruction.
532.11.........................  Acute duodenal ulcer                  1
                                  with perforation, with
                                  obstruction.
532.20.........................  Acute duodenal ulcer                  1
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.21.........................  Acute duodenal ulcer                  1
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
532.31.........................  Acute duodenal ulcer                  1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.40.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
532.41.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage, with
                                  obstruction.
532.50.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  perforation, without
                                  mention of obstruction.
532.51.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  perforation, with
                                  obstruction.
532.60.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.61.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
532.71.........................  Chronic duodenal ulcer                1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.91.........................  Duodenal ulcer,                       1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
533.00.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.01.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.10.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.
533.11.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.20.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
533.21.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.31.........................  Acute peptic ulcer of                 1
                                  unspecified site
                                  without mention of
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.40.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.41.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.50.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.
533.51.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.60.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
533.61.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.71.........................  Chronic peptic ulcer of               1
                                  unspecified site
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
533.91.........................  Peptic ulcer of                       1
                                  unspecified site,
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
534.00.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage,
                                  without mention of
                                  obstruction.
534.01.........................  Acute gastrojejunal                   1
                                  ulcer, with
                                  hemorrhage, with
                                  obstruction.
534.10.........................  Acute gastrojejunal                   1
                                  ulcer with
                                  perforation, without
                                  mention of obstruction.
534.11.........................  Acute gastrojejunal                   1
                                  ulcer with
                                  perforation, with
                                  obstruction.
534.20.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage
                                  and perforation,
                                  without mention of
                                  obstruction.
534.21.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage
                                  and perforation, with
                                  obstruction.
534.31.........................  Acute gastrojejunal                   1
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.40.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
534.41.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer,
                                  with hemorrhage, with
                                  obstruction.
534.50.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with perforation,
                                  without mention of
                                  obstruction.
534.51.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with perforation, with
                                  obstruction.
534.60.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
534.61.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
534.71.........................  Chronic gastrojejunal                 1
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.91.........................  Gastrojejunal ulcer,                  1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.

[[Page 72263]]

 
535.01.........................  Acute gastritis, with                 1
                                  hemorrhage.
535.11.........................  Atrophic gastritis,                   1
                                  with hemorrhage.
535.21.........................  Gastric mucosal                       1
                                  hypertrophy, with
                                  hemorrhage.
535.31.........................  Alcoholic gastritis,                  1
                                  with hemorrhage.
535.41.........................  Other specified                       1
                                  gastritis, with
                                  hemorrhage.
535.51.........................  Unspecified gastritis                 1
                                  and gastroduodenitis,
                                  with hemorrhage.
535.61.........................  Duodenitis, with                      1
                                  hemorrhage.
535.71.........................  Eosinophilic gastritis,               1
                                  with hemorrhage.
536.1..........................  Acute dilatation of                   1
                                  stomach.
537.3..........................  Other obstruction of                  1
                                  duodenum.
537.4..........................  Fistula of stomach or                 1
                                  duodenum.
537.6..........................  Hourglass stricture or                1
                                  stenosis of stomach.
537.83.........................  Angiodysplasia of                     1
                                  stomach and duodenum
                                  with hemorrhage.
537.84.........................  Dielulafoy lesion                     1
                                  (hemorrhagic) of
                                  stomach and duodenum.
540.0..........................  Acute appendicitis with               1
                                  generalized
                                  peritonitis.
540.1..........................  Acute appendicitis with               1
                                  peritoneal abscess.
540.9..........................  Acute appendicitis                    1
                                  without mention of
                                  peritonitis.
541............................  Appendicitis,                         1
                                  unqualified.
542............................  Other appendicitis.....               1
543.0..........................  Hyperplasia of appendix               1
                                  (lymphoid).
557.0..........................  Acute vascular                        1
                                  insufficiency of
                                  intestine.
560.0..........................  Intussusception........               1
560.1..........................  Paralytic ileus........               1
560.2..........................  Volvulus...............               1
560.81.........................  Intestinal or                         1
                                  peritoneal adhesions
                                  with obstruction
                                  (postoperative)
                                  (postinfection).
560.89.........................  Other specified                       1
                                  intestinal obstruction.
560.9..........................  Unspecified intestinal                1
                                  obstruction.
562.02.........................  Diverticulosis of small               1
                                  intestine with
                                  hemorrhage.
562.03.........................  Diverticulitis of small               1
                                  intestine with
                                  hemorrhage.
562.12.........................  Diverticulosis of colon               1
                                  with hemorrhage.
562.13.........................  Diverticulitis of colon               1
                                  with hemorrhage.
567.0..........................  Peritonitis in                        1
                                  infectious diseases
                                  classified elsewhere.
567.1..........................  Pneumococcal                          1
                                  peritonitis.
567.21.........................  Peritonitis (acute)                   1
                                  generalized.
567.22.........................  Peritoneal abscess.....               1
567.23.........................  Spontaneous bacterial                 1
                                  peritonitis.
567.29.........................  Other suppurative                     1
                                  peritonitis.
567.31.........................  Psoas muscle abscess...               1
567.38.........................  Other retroperitoneal                 1
                                  abscess.
567.81.........................  Choleperitonitis.......               1
567.82.........................  Sclerosing mesenteritis               1
567.89.........................  Other specified                       1
                                  peritonitis.
567.9..........................  Unspecified peritonitis               1
568.81.........................  Hemoperitoneum                        1
                                  (nontraumatic).
569.3..........................  Hemorrhage of rectum                  1
                                  and anus.
569.43.........................  Anal sphincter tear-old               2
569.83.........................  Perforation of                        1
                                  intestine.
569.85.........................  Angiodysplasia of                     1
                                  intestine with
                                  hemorrhage.
569.86.........................  Dieulafoy lesion                      1
                                  (hemorrhagic) of
                                  intestine.
572.0..........................  Abscess of liver.......               1
572.1..........................  Portal pyemia..........               1
574.00.........................  Calculus of gallbladder               1
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.01.........................  Calculus of gallbladder               1
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.10.........................  Calculus of gallbladder               1
                                  with other
                                  cholecystitis, without
                                  mention of obstruction.
574.11.........................  Calculus of gallbladder               1
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.21.........................  Calculus of gallbladder               1
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.30.........................  Calculus of bile duct                 1
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.31.........................  Calculus of bile duct                 1
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.41.........................  Calculus of bile duct                 1
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.51.........................  Calculus of bile duct                 1
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.60.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute cholecystitis,
                                  without mention of
                                  obstruction.
574.61.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute cholecystitis,
                                  with obstruction.
574.71.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  other cholecystitis,
                                  with obstruction.
574.80.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, without
                                  mention of obstruction.
574.81.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, with
                                  obstruction.
574.91.........................  Calculus of gallbladder               1
                                  and bile duct without
                                  cholecystitis, with
                                  obstruction.
575.0..........................  Acute cholecystitis....               1
575.2..........................  Obstruction of                        1
                                  gallbladder.
575.3..........................  Hydrops of gallbladder.               1
575.4..........................  Perforation of                        1
                                  gallbladder.

[[Page 72264]]

 
576.1..........................  Cholangitis............               1
576.2..........................  Obstruction of bile                   1
                                  duct.
576.3..........................  Perforation of bile                   1
                                  duct.
577.0..........................  Acute pancreatitis.....               1
578.0..........................  Hematemesis............               1
578.9..........................  Hemorrhage of                         1
                                  gastrointestinal
                                  tract, unspecified.
873.63.........................  Broken tooth--uncomplic               2
998.11.........................  Hemorrhage complicating               1
                                  a procedure.
998.12.........................  Hematoma complicating a               1
                                  procedure.
998.2..........................  Accidental puncture or                1
                                  laceration during a
                                  procedure, not
                                  elsewhere classified.
------------------------------------------------------------------------

    Analysis of the most current, complete CY 2012 claims data (a full 
year of CY 2012 claims data versus the preliminary data from the first 
half of CY 2012 used for the CY 2014 HH PPS proposed rule) shows that 
the average case-mix weight before the removal of the codes in Table 2 
was 1.3555. It is estimated that the removal of the 170 codes in Table 
2 results in an average case-mix weight for CY 2012 of 1.3464. As 
described above, clinical judgment is that these codes are ``too 
acute,'' meaning that this condition could not be appropriately cared 
for in a HH setting (Category 1) or would not impact the HH POC or 
result in additional resource use (Category 2). Therefore, the 
inclusion of these diagnosis codes in the Grouper was producing 
inaccurate overpayments.
    The following is a summary of the comments we received regarding 
the proposed ICD-9-CM Grouper Refinements.
    Comment: A few commenters agreed with our assessment that many of 
the conditions that we proposed to remove are too acute to be treated 
in a home health setting (category 1 codes from Table 2).
    Response: We thank the commenters for their support in our efforts 
to remove conditions that are ``too acute'' to be treated the HH 
setting from assignment to one of our diagnosis groups within the HH 
PPS Grouper.
    Comment: There were several commenters who believed that the 
removal of the category 1 ICD-9-CM codes (``too acute'') from our 
diagnosis groups would limit the scope of physician/medical practice in 
the home. Other commenters stated that removal of category 1 codes from 
assignment to one of our diagnosis groups could lead to increased 
hospital length of stay and could limit access to home health care, 
especially for patients living in rural areas. Other commenters 
believed that removal of category 1 diagnoses would mean a reduction of 
the accuracy of the information reported for payment and that 
physicians would be compelled to change the diagnosis codes upon 
hospital discharge for the post-acute management of the patient.
    Response: We recognize the valuable services being provided to 
Medicare beneficiaries in the home health environment and understand 
the goal of home health services is to help reduce hospitalizations, 
empower patients to be active participants in their health care, and to 
practice patient-centered care. The intent of the removal of category 1 
diagnosis codes from assignment to one of our diagnosis groups within 
the HH PPS Grouper is neither to limit access to home health care nor 
to limit the practice of appropriate health care in the home.
    We proposed to remove category 1 ICD-9-CM diagnosis codes from our 
diagnosis groups to ensure greater compliance with ICD-9-CM Coding 
Guidelines and to assure home health providers are accurately 
describing the patient characteristics that impact the home health plan 
of care. Per the ICD-9-CM Coding Guidelines, ``list first the ICD-9-CM 
code for the diagnosis, condition, problem, or other reason for the 
encounter/visit shown in the medical record to be chiefly responsible 
for the services provided.'' For home health services, the diagnosis 
coding should reflect the reason the patient requires home health 
services and interventions.
    In the CY 2014 HH PPS proposed rule, the category 1 codes proposed 
to be removed from assignment to one of our diagnosis groups within the 
HH PPS Grouper are not conditions that would be treated in an 
individual's home. For example, ICD-9-CM code, 447.2, Rupture of 
Artery, would be an emergency situation and treatment for such a 
condition could not be safely treated in the home environment. One 
commenter provided the following scenario: ``your average COPDer has 
chronic obstructive asthma, they catch an infection and go into status 
asthmaticus and go to the hospital for treatment. After a couple of 
days, they are sent home with a home care referral. Wouldn't the 
diagnosis be 493.21 (chronic obstructive asthma with status 
asthmaticus)?'' We agree that the staticus asthmaticus is a condition a 
hospital would treat during the hospital stay because it refers to a 
patient's failure to respond to therapy administered during an 
asthmatic episode and is a life threatening complication that requires 
emergency care. However, once the patient is discharged from the 
hospital, the staticus asthmaticus is no longer active and the patient 
could be safely discharged back into the community. Clinically, a 
patient with active staticus asthmaticus could not be safely treated in 
the home environment, as is the case with all of the category 1 
conditions. However, this is not to say that patients who have had 
these conditions, were treated for the acute presentation, exacerbation 
or complication, and have been discharged with a home health referral, 
are not eligible for home health services. In referring to the 
commenter's clinical scenario above, an appropriate diagnostic code for 
a home care intervention could be reported as: COPD (496.0) or chronic 
obstructive asthma (493.2). In fact, patients who have had these 
conditions and have been treated in the inpatient or outpatient setting 
may benefit from home health services in treating the sequelae or 
aftercare that is needed for these conditions.
    It is our expectation that home health agencies, who receive 
referrals for patients who have been treated for these acute 
conditions, will continue to provide the aftercare services required. 
The home health care that is required by these patients is the 
aftercare services and interventions to help reduce any post-acute 
complications and readmissions. Home health providers are in the ideal 
position to help in the recovery of the individuals who have

[[Page 72265]]

suffered from these acute conditions. Therefore, we do not expect that 
the removal of these proposed ICD-9-CM codes from one of our diagnosis 
groups will limit access to needed home health care services for those 
living in either urban or rural areas. We also do not believe that the 
scope of physician/medical practice in the home environment will be 
limited by this proposal. We believe that a physician, using his or her 
best clinical judgment, would not make a home health care referral for 
the initial treatment of the listed conditions as these conditions 
would usually warrant more intensive interventions at presentation. We 
do believe that a physician would make a home health referral for the 
aftercare treatment that would be required as a result of these 
conditions or as a result of the initial treatment of these conditions. 
Many of the clinical scenarios provided by commenters addressed the 
home health interventions that were being provided for patients who had 
been treated in an inpatient or outpatient setting for these 
conditions. The referral for the home health services and interventions 
were actually for the aftercare services needed for these conditions.
    We do not support physicians changing diagnoses at hospital 
discharge but we do expect that they will continue to use their 
clinical expertise and judgment when making home health care referrals 
to meet the medically necessary aftercare needs of their patients. 
Additionally, it is the responsibility of the home health providers to 
contact, as necessary, any referring physician for clarification of all 
conditions that the prompted the home health referral and the services 
being requested for the post-acute management of these patients.
    Comment: We received a few comments expressing the concern for the 
increased administrative costs associated with the ICD-9-CM coding 
requirements. Other commenters were concerned that the removal of these 
codes would affect Part B claims and believed that denial rates would 
increase as a result. A few commenters believed that the only reason to 
remove these codes from assignment to one of our diagnosis groups 
within the HH PPS Grouper is to further reduce reimbursement.
    Response: We disagree that there are increased administrative costs 
or that this policy would impact Part B claims and result in claims 
denials. The basis for removal of these codes is to encourage 
compliance with ICD-9-CM coding guidelines and ensures that conditions 
that are either too acute to be treated in a home health setting or do 
not represent the resources assigned to a diagnosis group are removed 
to ensure appropriate reimbursement for home health services and not to 
simply reduce reimbursement. We recognize that by removing these ICD-9-
CM codes from assignment to one of our diagnosis groups within the HH 
PPS Grouper some home health providers may have to change coding 
practices. However, compliance with the ICD-9-CM Coding Guidelines has 
been a longstanding policy. In our regulations at 45 CFR 162.1002, the 
Secretary adopted the ICD-9-CM code set, including The Official ICD-9-
CM Guidelines for Coding and Reporting. We believe there are ample, 
available resources in regards to the ICD-9-CM Coding Guidelines to 
support home health providers to determine the appropriate ICD-9-CM 
diagnosis codes for all healthcare documentation requirements. These 
free resources are available at the following links: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redirect=/ICD9ProviderDiagnosticCodes/, http://www.cms.gov/medicare-coverage-database/staticpages/icd-9-code-lookup.aspx, or on 
the CDC's Web site at: http://www.cdc.gov/nchs/data/icd9/icd9cm_guidelines_2011.pdf.
    While physicians use their clinical judgment to determine the 
principal diagnosis (or diagnoses) of their patients, we do not require 
them to determine the actual codes associated with those diagnoses for 
inclusion on the OASIS assessment of home health claims. Our intent in 
removing category 1 conditions is to ensure that all healthcare 
providers, including home health care providers, are following the ICD-
9-CM Coding Guidelines to paint the most accurate picture of their 
patient population, as well as the services they are providing in the 
home health environment. We do not expect that there will be an 
increase in any denial of claims for appropriate, medically necessary, 
home care services.
    Comment: Several commenters stated that there is ``no clinical 
evidence'' to support the removal of some of the 170 diagnosis codes. 
Most notably, some commenters believed that post-hemorrhagic anemia, 
acute pancreatitis, abscess of the liver, and gastrointestinal 
disorders were appropriate diagnoses to treat in the home environment. 
These commenters stated patients with these diagnoses require ongoing 
home care for services such as home infusion of antibiotics and total 
parenteral nutrition, wound care, drain care, lab work, and symptom 
management. Other commenters stated the esophageal reflux and restless 
leg syndrome should remain in the HH PPS Grouper as these two 
conditions require increased nursing interventions for evaluation and 
monitoring, such as nutritional status and side effects from 
medications.
    Response: In the CY 2014 HH PPS proposed rule, we did state that 
the review of these ICD-9-CM diagnosis codes (those under Category 1 on 
Table 2,) included CMS clinical staff (including doctors and nurses) as 
well as with the clinicians and certified coding staff from Abt 
Associates (our support contractor) and 3M (our HH PPS Grouper 
maintenance contractor). This review received input from a variety of 
clinicians to ensure that the proposed removal of any diagnosis codes 
would be done in a thoughtful, clinically responsible manner. 
Additionally, data analysis by Abt Associates reveals that most home 
health providers are appropriately coding the aftercare codes for the 
home care services required for these conditions after they have been 
stabilized from their acute state. The analysis reveals that most of 
the 162 category 1 codes that we proposed to remove from assignment to 
one of our diagnosis groups within the HH PPS Grouper are not commonly 
reported codes on the OASIS assessment (see Table 3). As a result, we 
do not believe that these codes will have a significant impact on the 
current coding patterns of a majority of home health care providers.

Table 3--Total Number of Episodes for Selected ICD-9-CM Diagnosis Codes,
                                 CY 2012
------------------------------------------------------------------------
                                                             Number of
         ICD-9-CM code                ICD-9-CM long        episodes, CY
                                       description             2012
------------------------------------------------------------------------
003.1..........................  Salmonella septicemia..              24
250.20.........................  Diabetes with                     1,056
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, not stated as
                                  uncontrolled.
250.21.........................  Diabetes with                        34
                                  hyperosmolarity, type
                                  I [juvenile type], not
                                  stated as uncontrolled.

[[Page 72266]]

 
250.22.........................  Diabetes with                       466
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, uncontrolled.
250.23.........................  Diabetes with                        29
                                  hyperosmolarity, type
                                  I [juvenile type],
                                  uncontrolled.
250.30.........................  Diabetes with other                 332
                                  coma, type II or
                                  unspecified type, not
                                  stated as uncontrolled.
250.31.........................  Diabetes with other                  65
                                  coma, type I [juvenile
                                  type], not stated as
                                  uncontrolled.
250.32.........................  Diabetes with other                  60
                                  coma, type II or
                                  unspecified type,
                                  uncontrolled.
250.33.........................  Diabetes with other                  13
                                  coma, type I [juvenile
                                  type], uncontrolled.
282.42.........................  Sickle-cell thalassemia              29
                                  with crisis.
282.62.........................  Hb-SS disease with                  382
                                  crisis.
282.64.........................  Sickle-cell/Hb-C                     49
                                  disease with crisis.
282.69.........................  Other sickle-cell                   110
                                  disease with crisis.
285.1..........................  Acute posthemorrhagic            26,547
                                  anemia.
289.52.........................  Splenic sequestration..               9
348.5..........................  Cerebral edema.........             237
401.0..........................  Malignant essential              34,207
                                  hypertension.
414.12.........................  Dissection of coronary               49
                                  artery.
447.2..........................  Rupture of artery......             145
493.21.........................  Chronic obstructive               7,765
                                  asthma with status
                                  asthmaticus.
530.21.........................  Ulcer of esophagus with             442
                                  bleeding.
530.4..........................  Perforation of                      252
                                  esophagus.
530.7..........................  Gastroesophageal                    407
                                  laceration-hemorrhage
                                  syndrome.
530.82.........................  Esophageal hemorrhage..             183
531.00.........................  Acute gastric ulcer               1,334
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
531.01.........................  Acute gastric ulcer                  62
                                  with hemorrhage, with
                                  obstruction.
531.10.........................  Acute gastric ulcer                 249
                                  with perforation,
                                  without mention of
                                  obstruction.
531.11.........................  Acute gastric ulcer                  20
                                  with perforation, with
                                  obstruction.
531.20.........................  Acute gastric ulcer                 109
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.21.........................  Acute gastric ulcer                  25
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
531.31.........................  Acute gastric ulcer                  49
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.40.........................  Chronic or unspecified            1,105
                                  gastric ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
531.41.........................  Chronic or unspecified               24
                                  gastric ulcer with
                                  hemorrhage, with
                                  obstruction.
531.50.........................  Chronic or unspecified              128
                                  gastric ulcer with
                                  perforation, without
                                  mention of obstruction.
531.51.........................  Chronic or unspecified                4
                                  gastric ulcer with
                                  perforation, with
                                  obstruction.
531.61.........................  Chronic or unspecified              119
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
531.60.........................  Chronic or unspecified               13
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.71.........................  Chronic gastric ulcer                41
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.91.........................  Gastric ulcer,                      249
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
532.00.........................  Acute duodenal ulcer                835
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
532.01.........................  Acute duodenal ulcer                 40
                                  with hemorrhage, with
                                  obstruction.
532.10.........................  Acute duodenal ulcer                257
                                  with perforation,
                                  without mention of
                                  obstruction.
532.11.........................  Acute duodenal ulcer                 38
                                  with perforation, with
                                  obstruction.
532.20.........................  Acute duodenal ulcer                 92
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.21.........................  Acute duodenal ulcer                  5
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
532.31.........................  Acute duodenal ulcer                 27
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.40.........................  Chronic or unspecified              562
                                  duodenal ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
532.41.........................  Chronic or unspecified                3
                                  duodenal ulcer with
                                  hemorrhage, with
                                  obstruction.
532.50.........................  Chronic or unspecified              132
                                  duodenal ulcer with
                                  perforation, without
                                  mention of obstruction.
532.51.........................  Chronic or unspecified               12
                                  duodenal ulcer with
                                  perforation, with
                                  obstruction.
532.60.........................  Chronic or unspecified               57
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.61.........................  Chronic or unspecified                7
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
532.71.........................  Chronic duodenal ulcer               15
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.91.........................  Duodenal ulcer,                      73
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
533.00.........................  Acute peptic ulcer of               663
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.01.........................  Acute peptic ulcer of                23
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.10.........................  Acute peptic ulcer of                96
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.
533.11.........................  Acute peptic ulcer of                 4
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.20.........................  Acute peptic ulcer of                65
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
533.21.........................  Acute peptic ulcer of                27
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.31.........................  Acute peptic ulcer of                67
                                  unspecified site
                                  without mention of
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.40.........................  Chronic or unspecified              693
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.41.........................  Chronic or unspecified               17
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.50.........................  Chronic or unspecified              128
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.
533.51.........................  Chronic or unspecified                8
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.60.........................  Chronic or unspecified               53
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.

[[Page 72267]]

 
533.61.........................  Chronic or unspecified                9
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.71.........................  Chronic peptic ulcer of              72
                                  unspecified site
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
533.91.........................  Peptic ulcer of                     266
                                  unspecified site,
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
534.00.........................  Acute gastrojejunal                 116
                                  ulcer with hemorrhage,
                                  without mention of
                                  obstruction.
534.01.........................  Acute gastrojejunal                   7
                                  ulcer, with
                                  hemorrhage, with
                                  obstruction.
534.10.........................  Acute gastrojejunal                  20
                                  ulcer with
                                  perforation, without
                                  mention of obstruction.
534.11.........................  Acute gastrojejunal                   6
                                  ulcer with
                                  perforation, with
                                  obstruction.
534.20.........................  Acute gastrojejunal                  15
                                  ulcer with hemorrhage
                                  and perforation,
                                  without mention of
                                  obstruction.
534.21.........................  Acute gastrojejunal                   2
                                  ulcer with hemorrhage
                                  and perforation, with
                                  obstruction.
534.31.........................  Acute gastrojejunal                   6
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.40.........................  Chronic or unspecified              103
                                  gastrojejunal ulcer
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
534.41.........................  Chronic or unspecified                8
                                  gastrojejunal ulcer,
                                  with hemorrhage, with
                                  obstruction.
534.50.........................  Chronic or unspecified               26
                                  gastrojejunal ulcer
                                  with perforation,
                                  without mention of
                                  obstruction.
534.51.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with perforation, with
                                  obstruction.
534.60.........................  Chronic or unspecified                6
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
534.61.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
534.71.........................  Chronic gastrojejunal                 3
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.91.........................  Gastrojejunal ulcer,                 32
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
535.01.........................  Acute gastritis, with               652
                                  hemorrhage.
535.11.........................  Atrophic gastritis,                 108
                                  with hemorrhage.
535.21.........................  Gastric mucosal                      13
                                  hypertrophy, with
                                  hemorrhage.
535.31.........................  Alcoholic gastritis,                 61
                                  with hemorrhage.
535.41.........................  Other specified                     332
                                  gastritis, with
                                  hemorrhage.
535.51.........................  Unspecified gastritis               659
                                  and gastroduodenitis,
                                  with hemorrhage.
535.61.........................  Duodenitis, with                     91
                                  hemorrhage.
535.71.........................  Eosinophilic gastritis,               3
                                  with hemorrhage.
536.1..........................  Acute dilatation of                  23
                                  stomach.
537.3..........................  Other obstruction of                280
                                  duodenum.
537.4..........................  Fistula of stomach or               343
                                  duodenum.
537.6..........................  Hourglass stricture or               14
                                  stenosis of stomach.
537.83.........................  Angiodysplasia of                   304
                                  stomach and duodenum
                                  with hemorrhage.
537.84.........................  Dielulafoy lesion                    50
                                  (hemorrhagic) of
                                  stomach and duodenum.
540.0..........................  Acute appendicitis with             764
                                  generalized
                                  peritonitis.
540.1..........................  Acute appendicitis with             458
                                  peritoneal abscess.
540.9..........................  Acute appendicitis                  656
                                  without mention of
                                  peritonitis.
541............................  Appendicitis,                       385
                                  unqualified.
542............................  Other appendicitis.....              43
543.0..........................  Hyperplasia of appendix               4
                                  (lymphoid).
557.0..........................  Acute vascular                    1,453
                                  insufficiency of
                                  intestine.
560.0..........................  Intussusception........             145
560.1..........................  Paralytic ileus........           2,050
560.2..........................  Volvulus...............           1,057
560.81.........................  Intestinal or                     1,355
                                  peritoneal adhesions
                                  with obstruction
                                  (postoperative)
                                  (postinfection).
560.89.........................  Other specified                   1,310
                                  intestinal obstruction.
560.9..........................  Unspecified intestinal           12,860
                                  obstruction.
562.02.........................  Diverticulosis of small             230
                                  intestine with
                                  hemorrhage.
562.03.........................  Diverticulitis of small             189
                                  intestine with
                                  hemorrhage.
562.12.........................  Diverticulosis of colon           2,699
                                  with hemorrhage.
562.13.........................  Diverticulitis of colon           2,193
                                  with hemorrhage.
567.0..........................  Peritonitis in                       30
                                  infectious diseases
                                  classified elsewhere.
567.1..........................  Pneumococcal                          8
                                  peritonitis.
567.21.........................  Peritonitis (acute)                 213
                                  generalized.
567.22.........................  Peritoneal abscess.....           2,715
567.23.........................  Spontaneous bacterial               219
                                  peritonitis.
567.29.........................  Other suppurative                   210
                                  peritonitis.
567.31.........................  Psoas muscle abscess...             318
567.38.........................  Other retroperitoneal               230
                                  abscess.
567.81.........................  Choleperitonitis.......              33
567.82.........................  Sclerosing mesenteritis             116
567.89.........................  Other specified                     107
                                  peritonitis.
567.9..........................  Unspecified peritonitis             910
568.81.........................  Hemoperitoneum                      265
                                  (nontraumatic).
569.3..........................  Hemorrhage of rectum              2,161
                                  and anus.
569.83.........................  Perforation of                    2,610
                                  intestine.
569.85.........................  Angiodysplasia of                   196
                                  intestine with
                                  hemorrhage.

[[Page 72268]]

 
569.86.........................  Dieulafoy lesion                     15
                                  (hemorrhagic) of
                                  intestine.
572.0..........................  Abscess of liver.......           1,134
572.1..........................  Portal pyemia..........              25
574.00.........................  Calculus of gallbladder           1,850
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.01.........................  Calculus of gallbladder             435
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.10.........................  Calculus of gallbladder           1,205
                                  with other
                                  cholecystitis, without
                                  mention of obstruction.
574.11.........................  Calculus of gallbladder             184
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.21.........................  Calculus of gallbladder             425
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.30.........................  Calculus of bile duct               308
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.31.........................  Calculus of bile duct               190
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.41.........................  Calculus of bile duct                81
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.51.........................  Calculus of bile duct               371
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.60.........................  Calculus of gallbladder             187
                                  and bile duct with
                                  acute cholecystitis,
                                  without mention of
                                  obstruction.
574.61.........................  Calculus of gallbladder             125
                                  and bile duct with
                                  acute cholecystitis,
                                  with obstruction.
574.71.........................  Calculus of gallbladder              41
                                  and bile duct with
                                  other cholecystitis,
                                  with obstruction.
574.80.........................  Calculus of gallbladder              86
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, without
                                  mention of obstruction.
574.81.........................  Calculus of gallbladder              36
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, with
                                  obstruction.
574.91.........................  Calculus of gallbladder              58
                                  and bile duct without
                                  cholecystitis, with
                                  obstruction.
575.0..........................  Acute cholecystitis....           4,728
575.2..........................  Obstruction of                      131
                                  gallbladder.
575.3..........................  Hydrops of gallbladder.              20
575.4..........................  Perforation of                       90
                                  gallbladder.
576.1..........................  Cholangitis............           1,556
576.2..........................  Obstruction of bile               1,417
                                  duct.
576.3..........................  Perforation of bile                  21
                                  duct.
577.0..........................  Acute pancreatitis.....           8,033
578.0..........................  Hematemesis............             287
578.9..........................  Hemorrhage of                    23,650
                                  gastrointestinal
                                  tract, unspecified.
998.11.........................  Hemorrhage complicating             369
                                  a procedure.
998.12.........................  Hematoma complicating a           2,337
                                  procedure.
998.2..........................  Accidental puncture or              635
                                  laceration during a
                                  procedure, not
                                  elsewhere classified.
------------------------------------------------------------------------
Source: Medicare claims data for episodes ending in CY 2012 (as of June
  30, 2013) for a 100 percent sample of beneficiaries for which we had a
  linked OASIS assessment.

    Furthermore, the National Guideline Clearinghouse, a public 
resource for evidence-based clinical practice guidelines, was also 
consulted to determine the most current standards of practice regarding 
these conditions. The evidence-based practice guidelines further lend 
support that the proposed category 1 diagnosis codes, including those 
mentioned by the commenters, are conditions that typically warrant 
initial acute care interventions either in the inpatient, outpatient or 
emergency department setting. Clinical practice guidelines for a 
variety of conditions can be found at the National Clearinghouse 
Guidelines Web site at the following: http://www.guideline.gov/browse/by-topic-detail.aspx?id=11560&ct=1.
    We are in agreement with the commenters who stated that patients 
with these acute diagnoses require ongoing home care for services such 
as home infusion of antibiotics and total parenteral nutrition, wound 
care, drain care, lab work, and symptom management. These are aftercare 
services that are required by patients who have been diagnosed and 
initially treated for the listed diseases or diagnoses. These aftercare 
services are ideally provided by home health providers and these 
services can be safely administered in the home environment as long as 
Medicare beneficiaries meet home health care eligibility requirements. 
As discussed earlier, there are appropriate ICD-9-CM aftercare codes 
that can be listed on the OASIS assessment to more fully explain the 
home health care interventions being provided. We are stating that 
those codes should be listed on the OASIS assessment form to best 
explain the reasons for the home health encounter. The disease states 
precipitating these services can still be listed on the OASIS 
assessment, but they are not the primary reason for the home health 
interventions. Therefore, these ICD-9-CM diagnosis codes would not be 
part of the HH PPS Grouper as there are other aftercare diagnosis codes 
which are more appropriate to be listed as the reason for home health 
needs per ICD-9-CM Coding Guidelines.
    As for the ICD-9-CM diagnosis codes mentioned by the commenters, 
``esophageal reflux'' and ``restless leg syndrome'', that are 
classified as Category 2 in Table 2 (meaning these codes that would not 
require HH intervention, would not impact the HH plan of care, or would 
not result in additional resource use when providing HH services to the 
patient), these two codes listed as the primary diagnosis alone do not 
necessarily warrant home health interventions. The fact that an 
individual has been diagnosed with either of these chronic conditions 
does not provide sufficient cause for an increase in home health 
resource use. They can be listed on the OASIS assessment to more fully 
describe the home health patient, but the expectation is that a stable, 
chronic condition would not be listed as the primary reason for the 
home health referral or the need for home health interventions. 
However, for acute exacerbations or complications from these two 
conditions, there are other ICD-9-CM diagnosis codes within the HH PPS 
Grouper that more specifically identify the need for home health 
services and the interventions that would be required for their 
management. We are stating that providers should first list those

[[Page 72269]]

appropriate ICD-9-CM diagnosis codes if they are the primary reason for 
home health services, have an impact on the home health plan of care or 
would result in additional home health resources.
    Comment: Some commenters made the recommendation that CMS should 
form a workgroup with other home health stakeholders to further 
determine whether these ICD-9-CM diagnosis codes should be removed from 
the HH PPS Grouper. A few commenters believed that we should delay 
removing these diagnosis codes until the implementation of ICD-10-CM on 
October 1, 2014. Several commenters acknowledged that most of these 
codes are inappropriate for use in the home health setting because of 
the high acuity level associated with the initial treatment of these 
conditions.
    Response: We believe that sufficient analysis and discussion has 
been conducted regarding the removal of these 170 ICD-9-CM diagnosis 
codes. In the CY 2014 HH PPS proposed rule, we noted that the review of 
these ICD-9-CM diagnosis codes included CMS clinical staff (including 
doctors and nurses) as well as with the clinicians and certified coding 
staff from Abt Associates (our support contractor) and 3M (our HH PPS 
Grouper maintenance contractor). This review received input from a 
variety of clinicians to ensure that the proposed removal of any 
diagnosis codes would be done in a thoughtful, clinically responsible 
manner. We do not believe that delaying the effective date of this 
proposal to correspond to the implementation of ICD-10-CM is necessary 
because these codes are infrequently used diagnosis codes on the OASIS 
assessment and only a small number of home health providers will be 
impacted by their removal from the HH PPS Grouper.
    Comment: A few commenters believed that removal of these 170 ICD-9-
CM diagnosis codes would have a detrimental impact on Accountable Care 
Organization (ACO) and Independence at Home (IAH) demonstration 
programs.
    Response: We disagree that the removal of these diagnosis codes 
would have a detrimental impact on current demonstration programs. For 
participation in IAH demonstration programs eligibility requirements 
are as stated: ``Eligibility criteria are designed to target the most 
costly beneficiaries with advanced chronic illnesses and substantial 
disabilities. Beneficiaries must be entitled to Part A and enrolled in 
Part B, not enrolled in a Medicare Advantage plan or a Program for All-
Inclusive Care for the Elderly, and cannot be enrolled in a practice 
that is part of the Medicare Shared Savings Program or other shared 
savings demonstrations. Applicable beneficiaries are defined as 
Medicare FFS patients who have at least two chronic illnesses, such as 
congestive heart failure, diabetes, chronic obstructive pulmonary 
disease, ischemic heart disease, stroke, dementias such as Alzheimer's 
disease, neurodegenerative diseases, and other diseases and conditions 
designated by the Secretary that result in high costs. Rather than 
specifying a list of chronic conditions, CMS, for purposes of this 
demonstration, is defining chronic disease or condition to mean a 
disease or medical condition that is expected to last for more than 1 
year, limits what a person can do, and requires ongoing medical 
monitoring. Beneficiaries must also need human assistance with two or 
more activities of daily living (ADLs), have had a non-elective 
hospital admission within the last 12 months, and have used acute or 
sub-acute rehabilitation services within the last 12 months. Although 
practices will report chronic conditions and ADL limitations, chronic 
conditions and ADLs are subject to medical record audit.\1\'' The goal 
of ACOs is to provide coordinated care across various health care 
providers and care transitions. With this type of care model, the 
expectation is collaborative, coordinated care will result in high 
quality, cost-effective care. We expect that with each care transition, 
the appropriate ICD-9-CM codes, per ICD-9-CM Coding Guidelines, would 
be listed on comprehensive assessment and claims forms. Hospital at 
home programs typically focus on chronic conditions that typically have 
exacerbation risks such as congestive heart failure, chronic 
obstructive pulmonary disease and cellulitis. As such, removal of the 
ICD-9-CM diagnosis codes from assignment to one of our diagnosis groups 
within the HH PPS Grouper should not have an impact on programs such as 
ACO and IAH demonstrations.
---------------------------------------------------------------------------

    \1\ https://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/Downloads/IAH_Solicitation.pdf
---------------------------------------------------------------------------

    Comment: A few commenters stated that the removal of these 170 
diagnosis codes from assignment to one of our diagnosis groups within 
the HH PPS Grouper goes against the technological advancements of 
telemedicine and telehealth. Other commenters believed that this change 
could create a potential professional liability risk issue.
    Response: We do not believe the removal of these seldom used 
diagnosis codes from assignment to one of our diagnosis groups within 
the HH PPS Grouper would impede any advances in technology or 
innovations in the delivery of care. Home health delivers care to those 
Medicare beneficiaries who are homebound but require ongoing health 
care services. We believe that the primary method for this care in the 
home health environment is hands-on care, meaning healthcare providers 
come to the individual's home to provide the care and services needed 
based on the comprehensive assessment and home health plan of care in 
collaboration with the patient and the referring physician. Telehealth 
and telemedicine should be considered an adjunct to, not a replacement 
of, the variety of comprehensive home health care services available 
for eligible Medicare beneficiaries. We do encourage all healthcare 
providers, across all healthcare settings to be innovative in their 
delivery of services and to incorporate models of care to fully utilize 
technology to best meet the needs of their patient populations. Section 
1895(e) of the Act governs the HH PPS and provides that telehealth 
services are outside the scope of the Medicare home health benefit and 
HH PPS. The law does not permit the substitution or use of a 
telecommunications system to provide any covered home health services 
paid under the home health PPS, or any covered home health service paid 
outside of the HH PPS. As stated in our regulations at Sec.  409.48(c), 
a visit is an episode of personal contact with the beneficiary by staff 
of the home health agency (HHA), or others under arrangements with the 
HHA for the purposes of providing a covered service. The provision 
clarifies that there is nothing to preclude an HHA from adopting 
telemedicine or other technologies that they believe promote 
efficiencies, but that those technologies will not be specifically 
recognized or reimbursed by Medicare under the home health benefit.
    In addition, we do not believe that by removing the proposed ICD-9-
CM diagnosis codes from assignment to one of our diagnosis groups 
within the HH PPS Grouper that there will be any increased liability 
risks on providers. We do believe that referring physicians will 
continue to use their best clinical judgment to diagnose, to make 
treatment recommendations, and to determine the appropriate services 
and resources needed for the delivery of quality, safe care for their 
patients. Collaboration and communication between referring physicians 
and home health providers are two factors to help minimize risk

[[Page 72270]]

when caring for Medicare beneficiaries who are receiving home health 
services.
    Comment: A couple of commenters stated that our removal of the 170 
codes from assignment to one of our diagnosis groups within the HH PPS 
Grouper serves only to reduce overall payments by 0.5 percent, reducing 
overall payments by $100 million in 2014 alone.
    Response: As outlined in the CY 2014 HH PPS proposed rule, the 
removal of the 170 codes encourages compliance with ICD-9-CM coding 
guidelines and ensures that conditions that are either too acute to be 
treated in a home health setting or do not represent the resources 
assigned to a diagnosis group are removed from assignment to one of our 
diagnosis groups within the HH PPS Grouper. We contend that the removal 
of these codes is appropriate, either because these conditions cannot 
be appropriately treated in a home health setting, or because these 
conditions do not impact the home health plan of care and result in 
overpayments to HHAs.
    Comment: A few commenters stated that the removal of these 
diagnosis codes may impact the accuracy of the HH PPS case-mix model.
    Response: We proposed to remove the 170 codes from assignment to 
one of our diagnosis groups within the HH PPS Grouper because we 
concluded that the codes were not reflecting actual conditions being 
treated or that the condition had no impact on resource use. We note 
that the HH PPS case-mix model was originally designed with general 
code categories. Since the basis for proposing to remove the 170 
diagnosis codes from assignment to one of our diagnosis groups within 
the HH PPS Grouper was that either (a) they were not reflecting the 
actual condition being treated in home health, or (b) the condition 
would not impact resource use, eliminating them should have minimal 
impact on the accuracy of the HH PPS case-mix model. The impact of any 
single diagnosis on a case mix assignment depends on the accumulation 
of points from other conditions. It is often the case that the clinical 
component in the case-mix model does not change because of the removal 
of one source of points. Those agencies that are treating patients with 
conditions in category 2, will no longer receive additional 
reimbursement for conditions that do not require the same level of 
resources as other conditions within that diagnosis group (see Table 
4).

Table 4--Average Resources for Selected ICD-9-CM Diagnosis Codes Compared to Average Resources for the Diagnosis
                                                 Group, CY 2012
----------------------------------------------------------------------------------------------------------------
                                                                                  Mean resources     Number of
           ICD-9-CM Code              ICD-9-CM long description        Mean        for diagnosis   episodes,  CY
                                                                     resources         group           2012
----------------------------------------------------------------------------------------------------------------
282.5..............................  Sickle-cell trait..........          521.62          493.49             340
333.81.............................  Blepharospasm..............          565.55          598.95             110
333.84.............................  Organic writers' cramp.....          111.76          598.95               1
333.93.............................  Benign shuddering attacks..          595.90          598.95               4
333.94.............................  Restless legs syndrome               507.32          598.95          25,655
                                      (RLS).
530.81.............................  Esophageal reflux..........          499.01          510.45         726,692
569.43.............................  Anal sphincter tear                  352.26          510.45               7
                                      (healed) (old).
873.63.............................  Open wound of tooth                  447.74          635.52              21
                                      (broken) (fractured) (due
                                      to trauma), without
                                      mention of complication.
----------------------------------------------------------------------------------------------------------------
Source: Medicare claims data for episodes ending in CY 2012 (as of June 30, 2013) for a 100 percent sample of
  beneficiaries for which we had a linked OASIS assessment.

    Comment: A commenter stated that CMS should delay the removal of 
codes until after ICD-10-CM implementation similar to the delay granted 
to Inpatient Rehabilitation Facilities because the full cost 
ramifications cannot be predicted without a crosswalk of codes and 
values from ICD-9-CM to ICD-10-CM. Commenters also requested that the 
removal of the 170 diagnosis codes from assignment to one of our 
diagnosis groups within the HH PPS Grouper be done in a budget neutral 
manner.
    Response: To prevent additional inaccurate overpayments and because 
the payment impact has been analyzed, we do not agree that a delay in 
removing these codes until after ICD-10-CM implementation is warranted. 
As we stated above, we contend that the removal of these codes from 
assignment to one of our diagnosis groups within the HH PPS Grouper is 
appropriate either because these conditions cannot be appropriately 
treated in a home health setting, or because these conditions would not 
impact the home health plan of care and result in overpayments to HHAs. 
We will provide the ICD-10-CM codes and the diagnostic group to which 
the codes are assigned in the ICD-10-CM Grouper, which will be posted 
to our Web site in July 2014.
    Comment: A couple of commenters stated that their analysis of the 
impact showed a greater impact and contended that this demonstrates 
common use of these codes.
    Response: We based our payment impact analysis upon 2012 claims 
data and assumptions were included in our analysis whereby for certain 
conditions we believe that coding behavior adjustments would result in 
the assignment of another diagnosis code within the same diagnosis 
group leading to the same case-mix weight as what is currently awarded.
    Comment: A commenter stated that in 2000, when the HH PPS was 
created, costs and revenues were based on appropriately identified ICD-
9-CM codes, including the 170 proposed for deletion.
    Response: In 2000, the HH PPS identified ICD-9-CM codes and awarded 
points specific to orthopedic, neurologic and diabetes. A majority of 
these 170 codes were not included in the 2000 HH PPS. In addition, most 
of the diagnosis codes included in the 2000 HH PPS were assigned at the 
code category level with the exception of certain orthopedic, 
neurologic and diabetic conditions within a particular code category 
which based upon clinical judgment and coding practices were 
inappropriate for home care. In the 2008 refinement, we added 
additional diagnosis groups and specified the appropriate four and five 
digit diagnosis codes. In our review of the current diagnosis codes in 
preparation for transition to ICD-10-CM reporting, we found that these 
170 codes were mistakenly included.
    Comment: A commenter agreed with our assessment that many of the 
conditions were too acute or did not

[[Page 72271]]

impact the plan of care but requested additional guidance from CMS in 
reducing coding errors by educating home health agencies on common 
coding errors, publish frequently asked questions and open door forums 
on this issue.
    Response: It is our intent to provide ongoing communication, 
collaboration and education with home health providers to ensure that 
adequate guidance is provided. This communication will not be limited 
to the release of Change Requests, which can be found on our home 
health Web site at http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html. Additionally, we encourage all 
interested stakeholders to participate in the CMS Home Health and 
Hospice Open Door Forums where questions, concerns and issues can be 
addressed with specialists within CMS. Information regarding Open Door 
Forums can be found on our Web site at http://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/index.html.
    Final Decision: We are finalizing the removal of 170 ICD-9-CM 
diagnosis codes from assignment to one of our diagnosis groups within 
the HH PPS Grouper as proposed, effective January 1, 2014.

B. International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) Conversion and Diagnosis Reporting on Home 
Health Claims

1. International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) Conversion
    The compliance date for adoption of the ICD-10-CM and ICD-10-PCS 
Medical Data Code Set is October 1, 2014, as announced in the September 
5, 2012 final rule, ``Administrative Simplification: Adoption of a 
Standard for a Unique Health Plan Identifier; Addition to the National 
Provider Identifier Requirements; and a Change to the Compliance Date 
for the International Classification of Diseases, 10th Edition (ICD-10-
CM and ICD-10-PCS) Medical Data Code Sets'' (77 FR 54664). Under that 
final rule, the transition to ICD-10-CM is required for entities 
covered by the Health Insurance Portability and Accountability Act of 
1996 (HIPAA) (Pub. L. 104-191, enacted on August 21, 1996). CMS, along 
with our support contractors, Abt Associates and 3M, have spent the 
last 2 years implementing a process for the transition from the use of 
ICD-9-CM diagnosis codes to ICD-10-CM diagnosis codes within the HH PPS 
Grouper. As we outlined in section IV.A in this final rule and also in 
the CY 2014 HH PPS proposed rule (78 FR 40276), we began this process 
with a review of the ICD-9-CM codes included in our HH PPS Grouper and 
identified certain codes that should be removed from assignment to one 
of our diagnosis groups within the HH PPS Grouper, and thus will not be 
included in our translation list of ICD-9-CM to ICD-10-CM codes.
    3M produced a translation list using the General Equivalency 
Mappings (GEMs) tool. That translation list, produced by the GEMs tool, 
was then reviewed and revised to ensure the included codes are 
appropriate for use in the HH setting, based upon ICD-10-CM coding 
guidance. Modifications included:
     Elimination of codes with ``initial encounter'' extensions 
listed in the GEMs translation. ICD-10-CM codes that begin with S and T 
are used for reporting traumatic injuries, such as fractures and burns. 
These codes have a 7th character that indicates whether the treatment 
is for an initial encounter, subsequent encounter or a sequela (a 
residual effect (condition produced) after the acute phase of an 
illness or injury has terminated). The GEMs translation mapped ICD-9-CM 
traumatic injury codes to ICD-10-CM codes with the 7th character for an 
initial encounter. This extension is intended to be used when the 
patient is receiving active treatment such as surgical treatment, an 
emergency department encounter, or evaluation and treatment by a new 
physician. These initial encounter extension codes are not appropriate 
for care in the HH setting and were deleted. Code extensions D, E, F, 
G, H, J, K, M, N, P, Q and R indicate the patient is being treated for 
a subsequent encounter (care for the injury during the healing or 
recovery phase) and were included in the translation list in place of 
the initial encounter extensions. For example, S72.024A ``Nondisplaced 
fracture of epiphysis (separation) (upper) of right femur, initial 
encounter for closed fracture'' was deleted and S72.024D, S72.024E, 
S72.024F, S72.024G, S72.024H, S72.024J, S72.024K, S72.024M, S72.024N, 
S72.024P, S27.024Q, and S72.024R were retained for the reporting of 
aftercare provided by the HHA.
     Elimination of codes for non-specific conditions when the 
clinician should be able to identify a more specific diagnosis based on 
clinical assessment. The initial GEMs translation included non-specific 
codes, for example, ICD-10-CM code L02.519 ``cutaneous abscess of 
unspecified hand''. These have been deleted from the translation list 
whenever a more specific diagnosis could be identified by the clinician 
performing the initial assessment. The example code above (L02.519) was 
deleted because the clinician should be able to identify which hand had 
the abscess, and therefore, would report the injury using the code that 
specifies the right or left hand.
     The diagnostic group (DG) assignment of ICD-10-CM codes in 
the translation replicates the ICD-9-CM assignment whenever possible. 
Since ICD-9-CM to ICD-10-CM translation is not a 1-to-1 mapping 
process, there were cases where the DG assignment was ambiguous. When 
there was a conflict (such as two ICD-9-CM codes being translated to a 
single ICD-10-CM code that covered both conditions), DG assignment was 
based on clinical appropriateness and comparisons of relative resource 
use data (when available), such that the code was assigned to single DG 
that included other codes with similar resource use.
    A draft list of ICD-10-CM codes to be included in the HH PPS 
Grouper was developed based upon the process outlined above, and 3M, 
our HH PPS Grouper maintenance contractor, is in the process of 
building and testing a Grouper version for use starting October 1, 
2014, when OASIS-C1, the new version of the OASIS assessment which will 
use ICD-10-CM diagnosis codes, will be implemented. The draft 
translation list was made available on the CMS HHA Center Web site at 
http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html. We plan to post the draft ICD-10-CM HH PPS Grouper via the 
CMS Web site on or before July 1, 2014. We also plan to share the draft 
ICD-10-CM HH PPS Grouper with those vendors that have registered as 
beta-testers in advance of posting the draft ICD-10 HH PPS Grouper on 
the CMS Web site. The purpose of early release to the beta testers is 
to identify any significant issues early in the process. Providers who 
are interested in enrolling as a beta site can obtain more information 
on the HH PPS Grouper Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/CaseMixGrouperSoftware.html.
    The following is a summary of the comments we received regarding 
the adoption of the International Classification of Diseases, 10th 
Revision, Clinical Modification (ICD-10-CM) Conversion.
    Comment: One commenter suggested that CMS consider providing 
additional

[[Page 72272]]

lead time for software vendors and agencies to test and make the 
systems changes necessary to submit ICD-10-CM claims on October 1, 
2014. The commenter suggested that the draft Grouper be made available 
by May 1, 2014 versus July 1, 2014.
    Response: In consultation with our support contractor a timeline 
was built for implementation of an ICD-10-CM Grouper. The timeline 
requires a translation list and final decisions on logic to be 
completed prior to the release of a draft Grouper. The translation list 
and final decisions on logic will not be completed early enough for us 
to commit to an earlier delivery date than July 1, 2014.
    Comment: One commenter stated that they are not able to fully 
assess the cost impact of the transition from ICD-9-CM to ICD-10-CM 
reporting without a crosswalk of codes and code values.
    Response: The diagnostic group assignment of ICD-10-CM codes in our 
draft list of codes replicates the ICD-9-CM assignment where possible. 
Because there is not a 1-to-1 mapping process, we cannot always 
directly and succinctly crosswalk ICD-9-CM codes to ICD-10-CM codes. 
However, we have provided the ICD-10-CM codes and the diagnostic group 
to which the codes were assigned. We plan to have the ICD-10-CM Grouper 
posted to our Web site in July 2014 for use by home health agencies.
    Comment: One commenter expressed concern that the elimination of 
certain non-specific ICD-10-CM codes would increase the administrative 
burden on home health agencies by requiring a higher level of expertise 
in coding and one commenter expressed concern about the administrative 
costs associated with the implementation of the ICD-10-CM reporting.
    Response: The only non-specific ICD-10-CM codes that were not 
included in our translation were those where the clinician could 
identify a more specific diagnosis during the initial assessment. We 
believe that requiring more specific coding does not increase 
administrative burden but rather encourages the reporting of a 
specific, more accurate, diagnosis based upon the assessment performed 
in compliance with ICD-10-CM coding guidelines that requires coding to 
the highest level of specificity. We note that transition to ICD-10-CM 
is required for entities covered by the Health Insurance Portability 
and Accountability Act of 1996 and the compliance date for adoption of 
the ICD-10-CM and ICD-10-PCS Medical Data Code Set is October 1, 2014, 
as announced in the Federal Register, September 5, 2012 final rule (77 
FR 54664), ``Administrative Simplification: Adoption of a Standard for 
a Unique Health Plan Identifier; Addition to the National Provider 
Identifier Requirements; and a Change to the Compliance Date for the 
International Classification of Diseases, 10th Edition (ICD-10-CM and 
ICD-10-PCS) Medical Data Code Sets. The Secretary has announced that 
all entities, including HHAs, must be in compliance with adoption of 
ICD-10-CM and ICD-10-PCS Medical Data Code Set October 1, 2014.
2. Diagnosis Reporting on Home Health Claims
    Adherence to ICD-9-CM and ICD-10-CM coding guidelines when 
assigning diagnosis codes is required under HIPAA. 3M conducted 
analysis of OASIS records and claims from CY 2011 and found that some 
HHAs were not complying with ICD-9-CM coding guidelines. Section 1.A.6 
in the 2012 ICD-9-CM Coding Guidelines require that the underlying 
condition be sequenced first followed by the manifestation. Wherever 
such a combination exists, there is a ``use additional code'' note at 
the etiology code, and a ``code first'' note at the manifestation code. 
These instructional notes indicate the proper sequencing order of the 
codes, etiology followed by manifestation. In most cases, the title of 
these manifestation codes will include ``in diseases classified 
elsewhere'' or ``in conditions classified elsewhere.'' Codes with these 
phrases in the title are generally manifestation codes. ``In diseases 
classified elsewhere'' or ``in conditions classified elsewhere'' codes 
are never permitted to be used as first listed or principal diagnosis 
codes and they must be listed following the underlying condition. In 
ICD-10-CM, the same coding convention applies and can be found in 
section 1.A.13 of the ICD-10-CM guidance. Note, however, that there are 
also other manifestation codes that do not have ``in diseases 
classified elsewhere'' or ``in conditions classified elsewhere'' in 
their title. For such codes a ``use additional code'' note will still 
be present, and the rules for coding sequencing still apply. It should 
be noted that several dementia codes, which are not allowable as 
principal diagnoses per ICD-9-CM coding guidelines, are under the 
classification of ``Mental, Behavioral and Neurodevelopmental 
Disorders.'' According to section 1.A6 of the ICD-9-CM coding 
guidelines for ``Mental, Behavioral and Neurodevelopmental Disorders'', 
dementias that fall under this category are ``most commonly a secondary 
manifestation of an underlying causal condition.'' To ensure additional 
compliance with ICD-10-CM Coding Guidelines, we noted in the CY 2014 HH 
PPS proposed rule that we will be adopting additional claims processing 
edits for all HH claims effective October 1, 2014. HH claims containing 
inappropriate principal or secondary diagnosis codes will be returned 
to the provider and will have to be corrected and resubmitted to be 
processed and paid. Additional details describing the specific edits 
that will be applied will be announced through a change request, an 
accompanying Medicare Learning Network article, and other CMS 
communication channels, such as the HH, Hospice, and DME Open Door 
Forum.
    Finally, effective October 1, 2014, with the implementation of ICD-
10-CM diagnosis code reporting, we anticipate that HHAs will be able to 
report all of the conditions included in the HH PPS Grouper as a 
primary or secondary diagnosis. There will no longer be a need for any 
conditions to be reported in the payment diagnosis field because all of 
the ICD-10-CM codes included in our HH PPS Grouper will be appropriate 
for reporting as a primary or secondary condition. As such, we are 
retiring Appendix D of OASIS (also referred to as Attachment D), 
effective October 1, 2014. All necessary guidance for providers is 
provided in the ICD-10-CM Coding Guidelines.
    No comments were received regarding the clarification on Diagnosis 
Reporting on Home Health Claims.

C. Adjustment to the HH PPS Case-Mix Weights

    As described in section IV.D. of this rule, we are rebasing the 
national, standardized 60-day episode payment rate. In the CY 2014 
proposed rule, we stated that a goal of rebasing is to reset the base 
payments under the HH PPS. When the HH PPS was created, we expected 
that the average case-mix weight would be around 1.0000, but analysis 
has shown that it has consistently been above 1.0000 since the start of 
the HH PPS. Therefore, as part of rebasing, for CY 2014, we proposed to 
use the 2012 case-mix weights, but lower them to an average case-mix 
weight of 1.0000. We also proposed to increase the national, 
standardized 60-day episode payment rate by the same factor used to 
lower the rates to 1.0000, making the downward adjustment to the 
weights budget neutral. As we noted in the proposed rule, in applying 
the same reduction factor to each weight we are still maintaining the 
relative values in the weight set. Preliminary CY 2012 claims data on 
non-LUPA episodes

[[Page 72273]]

starting from January 1, 2012 to May 31, 2012 showed that the average 
case-mix weight for non-LUPA episodes in 2012 was 1.3517. In the CY 
2014 proposed rule, we stated that as more 2012 data become available, 
we planned to update the estimated average case-mix weight for CY 2012 
and adjust the case-mix weights and budget neutrality factor 
accordingly.
    The following is a summary of the comments we received regarding 
the proposed adjustment to the HH PPS case-mix weights.
    Comment: One commenter supported the case-mix update reset, 
particularly given the proposed changes to rebase the HH payments
    Response: We thank the commenter for the comment.
    Comment: Commenters stated that CMS did not account for the removal 
of the ICD-9-CM codes from the case-mix system, which is estimated to 
drop the average case-mix weight from 1.3517 to 1.3417, in either the 
adjustment to the case-mix weights or the payment rates.
    Response: We find these comments compelling and we plan to change 
the adjustment to the weights so that it reflects the estimated average 
case-mix after the removal of the ICD-9-CM codes from assignment to one 
of our diagnosis groups within the HH PPS Grouper. See also section 
IV.D. where we discuss how using the average case-mix in CY 2012, after 
the removal of the ICD-9-CM codes from assignment to one of our 
diagnosis groups within the HH PPS Grouper, is used in the national, 
standardized 60-day episode payment rate rebasing adjustment 
calculation.
    Comment: One commenter stated that the approach does not account 
for genuine increases in case-mix due to real increases in the severity 
of need since the inception of the HH PPS which are caused by earlier 
and sicker hospital discharges, technology improvements which allow for 
complex cases to be cared for at the home, improvements in accuracy of 
OASIS, and increased therapy needs which indicate a higher level of 
patient acuity. Other commenters stated that the 1.0000 level set at 
the beginning of the HH PPS should have been higher and that patients' 
severity, as well as their resource needs have changed since the HH 
PPS.
    Response: As we stated in the proposed rule, we are lowering the 
weights to an average of 1.0000 (by dividing each weight using the same 
divisor) so that the national, standardized 60-day episode payment rate 
is the average payment per episode. The lowering of the weights to 
1.0000 is a way to reset the system. We note that in lowering the 
weights to average 1.0000, we correspondingly inflate the national, 
standardized 60-day episode payment rate, of which the inflation 
includes both real and nominal case-mix. The adjustment to the case-mix 
weights is therefore budget neutral. In other words, we are completely 
offsetting the reduction in the weights (to average value of 1.0000) by 
increasing the national, standardized 60-day episode payment rate. 
Increases in the costs of patient care since the inception of the HH 
PPS, which would reflect treating patients with a higher average level 
of severity, are reflected in the FY 2011 cost data used in the 
rebasing calculation and accounted for in the rebasing adjustments. The 
data and methodology for calculating the rebasing adjustments are 
described in section IV.D. of this final rule.
    Comment: One commenter stated that while the proposed case-mix 
weight adjustments might be budget neutral in the aggregate, it would 
not be so on a weight-by-weight basis, and the impact on many agencies 
would be additional reductions in reimbursements, beyond the rebasing 
reductions. In addition, one commenter stated that the proposal to 
reduce each of the 153 Home Health Resource Groups (HHRGs) was 
arbitrary in its attempt to achieve an aggregate case-mix benchmark 
without regard for the impact of rebasing on specific clinical 
scenarios. Another commenter stated that CMS should either abandon or 
delay the case-mix weight adjustments and rebasing approach and spend 
the next year performing a realistic analysis of true HHA costs and 
beneficiary needs for home health services. Similarly, a commenter 
stated that CMS has not assessed whether the number of HHRGs is 
appropriate or whether the payment for each is adequate. Several 
commenters stated that CMS should complete an analysis of the adequacy 
of the case-mix weights this year and encouraged CMS to undertake a 
comprehensive review of the case-mix weights during the coming year for 
the CY 2015 rule.
    Response: The adjustment to the case-mix weights was performed in a 
budget neutral way. We increased the national, standardized 60-day 
episode payment rate by the same factor used to lower the case-mix 
weights to 1.0000 to determine the starting point for rebasing, so the 
average payment for agencies is the same with the case-mix weights 
decreased as the average payment for agencies if the weights were not 
decreased to 1.0000 and the national, standardized 60-day episode 
payment was not increased. In the CY 2012 HH PPS final rule (76 FR 
68526), we recalibrated the case-mix weights. We plan to examine the 
effects of the CY 2012 recalibration as cost report data become 
available. In addition, we are currently in the process of reassessing 
the entire case-mix system. We recently awarded a new research and 
technical assistance contract to Abt Associates to examine the findings 
of the home health study, monitor potential impacts of rebasing and 
other recent policy changes, and develop payment reform options to 
ensure access to care for vulnerable populations and address payment 
vulnerabilities in the current payment system.
    Final Decision: Since the CY 2014 proposed rule, we analyzed a full 
year of CY 2012 claims data (the most current, complete data 
available), rather than claims data from the first six months of CY 
2012, and the results indicate that the average case-mix weight for 
non-LUPA episodes in 2012 was 1.3547. However, since we are finalizing 
the removal of 170 ICD-9-CM diagnosis codes from the HH PPS grouper, 
effective January 1, 2014, we estimate the average case-mix weight for 
non-LUPA episodes in 2012 would decrease to 1.3464 with those codes 
removed. Therefore, for CY 2014, we will reduce the average case-mix 
weight for 2012 from 1.3464 to 1.0000. The CY 2014 weights shown in 
Table 5 were obtained by dividing the CY 2013 weights (which are the 
same weights as those finalized in CY 2012 rulemaking) by 1.3464. To 
offset the effect of resetting the case-mix weights such that the 
average is 1.0000, we inflate the national, standardized 60-day episode 
payment rate by the same factor (1.3464) used to decrease the weights. 
The result will be the starting point from which rebasing adjustments 
are implemented.
    As noted in the CY 2014 proposed rule, we plan to continue to 
evaluate and potentially revise the case-mix weights relative to one 
another as more recent utilization and cost report data become 
available. We also plan to continue to monitor case-mix growth (both 
real and nominal case-mix growth), and address it accordingly in the 
future.

[[Page 72274]]



                                     Table 5--Final CY 2014 Case-Mix Weights
----------------------------------------------------------------------------------------------------------------
                                                                                        2013 HH PPS  2014 HH PPS
           Payment group                    Description          Clinical, functional,    case-mix     case-mix
                                                                  and service levels      weights      weights
----------------------------------------------------------------------------------------------------------------
10111.............................  1st and 2nd Episodes, 0 to  C1F1S1................       0.8186       0.6080
                                     5 Therapy Visits.
10112.............................  1st and 2nd Episodes, 6     C1F1S2................       0.9793       0.7273
                                     Therapy Visits.
10113.............................  1st and 2nd Episodes, 7 to  C1F1S3................       1.1401       0.8468
                                     9 Therapy Visits.
10114.............................  1st and 2nd Episodes, 10    C1F1S4................       1.3008       0.9661
                                     Therapy Visits.
10115.............................  1st and 2nd Episodes, 11    C1F1S5................       1.4616       1.0856
                                     to 13 Therapy Visits.
10121.............................  1st and 2nd Episodes, 0 to  C1F2S1................       1.0275       0.7631
                                     5 Therapy Visits.
10122.............................  1st and 2nd Episodes, 6     C1F2S2................       1.1657       0.8658
                                     Therapy Visits.
10123.............................  1st and 2nd Episodes, 7 to  C1F2S3................       1.3039       0.9684
                                     9 Therapy Visits.
10124.............................  1st and 2nd Episodes, 10    C1F2S4................       1.4421       1.0711
                                     Therapy Visits.
10125.............................  1st and 2nd Episodes, 11    C1F2S5................       1.5804       1.1738
                                     to 13 Therapy Visits.
10131.............................  1st and 2nd Episodes, 0 to  C1F3S1................       1.1233       0.8343
                                     5 Therapy Visits.
10132.............................  1st and 2nd Episodes, 6     C1F3S2................       1.2520       0.9299
                                     Therapy Visits.
10133.............................  1st and 2nd Episodes, 7 to  C1F3S3................       1.3807       1.0255
                                     9 Therapy Visits.
10134.............................  1st and 2nd Episodes, 10    C1F3S4................       1.5094       1.1211
                                     Therapy Visits.
10135.............................  1st and 2nd Episodes, 11    C1F3S5................       1.6381       1.2167
                                     to 13 Therapy Visits.
10211.............................  1st and 2nd Episodes, 0 to  C2F1S1................       0.8340       0.6194
                                     5 Therapy Visits.
10212.............................  1st and 2nd Episodes, 6     C2F1S2................       1.0302       0.7652
                                     Therapy Visits.
10213.............................  1st and 2nd Episodes, 7 to  C2F1S3................       1.2265       0.9109
                                     9 Therapy Visits.
10214.............................  1st and 2nd Episodes, 10    C2F1S4................       1.4228       1.0567
                                     Therapy Visits.
10215.............................  1st and 2nd Episodes, 11    C2F1S5................       1.6190       1.2025
                                     to 13 Therapy Visits.
10221.............................  1st and 2nd Episodes, 0 to  C2F2S1................       1.0429       0.7746
                                     5 Therapy Visits.
10222.............................  1st and 2nd Episodes, 6     C2F2S2................       1.2166       0.9036
                                     Therapy Visits.
10223.............................  1st and 2nd Episodes, 7 to  C2F2S3................       1.3903       1.0326
                                     9 Therapy Visits.
10224.............................  1st and 2nd Episodes, 10    C2F2S4................       1.5641       1.1617
                                     Therapy Visits.
10225.............................  1st and 2nd Episodes, 11    C2F2S5................       1.7378       1.2907
                                     to 13 Therapy Visits.
10231.............................  1st and 2nd Episodes, 0 to  C2F3S1................       1.1387       0.8457
                                     5 Therapy Visits.
10232.............................  1st and 2nd Episodes, 6     C2F3S2................       1.3029       0.9677
                                     Therapy Visits.
10233.............................  1st and 2nd Episodes, 7 to  C2F3S3................       1.4671       1.0896
                                     9 Therapy Visits.
10234.............................  1st and 2nd Episodes, 10    C2F3S4................       1.6313       1.2116
                                     Therapy Visits.
10235.............................  1st and 2nd Episodes, 11    C2F3S5................       1.7956       1.3336
                                     to 13 Therapy Visits.
10311.............................  1st and 2nd Episodes, 0 to  C3F1S1................       0.9071       0.6737
                                     5 Therapy Visits.
10312.............................  1st and 2nd Episodes, 6     C3F1S2................       1.1348       0.8428
                                     Therapy Visits.
10313.............................  1st and 2nd Episodes, 7 to  C3F1S3................       1.3624       1.0119
                                     9 Therapy Visits.
10314.............................  1st and 2nd Episodes, 10    C3F1S4................       1.5900       1.1809
                                     Therapy Visits.
10315.............................  1st and 2nd Episodes, 11    C3F1S5................       1.8177       1.3500
                                     to 13 Therapy Visits.
10321.............................  1st and 2nd Episodes, 0 to  C3F2S1................       1.1160       0.8289
                                     5 Therapy Visits.
10322.............................  1st and 2nd Episodes, 6     C3F2S2................       1.3211       0.9812
                                     Therapy Visits.
10323.............................  1st and 2nd Episodes, 7 to  C3F2S3................       1.5262       1.1335
                                     9 Therapy Visits.
10324.............................  1st and 2nd Episodes, 10    C3F2S4................       1.7313       1.2859
                                     Therapy Visits.
10325.............................  1st and 2nd Episodes, 11    C3F2S5................       1.9364       1.4382
                                     to 13 Therapy Visits.
10331.............................  1st and 2nd Episodes, 0 to  C3F3S1................       1.2118       0.9000
                                     5 Therapy Visits.
10332.............................  1st and 2nd Episodes, 6     C3F3S2................       1.4074       1.0453
                                     Therapy Visits.
10333.............................  1st and 2nd Episodes, 7 to  C3F3S3................       1.6030       1.1906
                                     9 Therapy Visits.
10334.............................  1st and 2nd Episodes, 10    C3F3S4................       1.7986       1.3359
                                     Therapy Visits.
10335.............................  1st and 2nd Episodes, 11    C3F3S5................       1.9942       1.4811
                                     to 13 Therapy Visits.
21111.............................  1st and 2nd Episodes, 14    C1F1S1................       1.6223       1.2049
                                     to 15 Therapy Visits.
21112.............................  1st and 2nd Episodes, 16    C1F1S2................       1.8331       1.3615
                                     to 17 Therapy Visits.
21113.............................  1st and 2nd Episodes, 18    C1F1S3................       2.0438       1.5180
                                     to 19 Therapy Visits.
21121.............................  1st and 2nd Episodes, 14    C1F2S1................       1.7186       1.2764
                                     to 15 Therapy Visits.
21122.............................  1st and 2nd Episodes, 16    C1F2S2................       1.9496       1.4480
                                     to 17 Therapy Visits.
21123.............................  1st and 2nd Episodes, 18    C1F2S3................       2.1807       1.6197
                                     to 19 Therapy Visits.
21131.............................  1st and 2nd Episodes, 14    C1F3S1................       1.7668       1.3122
                                     to 15 Therapy Visits.
21132.............................  1st and 2nd Episodes, 16    C1F3S2................       2.0252       1.5042
                                     to 17 Therapy Visits.
21133.............................  1st and 2nd Episodes, 18    C1F3S3................       2.2836       1.6961
                                     to 19 Therapy Visits.
21211.............................  1st and 2nd Episodes, 14    C2F1S1................       1.8153       1.3483
                                     to 15 Therapy Visits.
21212.............................  1st and 2nd Episodes, 16    C2F1S2................       2.0224       1.5021
                                     to 17 Therapy Visits.
21213.............................  1st and 2nd Episodes, 18    C2F1S3................       2.2294       1.6558
                                     to 19 Therapy Visits.
21221.............................  1st and 2nd Episodes, 14    C2F2S1................       1.9116       1.4198
                                     to 15 Therapy Visits.
21222.............................  1st and 2nd Episodes, 16    C2F2S2................       2.1389       1.5886
                                     to 17 Therapy Visits.
21223.............................  1st and 2nd Episodes, 18    C2F2S3................       2.3663       1.7575
                                     to 19 Therapy Visits.
21231.............................  1st and 2nd Episodes, 14    C2F3S1................       1.9598       1.4556
                                     to 15 Therapy Visits.
21232.............................  1st and 2nd Episodes, 16    C2F3S2................       2.2145       1.6448
                                     to 17 Therapy Visits.
21233.............................  1st and 2nd Episodes, 18    C2F3S3................       2.4691       1.8339
                                     to 19 Therapy Visits.
21311.............................  1st and 2nd Episodes, 14    C3F1S1................       2.0453       1.5191
                                     to 15 Therapy Visits.
21312.............................  1st and 2nd Episodes, 16    C3F1S2................       2.2682       1.6846
                                     to 17 Therapy Visits.
21313.............................  1st and 2nd Episodes, 18    C3F1S3................       2.4911       1.8502
                                     to 19 Therapy Visits.
21321.............................  1st and 2nd Episodes, 14    C3F2S1................       2.1415       1.5905
                                     to 15 Therapy Visits.
21322.............................  1st and 2nd Episodes, 16    C3F2S2................       2.3848       1.7712
                                     to 17 Therapy Visits.
21323.............................  1st and 2nd Episodes, 18    C3F2S3................       2.6280       1.9519
                                     to 19 Therapy Visits.
21331.............................  1st and 2nd Episodes, 14    C3F3S1................       2.1897       1.6263
                                     to 15 Therapy Visits.

[[Page 72275]]

 
21332.............................  1st and 2nd Episodes, 16    C3F3S2................       2.4603       1.8273
                                     to 17 Therapy Visits.
21333.............................  1st and 2nd Episodes, 18    C3F3S3................       2.7309       2.0283
                                     to 19 Therapy Visits.
22111.............................  3rd+ Episodes, 14 to 15     C1F1S1................       1.6822       1.2494
                                     Therapy Visits.
22112.............................  3rd+ Episodes, 16 to 17     C1F1S2................       1.8730       1.3911
                                     Therapy Visits.
22113.............................  3rd+ Episodes, 18 to 19     C1F1S3................       2.0638       1.5328
                                     Therapy Visits.
22121.............................  3rd+ Episodes, 14 to 15     C1F2S1................       1.7628       1.3093
                                     Therapy Visits.
22122.............................  3rd+ Episodes, 16 to 17     C1F2S2................       1.9791       1.4699
                                     Therapy Visits.
22123.............................  3rd+ Episodes, 18 to 19     C1F2S3................       2.1954       1.6306
                                     Therapy Visits.
22131.............................  3rd+ Episodes, 14 to 15     C1F3S1................       1.9247       1.4295
                                     Therapy Visits.
22132.............................  3rd+ Episodes, 16 to 17     C1F3S2................       2.1305       1.5824
                                     Therapy Visits.
22133.............................  3rd+ Episodes, 18 to 19     C1F3S3................       2.3362       1.7351
                                     Therapy Visits.
22211.............................  3rd+ Episodes, 14 to 15     C2F1S1................       1.8508       1.3746
                                     Therapy Visits.
22212.............................  3rd+ Episodes, 16 to 17     C2F1S2................       2.0460       1.5196
                                     Therapy Visits.
22213.............................  3rd+ Episodes, 18 to 19     C2F1S3................       2.2412       1.6646
                                     Therapy Visits.
22221.............................  3rd+ Episodes, 14 to 15     C2F2S1................       1.9314       1.4345
                                     Therapy Visits.
22222.............................  3rd+ Episodes, 16 to 17     C2F2S2................       2.1521       1.5984
                                     Therapy Visits.
22223.............................  3rd+ Episodes, 18 to 19     C2F2S3................       2.3729       1.7624
                                     Therapy Visits.
22231.............................  3rd+ Episodes, 14 to 15     C2F3S1................       2.0933       1.5547
                                     Therapy Visits.
22232.............................  3rd+ Episodes, 16 to 17     C2F3S2................       2.3035       1.7109
                                     Therapy Visits.
22233.............................  3rd+ Episodes, 18 to 19     C2F3S3................       2.5136       1.8669
                                     Therapy Visits.
22311.............................  3rd+ Episodes, 14 to 15     C3F1S1................       2.0747       1.5409
                                     Therapy Visits.
22312.............................  3rd+ Episodes, 16 to 17     C3F1S2................       2.2878       1.6992
                                     Therapy Visits.
22313.............................  3rd+ Episodes, 18 to 19     C3F1S3................       2.5009       1.8575
                                     Therapy Visits.
22321.............................  3rd+ Episodes, 14 to 15     C3F2S1................       2.1553       1.6008
                                     Therapy Visits.
22322.............................  3rd+ Episodes, 16 to 17     C3F2S2................       2.3940       1.7781
                                     Therapy Visits.
22323.............................  3rd+ Episodes, 18 to 19     C3F2S3................       2.6326       1.9553
                                     Therapy Visits.
22331.............................  3rd+ Episodes, 14 to 15     C3F3S1................       2.3172       1.7210
                                     Therapy Visits.
22332.............................  3rd+ Episodes, 16 to 17     C3F3S2................       2.5453       1.8904
                                     Therapy Visits.
22333.............................  3rd+ Episodes, 18 to 19     C3F3S3................       2.7734       2.0599
                                     Therapy Visits.
30111.............................  3rd+ Episodes, 0 to 5       C1F1S1................       0.6692       0.4970
                                     Therapy Visits.
30112.............................  3rd+ Episodes, 6 Therapy    C1F1S2................       0.8718       0.6475
                                     Visits.
30113.............................  3rd+ Episodes, 7 to 9       C1F1S3................       1.0744       0.7980
                                     Therapy Visits.
30114.............................  3rd+ Episodes, 10 Therapy   C1F1S4................       1.2770       0.9485
                                     Visits.
30115.............................  3rd+ Episodes, 11 to 13     C1F1S5................       1.4796       1.0989
                                     Therapy Visits.
30121.............................  3rd+ Episodes, 0 to 5       C1F2S1................       0.8421       0.6254
                                     Therapy Visits.
30122.............................  3rd+ Episodes, 6 Therapy    C1F2S2................       1.0263       0.7623
                                     Visits.
30123.............................  3rd+ Episodes, 7 to 9       C1F2S3................       1.2104       0.8990
                                     Therapy Visits.
30124.............................  3rd+ Episodes, 10 Therapy   C1F2S4................       1.3945       1.0357
                                     Visits.
30125.............................  3rd+ Episodes, 11 to 13     C1F2S5................       1.5787       1.1725
                                     Therapy Visits.
30131.............................  3rd+ Episodes, 0 to 5       C1F3S1................       0.9352       0.6946
                                     Therapy Visits.
30132.............................  3rd+ Episodes, 6 Therapy    C1F3S2................       1.1331       0.8416
                                     Visits.
30133.............................  3rd+ Episodes, 7 to 9       C1F3S3................       1.3310       0.9886
                                     Therapy Visits.
30134.............................  3rd+ Episodes, 10 Therapy   C1F3S4................       1.5289       1.1355
                                     Visits.
30135.............................  3rd+ Episodes, 11 to 13     C1F3S5................       1.7268       1.2825
                                     Therapy Visits.
30211.............................  3rd+ Episodes, 0 to 5       C2F1S1................       0.7361       0.5467
                                     Therapy Visits.
30212.............................  3rd+ Episodes, 6 Therapy    C2F1S2................       0.9591       0.7123
                                     Visits.
30213.............................  3rd+ Episodes, 7 to 9       C2F1S3................       1.1820       0.8779
                                     Therapy Visits.
30214.............................  3rd+ Episodes, 10 Therapy   C2F1S4................       1.4049       1.0434
                                     Visits.
30215.............................  3rd+ Episodes, 11 to 13     C2F1S5................       1.6278       1.2090
                                     Therapy Visits.
30221.............................  3rd+ Episodes, 0 to 5       C2F2S1................       0.9091       0.6752
                                     Therapy Visits.
30222.............................  3rd+ Episodes, 6 Therapy    C2F2S2................       1.1136       0.8271
                                     Visits.
30223.............................  3rd+ Episodes, 7 to 9       C2F2S3................       1.3180       0.9789
                                     Therapy Visits.
30224.............................  3rd+ Episodes, 10 Therapy   C2F2S4................       1.5225       1.1308
                                     Visits.
30225.............................  3rd+ Episodes, 11 to 13     C2F2S5................       1.7269       1.2826
                                     Therapy Visits.
30231.............................  3rd+ Episodes, 0 to 5       C2F3S1................       1.0022       0.7444
                                     Therapy Visits.
30232.............................  3rd+ Episodes, 6 Therapy    C2F3S2................       1.2204       0.9064
                                     Visits.
30233.............................  3rd+ Episodes, 7 to 9       C2F3S3................       1.4386       1.0685
                                     Therapy Visits.
30234.............................  3rd+ Episodes, 10 Therapy   C2F3S4................       1.6568       1.2305
                                     Visits.
30235.............................  3rd+ Episodes, 11 to 13     C2F3S5................       1.8751       1.3927
                                     Therapy Visits.
30311.............................  3rd+ Episodes, 0 to 5       C3F1S1................       0.9324       0.6925
                                     Therapy Visits.
30312.............................  3rd+ Episodes, 6 Therapy    C3F1S2................       1.1609       0.8622
                                     Visits.
30313.............................  3rd+ Episodes, 7 to 9       C3F1S3................       1.3893       1.0319
                                     Therapy Visits.
30314.............................  3rd+ Episodes, 10 Therapy   C3F1S4................       1.6178       1.2016
                                     Visits.
30315.............................  3rd+ Episodes, 11 to 13     C3F1S5................       1.8463       1.3713
                                     Therapy Visits.
30321.............................  3rd+ Episodes, 0 to 5       C3F2S1................       1.1054       0.8210
                                     Therapy Visits.
30322.............................  3rd+ Episodes, 6 Therapy    C3F2S2................       1.3154       0.9770
                                     Visits.
30323.............................  3rd+ Episodes, 7 to 9       C3F2S3................       1.5254       1.1329
                                     Therapy Visits.
30324.............................  3rd+ Episodes, 10 Therapy   C3F2S4................       1.7353       1.2888
                                     Visits.
30325.............................  3rd+ Episodes, 11 to 13     C3F2S5................       1.9453       1.4448
                                     Therapy Visits.
30331.............................  3rd+ Episodes, 0 to 5       C3F3S1................       1.1985       0.8902
                                     Therapy Visits.

[[Page 72276]]

 
30332.............................  3rd+ Episodes, 6 Therapy    C3F3S2................       1.4222       1.0563
                                     Visits.
30333.............................  3rd+ Episodes, 7 to 9       C3F3S3................       1.6460       1.2225
                                     Therapy Visits.
30334.............................  3rd+ Episodes, 10 Therapy   C3F3S4................       1.8697       1.3887
                                     Visits.
30335.............................  3rd+ Episodes, 11 to 13     C3F3S5................       2.0935       1.5549
                                     Therapy Visits.
40111.............................  All Episodes, 20+ Therapy   C1F1S1................       2.2546       1.6745
                                     Visits.
40121.............................  All Episodes, 20+ Therapy   C1F2S1................       2.4117       1.7912
                                     Visits.
40131.............................  All Episodes, 20+ Therapy   C1F3S1................       2.5419       1.8879
                                     Visits.
40211.............................  All Episodes, 20+ Therapy   C2F1S1................       2.4364       1.8096
                                     Visits.
40221.............................  All Episodes, 20+ Therapy   C2F2S1................       2.5936       1.9263
                                     Visits.
40231.............................  All Episodes, 20+ Therapy   C2F3S1................       2.7238       2.0230
                                     Visits.
40311.............................  All Episodes, 20+ Therapy   C3F1S1................       2.7140       2.0157
                                     Visits.
40321.............................  All Episodes, 20+ Therapy   C3F2S1................       2.8712       2.1325
                                     Visits.
40331.............................  All Episodes, 20+ Therapy   C3F3S1................       3.0014       2.2292
                                     Visits.
----------------------------------------------------------------------------------------------------------------

D. Rebasing the National, Standardized 60-day Episode Payment Amount, 
LUPA Per-Visit Payment Amounts, and Nonroutine Medical Supply (NRS) 
Conversion Factor

1. Rebasing the National, Standardized 60-Day Episode Payment Amount
    Section 3131(a) of the Affordable Care Act requires that starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment amount and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act requires that 
this rebasing must be phased-in over a 4-year period in equal 
increments, not to exceed 3.5 percent of the payment amount (or 
amounts) as of the date of enactment (March 23, 2010) under section 
1895(b)(3)(A)(i)(III) of the Act, and be fully implemented by CY 2017.
    In the CY 2014 HH PPS proposed rule, we described our extensive 
analysis of cost report and claims data and proposed rebasing 
adjustments to the national, standardized 60-day episode payment 
amount, the LUPA per-visit payment amounts, and the NRS conversion 
factor. We used FY 2011 cost report data as of December 31, 2012; which 
was the latest, complete cost report data available at the time of the 
analysis.
a. Trimming Methodology, Audit Results and Weighting
    In the CY 2014 HH PPS proposed rule, we described the trimming 
methodology used to obtain a more robust estimate of costs, which 
consisted of longitudinal and cross-sectional trims. After applying the 
trimming methodology, 6,252 cost reports were left in the 2011 sample, 
out of 10,327 cost reports. These cost reports were then used to 
estimate the average cost per visit and average cost per episode for 
2011.
    In addition, we described the results of the audits of 100 FY 2010 
HHA Medicare cost reports. We stated that when comparing the pre-audit 
sample data to the post-audit sample data, we observed an average 
reduction of 8 to 9 percent in the costs per visit across all 
disciplines, except medical social services which averaged a 5 percent 
reduction in the allowable costs per visit. These audited costs per 
visit across the disciplines reduced the average cost per episode by 
7.8 percent when comparing the pre-audit data to the post-audit 
adjusted data. The results of the audits indicate that the trimmed 
sample used for this rule likely over-estimates the average cost per 
visit and average cost per episode for providers.
    After applying the trimming methodology to the 2011 Medicare cost 
reports, we computed the estimated mean cost per visit per discipline 
by dividing the total costs for a discipline by the total number of 
visits in our sample. We then applied weights to the sample to ensure 
that the costs per visit, per discipline used to calculate the average 
costs per episode were nationally representative. Using the nationally-
weighted average costs per visit from the trimmed FY 2011 HHA Medicare 
cost report sample and the visits per episode estimates for each 
discipline from 2011 national claims data, we estimated the 2011 
average cost per episode. As shown in Table 6, we multiplied the 
average cost per visit by the average number of visits for each of the 
six disciplines and summed the results to generate an estimated 60-day 
episode cost for 2011 of $2,453.71. This methodology used to calculate 
the episode cost is consistent with the methodology used in setting the 
60-day episode base rate for the HH PPS in 2000. We note that the 2011 
estimated cost per episode includes normal, PEP, and outlier episodes.

             Table 6--2011 Average Costs per Visit and Average Number of Visits for a 60-Day Episode
----------------------------------------------------------------------------------------------------------------
                                                                   2011 Average    2011 Average
                           Discipline                                costs per       number of      2011 60-Day
                                                                       visit          visits       episode costs
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................................................         $131.51            9.43       $1,240.14
Home Health Aide................................................           65.22            2.80          182.62
Physical Therapy................................................          160.69            4.86          780.95
Occupational Therapy............................................          159.55            1.15          183.48
Speech-Language Pathology.......................................          170.80            0.21           35.87
Medical Social Services.........................................          218.91            0.14           30.65
                                                                 -----------------------------------------------

[[Page 72277]]

 
    Total.......................................................  ..............           18.59        2,453.71
----------------------------------------------------------------------------------------------------------------
Source: CY 2011 Medicare claims data and 2011 Medicare cost report data as of December 31, 2012.

b. Calculating the Estimated Average Cost per Episode
    In the CY 2014 HH PPS proposed rule, to determine the rebasing 
adjustment to the 60-day national, standardized episode payment amount, 
we compared the 2013 estimated average payment per episode to the 2013 
estimated average cost per episode. To calculate the 2013 estimated 
average cost per episode, we first applied an adjustment to account for 
the visit distribution change observed in claims data from 2011 to 
2012. We compared the 2011 estimated cost per episode using the 2011 
visit distribution to the 2011 estimated cost per episode using the 
2012 visit distribution. In the CY 2014 HH PPS proposed rule, we stated 
that the 2011 estimated cost per episode is $2,453.71 when using the 
2011 visit profile and is $2,443.34 when using the 2012 visit profile. 
We calculated an adjustment factor to account for the visit differences 
between 2011 and 2012 (1 + (2,443.34-2,453.71)/2,453.71 = 0.9958). The 
2012 visit profile in the CY 2014 HH PPS proposed rule was calculated 
using preliminary CY 2012 claims data for episodes starting on or 
before May 31, 2012. We also stated in the CY 2014 HH PPS proposed rule 
that we planned to update the 2012 visit distribution as more data 
become available, and therefore, the estimated cost per episode may 
change slightly. Using the most current, complete CY 2012 data for this 
final rule (a full year of claims data), we re-examined the 2012 visit 
distribution and re-calculated the 2011 estimated cost per episode 
using the updated 2012 visit profile ($2,448.95). The adjustment factor 
was also re-calculated to account for the change in the number of 
visits between 2011 and 2012 (1 + (2,448.95-2,453.71)/2,453.71 = 
0.9981). The CY 2011 visit distribution, the CY 2012 visit distribution 
using partial CY 2012 data as described in the CY 2014 HH PPS proposed 
rule, and the CY 2012 visit distribution using complete CY 2012 data 
are shown in Table 7. We note that since complete CY 2013 claims data 
was not available at the time of this final rule, we did not make any 
adjustments for changes in the visit distribution from CY 2012 to CY 
2013 as part of developing the estimated CY 2013 average cost per 
episode.

                  Table 7--Comparison of the 2011 and 2012 Visit Distribution From Claims Data
----------------------------------------------------------------------------------------------------------------
                                                                                   2012 Average
                                                                                     number of     2012 Average
                                                                   2011 Average     visits per       number of
                           Discipline                                number of        episode       visits per
                                                                    visits per     (published in  episode (using
                                                                      episode     CY 2014 HH PPS   full CY 2012
                                                                                  proposed rule)       data)
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................................................            9.43            9.39            9.44
Home Health Aide................................................            2.80            2.62            2.63
Physical Therapy................................................            4.86            4.88            4.86
Occupational Therapy............................................            1.15            1.15            1.16
Speech-Language Pathology.......................................            0.21            0.23            0.23
Medical Social Services.........................................            0.14            0.14            0.14
                                                                 -----------------------------------------------
    Total Number of Visits per Episode..........................           18.59           18.41           18.46
----------------------------------------------------------------------------------------------------------------
Source: CY 2011 Medicare claims data, CY 2012 Medicare claims data as of December 31, 2012 for episodes starting
  between January 1, 2012 and May 31, 2012, and CY 2012 Medicare claims data (as of June 2013) for episodes
  ending on or before December 31, 2012 for which we had a linked OASIS assessment.

    After applying the adjustment to account for the visit distribution 
change between 2011 and 2012, we calculate the estimated average cost 
per episode for CY 2013 by multiplying the estimated, average cost per 
episode by the HH market basket for 2012 and by the HH market basket 
for 2013 (Table 8). When setting the 60-day episode base rate for the 
HH PPS in 2000, we also updated costs from cost reports by the HH 
market basket to reflect expected inflation. We note that the 2013 
estimated cost per episode shown in Table 8 reflects the updated 2012 
visit profile, and therefore numbers have changed slightly from the CY 
2014 HH PPS proposed rule.

                                    Table 8--2013 Estimated Cost per Episode
----------------------------------------------------------------------------------------------------------------
                                                    Factor for
                                                     2011-2012                                    2013 Estimated
         2011 Estimated cost per episode               visit      2012 HH market  2013 HH market     cost per
                                                   distribution       basket          basket          episode
                                                    difference
----------------------------------------------------------------------------------------------------------------
$2,453.71.......................................        x 0.9981         x 1.024         x 1.023     = $2,565.51
----------------------------------------------------------------------------------------------------------------


[[Page 72278]]

c. Calculating the Estimated Average Payment per Episode
    To develop the 2013 estimated average payment per episode, in our 
updated analyses for this final rule, we start with the CY 2012 
national, standardized 60-day episode payment rate and apply a number 
of factors. In the CY 2014 HH PPS proposed rule, we proposed to reset 
the average case-mix weight from 1.3517 to 1.0000 and increased the CY 
2012 60-day episode payment rate by 1.3517. Since we are resetting the 
average case-mix weight from 1.3464 to 1.0000 (see section IV.C. of 
this rule), we increase the CY 2012 60-day episode payment rate by 
1.3464. As such, the numbers in Table 9 are different from the numbers 
in the CY 2014 HH PPS proposed rule. The 60-day episode payment rate in 
CY 2012 was $2,138.52. By inflating the CY 2012 60-day episode payment 
rate by the budget neutrality factor to account for the downward 
adjustment of the weights to an average case-mix of 1.0000, we obtain 
the average CY 2012 payment per episode. Then by applying the CY 2013 
payment policy updates (the 1.32 percent payment reduction for nominal 
case-mix growth and the 1.3 percent HH payment update percentage), we 
obtain the estimated average CY 2013 payment per episode. We note that 
the Medicare cost reports do not differentiate between normal, PEP, and 
outlier episodes in the reporting of costs per discipline. Therefore, 
the CY 2013 estimated average cost per episode includes costs for 
normal, PEP, and outlier episodes. To compare the episode payment to 
the average cost of an episode, we add the dollars from the 2.5 percent 
outlier pool back into the payment per episode. Later, in our 
calculation of the CY 2014 national, standardized 60-day episode 
payment rate, we remove the outlier dollars (see Tables 20 and 21 in 
section IV.E.4.b. of this rule).

                                    Table 8--2013 Estimated Cost per Episode
----------------------------------------------------------------------------------------------------------------
                                      Budget
                                    neutrality
                                     factor to     2013 Payment                                   2013 Estimated
 2012 National, standardized 60-    account for    reduction for      2013 HH         Outlier         average
    day episode payment rate         case-mix      nominal case-  Payment update    adjustment      payment per
                                      weight        mix growth      percentage                        episode
                                   adjustment to
                                      1.0000
----------------------------------------------------------------------------------------------------------------
$2,138.52.......................        x 1.3464        x 0.9868         x 1.013         / 0.975      =$2,952.03
----------------------------------------------------------------------------------------------------------------

d. Calculating the Rebasing Adjustment to the National, Standardized 
60-day Episode Payment Amount
    In the CY 2014 HH PPS proposed rule, we compared the 2013 estimated 
average payment per episode to the 2013 estimated average cost per 
episode and obtained a difference of -13.63 percent (($2,559.59-
$2,963.65)/$2,963.65). We stated that phasing-in the -13.63 percent 
adjustment over 4 years in equal increments would result in an annual 
reduction to the national, standardized 60-day payment rate of 3.60 
percent, determined using a compound annual growth rate (CAGR) formula 
(($2,559.59/$2,963.65) 1/4 -1 = -0.0360). Given the 3.5 
percent limit set in statute, we proposed to reduce the national, 
standardized 60-day episode payment amount by 3.5 percent in each year, 
2014 through 2017. For this final rule, when comparing the updated 2013 
estimated average cost per episode and 2013 estimated average payment 
per episode we obtained a difference of -13.09 percent (($2,565.51--
$2,952.03)/$2,952.03), as shown in Table 10. Phasing-in the -13.09 
percent over 4 years in equal increments would result in an annual 
reduction of 3.45 percent, determined using a CAGR formula.

 Table 10--Comparison of the Average Payment per Episode to the Average
                            Cost per Episode
------------------------------------------------------------------------
                                    2013 Estimated
    2013 Payment per episode       cost per episode    Percentage change
------------------------------------------------------------------------
$2,952.03.......................          $2,565.51              -13.09
------------------------------------------------------------------------

    In order to align episode payments with costs, we would implement a 
-3.45 percent rebasing adjustment to the national, standardized 60-day 
episode payment rate each year from 2014 through 2017. Our initial 
interpretation of section 3131(a) of the Affordable Care Act for the CY 
2014 HH PPS proposed rule reflects how one would ideally rebase a 
payment system and supports a -3.45 percent rebasing adjustment to the 
national, standardized 60-day episode payment rate. However, commenters 
stated that since the statute specifies that the rebasing adjustments 
``may not exceed 3.5 percent of the amount (or amounts) applicable 
under clause (i)(III) as of the date of enactment of the Patient 
Protection and Affordable Care Act'', the maximum adjustment of 3.5 
percent should be calculated using the CY 2010 payment rates. Upon 
further review of the specific language in the statute, we agree with 
the commenters. Therefore, as specified by statute, the rebasing 
adjustment is limited to 3.5 percent of the CY 2010 national, 
standardized 60-day episode payment rate of $2,312.94 (74 FR 58106), or 
$80.95.
    The -3.45 percent rebasing adjustment to the 2013 national, 
standardized 60-day payment rate described above exceeds the maximum 
adjustment specified by statute of $80.95. A -3.45 percent rebasing 
adjustment would result in a decrease of $99.56 for CY 2014 ($2,952.03 
* 0.975 (remove the outlier dollars that we put back in the rates for 
comparison purposes as described above) * 1.0026 (wage index 
standardization factor as described in section IV.E.4.b of this final 
rule) * 0.0345 = $99.56). In addition, a -3.45 percent rebasing 
adjustment for CY 2015 through 2017 would also exceed the maximum 
adjustment allowed under statute of $80.95. Given that a -3.45 percent 
adjustment for CY 2014 through CY 2017 would result in larger dollar 
amount reductions than the maximum dollar amount allowed under section 
3131(a) of $80.95, we are limited to implementing a reduction of $80.95 
to the national, standardized 60-day episode payment amount each year 
for CY 2014 through CY 2017.

[[Page 72279]]

2. Rebasing the Low Utilization Payment Adjustment (LUPA) Per-Visit 
Payment Amounts
    For episodes with four or fewer visits, Medicare pays on the basis 
of a national per-visit amount by discipline, referred to as a LUPA.
a. Calculating the Rebasing Adjustment to the LUPA Per-Visit Amounts
    As stated in the CY 2014 HH PPS proposed rule, to determine the 
rebasing adjustment for the national per-visit payment rates, we 
compared the current national per-visit payment rates to the estimated 
cost per visit, per discipline. The 2013 estimated per-visit costs per 
discipline are shown in Table 11. The 2011 per-visit costs per 
discipline are the same as those derived for the rebasing of the 
national, standardized 60-day episode payment rate (see Table 6). The 
average cost per-visit for NRS from the cost report sample is added to 
the 2011 estimated per-visit costs per discipline (see section IV.D.3. 
of this rule for more information on the calculation of the average NRS 
cost per visit). The per-visit costs are then increased by the HH 
market basket in 2012 and 2013 to obtain an estimate of the 2013 costs 
per visit, per discipline.

                         Table 11--2013 Estimated Average Cost per-Visit, per-Discipline
----------------------------------------------------------------------------------------------------------------
                                  2011 Estimated                                                  2013 Estimated
           Discipline              average cost     Average NRS   2012 HH market  2013 HH market   average cost
                                     per visit    cost per visit      basket          basket         per visit
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................         $131.51         + $2.26         x 1.024         x 1.023       = $140.13
Home Health Aide................           65.22         + $2.26         x 1.024         x 1.023        = $70.69
Physical Therapy................          160.69         + $2.26         x 1.024         x 1.023       = $170.70
Occupational Therapy............          159.55         + $2.26         x 1.024         x 1.023       = $169.50
Speech-Language Pathology.......          170.80         + $2.26         x 1.024         x 1.023       = $181.29
Medical Social Services.........          218.91         + $2.26         x 1.024         x 1.023       = $231.69
----------------------------------------------------------------------------------------------------------------

    Similar to the methodology used to determine the rebasing 
adjustment to the national, standardized 60-day episode payment rate, 
we took the current 2013 national per-visit payment rates and, for 
comparison purposes only, put the dollars from the 2.5 percent outlier 
pool back into the payment rates (see Table 12). This allows us to 
compare the CY 2013 cost per-visit, per-discipline on the Medicare cost 
reports (which includes normal and outlier episodes) to the CY 2013 
payment per-visit, per discipline.

                                 Table 12--2013 National Per-Visit Payment Rates
----------------------------------------------------------------------------------------------------------------
                                                                  2013 Per-visit                  2013 Per-visit
                                                                   payment rates      Outlier      payment rates
                           Discipline                               (excluding      adjustment      (including
                                                                   outlier pool)                   outlier pool)
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................................................         $114.35         / 0.975        = 117.28
Home Health Aide................................................           51.79         / 0.975        = $53.12
Physical Therapy................................................          125.03         / 0.975        = 128.24
Occupational Therapy............................................          125.88         / 0.975        = 129.11
Speech-Language Pathology.......................................          135.86         / 0.975        = 139.34
Medical Social Services.........................................          183.31         / 0.975        = 188.01
----------------------------------------------------------------------------------------------------------------

    When comparing the national per-visit payment rate, per discipline 
for LUPA episodes to the 2013 estimated average cost per-visit, per-
discipline, we observe that costs per visit are higher than the 2013 
national per-visit payment rates (see Table 13), ranging from +19.5 
percent to +33.1 percent.

  Table 13--Differences Between the CY 2013 per Visit Payment Rates and the CY 2013 Estimated Average Cost per
                                                      Visit
----------------------------------------------------------------------------------------------------------------
                                                                                  2013 Estimated
                           Discipline                             2013 Per-visit   average cost     Percentage
                                                                   payment rates     per visit        change
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................................................         $117.28         $140.13         + 19.48
Home Health Aide................................................           53.12           70.69         + 33.08
Physical Therapy................................................          128.24          170.70         + 33.11
Occupational Therapy............................................          129.11          169.50         + 31.28
Speech-Language Pathology.......................................          139.34          181.29         + 30.11
Medical Social Services.........................................          188.01          231.69         + 23.23
----------------------------------------------------------------------------------------------------------------

    We stated that phasing-in the adjustments, ranging from + 19.48 
percent to + 33.11 percent in Table 13 above, over 4 years in equal 
increments, would result in annual increases ranging from 4.55 to 7.41 
percent, determined using a compound annual growth rate (CAGR) formula. 
Given the 3.5 percent limit set in statute, we proposed to increase the 
per-visit payment rates by 3.5 percent every year from 2014 to 2017 in 
order to better

[[Page 72280]]

align the national per-visit payment amounts with costs. However, the 
statute limits the rebasing adjustment that can be applied. As 
explained in more detail below, several commenters stated that since 
the statute specifies that the rebasing adjustments ``may not exceed 
3.5 percent of the amount (or amounts) applicable under clause (i)(III) 
as of the date of enactment of the Patient Protection and Affordable 
Care Act'', the maximum adjustment of 3.5 percent should be calculated 
using the CY 2010 payment rates. Upon further review of the specific 
language in the statute, we agree with the commenters. Therefore, 
because of the language in the statute, we are limited to increasing 
the national per-visit payment amounts by no more than the amounts 
outlined in Table 14 below.

 Table 14--Maximum Adjustments to the National Per-Visit Payment Rates,
          Not To Exceed 3.5 Percent of the Amount(s) in CY 2010
------------------------------------------------------------------------
                                                           Maximum 3.5%
                                           2010 National   adjustment to
               Discipline                    per-visit       per-visit
                                           payment rates       rates
------------------------------------------------------------------------
Skilled Nursing.........................         $113.01           $3.96
Home Health Aide........................           51.18            1.79
Physical Therapy........................          123.57            4.32
Occupational Therapy....................          124.40            4.35
Speech-Language Pathology...............          134.27            4.70
Medical Social Services.................          181.16            6.34
------------------------------------------------------------------------
Source: (74 FR 58107).

    The annual increases ranging from 4.55 to 7.41 percent determined 
using a CAGR formula and the percentage changes in Table 13 above would 
exceed the maximum adjustments allowed under statute for CY 2014 
through 2017 (see Table 15 below). In addition, increasing the national 
per-visit payment rates by 3.5 percent each year, as proposed, would 
also exceed the maximum adjustments allowed under statute given that 
the rebasing adjustments cannot be more than 3.5 percent of the CY 2010 
national per-visit rates in any given year (see Table 15 below). 
Therefore, we are limited to implementing the dollar amount increases 
to the national per-visit payment rates outlined in Table 14 above each 
year, CY 2014 through CY 2017.

 Table 15--CAGR and Proposed 3.5 Percent Dollar Increases and the Maximum Adjustments to the National Per-Visit Payment Rates, Not To Exceed 3.5 Percent
                                                               of the Amount(s) in CY 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Proposed 3.5    Maximum 3.5%
                                                          2013 National     Wage Index     CAGR percent     CAGR dollar   percent dollar   adjustment to
                       Discipline                           per-visit    standardization     increase         amount          amount         per-visit
                                                          payment rates        \1\                           increase        increase          rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Skilled Nursing........................................         $114.35          $114.42            4.55           $5.21           $4.00           $3.96
Home Health Aide.......................................           51.79            51.82            7.41            3.84            1.81            1.79
Physical Therapy.......................................          125.03           125.11            7.41            9.27            4.38            4.32
Occupational Therapy...................................          125.88           125.96            7.04            8.87            4.41            4.35
Speech-Language Pathology..............................          135.86           135.94            6.80            9.24            4.76            4.70
Medical Social Services................................          183.31           183.42            5.36            9.83            6.42            6.34
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Column 2 is multiplied by the wage index standardization factor for the national per-visit payment rates of 1.0006 as described in section IV.E.4.b.

3. Rebasing the Nonroutine Medical Supply (NRS) Conversion Factor
    Payments for NRS are currently paid for by multiplying one of six 
severity levels by the NRS conversion factor. When the HH PPS was 
implemented on October 1, 2000, the national, standardized 60-day 
episode payment rate included an amount for NRS that was calculated 
based on costs from audited FY 1997 cost reports and the average cost 
of NRS unbundled and billed through Medicare Part B (65 FR 41180). The 
NRS costs for all the providers in the audited cost report sample were 
weighted to represent the national population. That weighted total was 
divided by the number episodes for the providers in the audited cost 
report sample, to obtain an average cost per episode for NRS of $43.54. 
Added to this amount was $6.08 to account for the average cost of 
unbundled NRS billed through Medicare Part B, resulting in a total of 
$49.62 included in the national, standardized 60-day episode payment 
rate to account for NRS.
    As stated in our CY 2008 HH PPS proposed rule, after the HH PPS 
went into effect, we received comments and correspondence expressing 
concern about the cost of supplies for certain patients with ``high'' 
supply costs (72 FR 25427, May 4, 2007). We acknowledged that, in 
general, NRS use is unevenly distributed across episodes of care. 
Therefore, we created an NRS conversion factor of $52.35 (the amount 
CMS originally included in the national, standardized 60-day episode 
payment rate of $49.62, updated by the market basket, and after an 
adjustment to account for nominal change in case-mix) that is further 
adjusted by one of six severity levels to ensure that the variation in 
NRS usage is more appropriately reflected in the HH PPS (72 FR 49852, 
August 29, 2007). Using additional variables from OASIS items and 
targeting certain conditions expected to be predictors of NRS use based 
on clinical considerations, a classification algorithm puts cases into 
one of the six severity levels and a regression model was used to 
develop the payment weights associated with each severity level. For 
more detail on how the final six NRS severity levels and associated 
payment weights were

[[Page 72281]]

developed please see the CY 2008 HH PPS final rule (72 FR 49850, August 
29, 2007). The 2008 NRS conversion factor has been updated by HH 
payment update percentages in years 2009 through 2013. The CY 2013 NRS 
conversion factor is $53.97 and CY 2013 NRS payments range from $14.56 
for severity level 1 to $568.06 for severity level 6 (77 FR 67102).
a. Calculating the Rebasing Adjustment to the NRS Conversion Factor
    In rebasing the NRS conversion factor as described in the CY 2014 
HH PPS proposed rule, we used the trimmed sample of 6,252 cost reports 
from FY 2011, as described in section IV.D.1. of this rule, to 
calculate a visit-weighted estimate of NRS costs per visit. We 
additionally weight these estimates to be nationally representative 
based on the same factors described in section IV.D.1. of this rule 
(that is, facility type, urban/rural status, and facility size). The 
2011 average NRS cost per visit was calculated to be $2.26.
    To calculate a 2011 estimated average NRS cost per episode for the 
CY 2014 HH PPS proposed rule, we multiplied the average NRS costs per 
visit of $2.26 by the average number of visits per episode of 18.59 
from 2011 claims data for a 2011 estimated average NRS cost per episode 
of $42.01. This amount was then adjusted to reflect the change in the 
average number of visits from 18.59, using 2011 claims data, to 18.41, 
using preliminary 2012 claims data ((1+ ((18.41-18.59)/18.59))= 
0.9903). We then inflated the result by the 2012 and 2013 HH market 
basket for a 2013 estimated average NRS cost per episode of $43.58. For 
this final rule, using the more current, complete CY 2012 claims data, 
the average number of visits in 2012 decreases to 18.46. Therefore, the 
adjustment for the change in the average number of visits per episode 
between CY 2011 and CY 2012 will be ((1+ 18.46 - 18.59)/18.59)) = 0. 
9930). We then inflate the result by the 2012 and 2013 HH market basket 
for a 2013 estimated average NRS cost per episode of $43.53 as shown in 
Table 16.

                              Table 16--2013 Estimated Average NRS Cost per Episode
----------------------------------------------------------------------------------------------------------------
                                                  Adjustment for
                                                     change in                                    2013 Estimated
                                                      average       2012 Market     2013 Market     average NRS
   2011 Estimated average NRS cost per episode    episode visits   basket update   basket update     cost per
                                                      (2011 to         (2.4)           (2.3)          episode
                                                       2012)
----------------------------------------------------------------------------------------------------------------
$42.01..........................................        x 0.9930         x 1.024         x 1.023          $43.70
----------------------------------------------------------------------------------------------------------------

    To compare the 2013 estimated average NRS cost per episode to 2013 
estimated average NRS payment per episode, for the CY 2014 HH PPS 
proposed rule we used preliminary 2012 claims data for non-LUPA 
episodes and the CY 2013 NRS conversion factor of $53.97 to calculate 
the estimated 2013 average NRS payment per episode of $48.38. For this 
final rule, using the more current, complete CY 2012 claims data shows 
that the distribution of episodes amongst the six severity levels 
differs from the distribution used when the NRS conversion factor and 
relative weights were established in CY 2008, as shown in Table 17.

                             Table 17--Percentage of Episodes by NRS Severity Level
----------------------------------------------------------------------------------------------------------------
                                                                                    Percent of
                                                                     Relative      episodes, CY     Percent of
                         Severity level                               weight        2008 final     episodes, CY
                                                                                       rule            2012
----------------------------------------------------------------------------------------------------------------
1...............................................................          0.2698            63.7            69.3
2...............................................................          0.9742            20.6            16.7
3...............................................................          2.6712             6.7             6.4
4...............................................................          3.9686             5.4             4.3
5...............................................................          6.1198             3.2             3.0
6...............................................................         10.5254             0.3             0.3
----------------------------------------------------------------------------------------------------------------
Source: The CY 2008 HH PPS Final Rule (72 FR 49852, August 29, 2007) and CY 2012 Medicare claims data (as of
  June 30, 2013) for non-LUPA HH episodes ending on or before December 31, 2012 for which we had a linked OASIS
  assessment.
Note(s): The distribution of episodes used to establish the CY 2008 relative weights was based on CY 2004 and CY
  2005 claims data and a sample consisting of all agencies whose total charges reported on their 2001 claims
  matched their total charges reported in their 2001 cost reports (72 FR 49852).

    In the proposed rule, when comparing the 2013 estimated average NRS 
payment per episode of $48.38 to the 2013 estimated average NRS cost 
per episode of $43.58; we obtained a difference of -9.92 percent 
(($43.58-$48.38)/$48.38). Phasing-in the 9.92 percent reduction over 4 
years in equal increments, using a CAGR formula, would result in an 
annual reduction of 2.58 percent. Using the updated distribution of CY 
2012 claims by severity level and the relative weights in Table 17 with 
the CY 2013 conversion factor of $53.97, the CY 2013 estimated average 
NRS payment per episode is $49.00. Comparing the 2013 estimated average 
NRS cost per episode to the 2013 estimated average NRS payment per 
episode, we obtain a difference of -10.82 percent (($43.70-$49.00)/
$49.00). Phasing-in the -10.82 percent adjustment over 4 years in equal 
increments, using a CAGR formula, will result in an annual reduction of 
2.82 percent, or $1.52 in CY 2014 ($53.97 x 0.0282 = $1.52). This $1.52 
does not exceed 3.5 percent of the CY 2010 NRS conversion factor, which 
is calculated to be $1.87 ($53.34 x 0.035). We noted in the CY 2014 HH 
PPS proposed rule that during our analysis of NRS costs and payments, 
we found that a significant number of providers listed charges for NRS 
on the home health claim, but those same providers did not list any NRS 
costs on their cost reports. Specifically, out of the 6,252 cost 
reports from FY 2011, as described in section IV.D.1.of this rule, 
1,756 cost reports (28.1 percent) reported NRS charges in their claims, 
but listed $0

[[Page 72282]]

NRS costs on their cost reports. Given the need for extensive trimming 
of the cost reports as well as the findings from the audits and our 
analysis of NRS payments and costs, we are exploring possible 
additional edits to the cost report and quality checks at the time of 
submission to improve future cost reporting accuracy (78 FR 40290). For 
more information on the rebasing analyses performed, refer to the 
technical reports for both the proposed and final rules available on 
the CMS Home Health Agency (HHA) Center Web site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/center/hha.asp.
    The following is a summary of the comments we received regarding 
the proposed rebasing adjustments to the National, Standardized 60-day 
Episode Payment Amount, LUPA Per-Visit Payment Amounts, and the (NRS) 
Conversion Factor.
    Comment: Commenters stated that the maximum allowable rebasing 
reduction should be calculated from the CY 2010 standardized base 
amount, not the CY 2013 average payment. The commenters stated that the 
Affordable Care Act refers to ``the date of enactment'' and since the 
Affordable Care Act was enacted on March 23, 2010, CY 2010 payment 
amounts should be used when calculating the maximum allowable reduction 
for rebasing. In addition, commenters argued that the limit should be 
calculated using the national standardized episode payment rate, rather 
than the episode payment rate multiplied by the average case-mix.
    Response: While we interpreted the statutory language differently 
for the CY 2014 HH PPS proposed rule and believe that the proposed rule 
reflects the how one would ideally rebase a payment system, upon 
further review, we agree with the commenters regarding the date of 
enactment and will use the CY 2010 payment rates to determine whether 
any of the rebasing adjustments exceed 3.5 percent.
    Comment: MedPAC was supportive of the proposed adjustments to the 
payment amounts, but expressed concerns that the proposed rebasing 
adjustment to the national, standardized 60 day episode amount of -3.5 
percent will be too modest and leave agencies with substantial profit 
opportunities. MedPAC stated that much of the annual rebasing 
reductions will be offset by the payment update for each year in 2014 
to 2017 and estimates that the cumulative net payment reduction to the 
national, standardized 60-day episode payment amount after four years 
will equal approximately 4 percent. MedPAC noted that the rebasing 
reductions are smaller than the net reductions implemented in 2010 
through 2013, a period when the base rate was reduced by 7.6 percent, 
and noted that the four-year cumulative net effect of the rebasing 
reductions is smaller than the 4.89 percent estimated one-year payment 
reduction for CY 2011. MedPAC stated that they recommended to the 
Congress that the statute should be changed so that rebasing could be 
implemented in a shorter period and also recommended that the market 
basket updates be eliminated to bring costs closer to payments than the 
current approach.
    Response: We thank MedPAC for their comments. As MedPAC noted, we 
proposed a 3.5 percent reduction to the CY 2013 national, standardized 
60-day episode payment rate for CY 2014 and an additional 3.5 percent 
in each year 2015 through CY 2017. However, we do not have the 
statutory authority to either shorten the 4-year phase-in period or 
eliminate the annual payment updates. As brought to our attention by 
commenters, the maximum rebasing adjustment amounts are now calculated 
using 3.5 percent of the CY 2010 payment rates. Consequently, for this 
final rule that requirement results in a $80.95 dollar reduction to the 
national, standardized 60-day episode payment amount in each year from 
CY 2014 through CY 2017 as described in section IV.D.1.d above. This is 
equivalent to a 2.81 percent reduction to the national, standardized 
60-day episode payment rate for 2014 rather than a 3.45 percent 
reduction.\2\
---------------------------------------------------------------------------

    \2\ $2,952.03 * 0.975 (remove the outlier dollars that we put 
back in the rates for comparison purposes) * 1.0026 (wage index 
standardization factor as describe in section IV.E.4.b of this final 
rule) = $2,885.71. $2885.71-$80.95 = $2,804.76. ($2,804.76-
$2,885.71)/$2,885.71 = 2.81%)
---------------------------------------------------------------------------

    Comment: Several commenters stated that CMS should not implement 
the proposed payment reductions. Commenters stated that the proposed 
payment reductions may impact quality of care and diminish health care 
system efficiency, as well as limit provider's ability to participate 
in broader delivery system reform efforts. Specifically, commenters 
stated that home health care prevents hospital readmissions and is less 
costly than other post-acute settings, and that the rebasing 
adjustments may increase the use of more costly institutional care, 
like hospitals, which is against the goal of health care reform to 
improve outcomes and care coordination, prevent hospitalizations and 
re-hospitalizations, and reduce costs. A commenter stated that patient 
outcomes have improved and that spending in FY 2011 is similar to FY 
1996, indicating that reductions are not needed. Another commenter 
stated that CMS should ensure that the final rebasing policy reflects 
the goals to improve patient care and outcomes, encourage coordination 
among providers, and appropriately manage the cost of care without 
harming patient affordability, quality, or access.
    Response: Section 3131(a) of the Affordable Care Act requires that 
the HH PPS payment amount(s) ``shall be adjusted by a percentage 
determined appropriate by the Secretary to reflect factors such as the 
changes in the number of visits in an episode, the mix of services in 
an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other factors that the 
Secretary considers to be relevant.'' In their 2013 Report to Congress, 
MedPAC stated that ``the number and types of visits in a home health 
episode changed significantly after the HH PPS was introduced, although 
the payments were based on the older, higher level of use and 
costs''.\3\ Furthermore, based on analysis of FY 2011 cost report data, 
the 60-day episode costs, the per-visit rate costs, and NRS costs have 
changed since the start of the HH PPS (65 FR 41184) and CMS is 
implementing adjustments to the HH PPS payment amounts to reflect those 
changes. The goal of the adjustments is to align payment with costs, 
similar to what was done when setting the original base rate and per-
visit amounts, and the methodology to determine the rebasing adjustment 
is very similar to the methodology used to set the original base rate 
and per-visit amounts. CMS plans to monitor the effects of the rebasing 
adjustments on access and quality of care for any unintended effects.
---------------------------------------------------------------------------

    \3\ MedPAC. ``Chapter 2: Assessing payment adequacy and updating 
payments in fee-for-service Medicare.'' Report to the Congress--
Medicare Payment Policy. March 2013, p. 34.
---------------------------------------------------------------------------

    Comment: One commenter stated that the differences between cost and 
payment may be related to fraud and abuse and that targeted efforts to 
address fraud or examination of Medicare eligibility policies rather 
than across the board cuts should be implemented. One commenter stated 
that instead of finalizing the rebasing proposal, CMS should start the 
development of a new payment methodology for the therapy component of 
the HH PPS that accurately bases payment on the severity of the patient 
and the necessary resources to treat the condition, rather than basing 
payment on thresholds. Other commenters stated

[[Page 72283]]

that CMS should either abandon or delay the case-mix weight adjustments 
and rebasing approach and spend the next year performing a realistic 
analysis of true home health agency costs and beneficiary needs for 
home health services.
    Response: Section 3131(a) of the Affordable Care Act requires a 
four year phase-in of rebasing, in equal increments, to start in CY 
2014 and be fully implemented in CY 2017. Therefore, based on statutory 
requirements, rebasing cannot be delayed or eliminated once we have 
determined that rebasing is necessary. Differences between estimated 
episode costs and payments indicate a need to better align payment with 
costs and therefore, rebasing of the HH PPS payment amounts is needed. 
We intend to explore these commenters' concerns in ongoing research. We 
recently awarded a contract to Abt Associates to explore the findings 
and any recommendations from the home health study mandated by section 
3131(d) of the Affordable Care Act, reassess the case-mix system, 
monitor potential impacts of rebasing and other recent payment policy 
changes, and develop reform options to ensure continued access and 
quality of care as well as address potential vulnerabilities in the 
current payment system.
    Comment: Commenters stated that the proposed reductions puts the 
nation's economic recovery at risk since it targets the home health 
sector and the home health care community has been a primary driver of 
job growth.
    Response: The impact of the rebasing adjustments for CY 2014 is 
estimated to be approximately -2.7 percent as described in section VII. 
However, the net impact for CY 2014, given all the payment changes for 
CY 2014, including the payment update percentage, is estimated at -1.05 
percent. This net reduction over the four years is much smaller than 
some previous net reductions implemented in single payment years, such 
as the net reduction finalized in CY 2011. In CY 2011, CMS estimated 
that the net impact of the payment policies for that year to be -4.89 
percent. Yet, according to MedPAC, the home health industry did not 
seem to be adversely impacted as the number of home health agencies 
from 2010 to 2011 grew from 11,654 to 12,199 and the number of home 
health episodes from 2010 to 2011 grew similarly, with 6.8 million 
episodes in 2010 and 6.9 million episodes in 2011.\4\ Therefore, we do 
not expect that the rebasing adjustments for CY 2014 will have a 
significant impact but we will be monitoring the impact of rebasing on 
access to home health care.
---------------------------------------------------------------------------

    \4\ MedPAC. ``Chapter 9: Home Health Care Services.'' Report to 
the Congress--Medicare Payment Policy. March 2013, p. 194-195.
---------------------------------------------------------------------------

    Comment: One commenter argued that language in section 3143 of the 
Affordable Care Act prohibits CMS from implementing rate rebasing as 
proposed because it will result in the reduction of guaranteed home 
health benefits, and that the guaranteed home health benefits include 
reasonable access to a provider that accepts Medicare payment.
    Response: Section 3143 of the Affordable Care Act reads that 
``Nothing in the provisions of, or amendments made by, this Act shall 
result in the reduction of guaranteed home health benefits under title 
XVIII of the Social Security Act.'' We interpret this to mean that with 
regards to the statutory language at 1814(a)(2)(C), 1835(a)(2)(A), 
1861(m) and 1861(kk), there are to be no changes to the scope of 
coverage under the Medicare home health benefit. The Congress inserted 
the rebasing provision into section 1895 of the Act (Prospective 
Payment System of Home Health Services), which calls for the rebasing 
of the amount(s) applicable under that section of the Act. We fully 
intend to monitor the effects of any adjustment made to the payment 
amounts in this final rule for any unintended results, including any 
substantial impact on access to care. We also note that, as mandated in 
section 3131(a) of the Affordable Care Act, MedPAC will conduct a study 
on the rebasing implementation, which will include impact analysis on 
access to care, and submit a Report to Congress no later than January 
1, 2015, along with any potential recommendations, if necessary.
    Comment: Commenters stated that the rebasing reductions will drive 
payments below costs in almost every state by 2017, causing access 
issues and impacting quality of care. Commenters stated that by setting 
the payment at costs, it guarantees that 50 percent of the HHAs will be 
paid less than cost by CY 2017 and that a margin is needed to meet 
normal business operational needs, such as the need for capital 
funding, keeping staff and attracting new staff, and investment in new 
technologies and care delivery models. One commenter stated that there 
is no precedent in payment adjustments that call for the estimation of 
profit margins regardless of type of entity and the ``elimination of 
entire average, estimated margins'' for the industry. The commenter 
recommended that CMS engage in an in-depth analysis and study of the 
economics at play in the home health marketplace in determining the 
level of profit/margin that is reasonable to offer and stated that home 
health agencies have little other revenue, such as commercial insurance 
revenue, to help counter reductions in Medicare payment and that 
agencies have little opportunity for margin outside of Medicare.
    Response: The rebasing methodology used to develop the proposed 
rebasing adjustments is very similar to the methodology used in 2000 
where the episode rate and per-visit amounts were equated to the 
estimated costs per episode or per visit. Notably, in 2000, even though 
the episode and per-visit amounts were aligned with the expected cost 
for HH PPS episodes, there were high margins in the first year of the 
HH PPS, in large part due to HHAs providing fewer visits than 
anticipated. In addition, MedPAC stated in their March 2013 Report to 
the Congress, ``Margins have stayed high since 2001 because annual 
increases in payment have exceeded growth in costs. The Commission's 
review of the annual change in cost per episode suggests that cost 
growth has been minimal, typically less than 1 percent. In some years, 
a decline has been observed. Average payments per episode have 
generally increased from year to year, driven by market basket 
increases and increases in the average case-mix index.''
    While we calculated the proposed adjustments for rebasing by 
aligning payment to costs, we did not factor in potential opportunities 
for HHAs to increase efficiencies into the calculation of the rebasing 
adjustments. We also note that the rebasing adjustments to the 
national, standardized 60-day episode payment rate for CY 2014 through 
2017 will be lower than the proposed adjustments given that we cannot 
implement a reduction that exceeds 3.5 percent of the CY 2010 national, 
standardized 60-day episode payment rate of $2,312.94 or a reduction 
greater than $80.95 in a given year. Similar to 2000, we expect that in 
the upcoming years HHAs will increase efficiencies in some operating 
areas and institute mechanisms to better control costs. In their 2013 
Report to Congress, MedPAC stated ``low cost growth or no cost growth 
has been typical for home health care, and in some years we have 
observed a decline in cost per episode. The ability of HHAs to keep 
costs low has contributed to the high margins under the Medicare PPS.''
    In addition, the rebasing adjustments over the next four years will 
be partly offset by the HH PPS payment update percentage and, 
therefore, the net

[[Page 72284]]

impact on HHAs will be smaller than payment reductions absorbed by the 
industry in previous years. We plan to monitor the impact of the 
rebasing adjustments for any unintended consequences. As noted above, 
as mandated in section 3131(a) of the Affordable Care Act, MedPAC will 
conduct a study on the rebasing implementation, which will include 
impact analysis on access to care, quality outcomes, the number of home 
health agencies, and rural, urban, for-profit, and non-profit agencies, 
and submit a Report to Congress no later than January 1, 2015, along 
with any potential recommendations.
    Comment: Commenters stated that the rural add-on only applies to 
episodes through December 2016 and therefore, the rural communities and 
frontier areas may be hit hard in 2017 by the combination of the 
rebasing adjustments and the expiration of the rural add-on policy. 
Commenters asked CMS to do a more thorough investigation of health care 
costs in rural areas. Commenters stated rural area HHAs experience 
higher costs in part due to longer drive times to reach rural 
residents.
    Response: Thank you for the comment. We plan to continue to explore 
the costs associated with rural areas. We are currently in the process 
of implementing a ``Frontier Community Health Integration Project'' 
demonstration that may be useful in providing information on whether 
there are substantial cost differences between urban and rural areas, 
driven primarily by increased transportation costs. However, we note 
that in their 2013 Report to Congress, MedPAC stated that the use of 
the ``broad targeted add-on, providing the same payment for all rural 
areas regardless of access, results in rural areas with the highest 
utilization drawing a disproportionate share of the add-on payments.'' 
MedPAC stated that ``70 percent of the episodes that received the add-
on payments in 2011 were in rural counties with utilization 
significantly higher than the national average'' and recommended that 
Medicare target payment adjustments for rural areas to those areas that 
have access challenges. We will take MedPAC's recommendation into 
account when assessing cost differences between urban and rural areas.
    Comment: Commenters stated that the proposed rebasing policy will 
have unintended impacts for vulnerable patients, such as those with 
higher costs or more complex care needs. Commenters stated that CMS 
should not implement rebasing until the study required under section 
3131(d) of the Affordable Care Act is completed and the report is 
delivered to the Congress. Commenters stated that the study directs CMS 
to look at the cost of treating certain subgroups and that the study 
was intended to be coupled with rebasing, stating that the CY 2014 
policies will be implemented just months before the statutory deadline 
for the Report to Congress on the study. The commenters asked CMS to 
consider the findings of the study and the risks associated with the 
rebasing adjustments for vulnerable populations and re-assess the 
proposed reductions. Some commenters stated that CMS should consider 
incorporating findings from the Visiting Nurse Associations of America 
(VNAA) Vulnerable Patient study into the rebasing methodology. 
Commenters stated that the VNAA Vulnerable Patient study found that 
Medicare home health episodes for patients with certain 
characteristics, such as those with poorly controlled chronic 
conditions, lower median household incomes or serious or frail status, 
have significantly lower reimbursement compared to cost than other 
patients. Commenters also cited types of beneficiaries which may be 
vulnerable, including but not limited to African and Hispanic home 
health beneficiaries and mentally-ill patients. Commenters stated that 
the CY 2014 HH PPS proposed rule needs to consider and adopt protective 
measures to ensure access to care for vulnerable patients.
    A commenter also asked if CMS considered the aging of the American 
and Medicare population, the increase in the awareness and acceptance 
of home health as a viable health care option, and the increase in 
incentives for hospitals to discharge patients earlier resulting in a 
higher patient acuity for home health patients in the rebasing 
analysis. The commenter recommended that CMS implement a study of the 
1999 consultant's report by the National Science Foundation to assess 
the comparability of patient needs presented in 1999 versus patient 
needs being present in 2013 and implement a research effort to look at 
the changes in home health care since 2000.
    Response: We agree with the commenters that the case-mix system and 
home health study findings should be examined and addressed. However, 
the findings and recommendations of the study will not be final until 
spring of next year and section 3131(a) of the Affordable Care Act 
mandates that CMS implement rebasing starting in CY 2014. The home 
health study did take into account the findings from the VNAA 
Vulnerable Patient study and as noted, we recently awarded a contract 
to Abt Associates to perform follow-on work to the home health study. 
The contractor will further explore findings and recommendations from 
the home health study, reassess the case-mix system, monitor potential 
impacts of rebasing and other recent payment policy changes, and 
develop reform options to ensure continued access and quality of care 
for any vulnerable beneficiaries as well as address potential 
vulnerabilities in the current payment system.
    Comment: One commenter stated that there are negative margins 
associated with the provision of services to Medicaid, uninsured, and 
managed care patients and that positive Medicare margins are needed to 
subsidize the cost of providing services to these patients. Another 
commenter stated that the rule needs to consider the impact of 
expansion of Medicare Advantage plans and Fully Integrated Dual 
Advantage plans that will likely decrease Medicare revenues and profit 
margins.
    Response: While industry representatives contend that Medicare 
payments should subsidize payments from other payers (in large part 
Medicaid), we disagree. Medicare has never set payments so as to cross-
subsidize other payers. Section 1861(v)(1)(A) of the Act states ``under 
the methods of determining costs, the necessary costs of efficiently 
delivering covered services to individuals covered by the insurance 
programs established by this title will not be borne by individuals not 
so covered, and the costs with respect to individuals not so covered 
will not be borne by such insurance programs.'' As MedPAC stated in its 
March 2011 Report to Congress, cross-subsidization is not advisable for 
two significant reasons: ``Raising Medicare rates to supplement low 
Medicaid payments would result in poorly targeted subsidies. Facilities 
with high shares of Medicare payments--presumably the facilities that 
need revenues the least--would receive the most in subsidies from the 
higher Medicare payments, while facilities with low Medicare shares-- 
presumably the facilities with the greatest need-- would receive the 
smallest subsidies. Finally, increased Medicare payment rates could 
encourage states to further reduce their Medicaid payments and, in 
turn, create pressure to raise Medicare rates.\5\''
---------------------------------------------------------------------------

    \5\ MedPAC. ``Chapter 7: Skilled Nursing Facility Services.'' 
Report to the Congress--Medicare Payment Policy. March 2011, p. 159.
---------------------------------------------------------------------------

    In addition, we examined the proportion of Medicare-paid visits on 
the cost reports in our sample and found that the majority of visits 
recorded on

[[Page 72285]]

the cost report are Medicare-paid visits. As such, the average cost per 
visit is more representative of Medicare visit costs. We examined 
whether the average costs per visit may be different for Medicare 
versus other payers by examining the relationship between the 
providers' average costs per visit and the provider's proportion of 
visits that were paid by Medicare. Specifically, we grouped providers 
with similar proportions of Medicare visits (for example, those with 
60-70 percent of visits as Medicare-paid visits and other 10 percentage 
point groupings) and examined the average costs per visit across the 
groups. We did not see a consistent relationship between costs and the 
Medicare share of visits, either across disciplines or across the 
provider groups.
    Comment: Several commenters opposed the use of 6,252 out of 10,327 
cost reports for rebasing. One commenter stated that there were about 
10 percent of home health agencies that participate in the Medicare 
program that did not submit cost reports and therefore, did not have 
their cost data included in the rebasing analysis and one commenter 
stated that the majority of the agencies trimmed were small agencies, 
which will be severely impacted by rebasing. Commenters stated that 
this level of trimming was not necessary to gain reliable data and 
stated that over 9,000 cost reports were reliable and useable. 
Commenters noted that for the Hospital Outpatient Prospective Payment 
System (OPPS), CMS only removed 25 percent of cost reports. Commenters 
recommended CMS revisit the trim methodology to include as many cost 
reports as possible.
    Response: We appreciate the commenter's concern on the number of 
providers used in (or excluded from) the HHA rebasing analysis. As 
stated in the CY 2014 HH PPS proposed rule, 1,629 of the 10,327 cost 
reports were missing data on total Medicare costs or Medicare payments 
and 375 cost reports either had missing visits when costs were reported 
or missing costs when visits were reported. Otherwise stated, 
approximately 20 percent of the 10,327 Medicare cost reports were 
incomplete. Of the remaining 8,323 completed Medicare cost reports, 
approximately 75 percent were included in the rebasing analysis. In the 
CY 2014 HH PPS proposed rule (78 FR 40285), we provided a complete 
description of the methods used to trim the cost reports.
    We performed analysis on both the trimmed and untrimmed sample. We 
found that using the trimmed sample resulted in an estimated average 
cost per episode that was much higher than the estimated cost per 
episode using the untrimmed cost report sample. The estimated average 
cost per episode using the untrimmed cost report sample was $1,883.63 
compared to $2,453.71 using the trimmed cost report sample. If CMS were 
to use the untrimmed cost report sample, the percentage for the 
rebasing reduction, if there was no statutory limit, would likely have 
been much larger than with the trimmed sample. With regards to the 
comment about the exclusions of agencies that didn't submit cost report 
data or the disproportionate exclusion of agencies that were small, as 
described in section IV.D.1. of this rule, the per-visit costs obtained 
from the cost reports in our sample were weighted to be nationally 
representative by facility type, urban/rural status, and facility size. 
Therefore, the costs per visit used to calculate the estimated episode 
cost should be nationally representative and appropriately reflect 
small agencies.
    Many of the edits applied are similar to those edits applied in 
other PPS systems and by MedPAC (including but not limited to, the 
exclusion of providers with missing Medicare Payments, missing Medicare 
costs, missing Medicare episodes, and reports that are less than 10 
months or greater than 14 months). We continue to believe that our 
trimming methodology and our weighting methodology is technically 
appropriate and produces a nationally-representative costs per visit 
and costs per episode.
    Comment: Some commenters stated that the data used for rebasing are 
outdated and that 2012 cost report data should be used, arguing that 
the CY 2012 cost reports portray a more accurate picture of providers' 
financial state. A number of commenters cited that 2012 cost reports 
would better capture agency costs, such as but not limited to, those 
associated with the full implementation of face-to-face and therapy 
requirements and the CY 2012 recalibration. Commenters stated that the 
2012 cost reports reflect declining average revenue, increased costs, 
and lower average margins, particularly among small home health 
agencies, and that Medicare margins have been declining over the years.
    Response: We disagree with the commenter's claim that the cost 
reports used are not the most current, complete data available for 
rebasing. As of June 30, 2013, there were over 10,000 FY 2011 
freestanding and hospital-based HHA cost reports of which over 90 
percent are settled. Also, as of June 30, 2013, there are only about 
6,800 FY 2012 freestanding and hospital-based cost reports of which 
roughly only 60 percent are settled. Therefore, the FY 2011 cost report 
data is the most complete data available at the time of the rebasing 
analysis.
    In response to the commenter's claims that the CY 2012 cost reports 
portray a more accurate picture of providers' financial state, we 
calculated the average costs per visit for a matched sample of 2011 and 
2012 providers using our rebasing sample of cost reports described in 
section IV.D.1 and in the CY 2014 HH PPS proposed rule (78 FR 40284) 
and preliminary 2012 home health agency Medicare cost report data 
(approximately 5,700 2012 cost reports). We found that the average 
costs per visit for all disciplines (home health aide, medical social 
services, occupational therapy, physical therapy, skilled nursing, and 
speech-language therapy) remained virtually unchanged (see Table 18), 
while the total number of visits per episode from 2011 to 2012 dropped 
from 18.59 to 18.39, as shown in Table 7. This drop in total visits 
from 2011 to 2012 with virtually no changes in the costs per visit 
suggest that the 2012 estimated cost per episode may be less than the 
cost per episode estimated using FY 2011 cost report data.

             Table 18--Average Cost per Visit, 2011 and 2012
------------------------------------------------------------------------
                                               2011            2012
------------------------------------------------------------------------
Skilled Nursing.........................        $ 133.65        $ 133.71
Physical Therapy........................          161.05          162.81
Occupational Therapy....................          158.80          159.22
Speech-Language Pathology...............          170.20          173.06
Medical Social Services.................          220.91          219.74

[[Page 72286]]

 
Home Health Aide........................           69.79           65.63
------------------------------------------------------------------------
Source: FY 2011 Medicare cost report data as of December 31, 2012 and FY
  2012 Medicare cost report data as of June 30, 2013 for providers who
  were included in the rebasing sample described in section IV.D.1.a.
  and for which a FY 2012 cost report was on file. We weighted the
  average costs per visit in 2012 by size, ownership type, and urban-
  rural status to mimic the distribution of providers in the 2011 claims
  used for weighing the 2011 average costs per visit used for rebasing.

    In addition, the calculations of the proposed CY 2014 rebasing 
adjustments include a 2.4 percent and a 2.3 percent increase to account 
for the market basket CY 2012 and CY 2013 updates, respectively. These 
updates reflect the latest forecast of the HHA market basket available 
at the time of rate setting. However, the actual (reflecting historical 
data rather than a forecast) HHA market basket increase for 2012 is now 
measured to be 1.7 percent (0.7 percentage points lower than the 
forecasted increase for CY 2012 of 2.4 percent). Preliminary data also 
suggests the CY 2013 market basket update of 2.3 percent was overstated 
by roughly 0.5 percentage points. The home health market basket 
percentage increases can be found here: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/Downloads/mktbskt-summary.pdf. We would note 
that the CY 2012 market basket update was based on the 2003-based HHA 
market basket while the Web site reference above includes the 2010-
based HHA market basket increase, which is used for CY 2013 and 
subsequent years.
    Comment: Several commenters stated that CMS should include all home 
health service costs in its calculation of the cost of care. Commenters 
stated that the overhead costs of hospital-based home health agencies 
were not factored into the cost calculations and also listed several 
costs that they stated are not reflected in the 2011 cost reports, such 
as new resources needed for the growth of Accountable Care 
Organizations (ACOs), bundled payment initiatives, Independence at Home 
program, hospital readmissions reduction program, wage and employee 
health benefit changes, mandatory employer costs/penalties, HIPAA 
compliance, work with physicians related to PECOS, and implementation 
and administration of OASIS-C. Numerous commenters also stated that the 
CY 2011 cost reports did not reflect new regulatory obligations, such 
as the costs associated with therapy and face-to-face requirements, HH 
CAHPS survey requirements and the upcoming implementation of ICD-10-CM.
    Several commenters disagreed with CMS' exclusion of non-allowable 
costs which they state are part of operating a business, such as bad 
debt, taxes, franchise fees, fundraising costs in a non-profit, 
marketing costs and business development costs, full administrative and 
general costs including those that are non-reimbursable under Medicare 
cost reimbursement principles, and formal and informal home office 
costs, respiratory therapy, nutritionist, dietician services, health 
information technology, telehealth, computerized information 
technology, and documentation time.
    Response: Overhead costs of hospital-based home health agencies 
were factored into the cost calculations as we used cost measures where 
both direct service and indirect (such as, administrative and general) 
costs have been allocated to the appropriate cost centers. Please see 
page 17 of the technical report titled ``Analyses in Support of 
Rebasing & Updating the Medicare Home Health Payment Rates--CY 2014 
Home Health Prospective Payment System Proposed Rule'' available on the 
CMS Home Health Agency (HHA) Center Web site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/
center/hha.asp.
    The 2011 HHA Medicare cost reports used in the rebasing analysis 
reflect the costs of complying with longstanding regulatory 
requirements, such as HIPAA, and the implementation of OASIS-C on 
January 1, 2010, and HH CAHPS survey requirements in the fourth quarter 
of CY 2010. In addition, the face-to-face encounter requirement 
mandated by the Affordable Care Act was implemented on January 1, 2011 
(with a compliance deadline of April 1, 2011) and therefore, the costs 
of the face-to-face encounter requirement are likewise accounted for in 
the 2011 cost reports used for rebasing. The therapy reassessment 
requirements were implemented on April 1, 2011. We believe that the 
2011 cost reports would reflect the costs of complying with the new 
therapy reassessment requirements as agencies should have begun 
altering their documentation practices and therapist oversight 
activities early in 2011 to comply with the reassessment requirements. 
Nevertheless, we did perform analysis of preliminary 2012 cost report 
data and found virtually no changes in the costs-per-visit. This in 
conjunction with the drop in visits from 2011 to 2012 suggests that the 
2012 estimated cost-per-episode may be less than the estimated 2011 
cost per episode. While we acknowledge that the costs of implementing 
ICD-10-CM code set, effective October 1, 2014, and of educating 
physicians on enrollment in PECOS are not reflected in the cost reports 
we used, we did use the most current, complete cost report data 
available at the time of issuing this rule to calculate the rebasing 
adjustments. Section 3131(a) of the Affordable Care Act requires us to 
rebase payments starting in CY 2014 to be fully phased-in by CY 2017. 
As stated earlier, as of June 30, 2013, there are only about 6,800 FY 
2012 freestanding and hospital-based cost reports of which roughly only 
60 percent are settled. Therefore, the FY 2011 cost report data is most 
complete data currently available and was the data used for the 
rebasing analysis. We note that while participation in ACOs, bundled 
payment initiatives and the ``Independence at Home'' program are 
encouraged, participation is likely to occur among agencies that 
believe they can ``work smarter'' to achieve the aims of those 
programs. As with other voluntary programs, agencies self-select into 
them for a variety of reasons, and not only reasons related to possible 
costs of participation. Further, the hospital readmission reduction 
program is aimed at keeping patients with certain conditions from being 
re-hospitalized within 30 days of discharge and reduces payments to 
hospitals with excess readmissions. HHAs do not receive reduced payment 
when excess readmissions occur at a particular hospital. However, we 
would expect that HHAs would continue to provide quality care so that 
readmissions are minimized. In addition, we note that the hospital 
readmissions reduction program could create an incentive for hospitals 
to make more use of home care as a way to help prevent hospital 
readmissions.

[[Page 72287]]

    With regards to the costs included in the rebasing methodology, 
section 1861(v)(1)(A) states that ``The reasonable cost of any services 
shall be the cost actually incurred, excluding therefrom any part of 
incurred cost found to be unnecessary in the efficient delivery of 
needed health services.'' We also note that section 1895(e) of the Act 
governs the HH PPS and states that telehealth services are outside the 
scope of the Medicare home health benefit and home health PPS. This 
provision does not provide coverage or payment for Medicare home health 
services provided via a telecommunications system. The law does not 
permit the substitution or use of a telecommunications system to 
provide any covered home health services paid under the home health 
PPS, or any covered home health service paid outside of the home health 
PPS. As set forth in 42 CFR 409.48(c), a visit is an episode of 
personal contact with the beneficiary by staff of the home health 
agency (HHA), or others under arrangements with the HHA for the 
purposes of providing a covered service. The provision clarifies that 
there is nothing to preclude an HHA from adopting telemedicine or other 
technologies that they believe promote efficiencies, but that those 
technologies will not be specifically recognized or reimbursed by 
Medicare under the home health benefit.
    Although commenters took issue with certain non-reimbursable costs 
not being included in the cost calculations, we note that the home 
health agency Medicare cost report form has undergone little to no 
revision since 1985. Prior to the interim payment system (1997-2000), 
providers were paid at cost for the direct and indirect costs 
associated with providing skilled nursing, home health aide, physical 
therapy, speech-language pathology, occupational therapy, and medical 
social services along with routine and non-routine medical supplies. 
While HHAs were receiving cost-based reimbursement, the number of 
agencies, users and services expanded rapidly in the early 1990s, 
indicating that non-reimbursable costs were not substantial enough to 
discourage new agencies from entering the market. When the HH PPS was 
implemented in 2000, non-reimbursable costs were not considered, nor 
did the industry comment on the FY 2000 HH PPS proposed rule that they 
were concerned about non-reimbursable costs being excluded from the 
cost calculations. After HH PPS implementation, the number of agencies 
grew once again from approximately 7,500 agencies in 2000 to over 
12,000 in 2011. We continue to believe that the cost calculations 
performed for determining the rebasing adjustments mandated by the 
Affordable Care Act are appropriate and reflect the direct and indirect 
costs of home health services rendered to Medicare beneficiaries.
    Comment: One commenter stated that there was an ``order of 
operations'' issue in the methodology used for rebasing. The commenter 
stated that when CMS first increased the estimated payment rate to 
account for the weight reductions (that is, the resetting of the 
average weight to 1.0000), it significantly increased the base to which 
the 3.5 percent cut was applied. If the same percentage cut were made 
to the lower pre-neutralized standardized rate, the 3.5 percent cut 
would have been about 1 percent lower, or $28.92 an episode. The 
commenter thought that CMS should restore this amount to the base rate.
    Response: The starting point to which the rebasing adjustments are 
applied is the CY 2013 estimated average payment per episode, which we 
compare to the CY 2013 estimated average costs per episode. The 
increase in the CY 2012 national, standardized 60-day episode payment 
rate by the budget neutrality factor is used to estimate CY 2012 
average payment. The CY 2012 average payment is then adjusted by the CY 
2013 adjustments (nominal case-mix reduction and HH payment update 
percentage). The increase in the base rate must occur before the 
rebasing adjustments are applied, not afterwards, as the rebasing 
adjustment is calculated by comparing average payments to average 
costs. We also note that the rebasing adjustments cannot exceed 3.5 
percent of the CY 2010 payment amounts in absolute terms.
    Comment: One commenter stated that CMS' approach ignores regional 
differences in home health operating margins. Another commenter stated 
that the methodology ignores the diversity in the home care industry 
and the populations they serve and that the populations served varies 
by geography, patient characteristics, case-mix, size, and payer 
makeup. The commenter stated that under the current rebasing 
methodology, CMS is making a false assumption that all home care 
agencies are operating under similar conditions with similar 
populations, and agencies with smaller margins will not be able to 
accommodate the lower payment rates. A commenter encouraged CMS to make 
distinctions between hospital-based and freestanding agencies, between 
for-profit and nonprofit agencies, and between the resource costs of 
urban and rural agencies, and that CMS should consider setting rates 
based upon averages among each of the primary groups of HH providers.
    Response: We disagree with the commenters claims that our rebasing 
adjustment methodology ignores the diversity in the home care industry 
and the populations they serve. First, our approach reflects case-mix 
which takes into consideration the characteristics of the patients. As 
always, we welcome suggestions for additional measures that could 
potentially improve the case-mix adjustment as we continue in our case 
mix research. Second, as described in section IV.D.1. of this rule, we 
used urban/rural classification, size class, and agency type 
(nonprofit, for-profit, government, and facility-based) weights to 
estimate the national average cost per visit. In addition, the payment 
system reflects geographic variation in cost by adjusting payments 
using the wage index and by rural agency payment adjustments. CMS does 
not design payment rates for different sizes of agencies for several 
reasons, including that this would weaken incentives for efficient 
organization of the home health industry by agency size and could 
impair the program's ability to benefit from economies of scale that 
affect agency costs.
    In addition, we note that in their 2013 Report to Congress, MedPAC 
stated, ``The need to reset the base rate in Medicare is particularly 
acute because high margins exist across the range of agency types. 
Urban, rural, for-profit, and nonprofit agencies have margins in excess 
of 12 percent. While some agencies have margins significantly lower 
than average, the Commission's review of agencies in 2007 found that 
these differences are primarily due to their higher costs. These higher 
costs do not appear to be related to patient severity, as low-margin 
agencies, for most measures, did not serve more severely ill 
patients.''
    Comment: One commenter stated that the total Medicare cost and the 
number of episodes should have been used to calculate the average cost 
per episode instead of the methodology used by CMS and that the actual 
payment should have been obtained from cost report data, not simulated. 
The commenter also stated that the wage index adjustment was not taken 
into account.
    Response: The methodology used the average costs per visit 
(obtained from the Medicare cost reports) multiplied by the number of 
Medicare visits per episode (obtained from the Medicare claims) by 
discipline to calculate the average cost per episode. We believe

[[Page 72288]]

that Medicare claims are a more reliable data source; although we note 
that visit per episode counts on Medicare claims and on Medicare cost 
reports were similar. The methodology in this rule is the same 
methodology used for the implementation of the HH PPS base payment rate 
in FY 2001. In addition, we note that the regulations at 42 CFR 
484.215(b) state: ``CMS determines the national mean utilization for 
each of the six disciplines using home health claims data'' in 
calculating the national, standardized 60-day episode payment amount. 
We continue to believe that our methodology was, and continues to be, 
technically appropriate and best reflects national costs per episode. 
Lastly, we disagree with the commenter's claim that we did not take 
into account the wage index adjustment. As stated in the CY 2014 HH PPS 
proposed rule (78 FR 40296), we apply a standardization factor (1.0017) 
to eliminate the effects of variation in area wage adjustments among 
different home health agencies in a budget neutral manner.
    Comment: Commenters stated that the CY 2014 HH PPS proposed rule 
doesn't offer the mathematical calculation CMS used to divide the 13.63 
percent difference between payments and costs into four reductions of 
3.6 percent, stating that 13.63 divided by 4 is 3.4075. Commenters 
asked for an explanation of the calculation, indicating that a 
correction may be needed.
    Response: We calculated the 3.6 percent reduction in the CY 2014 HH 
PPS proposed rule using a CAGR formula. The CAGR formula used to get 
the 3.6 percent annual reduction for each of the four years was 
($2,559.59/$2,963.65) 1/4-1. The initial target aggregate 
reduction was determined to be 13.63 percent, which the statute 
requires to be phased-in over a four year period (2014-2017) in equal 
increments. The annual reduction necessary to yield 13.63 percent after 
4 years is 3.6 percent, because (1-0.036)\4\ = 1-0.1363.\6\
---------------------------------------------------------------------------

    \6\ Due to rounding, there is a 0.01 percentage point difference 
between the calculated and reported numbers.
---------------------------------------------------------------------------

    This method reflects compounding growth rates over time. We note 
that while we calculated a 3.6 percent reduction for the CY 2014 HH PPS 
proposed rule, as we discussed earlier in this section, the Affordable 
Care Act mandates that the rebasing adjustment to the amount (or 
amounts) be no more than 3.5 percent of the 2010 payment amounts. As 
noted previously, the maximum adjustment for rebasing the national, 
standardized 60-day payment rate has been determined to be $80.95.
    Comment: One commenter stated that when developing the rebasing 
adjustment, CMS double counted factors that have already been accounted 
for in other reimbursement reductions since the enactment of the 
Affordable Care Act while excluding other factors that should have been 
considered. The commenter stated that CMS adjusted reimbursement rates 
multiple times based on the same factors. The commenter stated that the 
number of visits in a home health episode was already addressed. The 
commenter stated that between 1998 and 2001, the average number of home 
health visits per episode dropped from 31.6 to 21.4 and remained at 
this level through 2009 and that market forces have already corrected 
imbalances in the number of visits in a home health episode. The 
commenter also stated that in the CY 2013 HH PPS rule, CMS already 
considered case-mix data and determined that no further adjustment was 
necessary. The commenter stated that adjusting reimbursement rates 
based on case-mix or the mix of services again would be ``double 
counting.'' In addition, the commenter stated that CMS already 
accounted for the level of intensity of services in a home health 
episode through the case-mix payment reductions and further reducing it 
would be double counting.
    Response: As we stated above, in their 2013 Report to Congress, 
MedPAC stated that ``the number and types of visits in a home health 
episode changed significantly after the home health PPS was introduced, 
although the payments were based on the older, higher level of use and 
costs'' (p. 34). The episode payment amount has not been updated to 
reflect the change in the number of visits since the start of the HH 
PPS and therefore, CMS is not double counting the change in the number 
of visits. CMS is also not double counting the mix of services or level 
of intensity of services in the episode. The average number of visits 
per discipline per episode used when setting the base rate in 2000 is 
different from the average number of visits per discipline using 2011 
claims data (Table 19). In addition, as indicated by the cost per visit 
per discipline differences between the per visit rates used to develop 
the 2000 base rate and the per visit rates calculated from FY 2011 
data, the intensity of the services in the episode likely have also 
changed. CMS has not previously updated the national, standardized 
episode payment rate to reflect the total visit changes per episode, 
the change in the mix of services, and the change in the intensity of 
services. The case-mix reductions which the commenter mentions were 
implemented to align the payment with patient severity and to account 
for the nominal increases in the reported case-mix, changes not related 
to real increases in patient severity, by home health agencies. The 
goal of rebasing is to align the national, standardized payment rate 
and other applicable amounts with episode costs, similar to what was 
done when developing the episode payment rate in 2000. Given the 
differences in episode payment and costs and the differences in the 
assumed composition of visits and intensity when developing the base 
rate versus the composition of visits and intensity reflected in the 
2011 cost report and claims data, CMS proposed that a rebasing 
adjustment be applied to the national, standardized episode payment 
amount for rebasing.

         Table 19--Average Number of Visits, CY 1998 and CY 2011
------------------------------------------------------------------------
                                          Average number
                                          of visits used  Average number
                                            to develop    of visits from
                                          2000 base rate  CY 2011 claims
                                             (CY 1998          data
                                           claims data)
------------------------------------------------------------------------
Home Health Aide........................            13.4            2.80
Medical Social Services.................            0.32            0.14
Occupational Therapy....................            0.53            1.15
Physical Therapy........................            3.05            4.86

[[Page 72289]]

 
Skilled Nursing.........................           14.08            9.43
Speech-Language Pathology...............            0.18            0.21
------------------------------------------------------------------------
Source: 65 FR 41171 and CY 2011 Medicare claims data.

    Comment: A commenter stated that the methodology relies on proxies 
for payment and cost determinations when the information is readily 
available from cost report data. The commenter stated that the proxies 
CMS used are different than the actual episode costs and payments on 
the cost report and the combined difference between the actual and 
proxy calculation should lead to a lower rebasing adjustment than the 
adjustment proposed. The commenter recommended that CMS use direct data 
rather than the proxies used in the CY 2014 HH PPS proposed rule. The 
commenter also stated that the methodology fails to account for and 
address the wide range in revenue/cost per episode experienced by HHAs 
and that a single payment rate adjusted with the current ``weak'' 
adjusters leads to payment inaccuracies that require a rate ``cushion'' 
to maintain access to care. The commenter stated that CMS should look 
at all ways of calculating average costs of home health services, such 
as look into the median instead of the mean, and look into the multiple 
options for forecasting cost and payment trends. The commenter stated 
that all calculation options should be explored and evaluated and the 
option that would result in the ``the greatest degree of financial 
stability'' should be implemented. Another commenter urged CMS to 
ensure the methodology used to determine the rebasing adjustments is 
accurate.
    Response: We believe that Medicare home health care providers 
overall have benefited from a substantial rate ``cushion'' under the HH 
PPS, as margin estimates over the years demonstrate. Because the margin 
has been so large, while we have seen little change in patient 
characteristics and relatively little change in aggregate resources 
used to care for the patients, we infer that access to care does not 
appear to be a problem. Furthermore, we have had no direct indications 
of access problems. Although it is possible that reducing the large 
rate ``cushion'' could create financial pressures, we believe many 
circumstances and considerations other than patient clinical status 
enter into the decision of the amount of resources per episode; the 
multiplicity of such factors is suggested by the large portion of 
variability in resources or margins unexplained by statistical models 
in recent studies of potential case mix variables. Our statistical 
analysis of margins suggests that many of these factors are agency-
related, and therefore they may need examination by agencies to ensure 
efficient service delivery. Outlier payments are also available to 
agencies for those episodes whose imputed cost exceeds a threshold 
amount for each case-mix group HHRG due to unusual variations in the 
type or amount of medically necessary care. We anticipate that 
continuing studies of improvements to the case mix adjustment 
methodology will lead to a stronger case mix adjustment before the 
rebasing phase-in is complete. We welcome suggestions for new measures 
that are suitable for incorporation into the case mix adjuster.
    With regards to the comment about using the median rather than the 
mean, the median is typically used in order to avoid having extreme 
values unduly influence the measure of the typical value. We have 
already trimmed the cost report sample to avoid having extreme values 
influence the average value to some degree. We also do not believe the 
upper and lower values, after the trimming, are skewing the mean but 
rather that the upper and lower values reflect legitimate payments 
obtained from cleaned up data and therefore, the mean should be used. 
Also, using an average accounts precisely for the costs incurred by the 
industry because the mean times the number of units equals the total 
costs. With a median, one may be accounting for more or less than the 
industry's total costs. In addition, the median calculated by the 
commenter was likely done at the agency level rather than the episode 
level, giving smaller agencies with higher costs more weight than the 
episode level average. In the rebasing methodology for this final rule, 
CMS makes use of the fact that much of the utilization is in lower-
cost, large agencies, which would not be reflected if the median was 
used.
    We disagree with the commenter's suggestion that the Medicare 
claims data is a proxy and should not be used to calculate the average 
costs per episode. We believe that Medicare claims are a more reliable 
data source and its use is consistent with the methodology used in 
setting the 60-day episode base rate for the HH PPS in 2000. In 
addition, we note that in at 42 CFR 484.215(b), ``CMS determines the 
national mean utilization for each of the six disciplines using home 
health claims data'' in calculating the national, standardized 60-day 
episode payment amount and we believe that the use of claims data to 
calculate the average estimated payment more accurately reflects the 
actual payment agencies received.
    Comment: A commenter stated that fraudulent payment should be 
excluded from the payment history statistics and recommended that CMS 
``restart'' the rebasing efforts, consulting with specific working 
groups comprised of industry and patient advocacy groups.
    Response: Section 3131(a) of the ACA mandates that rebasing be 
implemented starting in CY 2014 so the rebasing adjustments must be 
implemented beginning on January 1, 2014. We note that claims in CY 
2011 and CY 2012 that were subsequently denied before the creation of 
the Standard Analytical Files (SAF) used for this analysis were 
excluded.
    Comment: One commenter stated that in the CY 2014 HH PPS proposed 
rule, there was no indication whether the audited HHAs were provided 
appeals rights and that the limited audit is unreliable for use in 
calculating payment rates. The commenter recommended that CMS continue 
to reject a downward adjustment to the average costs per visit 
calculation as a result of the audit findings since the HHAs audited do 
not represent the universe of HHAs, the auditors' findings were not 
subject to review, and cost report auditing is ``an ancient process 
which hasn't been done for years''. In

[[Page 72290]]

addition, a commenter stated that the 8 percent of costs were 
disallowed for unspecified reasons. Another commenter stated that home 
health agencies have no incentives for ensuring the accuracy of their 
cost reports and the data is inaccurate and not representative of the 
costs that agencies actually incur and that there is no way to 
determine the accuracy of the reports that CMS included in the sample. 
Commenters stated that the cost report does not separate costs between 
payers and the costs solely attributed to Medicare cannot be isolated 
and are higher than the costs for other payers.
    Response: We contracted with a Medicare Administrative Contractor 
(MAC) to conduct audits on 2010 Medicare cost reports of 100 home 
health agencies. Since two providers did not provide the information 
needed to complete the audit, the MAC audited 98 HHA cost reports. As 
stated in the CY 2014 HH PPS proposed rule, the audited providers 
overstated their costs by about 8 percent. The overstatement of their 
costs was due to the inappropriate inclusion of costs, including but 
not limited to, excess salary expense and/or excess owner's 
compensation, private duty nursing costs, luxury auto expenses, non-
allowable costs for marketing/advertising/public relations, Federal Tax 
returns for an HHA owner, landscaping fees for an HHA owner's home, and 
lobbying expenses. We note that any HHA that received an adjustment 
based on the audit of their cost report was sent a revised Notice of 
Program Reimbursement (NPR) letter. With each NPR, there was an 
attachment explaining the appeal rights to the provider. To date, none 
of the freestanding HHAs or the hospital-based HHAs filed an appeal.
    We disagree with the commenters' claim that home health agencies 
have no incentives for ensuring the accuracy of their cost reports and 
that the CR data are inaccurate and not representative of the costs 
that agencies actually incur. Each HH cost report is required to be 
certified by the Officer or Director of the home health agency. 
Specifically, the HHA Medicare Cost Report (MCR) Form (CMS-1728-94) 
states the following:

    ``I HEREBY CERTIFY that I have read the above statement and that 
I have examined the accompanying Home Health Agency Cost Report and 
the Balance Sheet and Statement of Revenue and Expenses prepared by 
---- (provider name(s) and number(s) for the cost report beginning 
---- and ending ----, and that to the best of my knowledge and 
belief, it is a true, correct and complete report prepared from the 
books and records of the provider in accordance with applicable 
instructions, except as noted. I further certify that I am familiar 
with the laws and regulations regarding the provision of health care 
services, and that the services identified in this cost report were 
provided in compliance with such laws and regulations.''

We also note that the HHA MCR referenced statement above includes the 
following:

    ``Misrepresentation or falsification of any information 
contained in this cost report may be punishable by criminal, civil 
and administrative action, fine and/or imprisonment under federal 
law. Furthermore, if services identified in this report were 
provided or procured through the payment directly or indirectly of a 
kickback or were otherwise illegal, criminal, civil and 
administrative action, fines and/or imprisonment may result.''

    As always, we encourage providers to fill out the Medicare cost 
reports as accurately as possible.
    Comment: Another commenter stated that CMS should look at the 
impact of the rebasing reductions on agencies that already have either 
negative or low margins. A commenter stated that MedPAC projected a 
smaller margin for freestanding HHAs than CMS calculated and that while 
the CMS projection is not an overall Medicare margin, the comparison 
shows the risks of CMS' approach to rebasing. The commenter stated that 
they projected a smaller margin in 2013 than CMS projected and 
suggested that the rebasing adjustment be no more than 1.75 percent in 
the aggregate in each of the years of rebasing phase-in. In addition, 
commenters performed their own impact analysis and provided the results 
of their analysis in the comment. Commenters stated that their analysis 
showed that 47 of the 50 States as well as District of Columbia will 
experience negative margins by 2017 if the rebasing adjustments are 
implemented, thereby causing access issues. Commenters stated that some 
states have negative margins currently or may have negative margins as 
early as CY 2014 if the rebasing adjustments are implemented. Providers 
from various states, such as but not limited to New Hampshire, North 
Carolina, South Carolina, Indiana, New Jersey, New York, Kansas, 
Michigan, Washington, Massachusetts, Pennsylvania, Virginia, Rhode 
Island, Connecticut, Texas, Hawaii, and California, stated that many if 
not all of the agencies in their state will have negative margins by 
2017 if the rebasing adjustments are implemented. Commenters stated 
that they project that nearly three quarters of all home health 
agencies nationwide will experience net operating losses and that the 
national average Medicare margin will drop to -9.77 percent in 2017. A 
number of commenters stated that the rebasing cut is reminiscent of the 
actual impact of the interim payment system, which ``wiped out 31 
percent of home health agencies between 1997 and 2000.'' Commenters 
stated that small to medium sized businesses would be 
disproportionately affected by the rebasing adjustments, including 
those operating in medically-underserved areas, and that this impact 
should have been assessed and quantified by CMS. Commenters also stated 
that hospital-based home health providers will be disproportionately 
affected by the rebasing cuts and that they treat patients with higher 
acuity or who are more complex. Commenters stated that hospital-based 
agencies already have negative margins and HHAs should be given an 
opportunity to generate a margin needed for ongoing investments to 
improve care. Other commenters stated that non-profit agencies would be 
adversely affected by the rebasing adjustments.
    Response: It is important to note that the commenters' views on the 
impact of the rebasing reductions on margin are starkly different from 
MedPAC's predictions of HHA Medicare margins. As stated in their 
comment, MedPAC estimates that the cumulative net payment reduction to 
the national, standardized 60-day episode payment amount after four 
years will equal approximately 4 percent. MedPAC expressed concerns 
that the rebasing reductions were too modest and will do little to 
reduce home health agencies' unusually high profitability under 
Medicare, stating that payments are at an inappropriately high level 
for all agencies. In addition, in their 2013 Report to Congress, MedPAC 
recommended that rebasing should be implemented in two years and that 
the payment updates be eliminated. MedPAC stated in their 2013 Report 
to Congress, ``The Patient Protection and Affordable Care Act of 2010 
includes reductions in payments for home health care, but these 
policies will leave home health agencies with margins well in excess of 
cost. Overpaying for home health services has negative financial 
consequences for the federal government and raises the Medicare 
premiums beneficiaries pay.''
    We conducted analysis similar to that of the National Association 
for Home Care and Hospice (NAHC) on Medicare margins for 2011 as result 
of comments received (8,623 usable 2011 cost reports). We found that 
approximately 30 percent of HHAs reported having a negative margin in 
2011. In addition, 10 percent of HHAs had negative margins for at least 
two of the past five years

[[Page 72291]]

(from 2007-2011), while 5 percent of HHAs, half of which were hospital-
based HHAs, were operating with negative margins for all of the past 
five years (from 2007-2011). We question how an HHA can still be 
operating after at least 5 years with negative margins and whether 
these HHAs have incentives to report negative margins (such as cost 
shifting/allocation by hospitals amongst their various units). If we 
assume no behavior change, similar to analysis completed by NAHC, the 
data suggest that approximately 70 percent of HHAs would be operating 
with negative margins by 2017 when we take into account the proposed 
3.5 percent reduction to the national, standardized 60-day payment rate 
and other proposed payment changes in the proposed rule. However, we 
also performed an analysis examining the accuracy of margin 
predictions. For our analysis, we developed margin predictions using 
prior year cost report data and predicted margins for future years 
given the policy changes finalized for the future years. We then 
compared the predicted margin to the actual margin calculated. 
Specifically, we used 2007, 2008, 2009, and 2010 cost report data and 
predicted margins one, two, and three years later. We then used cost 
report data to calculate the actual margins for those years. Our 
analysis showed that the actual margin is approximately three 
percentage points higher than the predicted median margin for each 
additional year of prediction. For example, using 2008 cost report data 
and predicting margins for 2009, 2010, and 2011, applying the payment 
policies implemented in each year and increasing costs by the full 
market basket update each year, the actual median margins were three, 
six, and nine percentage points higher than the predicted median 
margin, respectively. Similarly, the percentage of providers estimated 
to have negative margins is overestimated by five percentage points per 
year of prediction, on average. As such, we estimate that if the 
proposed payment changes were finalized, approximately 43 percent--not 
70 percent-- of providers would have negative margins in CY 2017 and 
that of the 43 percent of providers predicted to have negative margins, 
77 percent of these providers already reported negative margins in 
2011.
    We note that the final rebasing adjustment to the national, 
standardized 60-day episode payment rate after incorporating complete 
2012 claims data and comments received is an approximate reduction of 
2.8 percent for 2014-2017 and the overall impact of all of the rebasing 
adjustments is about -2.7 percent. Re-running the margins analysis 
using the finalized payment changes and adjusting our predicted margins 
to account for differences we observed between previous predicted 
margins and actual margins, we estimated that approximately 40 percent 
of providers will have negative margins in CY 2017 and that of the 40 
percent of providers predicted to have negative margins, 83 percent of 
these providers already reported negative margins in 2011.
    With regards to comments about the interim payment system, we note 
that in their 2013 Report to Congress, MedPAC stated that during the 
interim payment system (1997-2000), when payments dropped by about 50 
percent in two years, many agencies exited the program. However, new 
agencies entered the program (about 200 new agencies a year) and 
existing agencies expanded their service areas to enter markets left by 
exiting agencies. This is due in part to the low capital requirements 
for home health care services that allow the industry to react rapidly 
when the supply of agencies changes or contracts. Reviews of access 
found that access to care remained adequate during this period despite 
a substantial decline in the number of agencies (Liu et al. 2003).
    Comment: Commenters stated that CMS should look at the impact of 
rebasing on LUPA episodes. A commenter stated that patients receiving 
LUPAs may be vulnerable beneficiaries and that agencies with higher 
LUPA numbers may have lower or negative overall margins. In addition, 
the commenter stated that if the normal episodes are rebased to 
estimated cost, but the LUPA episodes are paid at less than cost, the 
overall effect on agencies with any LUPA episodes will be negative 
margins. One commenter stated that CMS should study LUPA services and 
payment and adjust overall payment to at least cover the costs incurred 
by agencies serving the patients. Specifically, commenters stated that 
the rebasing adjustments for LUPA per visit payments should be higher 
than 3.5 percent a year and that the 3.5 percent limit in the 
Affordable Care Act refers to the overall impact of the rebasing 
changes, not the individual rebasing adjustment amounts. Another 
commenter stated that CMS should closely review the statutory provision 
to determine whether there is flexibility to further raise the LUPA 
payments and if not, to seek legislative authority that would permit 
payments to be raised to the estimated level of cost, stating that LUPA 
episodes guard against the incentive to get a full 60-day episode 
payment for episodes with low visit counts. In contrast, one commenter 
stated that they were concerned the proposed increases to LUPA episodes 
may encourage HHAs to stint therapy services to Medicare beneficiaries 
receiving care and further exacerbate the issue of cherry-picking in 
post-acute care settings. Commenters stated that CMS should make 
changes to LUPA payments separately from other policies in the rule and 
commenter cited the LUPA add-on payment as an example. A commenter 
suggested that CMS could eliminate the outlier adjustment in 
calculating the per-visit rates since outlier payments have been 
significantly below the 2.5 percent target for the last several years. 
Other commenters suggested that CMS rebase the system or fix the LUPA 
system by adding LUPA floor or non-LUPA episode percentage caps at the 
agency level instead of implementing reductions.
    Response: We believe that the better reading of the statute 
requires us to apply rebasing adjustments to the individual payment 
amounts, not aggregate amounts. Therefore, we are applying the rebasing 
adjustments to the individual payment amounts. In addition, given the 
interpretation of the 3.5 percent limit as of the date of enactment of 
the Affordable Care Act, as mentioned by a commenter, the LUPA per-
visit amounts will be increased by the maximum dollar limit calculated 
using CY 2010 payment amounts, as shown in Table 14. This results in 
slightly lower increases to the LUPA rates than originally proposed in 
the CY 2014 HH PPS proposed rule. We share commenters' concerns about 
the incentive issues surrounding LUPA payments. We re-examined our LUPA 
add-on methodology but did not find a basis for revising our proposal 
for rebasing the add-on. We note that we plan to monitor LUPA episodes 
and further examine LUPA-related payment policies in the new contract 
awarded to Abt Associates to perform follow-on work for the home health 
study and monitor impacts of rebasing and other recent payment changes.
    Comment: Several commenters stated that they were concerned that 
the costs of NRS for hospital-based home health agencies were not 
captured since Form CMS-2552-10 doesn't allow the reporting of these 
Medicare costs.
    Response: NRS costs for hospital-based HHAs were included in 
calculation of the 2011 average NRS cost per visit. These costs are to 
be reported on CMS form 2552-10, worksheet H, line 12.

[[Page 72292]]

    Comment: A commenter stated that in the CY 2014 HH PPS proposed 
rule, CMS states that there are a significant number of agencies that 
did not properly report NRS cost on their cost report, yet CMS seemed 
to use their data in rebasing the NRS Conversion Factor. The commenter 
urged CMS to either recalculate the NRS rebasing using validated, 
accurate data, or hold off on rebasing the NRS Conversion Factor until 
better data becomes available.
    Response: In the CY 2014 HH PPS proposed rule, we noted that a 
significant number of HHAs (1,756) listed charges for NRS on the home 
health claim, but did not list any NRS costs on the cost report (78 FR 
40290). As we stated in the CY 2014 HH PPS proposed rule, we calculated 
the average NRS cost per visit using the same cost report sample used 
to calculate the other adjustments to the national, standardized 60-day 
episode payment amount and the national per-visit rates, thus 
maintaining a consistent approach (78 FR 40289). We remind the industry 
again that each home health cost report is required to be certified by 
the Officer or Director the home health agency. We also welcome 
suggestions for improving compliance and accuracy on cost reports 
within the current cost reporting forms.
    Comment: Commenters stated that the CY 2014 HH PPS proposed rule 
did not include a detailed and cumulative quantitative analysis of the 
impact and economic effects of the proposed provisions nor a cumulative 
cost analysis or quantification of the rule's projected future costs 
that is required for any economically significant regulation under 
Executive Orders 13563 and 12866. Commenters also stated that CMS 
should take into account the other Affordable Care Act mandated 
reductions (adjustments to the home health market basket updates, 
productivity adjustments, and outlier payment reduction), case-mix 
reductions, and sequestration, when developing the rebasing 
adjustments. A commenter stated that the impact analysis should look at 
access to care and should describe the locales where care is provided 
rather than gross aggregate impacts. The commenter stated that the 
impact analysis should look at the overall impact on the financial 
viability of HHAs rather than on the reduction in revenue and should 
look at the overall impact on Medicare spending in all relevant 
sectors, such as the inpatient hospitalization and skilled nursing 
facility care. Another commenter stated that CMS should consider the 
role that HHAs play in reducing the overall costs of health care by 
treating patients in a lower cost setting than institutional care. Many 
commenters stated that a multi-year analysis of the impact of the 
payment cuts should be performed, instead of a one-year impact 
analysis.
    Response: Executive Orders 13563 and 12866 require us to assess the 
costs, benefits, and transfer effects of rulemaking. Because the most 
quantifiable impact of the rule is the transfer effect associated with 
Medicare payments (revenues), we focus our analysis on the impact of 
various policy proposals on payments from one year to the next. While 
we acknowledge that many factors and statutory requirements affect home 
health agencies, given the lack of data on local market conditions and 
individual provider's operations, we cannot provide the detailed 
analysis suggested by the commenters. We note that the net reduction in 
payments to HHAs in this final rule of 1.05 percent for CY 2014 is less 
than the net reduction in the proposed rule of 1.5 percent and less 
than the net reductions in prior years, notably the -4.89 percent net 
reduction in payments to HHAs in CY 2011.
    Executive Order 13563 specifies, to the extent practicable, 
agencies should assess the costs of cumulative regulations. However, 
given potential utilization pattern changes, wage index changes, 
changes to the market basket forecasts, and unknowns regarding future 
policy changes, we believe it is neither practicable nor appropriate to 
forecast the cumulative impact of the rebasing adjustments on Medicare 
payments to HHAs for future years at this time. Changes to the Medicare 
program may continue to be made as a result of the Affordable Care Act, 
or new statutory provisions. Although these changes may not be specific 
to the HH PPS, the nature of the Medicare program is such that the 
changes may interact, and the complexity of the interaction of these 
changes would make it difficult to predict accurately the full scope of 
the impact upon HHAs for future years beyond CY 2014.
    Comment: Commenters stated that contrary to the Regulatory 
Flexibility Act (RFA), the CY 2014 HH PPS proposed rule doesn't include 
a detailed analysis of its impact on small businesses. A commenter also 
cited the Data Quality Act, stating there are detailed analytic 
requirements on federal agencies prior to issuing economically 
significant regulations. Commenters noted that the CY 2014 HH PPS 
proposed rule was of sufficient concern to the U.S. Small Business 
Administration that it felt compelled to issue a Regulatory Alert to 
HHAs and other small businesses to submit comments on the CY 2014 HH 
PPS proposed rule. Another commenter stated that most home health 
agencies meet the U.S. Small Business Administration's definition of a 
small business and that the smallest home health agencies already have 
net negative Medicare margins and serve a disproportionate share of 
vulnerable patient populations. A commenter submitted a report on the 
impact of home health rebasing on small business as well as a state 
level impact analysis of rebasing performed by two contractors.
    Response: The RFA requires agencies to analyze options for 
regulatory relief of small entities, if a rule has a significant impact 
on a substantial number of small entities. For purposes of the RFA, 
small entities include small businesses, nonprofit organizations, and 
small governmental jurisdictions. Most hospitals and most other 
providers and suppliers are small entities, either by nonprofit status 
or by having revenues of less than $7.0 million to $34.5 million in any 
1 year. For the purposes of the RFA, we estimate that almost all HHAs 
are small entities as that term is used in the RFA. The economic impact 
assessment is based on estimated Medicare payments (revenues) and HHS's 
practice in interpreting the RFA is to consider effects economically 
``significant'' only if greater than 5 percent of providers reach a 
threshold of 3 to 5 percent or more of total revenue or total costs. 
However, the estimated impact for CY 2014 in the CY 2014 HH PPS 
proposed rule was -1.5 percent, under the threshold of 3-5 percent to 
be considered significant. Included in table 33 in section VII is an 
estimate of the impacts according to HHA type, area, and number of 
first episodes. According to the impact table for this final rule, the 
overall estimated impact is -1.05 percent, with HHAs that have less 
than 100 first episodes experiencing estimated decreases in Medicare 
revenues of -1.27 percent and HHAs with 1,000 or more first episodes 
experiencing estimated decreases in Medicare revenues of -0.90 percent.
    While commenters mentioned the Data Quality Act (section 515(a) of 
the Treasury and General Government Appropriations Act for Fiscal Year 
2001 (Pub. L. 106-554)) in public comments, they did not state that CMS 
was not in compliance. The Data Quality Act directed the OMB to issue 
government-wide guidelines that provide policy and procedural guidance 
to federal agencies for ensuring and maximizing the quality, 
objectivity, utility, and integrity of information, including 
statistical

[[Page 72293]]

information, disseminated by federal agencies. We believe that we have 
complied with section 3131(a) of the Affordable Care Act in a 
straightforward and transparent manner and that we adhered to the 
principles of the Data Quality Act by ensuring that the information 
provided to the industry was of sufficient quality, objectivity, 
utility, and integrity. We provided the industry with detailed 
information on our calculations in the preamble of the CY 2014 HH PPS 
proposed rule as well supporting documentation in the form of a public 
use file and a technical rebasing report posted on the HHA Center Web 
site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html.
    Comment: Another commenter recommended that CMS develop a detailed 
plan for monitoring the impact of any HH PPS payment reductions (such 
as by examining measures relating to beneficiary access, quality of 
care and beneficiary experience of care) and that CMS commit to 
reporting to Congressional Committees of jurisdiction, the Medicare 
Payment Advisory Commission, and the public the results of this ongoing 
monitoring effort. The commenter stated that CMS should use authority 
available to the agency to ensure Medicare beneficiaries have 
appropriate access to home health.
    Response: As we noted above, we recently awarded a contract to Abt 
Associates that will, among other things, develop and implement a 
system for monitoring access to care. We will make every effort to 
ensure that beneficiaries, and in particular vulnerable patient 
populations, continue to have access to quality home health care. We 
believe the four year phase-in of the rebasing adjustment will lessen 
any impact on access as HHAs develop ways to increase efficiencies 
while maintaining quality of care. As mandated in section 3131(a) of 
the Affordable Care Act and also noted above, MedPAC will conduct a 
study on the rebasing implementation, which will include an impact 
analysis on access to care, and submit a Report to Congress no later 
than January 1, 2015, along with any potential recommendations, if 
necessary.
    Final Decisions:
    Based on comments received, and section 3131(a) statutory language 
describing the maximum adjustment amounts for rebasing, we are 
finalizing a $80.95 reduction to the national, standardized 60-day 
episode payment rate in each year, CY 2014 through CY 2017. Section 
3131(a) of the Affordable Care Act requires that the rebasing 
adjustment must be phased-in over a 4-year period in equal increments, 
not to exceed 3.5 percent of the payment amount (or amounts) as of the 
date of enactment (March 23, 2010). As described earlier, the maximum 
adjustment for the national, standardized 60-day payment rate is 
calculated to be $80.95 ($2,312.94 * 0.035). When determining the CY 
2014 base payment amount, we will apply the $80.95 reduction to the CY 
2013 base payment amount (which has been increased due to the resetting 
of the case-mix weights to 1.0000). Please see Section E for more 
details on the finalized CY 2014 payment rates. For CY 2015 through CY 
2017, we will apply a $80.95 reduction to the previous year's base 
payment amount prior to the annual HH PPS payment update percentage.
    Similar to the rebasing adjustment for the national, standardized 
60-day payment rate, we are finalizing equal dollar adjustments to the 
per-visit payment amounts for CY 2014 through CY 2017, as shown in 
Tables 14 and 15. The adjustments to the national per-visit payment 
rates are capped at 3.5 percent of the national per-visit payment 
amounts in CY 2010, which are lower than the CY 2013 per-visit amounts. 
Therefore, the maximum adjustments to the national per-visit payment 
rates allowed by statute, and finalized in this final rule, are lower 
than the adjustments we proposed.
    We are finalizing a reduction to the NRS conversion factor in each 
year from 2014 through 2017 of 2.82 percent, or $1.52 in CY 2014. 
Taking into account the statutory language stating that the amount of 
any adjustment for the year may not exceed 3.5 percent of the amount as 
of the date of enactment of the Affordable Care Act, we determined, as 
described in the preamble language above, that the final reduction to 
the NRS conversion factor of 2.82 percent in CY 2014 would not exceed 
3.5 percent of the CY 2010 NRS conversion factor of $53.34 (53.34 * 
0.035 = $1.87). In addition, we believe there is a very low likelihood 
that future adjustments of -2.82 percent in CY 2015 through 2017 would 
ever exceed the statutory limit. As such, we are finalizing a reduction 
to the NRS conversion factor of 2.82 percent each year from CY 2014 
through CY 2017.
    Section IV.E.4 contains the finalized payment rates for CY 2014 for 
the National, Standardized 60-day Episode Payment Amount, LUPA Per-
Visit Payment Amounts, and Nonroutine Medical Supply (NRS) Conversion 
Factor, accounting for the rebasing adjustments.

E. CY 2014 Home Health Payment Rate Update

1. CY 2014 HH Market Basket Update
    Section 1895(b)(3)(B) of the Act, as amended by section 3401(e) of 
the Affordable Care Act, adds new clause (vi) which states, ``After 
determining the home health market basket percentage increase . . . the 
Secretary shall reduce such percentage . . . for each of 2011, 2012, 
and 2013, by 1 percentage point. The application of this clause may 
result in the home health market basket percentage increase under 
clause (iii) being less than 0.0 for a year, and may result in payment 
rates under the system under this subsection for a year being less than 
such payment rates for the preceding year.'' Therefore, as mandated by 
the Affordable Care Act, for CYs 2011, 2012, and 2013, the HH market 
basket update was reduced by 1 percentage point. For CY 2014, there is 
no such percentage reduction. Therefore, the HH PPS payment update 
percentage increase to the CY 2014 payment rates will be the full HH 
market basket update.
    Section 1895(b)(3)(B) of the Act requires that the standard 
prospective payment amounts for CY 2014 be increased by a factor equal 
to the applicable HH market basket update for those HHAs that submit 
quality data as required by the Secretary. The HH PPS market basket 
update for CY 2014 is 2.3 percent. This is based on Global Insight 
Inc.'s third quarter 2013 forecast, utilizing historical data through 
the second quarter of 2013. The HH market basket was rebased and 
revised in CY 2013. A detailed description of how we derive the HHA 
market basket is available in the CY 2013 HH PPS final rule (77 FR 
67080, 67090).
    The following is a summary of the comments we received regarding 
the home health market basket update.
    Comment: A commenter supports CMS's proposal to provide a full 
market basket increase. The commenter further requests that CMS support 
future market basket increases, which are important to HHAs feeling the 
impact of several years of market basket reductions. The commenter also 
states that providers are preparing for a productivity adjustment cut 
effective in 2015.
    Response: We appreciate the comment in support of using the full 
market basket update. The reductions to the market basket updates in 
previous years had been required by various statutes. Likewise, the 
productivity adjustment that would begin in CY 2015 is a statutory 
requirement and as such, we do not have the authority to waive

[[Page 72294]]

the application of the productivity adjustment.
    Final Decision: For CY 2014, as required by section 1895(b)(3)(B) 
of the Act, the HH PPS payment update percentage will be 2.3 percent.
e. Home Health Care CAHPS[supreg] Survey (HHCAHPS[supreg])
    In the CY 2013 HH PPS final rule (77 FR 67094), we stated that the 
HH quality measures reporting requirements for Medicare-certified 
agencies includes the CAHPS[supreg] HH Care (HHCAHPS[supreg]) Survey 
for the CY 2013 APU. We maintained the stated HHCAHPS[supreg] data 
requirements for CY 2013 that were set out in the CY 2012 HH PPS final 
rule, and in the CY 2013 HH PPS final rule, for the continuous monthly 
data collection and quarterly data submission of HHCAHPS[supreg] data.
(1) Background and Description of HHCAHPS[supreg]
    As part of the HHS' Transparency Initiative, we have implemented a 
process to measure and publicly report patient experiences with home 
health care, using a survey developed by the Agency for Healthcare 
Research and Quality's (AHRQ's) Consumer Assessment of Healthcare 
Providers and Systems (CAHPS[supreg]) program and endorsed by the NQF 
in March 2009 (NQF Number 0517). The HHCAHPS[supreg] survey is part of 
a family of CAHPS[supreg] surveys that asks patients to report on and 
rate their experiences with health care. The Home Health Care 
CAHPS[supreg] (HHCAHPS[supreg]) survey presents home health patients 
with a set of standardized questions about their home health care 
providers and about the quality of their home health care.
    Prior to this survey, there was no national standard for collecting 
information about patient experiences that will enable valid 
comparisons across all HHAs. The history and development process for 
HHCAHPS[supreg] has been described in previous rules and it also 
available on the official HHCAHPS[supreg] Web site at https://homehealthcahps.org and in the annually-updated HHCAHPS[supreg] 
Protocols and Guidelines Manual, which is downloadable from https://homehealthcahps.org.
    For public reporting purposes, we report five measures from the 
HHCAHPS[supreg] Survey--three composite measures and two global ratings 
of care that are derived from the questions on the HHCAHPS[supreg] 
survey. The publicly reported data are adjusted for differences in 
patient mix across HHAs. We update the HHCAHPS[supreg] data on Home 
Health Compare on www.medicare.gov quarterly. Each HHCAHPS[supreg] 
composite measure consists of four or more individual survey items 
regarding one of the following related topics:
     Patient care (Q9, Q16, Q19, and Q24);
     Communications between providers and patients (Q2, Q15, 
Q17, Q18, Q22, and Q23); and
     Specific care issues on medications, home safety, and pain 
(Q3, Q4, Q5, Q10, Q12, Q13, and Q14).
    The two global ratings are the overall rating of care given by the 
HHA's care providers (Q20), and the patient's willingness to recommend 
the HHA to family and friends (Q25).
    The HHCAHPS[supreg] survey is currently available in English, 
Spanish, Chinese, Russian, and Vietnamese. The OMB Number on these 
surveys is the same (0938-1066). All of these surveys are on the Home 
Health Care CAHPS[supreg] Web site, https://homehealthcahps.org. We 
will continue to consider additional language translations of the 
HHCAHPS[supreg] in response to the needs of the home health patient 
population.
    All of the requirements about home health patient eligibility for 
the HHCAHPS[supreg] survey and conversely, which home health patients 
are ineligible for the HHCAHPS[supreg] survey are delineated and 
detailed in the HHCAHPS[supreg] Protocols and Guidelines Manual, which 
is downloadable at https://homehealthcahps.org. Home health patients 
are eligible for HHCAHPS[supreg] if they received at least two skilled 
home health visits in the past 2 months, which are paid for by Medicare 
or Medicaid.
    Home health patients are ineligible for inclusion in 
HHCAHPS[supreg] surveys if one of these conditions pertains to them:
     Are under the age of 18;
     Are deceased prior to the date the sample is pulled;
     Receive hospice care;
     Receive routine maternity care only;
     Are not considered survey eligible because the state in 
which the patient lives restricts release of patient information for a 
specific condition or illness that the patient has; or
     No Publicity patients, defined as patients who on their 
own initiative at their first encounter with the HHAs make it very 
clear that no one outside of the agencies can be advised of their 
patient status, and no one outside of the HHAs can contact them for any 
reason.
    We stated in previous rules that Medicare-certified HHAs are 
required to contract with an approved HHCAHPS[supreg] survey vendor. 
Medicare-certified agencies also must provide on a monthly basis a list 
of their patients served to their respective HHCAHPS[supreg] survey 
vendors. Agencies are not allowed to influence at all how their 
patients respond to the HHCAHPS[supreg] survey.
    HHCAHPS[supreg] survey vendors are required to attend introductory 
and all update trainings conducted by CMS and the HHCAHPS[supreg] 
Survey Coordination Team, as well as to pass a post-training 
certification test. We now have approximately 30 approved 
HHCAHPS[supreg] survey vendors. The list of approved HHCAHPS[supreg] 
survey vendors is available at https://homehealthcahps.org.
(2) HHCAHPS[supreg] Oversight Activities
    We stated in prior final rules that all approved HHCAHPS[supreg] 
survey vendors are required to participate in HHCAHPS[supreg] oversight 
activities to ensure compliance with HHCAHPS[supreg] protocols, 
guidelines, and survey requirements. The purpose of the oversight 
activities is to ensure that approved HHCAHPS[supreg] survey vendors 
follow the HHCAHPS[supreg] Protocols and Guidelines Manual. As stated 
previously in the CY 2010, CY 2011, CY 2012, and CY 2013 final rules, 
all approved survey vendors must develop a Quality Assurance Plan (QAP) 
for survey administration in accordance with the HHCAHPS[supreg] 
Protocols and Guidelines Manual. An HHCAHPS[supreg] survey vendor's 
first QAP must be submitted within 6 weeks of the data submission 
deadline date after the vendor's first quarterly data submission. The 
QAP must be updated and submitted annually thereafter and at any time 
that changes occur in staff or vendor capabilities or systems. A model 
QAP is included in the HHCAHPS[supreg] Protocols and Guidelines Manual. 
The QAP must include the following:

 Organizational Background and Staff Experience
 Work Plan
 Sampling Plan
 Survey Implementation Plan
 Data Security, Confidentiality and Privacy Plan
 Questionnaire Attachments

    As part of the oversight activities, the HHCAHPS[supreg] Survey 
Coordination Team conducts on-site visits to all approved 
HHCAHPS[supreg] survey vendors. The purpose of the site visits is to 
allow the HHCAHPS[supreg] Coordination Team to observe the entire 
HHCAHPS[supreg] Survey implementation process, from the sampling stage 
through file preparation and submission, as well as to assess data 
security and storage. The HHCAHPS[supreg] Survey Coordination Team 
reviews the HHCAHPS[supreg] survey vendor's survey systems, and 
assesses administration

[[Page 72295]]

protocols based on the HHCAHPS[supreg] Protocols and Guidelines Manual 
posted at https://homehealthcahps.org. The systems and program site 
visit review includes, but is not limited to the following:
     Survey management and data systems;
     Printing and mailing materials and facilities;
     Telephone call center facilities;
     Data receipt, entry and storage facilities; and
     Written documentation of survey processes.
    After the site visits, HHCAHPS[supreg] survey vendors are given a 
defined time period in which to correct any identified issues and 
provide follow-up documentation of corrections for review. 
HHCAHPS[supreg] survey vendors are subject to follow-up site visits on 
an as-needed basis.
    In the CY 2013 HH PPS final rule (77 FR 67094, 67164), we codified 
the current guideline that all approved HHCAHPS[supreg] survey vendors 
fully comply with all HHCAHPS[supreg] oversight activities. We included 
this survey requirement at Sec.  484.250(c)(3).
(3) HHCAHPS[supreg] Requirements for the CY 2015 APU
    In the CY 2013 HH PPS final rule (77 FR 67094), we stated that for 
the CY 2015 APU, we will require continued monthly HHCAHPS[supreg] data 
collection and reporting for 4 quarters. The data collection period for 
CY 2015 APU includes the second quarter 2013 through the first quarter 
2014 (the months of April 2013, through March 2014). HHAs are required 
to submit their HHCAHPS[supreg] data files to the HHCAHPS[supreg] Data 
Center for the second quarter 2013 by 11:59 p.m., e.d.t. on October 17, 
2013; for the third quarter 2013 by 11:59 p.m., e.s.t. on January 16, 
2014; for the fourth quarter 2013 by 11:59 p.m., e.d.t. on April 17, 
2014; and for the first quarter 2014 by 11:59 p.m., e.d.t. on July 17, 
2014. These deadlines are firm; no exceptions are permitted.
    We will continue to exempt HHAs receiving Medicare certification on 
or after April 1, 2013, from the full HHCAHPS[supreg] reporting 
requirement for the CY 2015 APU because these HHAs will not have been 
Medicare-certified throughout the period of April 1, 2012 through March 
31, 2013. These HHAs do not need to complete a HHCAHPS[supreg] 
Participation Exemption Request form for the CY 2015 APU.
    We require that all HHAs that had fewer than 60 HHCAHPS[supreg]-
eligible unduplicated or unique patients in the period of April 1, 
2012, through March 31, 2013 are exempt from the HHCAHPS[supreg] data 
collection and submission requirements for the CY 2015 APU. Agencies 
with fewer than 60 HHCAHPS[supreg]-eligible, unduplicated or unique 
patients in the period of April 1, 2012, through March 31, 2013 are 
required to submit their patient counts on the HHCAHPS[supreg] 
Participation Exemption Request form for the CY 2015 APU, posted on 
https://homehealthcahps.org on April 1, 2013, by 11:59 p.m., e.d.t. on 
January 16, 2014. This deadline is firm, as is true of all quarterly 
data submission deadlines.
(4) HHCAHPS[supreg] Requirements for the CY 2016 APU
    For the CY 2016 APU, we require continued monthly HHCAHPS[supreg] 
data collection and reporting for 4 quarters. The data collection 
period for the CY 2016 APU includes the second quarter 2014 through the 
first quarter 2015 (the months of April 2014 through March 2015). HHAs 
will be required to submit their HHCAHPS[supreg] data files to the 
HHCAHPS[supreg] Data Center for the second quarter 2014 by 11:59 p.m., 
e.d.t. on October 16, 2014; for the third quarter 2014 by 11:59 p.m., 
e.s.t. on January 15, 2015; for the fourth quarter 2014 by 11:59 p.m., 
e.d.t. on April 16, 2015; and for the first quarter 2015 by 11:59 p.m., 
e.d.t. on July 16, 2015. These deadlines will be firm; no exceptions 
will be permitted.
    We will exempt HHAs receiving Medicare certification after the 
period in which HHAs do their patient count (April 1, 2013 through 
March 31, 2014) on or after April 1, 2014, from the full 
HHCAHPS[supreg] reporting requirement for the CY 2016 APU, because 
these HHAs will not have been Medicare-certified throughout the period 
of April 1, 2013, through March 31, 2014. These HHAs will not need to 
complete a HHCAHPS[supreg] Participation Exemption Request form for the 
CY 2016 APU.
    We require that all HHAs that had fewer than 60 HHCAHPS[supreg]-
eligible unduplicated or unique patients in the period of April 1, 
2013, through March 31, 2014 are exempt from the HHCAHPS[supreg] data 
collection and submission requirements for the CY 2016 APU, upon 
completion of the Participation Exemption Request form. Agencies with 
fewer than 60 HHCAHPS-eligible, unduplicated or unique patients in the 
period of April 1, 2013, through March 31, 2014, will be required to 
submit their patient counts on the HHCAHPS[supreg] Participation 
Exemption Request form for the CY 2016 APU posted on https://homehealthcahps.org on April 1, 2014, by 11:59 p.m., e.s.t. on January 
15, 2015. This deadline will be firm, as will be all of the quarterly 
data submission deadlines.
(5) HHCAHPS[supreg] Reconsiderations and Appeals Process
    HHAs should monitor their respective HHCAHPS[supreg] survey vendors 
to ensure that vendors submit their HHCAHPS[supreg] data on time, by 
accessing their HHCAHPS[supreg] Data Submission Reports on https://homehealthcahps.org. This will help HHAs ensure that their data are 
submitted in the proper format for data processing to the 
HHCAHPS[supreg] Data Center.
    We will continue the HHCAHPS[supreg] reconsiderations and appeals 
process that we have finalized and that we have used for the CY 2012 
APU and for the CY 2013 APU. We have described the HHCAHPS[supreg] 
reconsiderations process requirements in the Technical Direction Letter 
that CMS sends to the affected HHAs, on or about the first Friday in 
September. HHAs have 30 days from their receipt of the Technical 
Direction Letter informing them that they did not meet the HHCAHPS 
requirements for the CY period, to send all documentation that supports 
their requests for reconsideration to CMS. It is important that the 
affected HHAs send in comprehensive information in their 
reconsideration letter/package because CMS will not contact the 
affected HHAs to request additional information or to clarify 
incomplete or inconclusive information. If clear evidence to support a 
finding of compliance is not present, the 2 percent reduction in the 
APU will be upheld. If clear evidence of compliance is present, the 2 
percent reduction for the APU will be reversed. We will notify affected 
HHAs by about mid-December. If we determine to uphold the 2 percent 
reduction, the HHA may further appeal the 2 percent reduction via the 
Provider Reimbursement Review Board (PRRB) appeals process.
    The following is a summary of the comments we received regarding 
HHCAHPS[supreg]:
    Comment: We received a comment that supported HHCAHPS[supreg] as a 
useful tool for quality improvement and for empowering patients as 
equal partners in their plans of health care. This commenter said that 
member providers have used the HHCAHPS[supreg] survey to identify high-
risk patients and to provide additional care support to them in 
managing their illnesses.
    Response: We are very happy to hear these statements of support for 
HHCAHPS[supreg] and to learn about how providers are using the survey 
for quality improvement.

[[Page 72296]]

    Comment: We received a comment that HHCAHPS[supreg] is an unfunded 
administrative burden on HHAs as a mandate that requires significant 
time to work with CMS's approved vendor selected by the provider.
    Response: The collection of the patient's perspectives of care data 
for similar CAHPS[supreg] surveys, such as Hospital CAHPS[supreg], 
follow the same model where providers pay the approved survey vendors 
for the HHCAHPS[supreg] data collection, and CMS pays for the 
HHCAHPS[supreg] survey vendor approval process, survey vendor training, 
technical support and assistance for home health agencies and for the 
vendors, monitoring and oversight of the vendors, and data analysis and 
public reporting of the HHCAHPS[supreg] survey data. HHAs are strongly 
encouraged to report their respective HHCAHPS[supreg] costs on their 
cost reports but should note that the HHCAHPS[supreg] costs are not 
reimbursable under the HH PPS. CMS strongly encourages HHAs to shop 
around for the best cost value for them before choosing and contracting 
with an approved HHCAHPS[supreg] vendor to conduct the HHCAHPS[supreg] 
survey on their behalf.
    Comment: We received comments that CMS requires the use of external 
CMS-approved vendors but holds the home health agencies responsible for 
assuring that these vendors perform properly. These commenters 
emphasized that CMS should change this policy and monitor the 
performance of the outside vendors and penalize the vendors, not the 
home health agencies, if the vendors fail to perform.
    Response: We believe that HHAs must monitor their vendors to ensure 
that vendors submit data on time, by using the information that is 
available to them on the HHCAHPS[supreg] Data Submission Reports. This 
will also ensure that data is submitted in the proper format, and will 
subsequently be successfully submitted to the HHCAHPS[supreg] Data 
Center.
    If CMS or the CMS Data Warehouse contractor become aware that an 
HHCAHPS vendor has significant issues that would put HHAs at risk for 
not meeting the APU requirements, CMS and the CMS Contractor will 
immediately alert the affected HHAs. The intent of this alert is to 
provide these agencies with sufficient time to switch vendors and to 
ensure that the HHAs will not be penalized if their data collection 
activities are interrupted because of circumstances outside of their 
control. HHAs are strongly encouraged to call email [email protected] or 
telephone RTI, the federal contractor, at (866) 354-0954, to change 
vendors and to ensure that their HHCAHPS[supreg] data collection will 
continue. HHAs are always advised to check the official HHCAHPS[supreg] 
Web site, https://homehealthcahps.org for all information about 
HHCAHPS[supreg]. In the event that CMS has found problems with a 
vendor, we would also note this next to the vendor name on the vendor 
list that is posted on https://homehealthcahps.org. If we find that a 
vendor does not comply with HHCAHPS[supreg] protocols and guidelines 
for the implementation of the HHCAHPS[supreg] survey, or correct their 
deficiencies in a timely manner, then we will remove that vendor from 
the approved list.
    Final Decision: We are not recommending any changes as a result of 
comments received.
f. Summary of Changes in CY 2014 for the HHCAHPS[supreg] Survey
    For the CY 2014 HH PPS Final Rule, we are finalizing the proposed 
requirements for HHCAHPS[supreg] as proposed in the CY 2014 HH PPS 
Proposed Rule.
g. For Further Information on the HHCAHPS[supreg] Survey
    We strongly encourage HHAs to learn about the survey and view the 
HHCAHPS[supreg] Survey Web site at the official Web site for the 
HHCAHPS[supreg] at https://homehealthcahps.org. HHAs can also send an 
email to the HHCAHPS[supreg] Survey Coordination Team at 
[email protected], or telephone toll-free (1-866-354-0985) for more 
information about HHCAHPS[supreg].
2. Home Health Quality Reporting Program (HHQRP)
a. General Considerations Used for Selection of Quality Measures for 
the HHQRP
    The successful development of the HH Quality Reporting Program 
(HHQRP) that promotes the delivery of high quality healthcare services 
is our paramount concern. We seek to adopt measures for the HHQRP that 
promote efficient and safer care. Our measure selection activities for 
the HHQRP takes into consideration input we receive from the Measure 
Applications Partnership (MAP), convened by the National Quality Forum 
(NQF). The MAP is a public-private partnership comprised of multi-
stakeholder groups convened for the primary purpose of providing input 
to CMS on the selection of certain categories of quality and efficiency 
measures, as required by section 1890A(a)(3) of the Social Security Act 
(the Act). By February 1st of each year, the NQF must provide that 
input to CMS. Input from the MAP is located at http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx. For more details about the pre-
rulemaking process, see the FY 2013 IPPS/LTCH PPS final rule at 77 FR 
53376 (August 31, 2012). We also take into account national priorities, 
such as those established by the National Priorities Partnership at 
http://www.qualityforum.org/npp/, the HHS Strategic Plan http://www.hhs.gov/secretary/about/priorities/priorities.html, and the 
National Strategy for Quality Improvement in Healthcare located at 
http://www.ahrq.gov/workingforquality/nqs/nqsplans.pdf.
    To the extent practicable, we have sought to adopt measures that 
have been endorsed by the national consensus organization, under 
contract to endorse standardized healthcare quality measures pursuant 
to section 1890 of the Act, recommended by multi-stakeholder 
organizations, and developed with the input of providers, purchasers/
payers, and other stakeholders.
b. Background and Quality Reporting Requirements
    Section 1895(b)(3)(B)(v)(II) of the Act states that ``each home 
health agency shall submit to the Secretary such data that the 
Secretary determines are appropriate for the measurement of health care 
quality. Such data shall be submitted in a form and manner, and at a 
time, specified by the Secretary for purposes of this clause.''
    In addition, section 1895(b)(3)(B)(v)(I) of the Act states that 
``for 2007 and each subsequent year, in the case of a home health 
agency (HHA) that does not submit data to the Secretary in accordance 
with subclause (II) with respect to such a year, the HH market basket 
percentage increase applicable under such clause for such year shall be 
reduced by 2 percentage points.'' This requirement has been codified in 
regulations at Sec.  484.225(i). HHAs that meet the quality data 
reporting requirements are eligible for the full HH market basket 
percentage increase. HHAs that do not meet the reporting requirements 
are subject to a 2 percentage point reduction to the HH market basket 
increase.
    Section 1895(b)(3)(B)(v)(III) of the Act further states that 
``[t]he Secretary shall establish procedures for making data submitted 
under sub clause (II) available to the public. Such procedures shall 
ensure that a HHA has the opportunity to review the data that is to be 
made

[[Page 72297]]

public with respect to the agency prior to such data being made 
public.''
    As codified at Sec.  484.250(a), we established that the quality 
reporting requirements could be met by the submission of OASIS 
assessments and HH Care Consumer Assessment of Healthcare Providers and 
Systems Survey (HHCAHPS[supreg]). CMS has provided quality measures to 
HHAs via the Certification and Survey Provider Enhanced Reports 
(CASPER) reports available on the CMS Health Care Quality Improvement 
System (QIES) since 2002. A subset of the HH quality measures has been 
publicly reported on the HH Compare Web site since 2003. The CY 2012 HH 
PPS final rule (76 FR 68576), identifies the current HH QRP measures. 
The selected measures that are made available to the public can be 
viewed on the HH Compare Web site located at http://www.medicare.gov/HHCompare/Home.asp.
    As stated in the CY 2012 and CY2013 HH PPS final rules (76 FR 68575 
and 77 FR 67093, respectively), we finalized that we will also use 
measures derived from Medicare claims data to measure HH quality.
c. OASIS Data Submission and OASIS Data for Annual Payment Update
    The HH conditions of participation (CoPs) at Sec.  484.55(d) 
require that the comprehensive assessment must be updated and revised 
(including the administration of the OASIS) no less frequently than: 
(1) The last 5 days of every 60 days beginning with the start-of-care 
date, unless there is a beneficiary elected transfer, significant 
change in condition, or discharge and return to the same HHA during the 
60-day episode; (2) within 48 hours of the patient's return to the home 
from a hospital admission of 24 hours or more for any reason other than 
diagnostic tests; and (3) at discharge.
    It is important to note that to calculate quality measures from 
OASIS data, there must be a complete quality episode, which requires 
both a Start of Care (initial assessment) or Resumption of Care OASIS 
assessment and a Transfer or Discharge OASIS assessment. Failure to 
submit sufficient OASIS assessments to allow calculation of quality 
measures, including transfer and discharge assessments, is failure to 
comply with the CoPs.
    HHAs do not need to submit OASIS data for those patients who are 
excluded from the OASIS submission requirements under the HH CoPs Sec.  
484.1 through Sec.  484.265. As described in the December 23, 2005 
Medicare and Medicaid Programs: Reporting Outcome and Assessment 
Information Set Data as Part of the Conditions of Participation for 
Home Health Agencies final rule (70 FR 76202), we define the exclusion 
as those patients:
     Receiving only nonskilled services;
     For whom neither Medicare nor Medicaid is paying for HH 
care (patients receiving care under a Medicare or Medicaid Managed Care 
Plan are not excluded from the OASIS reporting requirement);
     Receiving pre- or post-partum services; or
     Under the age of 18 years.
    As set forth in the CY 2008 HH PPS final rule (72 FR 49863), HHAs 
that become Medicare-certified on or after May 31 of the preceding year 
are not subject to the OASIS quality reporting requirement nor any 
payment penalty for quality reporting purposes for the following year. 
For example, HHAs certified on or after May 31, 2013 are not subject to 
the 2 percentage point reduction to their market basket update for CY 
2014. These exclusions only affect quality reporting requirements and 
do not affect the HHA's reporting responsibilities as announced in the 
December 23, 2005 final rule, Medicare and Medicaid Programs; Reporting 
Outcome and Assessment Information Set Data as Part of the Conditions 
of Participation for Home Health Agencies (70 FR 76202).
d. Home Health Care Quality Reporting Program Requirements for CY 2014 
Payment and Subsequent Years
(1) Submission of OASIS Data
    For CY 2014, we proposed to consider OASIS assessments submitted by 
HHAs to CMS in compliance with HH CoPs and Conditions for Payment for 
episodes beginning on or after July 1, 2012, and before July 1, 2013 as 
fulfilling one portion of the quality reporting requirement for CY 
2014. This time period will allow for 12 full months of data collection 
and will provide us with the time necessary to analyze and make any 
necessary payment adjustments to the payment rates for CY 2014. We 
proposed to continue this pattern for each subsequent year beyond CY 
2014, considering OASIS assessments submitted in the time frame between 
July 1 of the calendar year 2 years prior to the calendar year of the 
Annual Payment Update (APU) effective date and July 1 of the calendar 
year 1 year prior to the calendar year of the APU effective date as 
fulfilling the OASIS portion of the quality reporting requirement for 
the subsequent APU.
    The following is a summary of the comments we received regarding 
the submission of OASIS assessments to fulfill one portion of the 
quality reporting requirement for CY 2014 Payment and Subsequent Years.
    Comment: Several commenters supported the proposals regarding 
considering OASIS assessments as fulfilling one portion of the quality 
reporting requirement for CY2014 and each subsequent year. We received 
no comments in opposition.
    Response: We appreciate the commenters' support for the proposals.
    Final Decision: After considering all of the comments we received, 
we are finalizing the proposals as proposed. CMS will consider OASIS 
assessments submitted by HHAs to CMS in compliance with the HH CoPs and 
Conditions for Payment for episodes beginning on or after July 1, 2012, 
and before July for episodes beginning on or after July 1, 2012, and 
before July 1, 2013 as fulfilling one portion of the quality reporting 
requirement for CY 2014. We will also continue this pattern for each 
subsequent year beyond CY 2014, considering OASIS assessments submitted 
for episodes beginning on July 1st of the calendar year 2 years prior 
to the calendar year of the APU effective date and ending June 30th of 
the calendar year 1 year prior to the calendar year of the APU 
effective date as fulfilling the OASIS portion of the HH quality 
reporting requirement. HHA OASIS assessments will be considered 
complete if they comply with the HH CoPs and Conditions for Payment 
that apply to the applicable year.
(2) Home Health Rehospitalization and Emergency Department (ED) Use 
Without Readmission Claims-Based Measures
    We proposed to adopt two claims-based measures: (1) 
Rehospitalization during the first 30 days of HH; and (2) Emergency 
Department Use without Hospital Readmission during the first 30 days of 
HH. These measures were included on the Measures Under Consideration 
list reviewed by the MAP in December 2012 and the MAP supported the 
direction of both measures. The Rehospitalization during the first 30 
days of HH measure estimates the risk-standardized rate of unplanned, 
all-cause hospital readmissions for patients who had an acute inpatient 
hospitalization in the 5 days before the start of their HH stay and 
were admitted to an acute care hospital during the 30 days following 
the start of the HH stay. The Emergency Department Use without 
Readmission measure estimates the risk-standardized rate of unplanned, 
all-cause use of an emergency department for patients who

[[Page 72298]]

had an acute inpatient hospitalization in the 5 days before the start 
of a HH stay and used an emergency department, yet were not admitted to 
an acute care hospital during the 30 days following the start of a HH 
stay.
    We worked to develop a set of quality measures to report on HH 
patients who are recently hospitalized as these patients are at an 
increased risk of acute care hospital use, either through inpatient 
admission or emergency department use without inpatient admission. 
Addressing unplanned hospital readmissions is a high priority for HHS 
as our focus continues on promoting patient safety, eliminating 
healthcare associated infections, improving care transitions, and 
reducing the cost of healthcare. Readmissions are costly to the 
Medicare program and have been cited as sensitive to improvements in 
coordination of care and discharge planning for patients. Rates of 
rehospitalization remain substantial with 14.4 percent of HH patients 
experiencing an unplanned rehospitalization in the first 30 days of 
care. Currently, HHAs focus on measures of acute care hospitalization 
(applied to all HH patients) as a measure of their effectiveness. We 
will continue to publicly report the Acute Care Hospitalization and 
Emergency Department Use without Hospitalization measures, as these 
measures apply to all home health patients and will continue to be 
useful in selecting a home health agency. The rehospitalization 
measures will allow HHAs to further target patients who entered HH 
after a hospitalization.
    The measures of acute care utilization by previously hospitalized 
patients are developed out of the NQF endorsed claims-based measures: 
(1) Acute Care Hospitalization (NQF 0171); and (2) Emergency 
Department Use without Hospitalization (NQF 0173) to better 
capture acute care hospitalizations and use of an emergency department 
for patients who are recently discharged from the hospital. These 
rehospitalization measures are harmonized with NQF-endorsed Hospital-
Wide Risk-Adjusted All-Cause Unplanned Readmission Measure (NQF 
1789) (see http://www.qualityforum.org/Publications/2012/07/Patient_Outcomes_All-Cause_Readmissions_Expedited_Review_2011.aspx) finalized for the Hospital IQR Program in the FY 2013 IPPS/
LTCH PPS Final Rule (77 FR 53521 through 53528). Further, to the extent 
appropriate, the HH rehospitalization measures are harmonized with this 
measure and other measures of readmission rates developed for post-
acute care (PAC) settings.
    We intend to seek NQF endorsement of the: (1) Rehospitalization 
during the first 30 days of HH; and (2) Emergency Department Use 
without Readmission during the first 30 days of HH measures. We 
proposed to begin reporting feedback to HHAs on performance on these 
measures in CY 2014. These measures will be added to Home Health 
Compare for public reporting in CY 2015. Additional details pertaining 
to these measures, including technical specifications, can be found at 
the HH Quality Initiative Web page located at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HomeHealthQualityInits/HHQIQualityMeasures.html.
    We solicited public comment on our proposed quality measures: (1) 
Rehospitalization during the first 30 days of HH; and (2) Emergency 
Department Use without Hospital Readmission during the first 30 days of 
HH. We also proposed to provide feedback to HHAs on performance of 
these measures in CY 2014. The following is a summary of the comments 
we received regarding these two quality measures:
    Comment: Several commenters stated that they support the addition 
of the proposed quality measures to the HHQRP. One commenter 
specifically supported the proposal for reporting feedback to HHAs on 
performance of these measures in CY 2014. We also received a number of 
comments stating that, according to the Measures Application 
Partnership (MAP) report from January of 2013, the proposed quality 
measures required further development and encouraging CMS to submit 
them for NQF endorsement prior to full implementation and public 
reporting.
    Response: We appreciate the commenters' support for the addition of 
the proposed quality measures to the HHQRP. We are finalizing the 
proposal to provide feedback to HHAs on performance of these measures 
in CY 2014. In December 2012, the MAP supported the direction of both 
measures because they address the PAC/LTC core concept of avoidable 
admissions. The MAP did acknowledge that the measures should be 
appropriately risk adjusted to accommodate variations in population. 
The risk model was developed and then minimally changed as a result of 
comment to this rule. The final list of risk factors will be posted on 
cms.gov by December 6, 2013. We plan to submit the two quality measures 
for NQF endorsement by the submission deadline of December 6, 2013. 
These measures will be added to Home Health Compare for public 
reporting in CY2015.
    Comment: One commenter requested that CMS clarify what course of 
action it would take if NQF fails to endorse the proposed quality 
measures. The commenter also stated that their understanding of section 
1890 of the Act is that CMS is required to use endorsed measures in its 
quality reporting programs.
    Response: As noted in the response to the previous comment, we plan 
to submit the measures for NQF endorsement in the fourth quarter of CY 
2013. However, based on our interpretation of section 1895(b)(3)(B)(v) 
of the Act, we may adopt measures for the HHQRP that are not NQF-
endorsed. If NQF does not endorse the proposed quality measures, CMS 
will consider NQF's rationale for not endorsing the measures and decide 
how to proceed.
    Comment: Several commenters stated that the proposed quality 
measures are too similar to the existing Acute Care Hospitalization and 
Emergency Department Use without Hospitalization measures. Several 
additional commenters were uncertain about how the proposed measures 
differ from the measures of Acute Care Hospitalization and ED Use 
currently published on Home Health Compare or were unaware that the 
Acute Care Hospitalization and ED Use without Hospitalization are 
currently part of the HHQRP measure set. These commenters recommended 
that CMS modify the proposed measures so that they are more similar to 
the existing measures. We also received a number of comments stating 
that if we finalize the proposed quality measures we should consider 
removing the existing Acute Care Hospitalization and Emergency 
Department Use without Hospitalization measures from the HHQRP because 
publicly reporting all four measures might be confusing for HHAs and 
the public.
    Response: The two quality measures we proposed are different from 
the existing NQF-endorsed Acute Care Hospitalization and ED Use without 
Hospitalization measures. The proposed quality measures specifically 
target the previously hospitalized home health population, whereas the 
existing, NQF-endorsed Acute Care Hospitalization and Emergency 
Department Use without Hospitalization measures evaluate home health 
agencies on their care for all of their Medicare patients. While the 
proposed quality measures apply only to patients who were hospitalized 
in the five days prior to starting home health, which includes only 
about 35 percent of

[[Page 72299]]

HH patients, the Acute Care Hospitalization and Emergency Department 
Use without Hospitalization measures apply to the entire home health 
population covered by original Medicare. In addition, the Acute Care 
Hospitalization measure includes hospitalizations that occur during the 
first 60 days of home care, and the proposed Rehospitalization measure 
only applies to the first 30 days of home care. We believe that the two 
quality measure sets can be used in conjunction to evaluate home health 
care quality, and that, by comparing home health agencies on both sets 
of claims-based measures, consumers can gain a more complete and 
accurate picture of how much acute care is used by patients of the 
agencies.
    Comment: One commenter requested that CMS clarify the source of a 
statistic cited in the proposed rule, namely the 14.4 percent of HH 
patients experiencing an unplanned rehospitalization in the first 30 
days of HH care and also requested that CMS clarify the reason for the 
difference between the national average rate of unplanned 
rehospitalization in the first 30 days of HH care (14.4 percent) and 
the national average rate for the Acute Care Hospitalization rate 
published on Home Health Compare (17 percent).
    Response: We appreciate the comments. The statistic that 14.4 
percent of HH patients experience an unplanned rehospitalization in the 
first 30 days of HH care is calculated by applying the specifications 
for the Rehospitalization during the first 30 days of HH measure to 12 
months of fee-for-service Medicare claims (July 2011 through June 
2012). The Rehospitalization during the first 30 days of HH measure is 
only calculated for Medicare fee-for-service patients because encounter 
data is available through fee-for-service claims. The 17 percent 
national average hospitalization rate represents hospitalizations 
during the first 60 days of home health for all Medicare fee-for-
service patients, calculated according to the specifications for the 
Acute Care Hospitalization measure.
    Comment: One commenter stated that CMS appears to take the position 
that 14.4 percent of HH patients experiencing an unplanned 
rehospitalization in the first 30 days of HH care is an unacceptable 
number. The commenter noted that a portion of those readmissions may be 
unavoidable.
    Response: We thank the commenter for the comment. We agree with the 
commenter that some readmissions to the hospital and emergency 
department visits may not be preventable. We believe that HHAs can 
provide the highest quality care and coordination of care for their 
patients so that the rate of preventable readmissions is reduced.
    Comment: With regards to the Emergency Department Use without 
Hospital Readmission during the first 30 days of HH measure, one 
commenter stated that CMS should take into account the increase in the 
number of urgent care centers in certain areas of the country, which 
could skew the performance rates for the Emergency Department Use 
without Hospital Readmission during the first 30 days of HH measure 
across different HHAs across the country.
    Response: We appreciate the comment. We are investigating the 
impact of urgent care centers on these measures. While we expect that 
urgent care sometimes substitutes for Emergency Department use, the 
availability of urgent care centers should similarly impact all 
agencies in an area similarly, and thus performance on the ED Use 
without Hospital Readmission measure should still be meaningfully 
compared among agencies in the same area.
    Comment: One commenter expressed concern that the proposed quality 
measures do not consider the length of time that the patient has been 
receiving HH care before requiring rehospitalization or treatment in 
the emergency department.
    Response: We appreciate the commenter's concern. We examined the 
relationship between time in home health and hospitalizations and found 
that home health patients experience a nearly constant hazard of 
hospitalization per day. By measuring rehospitalizations over a fixed 
30 day window (rather than over the entire home health episode) the 
relationship between length of stay and rehospitalization is mitigated. 
While we acknowledge that other approaches could also be appropriate, 
we chose the fixed measurement window approach for simplicity and to be 
consistent with the existing NQF endorsed measures of Acute Care 
Hospitalization and ED Use.
    Comment: One commenter stated that they do not support the five-day 
timeframe used to specify the eligible patient population and 
encouraged further analysis of how the time interval between hospital 
discharge and home health admission impacts subsequent patient 
outcomes. The commenter expressed particular concern that some 
hospitals may delay home health admission until 3 days after hospital 
discharge in an attempt to maximize DRG reimbursement.
    Response: We appreciate the commenter's feedback. We believe that 
the five-day timeframe used to specify the eligible patient population 
for the measures is appropriate. Shortening the 5 day window is 
undesirable for several reasons. First, it would exclude some patients 
from the measures who are not cared for in any other post-acute 
setting. Additionally, a shorter window (such as a two-day window to be 
consistent with the CoPs) may encourage agencies to delay the start of 
care for particularly unstable patients so that they are not held 
accountable for the rehospitalization of such patients.
    Comment: One commenter asked how short Skilled Nursing Facility 
(SNF) stays occurring between hospital discharge and start of HH care 
are accounted for in the measures.
    Response: The measure specifications exclude patients who receive 
care from another post-acute setting, such as a SNF or an IRF between 
hospital discharge and start of home health are excluded from both 
measures.
    Comment: One commenter stated that HHAs may not be entirely 
responsible for a patient's return to an emergency room or inpatient 
acute care facility, since HHAs follow orders prescribed by the 
physician. The commenter stated that an HHA does not have the authority 
to override the physician's decision to admit the HH patient to an 
inpatient acute care facility.
    Response: We appreciate the commenter's concern. We understand that 
Emergency Department use or Hospitalization is sometimes necessary. We 
do believe, however, that the care that a patient receives from a HHA 
can reduce the need for that patient to be readmitted to the hospital.
    Comment: We received a number of comments stating that agencies 
should not be held responsible for patients who are readmitted to an 
acute-care setting within 30 days of entering HH, if these patients 
have been discharged from home health for appropriate reasons (for 
example, the patient is no longer homebound or is no longer in need of 
skilled services) within the 30-day period. One commenter requested 
that CMS clarify whether patients discharged from HH care within the 
30-day measurement period would be included or excluded from the 
proposed quality measures.
    Response: We appreciate the comments. We believe that the care and 
education provided by HHAs can have a positive impact on the health 
status and self-care processes of many of the these patients, even if 
they were discharged due to appropriate reasons such as no longer being 
homebound

[[Page 72300]]

and/or no longer in need of skilled care. Therefore home health care 
can reduce the likelihood of hospital readmission even after the 
patient is discharged from the HHA. Thus, as documented in the measure 
specifications, patients who are discharged from home health within the 
30-day observation period are counted in the denominators of the 
quality measures.
    Comment: Two commenters stated that they are concerned about the 
impact of the increasing use of ``observation stays'' in lieu of 
inpatient admission on the rates of the proposed quality measures, 
since there may be significant variation in the use of observation 
stays versus inpatient admission within a state, region, or the United 
States.
    Response: We appreciate the commenters' concern. Observation stays 
that begin in a hospital emergency department will be captured on the 
Emergency Department Use without Hospital Readmission during the first 
30 days of HH measure rather than in the Rehospitalization measure, as 
these events are billed to Medicare as outpatient services rather than 
inpatient services.
    Comment: Two commenters expressed support for the proposed 
exclusions for both measures. We also received a number of comments 
stating that it is unclear whether and how CMS excludes planned 
hospitalizations from the proposed quality measures.
    Response: We appreciate the commenters' support for the exclusions. 
Additionally, we would like to point out that the specifications for 
the measures clarify that the measures exclude planned hospitalizations 
using the same algorithm as the NQF-endorsed Hospital-Wide All-Cause 
Unplanned Readmission (HWR) measure. This algorithm identifies planned 
hospitalizations based on diagnostic and procedural information 
available on claims data. Those specifications can be found at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HomeHealthQualityInits/HHQIQualityMeasures.html.
    Comment: One commenter requested that CMS clarify the term ``risk-
standardized'' as it is used in the proposed rule to describe the 
proposed quality measures.
    Response: We would like to clarify that the term ``risk-
standardized,'' which appears in the section of the proposed rule that 
describes the proposed quality measures, is interchangeable with 
``risk-adjusted,'' that is, the quality measures are risk-adjusted to 
account for beneficiary factors that may affect rates of 
hospitalization but are outside of the HHA's control.
    Comment: Several commenters expressed concerns that the proposed 
quality measures do not appropriately take into account other settings 
where the patient may have received care.
    Response: We appreciate the commenters' concern. The specifications 
for the measures exclude home health stays in which the patient 
received treatment in another setting between hospital discharge and 
the start of home health as these patients' outcomes may be affected by 
this intervening care. In addition, the risk adjustment model takes 
into account settings in which the beneficiary received care prior to 
hospitalization by examining Medicare fee-for-service claims in the 30 
days prior to the start of the HH stay. We believe that the measures 
appropriately take into account other settings.
    Comment: Several commenters stated that they support the proposed 
approach to risk adjustment. Additionally, we received a number of 
comments stating that CMS should include other risk factors in the risk 
adjustment model. One commenter stated that it is unclear why certain 
OASIS items have been included and others have been excluded.
    Response: We appreciate the commenters' support for the risk 
adjustment approach. We also appreciate the comment that additional 
data derived from OASIS may be useful as risk adjustment factors for 
the measures. Currently, CMS has chosen to include all the Activities 
of Daily Living (ADLs) information that is readily available on 
Medicare claims as risk adjustment factors, including composite 
measures of Dressing Upper or Lower Body, Bathing, Toileting, 
Transferring, and Ambulation. However, incorporating additional OASIS 
data elements into the risk adjustment model would require the ability 
to match OASIS assessments to claims accurately, which is currently 
infeasible.
    Comment: One commenter stated that CMS should take into account 
additional patient characteristics such as race, ethnicity, and 
religion, which may influence a patient's preference to be 
hospitalized, in the risk adjustment model.
    Response: While risk-adjustment is used to ensure that measured 
rates are comparable across agencies with different patient 
populations, CMS believes that adjusting for race, ethnicity, or 
religion would obscure disparities in outcomes between more advantaged 
and less advantaged groups. We note, however, that we have examined 
disparities between subpopulations defined by race, age, and gender for 
the measures; this information was included in the technical brief 
posted for public comment through the Measures Management Blueprint 
process on the CMS Quality Measures Public Comment from June 25, 2013 
to August 26, 2013.
    Comment: One commenter stated that CMS should make public a clear 
list of the risk adjustment factors used to calculate the proposed 
measures.
    Response: The technical specifications that were available for 
these measures at the time we issued the proposed rule included a list 
of types of risk factors that were included in a preliminary risk-
adjustment model. We subsequently minimally refined the risk adjustment 
model in response to the public comments received during the Measures 
Management Blueprint process. The refinements involved statistical 
categorization and were not substantive; the types of risk factors are 
unchanged from those noted in the technical specifications. By December 
6, 2013, we will post the final technical specifications on the Home 
Health Quality Initiative page, which will include a list of all risk 
adjustment factors and model coefficients for each factor.
    Comment: Several commenters stated that they support alignment of 
the proposed quality measures with the readmission measures of 
hospitals and other post-acute care providers. We also received several 
comments stating that CMS should adopt disease-specific readmission 
measures to align disease specific quality improvement efforts in HHAs 
with hospitals and across care settings. Several commenters stated that 
the proposed quality measures do not align with the Hospital 30-day 
Readmission measure, which only includes three causes--Myocardial 
Infarction (MI), Heart Failure (HF), and Pneumonia.
    Response: We appreciate the support for the alignment of the 
quality measures with the readmission measures of hospitals and other 
post-acute care providers. Currently, the measures align with the NQF-
endorsed Hospital-Wide All Cause Unplanned Readmission measure. We also 
appreciate the recommendation to develop disease-specific readmission 
measures across care settings. We will take into account the 
recommendation to develop disease-specific readmission measures across 
care settings as part of future measure development work.
    Comment: Several commenters stated that they support the use 
administrative

[[Page 72301]]

claims data to calculate the proposed quality measures.
    Response: We thank the commenters for their support.
    Comment: We received a number of comments stating that CMS should 
seek broader input from the home health care community and public when 
developing the proposed quality measures and home health quality 
measures in general.
    Response: We thank the commenters for the comment. We do seek input 
from the home health community and the general public through the CMS 
Quality Measures Public Comment Page on cms.gov. Development of all 
four home health claims-based measures, including the two proposed 
measures, was also informed by outreach conducted for the 2011 Home 
Health Value-based Purchasing Report to Congress, including expert 
interviews and a listening session. Additionally, the home health 
measures technical expert panel (initially convened in late 2010) 
reviewed and discussed the measures. To maintain transparency in future 
measure development work, CMS will continue to seek input from the 
public.
    Final Decision: After consideration of the comments received, we 
are finalizing the adoption of the two claims-based measures: (1) Re-
hospitalization during the first 30 days of HH; and (2) Emergency 
Department Use without Hospital Readmission during the first 30 days of 
HH. We will provide feedback to HHAs on their measure rates in CY 2014.
(3) Elimination of Stratification by Episode Length Process Measures
    We are exploring ways to reduce the number of HH quality measures 
reported to HHAs on confidential CASPER reports. We proposed to reduce 
the total number of measures on the CASPER reports by beginning to 
report only all-episodes measures for 9 process measures currently also 
stratified by episode length. We solicited comments on this proposal to 
simplify the reporting of process measures, which is based on the 
recommendation from the MAP to achieve greater parsimony in these 
measures. Currently there are 97 quality measures included on the 
CASPER reports, of which 45 are process measures. This reduction will 
decrease the total number of HH quality measures to 79 and reduce the 
number of process measures from 45 to 27. This change will enable HHAs 
to obtain the information they require for quality improvement 
activities related to the process measures in a less burdensome manner. 
Reducing the number of measures also facilitates the future development 
and implementation of other superior HH measures.
    Nine measures currently stratified by episode length on CASPER 
reports include:
     Depression Interventions Implemented.
     Diabetic Foot Care and Patient/Caregiver Education 
Implemented.
     Heart Failure Symptoms Addressed.
     Pain Interventions Implemented.
     Treatment of Pressure Ulcers Based on Principles of Moist 
Wound Healing Implemented.
     Pressure Ulcer Prevention Implemented.
     Drug Education on All Medications Provided to Patient/
Caregiver.
     Potential Medication Issues Identified and Timely 
Physician Contact.
     Falls Prevention Steps Implemented.
    For each of these nine measures, three versions of each measure are 
currently included on CASPER reports. The three versions are: (1) Short 
term episodes of care; (2) long term episodes of care; and (3) all 
episodes of care. We proposed to eliminate the stratification by 
episode length, so that these measures are reported only for ``all 
episodes of care''. Thus, we proposed to eliminate the ``short term'' 
and ``long term episodes of care'' measures from CASPER reports. This 
will remove 18 process measures from the current CASPER reports. Of 
note, only the ``short term episodes of care'' measures are currently 
reported on HH Compare. These will be replaced with the analogous ``all 
episodes of care'' measures.
    No data will be lost in the elimination of the ``short and long 
term episodes of care'' measures as the ``all episodes of care'' 
measures capture all care interventions, regardless of episode length. 
Using only the ``all episodes of care'' measures will substantially 
increase the number of HHAs eligible for public reporting of these 
measures.
    The following is a summary of the comments we received regarding 
the proposal to eliminate stratification by episode length process 
measures.
    Comment: Several commenters stated that they support this proposal. 
We received no comments in opposition. We also received a few comments 
requesting that CMS give HHAs continued access to HHQRP data files to 
allow them to calculate their own short-term and long-term rates and to 
benchmark their performance on those rates against other HHAs.
    Response: We appreciate the commenters' feedback. We understand 
that the HHAs need access to detailed data to inform their quality 
improvement efforts. However, the CASPER system currently does not 
support access to patient-level data for process measures so agencies 
will not be able to calculate separate rates for short-term versus 
long-term patients. We will examine adding such functionality to future 
revisions of CASPER reports.
    Final Response: After consideration of the comments received, we 
are finalizing policies related to the reduction of the number of 
process measures as proposed. We will reduce the total number of 
measures on the CASPER reports by reporting only all-episode measures 
for 9 process measures currently also stratified by episode length. We 
will eliminate the stratification by episode length by removing the 
``short term'' and ``long term episodes of care'' measures from the 
CASPER reports so that the measures are only reported for all episodes 
of care. The ``short term episodes of care'' measures currently 
publicly reported on Home Health Compare will be replaced with the 
analogous ``all episodes of care'' measures.
    To summarize, we are finalizing the proposals to continue to use a 
HHA's submission of OASIS assessments for episodes between July 1 of 
the calendar year two years prior to the calendar year of the APU 
effective date and June 30 of the calendar year one year prior to the 
calendar year of the APU effective date as fulfilling one portion of 
the quality reporting requirement for each payment year; to adopt two 
claims-based measures: (1) Rehospitalization during the first 30 days 
of HH; and (2) Emergency Department Use without Hospital Readmission 
during the first 30 days of HH, to begin reporting feedback to HHAs on 
performance on these measures in CY 2014; and to reduce the number of 
process measures reported on the CASPER reports by eliminating the 
stratification by episode length for 9 process measures.
3. Home Health Wage Index
    Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the 
Secretary to provide appropriate adjustments to the proportion of the 
payment amount under the HH PPS that account for area wage differences, 
using adjustment factors that reflect the relative level of wages and 
wage-related costs applicable to the furnishing of HH services. For CY 
2014, as in previous years, we are proposing to base the wage index 
adjustment to the labor portion of the HH PPS rates on the most recent 
pre-floor and pre-reclassified hospital wage index. We will apply the 
appropriate wage index value to the labor portion of

[[Page 72302]]

the HH PPS rates based on the site of service for the beneficiary 
(defined by section 1861(m) of the Act as the beneficiary's place of 
residence). Previously, we determined each HHA's labor market area 
based on definitions of metropolitan statistical areas (MSAs) issued by 
the OMB. We have consistently used the pre-floor, pre-reclassified 
hospital wage index data to adjust the labor portion of the HH PPS 
rates. We believe the use of the pre-floor, pre-reclassified hospital 
wage index data results in an appropriate adjustment to the labor 
portion of the costs, as required by statute.
    In the CY 2006 HH PPS final rule for (70 FR 68132), we began 
adopting revised labor market area definitions as discussed in the OMB 
Bulletin No. 03-04 (June 6, 2003). This bulletin announced revised 
definitions for MSAs and the creation of micropolitan statistical areas 
and core-based statistical areas (CBSAs). The bulletin is available 
online at www.whitehouse.gov/omb/bulletins/b03-04.html. In addition, 
OMB published subsequent bulletins regarding CBSA changes, including 
changes in CBSA numbers and titles. The OMB bulletins are available at 
http://www.whitehouse.gov/omb/bulletins/index.html.
    For CY 2014, as in previous years, we will use the most recent pre-
floor, pre-reclassified hospital wage index as the base for the wage 
index adjustment to the labor portion of the HH PPS rates. However, the 
FY 2014 pre-floor, pre-reclassified hospital wage index does not 
reflect OMB's new area delineations, based on the 2010 Census (outlined 
in OMB Bulletin 13-01, released on February 28, 2013), as those changes 
were not published until the Hospital Inpatient Prospective Payment 
System (IPPS) proposed rule (78 FR 27553) was in advanced stages of 
development. We intend to make changes to the FY 2015 hospital wage 
index based on the newest CBSA changes in the FY 2015 IPPS proposed 
rule. Therefore, if CMS incorporates OMB's new area delineations, based 
on the 2010 Census, in the FY 2015 hospital wage index, those changes 
will also be reflected in the CY 2015 HH wage index.
    Finally, we will continue to use the methodology discussed in the 
CY 2007 HH PPS final rule (71 FR 65884) to address those geographic 
areas in which there were no IPPS hospitals, and thus, no hospital wage 
data on which to base the calculation of the HH PPS wage index. For 
rural areas that do not have IPPS hospitals, and therefore, lack 
hospital wage data on which to base a wage index, we will use the 
average wage index from all contiguous CBSAs as a reasonable proxy. For 
rural Puerto Rico, we do not apply this methodology due to the distinct 
economic circumstances that exist there, but instead continue using the 
most recent wage index previously available for that area (from CY 
2005). For urban areas without IPPS hospitals, we use the average wage 
index of all urban areas within the state as a reasonable proxy for the 
wage index for that CBSA. For CY 2014, the only urban area without IPPS 
hospital wage data is Hinesville-Fort Stewart, Georgia (CBSA 25980).
    The wage index values are available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Home-Health-Prospective-Payment-System-Regulations-and-Notices.html.
    The following is a summary of the comments we received regarding 
the home health wage index.
    Comment: Several commenters expressed concern that HHAs compete 
with hospitals and hospices for skilled clinicians, yet the wage 
indices for home health, hospice, and hospitals vary widely within a 
specific geographic region. While hospitals can reclassify to 
neighboring CBSAs or take advantage of the rural floor, HHAs do not 
have this ability. Commenters believed that this results in inadequate 
home health cost adjustments that negatively impact HHAs ability to 
recruit and retain nurses and therapists in a highly competitive health 
care labor market. Commenters suggested that CMS develop regulatory and 
legislative remedies to the continuing problem of wage index disparity. 
Commenters urge CMS to implement a policy to limit the wage index 
variations between provider types within CBSAs and adjacent markets. 
Commenters requested that CMS allow HHAs the same reclassification as 
hospitals if they provide services in the same service area. Commenters 
suggest that rural floors be set for HHAs.
    Response: As previously stated in the CY 2009 HH PPS final rule, 
(74 FR 58105), the regulations that govern the HH PPS do not provide a 
mechanism for allowing HHAs to seek geographic reclassification or to 
utilize the rural floor provisions that exist for IPPS hospitals. The 
rural floor provision in section 4410 of the Balanced Budget Act of 
1997 (BBA) (Pub. L. 105-33) is specific to hospitals. The 
reclassification provision found in section 1886(d)(10) of the Act is 
also specific to hospitals.
    Comment: A commenter believed that using the pre-floor, pre-
reclassified hospital wage index is inadequate for adjusting home 
health costs. The commenter cites the unpredictable year-to-year swings 
in wage index values. The commenter stated that CMS's decision to 
switch from MSAs to CBSAs seven years ago has had serious financial 
ramifications for HHAs in various parts of the country. The commenter 
questioned the accuracy and completeness of hospital cost reports.
    Response: We believe that adjusting payments based on the CBSA 
areas is the best available method of compensating for differences in 
labor markets. The HH PPS used a 50/50 blend of the MSA-based and the 
CBSA-based wage indexes in CY 2006. Since CY 2007, the HH PPS has 
utilized the CBSA-based wage index in its entirety. In regard to the 
accuracy and completeness of hospital cost reports, we utilize 
efficient mechanisms to ensure the accuracy of the hospital cost report 
data and resulting wage index. The HH PPS uses the pre-floor, pre-
reclassified hospital wage index. This wage index is calculated based 
on cost report data from hospitals paid under the IPPS. All IPPS 
hospitals are required to complete the wage index survey (Worksheet S-
3, Parts II and III) of their Medicare cost reports. Our intermediaries 
perform desk reviews on all hospitals' Worksheet S-3 wage data, and we 
run edits on the wage data to further ensure the accuracy and validity 
of the wage data. In addition, HHAs may submit comments on the hospital 
wage index during the annual IPPS rulemaking. We believe that our 
review processes result in an accurate collection of wage data.
    Comment: A commenter requested that CMS publish the methodology for 
arriving at the wage index used by the HH PPS.
    Response: The HH PPS uses the pre-floor, pre-reclassified hospital 
wage index. The methodology for calculating the pre-floor, pre-
reclassified hospital wage index is published annually in the IPPS 
final rule. The FY 2014 IPPS final rule is available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/FY2014-IPPS-Final-Rule-Home-Page.html.
    Comment: A commenter urged CMS to expedite its review of the wage 
index and implement a system that not only recognizes variations 
between localities, but also treats all provider types within a local 
market equitably. Until such a system is in place, the commenter urged 
CMS to implement and adjust the 2014 wage index in such a way as to 
limit the wage index disparity between provider types within a given 
CBSA to no more than 10 percent. A commenter recommended that until the 
wage index

[[Page 72303]]

can be adjusted, that HHAs be given interim wage index parity 
adjustments similar to that which hospitals in the same geographic area 
receive.
    Response: The hospital wage index is updated in a budget neutral 
manner. Establishing limits on how much a wage index may increase or 
decrease from year-to-year is not consistent with budget neutrality. As 
noted above, the geographic reclassifications and adjustments that 
hospitals may apply for are not available to providers other than 
hospitals.
    Comment: A commenter stated that differences in the occupational 
personnel pool and costs between hospitals and HHAs make use of the 
hospital wage index inappropriate in the home health setting. The 
commenter further stated that using the hospital wage index is 
inappropriate because hospitals benefit from institutional efficiencies 
which HHAs are not afforded. The commenter asked CMS to develop a home 
health specific wage index. The commenter stated that until CMS 
develops a home health specific wage index, he will support CMS' 
proposal to incorporate OMB's new area delineations in the CY 2015 HH 
wage index as the improved specificity should provide some relief. In 
addition, several other commenters recommended that CMS reform or 
implement a new HH wage index system.
    Response: Our previous attempts at either proposing or developing a 
home health specific wage index were not well received by the home 
health industry. Generally, the volatility of the home health wage 
data, and the resources needed to audit and verify those data, make it 
difficult to ensure that such a wage index accurately reflects the 
wages and wage-related costs applicable providing home health services. 
We believe that a HH specific wage index should be more reflective of 
the wages and salaries in a specific area, be based upon stable data 
sources, and significantly improve our ability to determine HH payments 
without being overly burdensome.
    Comment: A commenter noted that dropping critical access hospitals 
(CAHs) from the calculation of the wage index, beginning in 2004, 
compromises the accuracy and appropriateness of using a hospital wage 
index to determine the labor costs of HHAs providing services in rural 
areas.
    Response: Although the pre-floor, pre-reclassified hospital wage 
index does not include data from CAHs, we believe it reflects the 
relative level of wages and wage-related costs applicable to providing 
home health services.
    Final Decision: For CY 2014, we will use the FY 2014 pre-floor, 
pre-reclassified hospital wage index as the wage index adjustment to 
the labor portion of the HH PPS rates.
4. CY 2014 Payment Update
a. National, Standardized 60-Day Episode Payment Rate
    The Medicare HH PPS has been in effect since October 1, 2000. As 
set forth in the July 3, 2000 final rule (65 FR 41128), the base unit 
of payment under the Medicare HH PPS is a national, standardized 60-day 
episode payment rate. As set forth in 42 CFR 484.220, we adjust the 
national, standardized 60-day episode payment rate by a case-mix 
relative weight and a wage index value based on the site of service for 
the beneficiary.
    To provide appropriate adjustments to the proportion of the payment 
amount under the HH PPS to account for area wage differences, we apply 
the appropriate wage index value to the labor portion of the HH PPS 
rates. The labor-related share of the case-mix adjusted 60-day episode 
rate will continue to be 78.535 percent and the non-labor-related share 
will continue to be 21.465 percent as set out in the CY 2013 HH PPS 
final rule (77 FR 67068). The CY 2014 HH PPS rates use the same case-
mix methodology as set forth in the CY 2008 HH PPS final rule with 
comment period (72 FR 49762) and adjusted as described in section 
III.C. of this rule. The following are the steps we take to compute the 
case-mix and wage-adjusted 60-day episode rate:
    (1) Multiply the national 60-day episode rate by the patient's 
applicable case-mix weight.
    (2) Divide the case-mix adjusted amount into a labor (78.535 
percent) and a non-labor portion (21.465 percent).
    (3) Multiply the labor portion by the applicable wage index based 
on the site of service of the beneficiary.
    (4) Add the wage-adjusted portion to the non-labor portion, 
yielding the case-mix and wage adjusted 60-day episode rate, subject to 
any additional applicable adjustments.

In accordance with section 1895(b)(3)(B) of the Act, this document 
constitutes the annual update of the HH PPS rates. Section 484.225 sets 
forth the specific annual percentage update methodology. In accordance 
with Sec.  484.225(i), for a HHA that does not submit HH quality data, 
as specified by the Secretary, the unadjusted national prospective 60-
day episode rate is equal to the rate for the previous calendar year 
increased by the applicable HH market basket index amount minus two 
percentage points. Any reduction of the percentage change will apply 
only to the calendar year involved and will not be considered in 
computing the prospective payment amount for a subsequent calendar 
year.
    Medicare pays the national, standardized 60-day case-mix and wage-
adjusted episode payment on a split percentage payment approach. The 
split percentage payment approach includes an initial percentage 
payment and a final percentage payment as set forth in Sec.  
484.205(b)(1) and Sec.  484.205(b)(2). We may base the initial 
percentage payment on the submission of a request for anticipated 
payment (RAP) and the final percentage payment on the submission of the 
claim for the episode, as discussed in Sec.  409.43. The claim for the 
episode that the HHA submits for the final percentage payment 
determines the total payment amount for the episode and whether we make 
an applicable adjustment to the 60-day case-mix and wage-adjusted 
episode payment. The end date of the 60-day episode as reported on the 
claim determines which calendar year rates Medicare will use to pay the 
claim.
    We may also adjust the 60-day case-mix and wage-adjusted episode 
payment based on the information submitted on the claim to reflect the 
following:
     A low utilization payment provided on a per-visit basis as 
set forth in Sec.  484.205(c) and Sec.  484.230.
     A partial episode payment adjustment as set forth in Sec.  
484.205(d) and Sec.  484.235.
     An outlier payment as set forth in Sec.  484.205(e) and 
Sec.  484.240.
b. CY 2014 National, Standardized 60-Day Episode Payment Rate
    The CY 2014 national, standardized 60-day episode payment rate will 
be $2,869.27 as calculated in Table 20. To determine the CY 2014 
national, standardized 60-day episode payment rate, we start with the 
CY 2013 average payment per episode ($2,952.03) calculated in section 
IV.D.1. of this rule. We remove the 2.5 percent for outlier payments 
that we put back in the rates as described in section IV.D.1. of this 
rule, and subsequently apply a standardization factor of 1.0026 to the 
national, standardized 60-day episode rate to ensure budget neutrality 
in episode payments using the 2014 wage index. The application of a 
standardization factor was also done when setting the initial national, 
standardized 60-day episode payment rate for the HH PPS in 2000 per 
section 1895(3)(A)(i) of the Act. The Act required that the 60-day 
episode base

[[Page 72304]]

rate and other applicable amounts be standardized in a manner that 
eliminates the effects of variations in relative case mix and area wage 
adjustments among different home health agencies in a budget neutral 
manner. To calculate the standardization factor, we simulated total 
payments for non-LUPA episodes using the 2014 wage index and compared 
it to our simulation of total payments for non-LUPA episodes using the 
2013 wage index. By dividing the total payments using the 2014 wage 
index by the total payments using the 2013 wage index, we obtain a 
standardization factor of 1.0026. We note that since we are 
implementing the adjustment to the case-mix weights in a budget neutral 
manner, there is no standardization factor needed to ensure budget 
neutrality in episode payments using the 2014 case-mix relative values. 
We then apply the $80.95 reduction (which is 3.5 percent of the CY 2010 
national, standardized 60-day episode rate of $2,312.94) and, lastly, 
we update payments by the CY 2014 HH payment update percentage of 2.3 
percent.

                                      Table 20--CY 2014 60-day National, Standardized 60-Day Episode Payment Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       CY 2014 National,
CY 2013 Estimated average payment per     Outlier adjustment                                CY 2014 Rebasing     CY 2014 HH market      standardized 60-
               episode                          factor            Standardization factor       adjustment          basket update          day episode
                                                                                                                                            payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
$2,952.03............................  x 0.975.................  x 1.0026................            -$80.95  x 1.023................        = $2,869.27
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The CY 2014 national, standardized 60-day episode payment rate for 
an HHA that does not submit the required quality data is updated by the 
CY 2014 HH market basket update (2.3 percent) minus 2 percentage points 
and is shown in Table 21.

                  Table 21--For HHAs That Do Not Submit the Quality Data--CY 2014 National, Standardized 60-Day Episode Payment Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                       CY 2014 National,
CY 2013 Estimated average payment per     Outlier adjustment                                CY 2014 Rebasing     CY 2014 HH Market      standardized 60-
               episode                          factor            Standardization factor       adjustment      basket update minus 2      day episode
                                                                                                                 percentage points          payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
$2,952.03............................  x 0.975.................  x 1.0026................            -$80.95  x 1.003................        = $2,813.18
--------------------------------------------------------------------------------------------------------------------------------------------------------

c. National Per-Visit Rates
    The national per-visit rates are used to pay LUPAs and are also 
used to compute imputed costs in outlier calculations. The per-visit 
rates are paid by type of visit or HH discipline. The six HH 
disciplines are as follows:
     Home health aide (HH aide);
     Medical Social Services (MSS);
     Occupational therapy (OT);
     Physical therapy (PT);
     Skilled nursing (SN); and
     Speech-language pathology (SLP).

To calculate the CY 2014 national per-visit rates, we start with the CY 
2013 national per-visit rates. We then apply a wage index budget 
neutrality factor of 1.0006 to ensure budget neutrality for LUPA per-
visit payments after applying the 2014 wage index, and increase each of 
the six per-visit rates by the maximum rebasing adjustments described 
in section IV.D of this rule. We calculate the wage index budget 
neutrality factor by simulating total payments for LUPA episodes using 
the 2014 wage index and comparing it to simulated total payments for 
LUPA episodes using the 2013 wage index. We note that the LUPA per-
visit payments are not calculated using case-mix weights and therefore, 
there is no case-mix standardization factor needed to ensure budget 
neutrality in LUPA payments. Finally, the per-visit rates for each 
discipline are then updated by the CY 2014 HH payment update percentage 
of 2.3 percent. The national per-visit rates are adjusted by the wage 
index based on the site of service of the beneficiary. The per-visit 
payment amounts for LUPAs are separate from the LUPA add-on payment 
amount, which is paid for episodes that occur as the only episode or 
initial episode in a sequence of adjacent episodes. The CY 2014 
national per-visit rates are shown in Tables 22 and 23.

                         TABLE 22--CY 2014 National Per-Visit Payment Amounts for HHAs That DO Submit the Required Quality Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         CY 2013 Per-visit       Wage index budget       CY 2014 Rebasing   CY 2014 HH Market basket   CY 2014 Per-visit
           HH Discipline type                 payment            neutrality factor          adjustment               update                 payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide.......................             $51.79  x 1.0006..................            + $1.79  x 1.023...................             $54.84
Medical Social Services................             183.31  x 1.0006..................             + 6.34  x 1.023...................             194.12
Occupational Therapy...................             125.88  x 1.0006..................             + 4.35  x 1.023...................             133.30
Physical Therapy.......................             125.03  x 1.0006..................             + 4.32  x 1.023...................             132.40
Skilled Nursing........................             114.35  x 1.0006..................             + 3.96  x 1.023...................             121.10
Speech-Language Pathology..............             135.86  x 1.0006..................             + 4.70  x 1.023...................             143.88
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 72305]]

    The CY 2014 per-visit payment rates for an HHA that does not submit 
the required quality data are updated by the CY 2014 HH payment update 
percentage (2.3 percent) minus 2 percentage points and is shown in 
Table 23.

                       Table 23--CY 2014 National Per-Visit Payment Amounts for HHAs That DO NOT Submit the Required Quality Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            CY 2014 HH Market basket
           HH Discipline type            CY 2013 Per-visit       Wage index budget       CY 2014 Rebasing   update minus 2 percentage  CY 2014 Per-visit
                                               rates             neutrality factor          adjustment               points                  rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide.......................             $51.79  x 1.0006..................            + $1.79  x 1.003...................             $53.77
Medical Social Services................             183.31  x 1.0006..................             + 6.34  x 1.003...................             190.33
Occupational Therapy...................             125.88  x 1.0006..................             + 4.35  x 1.003...................             130.70
Physical Therapy.......................             125.03  x 1.0006..................             + 4.32  x 1.003...................             129.81
Skilled Nursing........................             114.35  x 1.0006..................             + 3.96  x 1.003...................             118.73
Speech-Language Pathology..............             135.86  x 1.0006..................             + 4.70  x 1.003...................             141.06
--------------------------------------------------------------------------------------------------------------------------------------------------------

d. Low-Utilization Payment Adjustment (LUPA) Add-On Factor
    For episodes with four or fewer visits, Medicare pays on the basis 
of a national per-visit amount by discipline, referred to as a LUPA. As 
stated in our CY 2008 HH PPS proposed rule, after the HH PPS went into 
effect, we received comments and correspondence suggesting that the 
LUPA payment rates do not adequately account for the front-loading of 
costs in an episode. Commenters suggested that because of the small 
number of visits in a LUPA episode, HHAs have little opportunity to 
spread the costs of lengthy initial visits over a full episode (72 FR 
25424). In response to comments received, we conducted an initial 
descriptive analysis of visit log data from prior to the establishment 
of the HH PPS, showing that initial visits were 25 to 50 percent longer 
than subsequent visits in LUPA episodes that occur as the only or 
initial episode. These results indicated that payment for LUPA episodes 
may not offset the full cost of initial visits. Therefore, as specified 
in the CY 2008 HH PPS final rule, LUPA episodes that occur as the only 
episode or an initial episode in a sequence of adjacent episodes are 
adjusted by applying an additional amount to the LUPA payment before 
adjusting for area wage differences (72 FR 49849).
    The CY 2008 LUPA add-on amount was calculated using a large 
representative sample of claims from 2005 (72 FR 49848). The analysis 
examined minute data for skilled nursing, physical therapy, and speech-
language pathology (SLP) as, per the Medicare CoPs at Sec.  
484.55(a)(1) and (a)(2), only these three disciplines are allowed to 
conduct the initial assessment visit. The analysis showed that the 
average excess of minutes for the first visit in LUPA episodes that 
were the only episode or an initial LUPA in a sequence of adjacent 
episodes was 38.5 minutes for the first visit if SN, 25.1 minutes for 
the first visit if PT, and 22.6 minutes for the first visit if SLP. 
Those excess minutes were then expressed as a proportion of the average 
number of minutes for all non-first visits in non-LUPA episodes (42.5 
minutes, 45.6 minutes, and 48.6 minutes for SN, PT, and SLP, 
respectively). These proportions (90.6 percent, 55.0 percent, and 46.5 
percent for SN, PT, and SLP, respectively) were used to inflate the 
LUPA per-visit payment rates. Finally, using an appropriate set of 
weights representing the share of LUPA first visits for SN (77.8 
percent), PT (21.7 percent) and SLP (0.5 percent), we calculated a LUPA 
add-on payment amount of $87.93 for LUPA episodes that occur as the 
only episode or an initial episode in a sequence of adjacent episodes 
(Table 24). When the LUPA add-on payment amount was implemented in CY 
2008, to account for the additional payment to LUPA episodes and 
maintain budget neutrality, a reduction was made to the national, 
standardized 60-day episode payment rate (72 FR 49849).

                            Table 24--Calculation of the LUPA Add-on Amount, CY 2008
----------------------------------------------------------------------------------------------------------------
                                                                                                Speech-Language
                                                          Skilled nursing    Physical therapy      pathology
----------------------------------------------------------------------------------------------------------------
(1) Proportional increase in minutes for an initial                 90.59%             55.04%             46.50%
 visit over non-initial visits.........................
(2) CY 2008 Per-Visit Amounts..........................           $ 104.91           $ 114.71            $124.54
(3) Excess cost for initial visits (1*2)...............            $ 95.04            $ 63.14            $ 57.91
(4) Percent of initial assessment visits provided by                 77.8%              21.7%               0.5%
 this discipline.......................................
(5) Add-on amount per discipline (3*4).................             $73.94             $13.70              $0.29
                                                        --------------------------------------------------------
(6) Total LUPA add-on Amount (Sum of row 5)............                           $87.93
----------------------------------------------------------------------------------------------------------------

    For this final rule we used the same methodology used to establish 
the LUPA add-on amount for CY 2008. Specifically, we updated the 
analysis using 100 percent of LUPA episodes and a 20 percent sample of 
non-LUPA first episodes from CY 2012 claims data. The analysis shows 
that the average excess of minutes for the first visit in LUPA episodes 
that were the only episode or an initial LUPA in a sequence of adjacent 
episodes are 37.27 minutes for the first visit if SN, 31.69 minutes for 
the first visit if PT, and 31.56 minutes for the first visit if SLP. 
The average minutes for all non-first visits in non-LUPA episodes are 
44.10 minutes for SN, 47.30 minutes for PT, and 50.37 minutes for SLP. 
Those excess minutes expressed as a proportion of the average minutes 
for all non-first visits in non-LUPA episodes are 84.51 percent for SN, 
67.00 percent for PT, and 62.66 percent for SLP. We used these 
proportions to inflate the LUPA per-visit payment rates in Table 22 of 
$121.10 for SN, $132.40 for PT, and $143.88 for

[[Page 72306]]

SLP. We then calculated a set of weights representing the share of LUPA 
first visits for SN (81.97 percent), PT (17.61 percent) and SLP (0.42 
percent) and using these weights, we calculated a LUPA add-on payment 
amount of $99.89 for LUPA episodes that occur as the only episode or an 
initial episode in a sequence of adjacent episodes.
    In lieu of a single LUPA add-on payment amount of $99.89, to ensure 
that the LUPA add-on amount equitably reflects the excess cost for an 
initial visit for each of the three disciplines (SN, PT, and SLP), we 
proposed to multiply the per-visit payment amount for the first SN, PT, 
or SLP visit in LUPA episodes that occur as the only episode or an 
initial episode in a sequence of adjacent episodes by 1 + the 
proportional increase in minutes for an initial visit over non-initial 
visits. Using complete CY 2012 claims data, the LUPA add-on factors are 
calculated to be: 1.8451 for SN; 1.6700 for PT; and 1.6266 for SLP. For 
example, for LUPA episodes that occur as the only episode or an initial 
episode in a sequence of adjacent episodes, if the first skilled visit 
is SN, the payment for that visit will be $223.44 (1.8451 multiplied by 
$121.10). For more information on the analyses performed to update the 
LUPA add-on amount, please refer to the technical report titled 
``Analyses in Support of Rebasing & Updating the Medicare Home Health 
Payment Rates--CY 2014 Home Health Prospective Payment System Final 
Rule'' available on the CMS Home Health Agency (HHA) Center Web site 
at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/center/hha.asp.
    The following is a summary of the comments we received regarding 
the LUPA add-on factors.
    Comment: We received one comment that was supportive of the 
proposed LUPA add-on factors and no comments in opposition.
    Response: We appreciate the commenter's support and we believe that 
proposed creation of three LUPA add-on factors will result in more 
accurate LUPA add-on payments reflecting the discipline that performed 
the initial assessment visit.
    Final Decision: We are finalizing three LUPA add-on factors to be 
used in calculating the LUPA add-on payment amount. Those three factors 
are 1.8451 for skilled nursing, 1.6700 for physical therapy and 1.6266 
for speech-language pathology when that discipline is the first skilled 
visit in a LUPA episode that occurs as the only episode or an initial 
episode in a sequence of adjacent episodes.
e. Nonroutine Medical Supply Conversion Factor Update
    Payments for NRS are computed by multiplying the relative weight 
for a particular severity level by the NRS conversion factor. To 
determine the CY 2014 NRS conversion factor, we start with the 2013 NRS 
conversion factor ($53.97) and apply the 2.82 percent rebasing 
adjustment calculated in section IV.D.3. of this rule (1-0.0282 = 
0.9718). We then update the conversion factor by the CY 2014 HH market 
basket update (2.3 percent). We do not apply a standardization factor 
as the NRS payment amount calculated from the conversion factor is not 
wage or case-mix adjusted when the final claim payment amount is 
computed. The NRS conversion factor for CY 2014 is $53.65 as shown in 
Table 25.

            Table 25--CY 2014 NRS Conversion Factor for HHAs That DO Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                           2014 Rebasing      2014 HH market      CY 2014 NRS
             CY 2013 NRS conversion factor                   adjustment       basket update    conversion factor
----------------------------------------------------------------------------------------------------------------
$53.97.................................................           x 0.9718            x 1.023           = $53.65
----------------------------------------------------------------------------------------------------------------

    Using the CY 2014 NRS conversion factor ($53.65), the payment 
amounts for the six severity levels are shown in Table 26.

             Table 26--CY 2014 NRS Payment Amounts for HHAs That DO Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                                     Relative       NRS Payment
                Severity level                          Points (scoring)              weight          amount
----------------------------------------------------------------------------------------------------------------
1.............................................  0...............................          0.2698          $14.47
2.............................................  1 to 14.........................          0.9742           52.27
3.............................................  15 to 27........................          2.6712          143.31
4.............................................  28 to 48........................          3.9686          212.92
5.............................................  49 to 98........................          6.1198          328.33
6.............................................  99+.............................         10.5254          564.69
----------------------------------------------------------------------------------------------------------------

    For HHAs that do not submit the required quality data, we again 
begin with the CY 2013 NRS conversion factor ($53.97) and apply the -
2.82 percent rebasing adjustment calculated in section IV.D.3. of this 
rule (1-0.0282= 0.9718). We then update the NRS conversion factor by 
the CY 2014 HH market basket update of 2.3 percent, minus 2 percentage 
points. The CY 2014 NRS conversion factor for HHAs that do not submit 
quality data is shown in Table 27.

          Table 27--CY 2014 NRS Conversion Factor for HHAs That DO NOT Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                            CY 2014 HH market
                                                           2014 Rebasing      basket update       CY 2014 NRS
             CY 2013 NRS Conversion factor                   adjustment          minus 2       Conversion factor
                                                                            percentage points
----------------------------------------------------------------------------------------------------------------
$53.97.................................................           x 0.9718            x 1.003             $52.61
----------------------------------------------------------------------------------------------------------------


[[Page 72307]]

    The payment amounts for the various severity levels based on the 
updated conversion factor for HHAs that do not submit quality data are 
calculated in Table 28.

           Table 28--CY 2014 NRS Payment Amounts for HHAs That DO NOT Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                                     Relative       NRS Payment
                Severity level                          Points (scoring)              weight          amount
----------------------------------------------------------------------------------------------------------------
1.............................................  0...............................          0.2698          $14.19
2.............................................  1 to 14.........................          0.9742           51.25
3.............................................  15 to 27........................          2.6712          140.53
4.............................................  28 to 48........................          3.9686          208.79
5.............................................  49 to 98........................          6.1198          321.96
6.............................................  99+.............................         10.5254          553.74
----------------------------------------------------------------------------------------------------------------

5. Rural Add-On
    Section 421(a) of the MMA required, for HH services furnished in a 
rural areas (as defined in section 1886(d)(2)(D) of the Act), for 
episodes or visits ending on or after April 1, 2004, and before April 
1, 2005, that the Secretary increase the payment amount that otherwise 
will have been made under section 1895 of the Act for the services by 5 
percent.
    Section 5201 of the DRA amended section 421(a) of the MMA. The 
amended section 421(a) of the MMA required, for HH services furnished 
in a rural area (as defined in section 1886(d)(2)(D) of the Act), on or 
after January 1, 2006 and before January 1, 2007, that the Secretary 
increase the payment amount otherwise made under section 1895 of the 
Act for those services by 5 percent.
    Section 3131(c) of the Affordable Care Act amended section 421(a) 
of the MMA to provide an increase of 3 percent of the payment amount 
otherwise made under section 1895 of the Act for HH services furnished 
in a rural area (as defined in section 1886(d)(2)(D) of the Act), for 
episodes and visits ending on or after April 1, 2010, and before 
January 1, 2016.
    Section 421 of the MMA, as amended, waives budget neutrality 
related to this provision, as the statute specifically states that the 
Secretary shall not reduce the standard prospective payment amount (or 
amounts) under section 1895 of the Act applicable to HH services 
furnished during a period to offset the increase in payments resulting 
in the application of this section of the statute. The following is a 
summary of the comments we received regarding HH services provided in 
rural areas.
    Comment: A commenter noted that heavy mileage, travel time, poor 
roads and other factors increase the expense of serving rural patients 
and stated that decreasing Medicare payments will impact HHA's ability 
to serve rural beneficiaries.
    Response: We believe that Medicare home health services are 
integral to the healthcare of many beneficiaries, including those who 
reside in rural areas. For episodes and visits ending on or after April 
1, 2010, and before January 1, 2016, payments for services provided to 
patients in rural areas are increased by 3 percent as required by 
section 3131(c) of the Affordable Care Act.
    Comment: A commenter recommends that CMS implement a population 
density factor by zip code during the calculation of the labor portion 
of the payment amount to account for increased costs of providing 
services in less densely populated (primarily rural) areas. The 
commenter states that the population density adjustment would reduce 
excess reimbursement for services provided in densely populated urban 
areas and congregate living facilities. The commenter recommends that 
the adjustment be budget neutral or perhaps result in a cost savings.
    Response: We do not have evidence that a population density 
adjustment is appropriate. While rural HHAs cite the added cost of long 
distance travel to provide care for their patients, urban/non-rural 
HHAs cite added costs associated with needed security measures and 
traffic volume.
    Final Decision: For CY 2014, HH payment rates for services provided 
to beneficiaries in rural areas will be increased by 3 percent as 
mandated by section 3131(c) of the Affordable Care Act. The 3 percent 
rural add-on is applied to the national, standardized 60-day episode 
payment rate, national per-visit rates, and NRS conversion factor when 
HH services are provided in rural (non-CBSA) areas. Refer to Tables 29 
through 32 for these payment rates.

                               Table 29--CY 2014 Payment Amounts for 60-Day Episodes for Services Provided in a Rural Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        For HHAs that DO submit quality data                                       For HHAs that DO NOT submit quality data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CY 2014 Rural                                                         CY 2014 Rural
                                             Multiply by the 3       national,             CY 2014 National,        Multiply by the 3      national,
   CY 2014 National, standardized 60-day     percent rural add- standardized 60-day   standardized 60-day episode   percent rural add-  standardized 60-
            episode payment rate                     on           episode payment             payment rate                  on            day episode
                                                                        rate                                                              payment rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
$2,869.27..................................             x 1.03           $2,955.35   $2,813.18....................             x 1.03          $2,897.58
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                        Table 30--CY 2014 Per-Visit Amounts for Services Provided in a Rural Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 For HHAs that DO submit quality data                    For HHAs that DO NOT submit quality data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        CY 2014 Per-      Multiply by the 3      CY 2014 Rural    CY 2014 Per-      Multiply by the 3      CY 2014 Rural
          HH Discipline type             visit rate      percent rural add-on    per-visit rate    visit rate      percent rural add-on   per-visit rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
HH Aide..............................          $54.84  x 1.03.................          $56.49           $53.77  x 1.03.................          $55.38
MSS..................................          194.12  x 1.03.................          199.94           190.33  x 1.03.................          196.04

[[Page 72308]]

 
OT...................................          133.30  x 1.03.................          137.30           130.70  x 1.03.................          134.62
PT...................................          132.40  x 1.03.................          136.37           129.81  x 1.03.................          133.70
SN...................................          121.10  x 1.03.................          124.73           118.73  x 1.03.................          122.29
SLP..................................          143.88  x 1.03.................          148.20           141.06  x 1.03.................          145.29
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                      Table 31--CY 2014 NRS Conversion Factor for Services Provided in Rural Areas
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       For HHAs that DO submit quality data                                       For HHAs that DO NOT submit quality data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Multiply by the 3                                                      Multiply by the 3
         CY 2014 Conversion factor           percent rural add-    CY 2014 Rural       CY 2014 Conversion factor    percent rural add-   CY 2014 Rural
                                                     on          conversion factor                                          on         conversion factor
--------------------------------------------------------------------------------------------------------------------------------------------------------
$53.65.....................................             x 1.03             $55.26   $52.61........................             x 1.03             $54.19
--------------------------------------------------------------------------------------------------------------------------------------------------------


                   Table 32--CY 2014 NRS Payment Amounts for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
                                                 For HHAs that DO submit quality    For HHAs that DO NOT submit
------------------------------------------------  data  (CY 2014 NRS conversion     quality data  (CY 2014 NRS
                                                          factor=$55.26)             conversion factor=$54.19)
                                                ----------------------------------------------------------------
                                    Points                                                           Total NRS
        Severity level             (Scoring)        Relative        Total NRS        Relative     payment amount
                                                     weight       payment amount      weight         for rural
                                                                 for rural areas                       areas
----------------------------------------------------------------------------------------------------------------
1............................  0...............          0.2698          $14.91           0.2698          $14.62
2............................  1 to 14.........          0.9742           53.83           0.9742           52.79
3............................  15 to 27........          2.6712          147.61           2.6712          144.75
4............................  28 to 48........          3.9686          219.30           3.9686          215.06
5............................  49 to 98........          6.1198          338.18           6.1198          331.63
6............................  99+.............         10.5254          581.63          10.5254          570.37
----------------------------------------------------------------------------------------------------------------

F. Outlier Policy

1. Background
    Section 1895(b)(5) of the Act allows for the provision of an 
addition or adjustment to the national, standardized 60-day case-mix 
and wage-adjusted episode payment amounts in the case of episodes that 
incur unusually high costs due to patient care needs. Prior to the 
enactment of the Affordable Care Act, section 1895(b)(5) of the Act 
stipulated that projected total outlier payments could not exceed 5 
percent of total projected or estimated HH payments in a given year. In 
the Medicare Program; Prospective Payment System for Home Health 
Agencies final rule published on July 3, 2000 (65 FR 41188 through 
41190), we described the method for determining outlier payments. Under 
this system, outlier payments are made for episodes whose estimated 
costs exceed a threshold amount for each HHRG. The episode's estimated 
cost is the sum of the national wage-adjusted per-visit payment amounts 
for all visits delivered during the episode. The outlier threshold for 
each case-mix group or PEP adjustment is defined as the 60-day episode 
payment or PEP adjustment for that group plus a fixed-dollar loss (FDL) 
amount. The outlier payment is defined to be a proportion of the wage-
adjusted estimated cost beyond the wage-adjusted threshold. The 
threshold amount is the sum of the wage and case-mix adjusted PPS 
episode amount, payment amount for NRS, and the wage-adjusted FDL 
amount. The proportion of additional costs over the outlier threshold 
amount paid as outlier payments is referred to as the loss-sharing 
ratio.
2. Regulatory Update
    In the CY 2010 HH PPS final rule (74 FR 58080 through 58087), we 
discussed excessive growth in outlier payments, primarily the result of 
unusually high outlier payments in a few areas of the country. Despite 
program integrity efforts associated with excessive outlier payments in 
targeted areas of the country, we discovered that outlier expenditures 
still exceeded the 5 percent, target and, in the absence of corrective 
measures, would continue do to so. Consequently, we assessed the 
appropriateness of taking action to curb outlier abuse. To mitigate 
possible billing vulnerabilities associated with excessive outlier 
payments and adhere to our statutory limit on outlier payments, we 
adopted an outlier policy that included a 10 percent agency-level cap 
on outlier payments. This cap was implemented in concert with a reduced 
FDL ratio of 0.67. These policies resulted in a projected target 
outlier pool of approximately 2.5 percent. (The previous outlier pool 
was 5 percent of total HH expenditures.) For CY 2010, we first returned 
5 percent of these dollars back into the national, standardized 60-day 
episode payment rates, the national per-visit rates, the LUPA add-on 
payment amount, and the NRS conversion factor. Then, we reduced the CY 
2010 rates by 2.5 percent to account for the new outlier pool of 2.5 
percent. This outlier policy was adopted for CY 2010 only.
3. Statutory Update
    As we noted in the CY 2011 HH PPS final rule (75 FR 70397 through 
70399), section 3131(b)(1) of the Affordable Care Act amended section 
1895(b)(3)(C) of the Act. As amended, the provision,

[[Page 72309]]

``Adjustment for outliers,'' states that ``The Secretary shall reduce 
the standard prospective payment amount (or amounts) under this 
paragraph applicable to HH services furnished during a period by such 
proportion as will result in an aggregate reduction in payments for the 
period equal to 5 percent of the total payments estimated to be made 
based on the prospective payment system under this subsection for the 
period.'' In addition, section 3131(b)(2) of the Affordable Care Act 
amended section 1895(b)(5) of the Act by re-designating the existing 
language as section 1895(b)(5)(A) of the Act, and revising it to state 
that the Secretary, ``subject to [a 10 percent program-specific outlier 
cap], may provide for an addition or adjustment to the payment amount 
otherwise made in the case of outliers because of unusual variations in 
the type or amount of medically necessary care. The total amount of the 
additional payments or payment adjustments made under this paragraph 
with respect to a fiscal year or year may not exceed 2.5 percent of the 
total payments projected or estimated to be made based on the 
prospective payment system under this subsection in that year.''
    As such, beginning in CY 2011, our HH PPS outlier policy is that we 
reduce payment rates by 5 percent and target up to 2.5 percent of total 
estimated HH PPS payments to be paid as outliers. To do so, we first 
returned the 2.5 percent held for the target CY 2010 outlier pool to 
the national, standardized 60-day episode payment rates, the national 
per visit rates, the LUPA add-on payment amount, and the NRS conversion 
factor for CY 2010. Then, we reduced the rates by 5 percent as required 
by section 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) 
of the Affordable Care Act. For CY 2011 and subsequent calendar years 
we target up to 2.5 percent of estimated total payments to be paid as 
outlier payments, and apply a 10 percent agency-level outlier cap.
4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    For a given level of outlier payments, there is a trade-off between 
the values selected for the FDL ratio and the loss-sharing ratio. A 
high FDL ratio reduces the number of episodes that can receive outlier 
payments, but makes it possible to select a higher loss-sharing ratio, 
and therefore, increase outlier payments for outlier episodes. 
Alternatively, a lower FDL ratio means that more episodes can qualify 
for outlier payments, but outlier payments per episode must then be 
lower.
    The FDL ratio and the loss-sharing ratio must be selected so that 
the estimated total outlier payments do not exceed the 2.5 percent 
aggregate level (as required by section 1895(b)(5)(A) of the Act). 
Historically, we have used a value of 0.80 for the loss-sharing ratio 
which, we believe, preserves incentives for agencies to attempt to 
provide care efficiently for outlier cases. With a loss-sharing ratio 
of 0.80, Medicare pays 80 percent of the additional estimated costs 
above the outlier threshold amount. We did not propose a change to the 
loss-sharing ratio in the HH PPS proposed rule (78 FR 40301). In the CY 
2011 HH PPS final rule (75 FR 70398), in targeting total outlier 
payments as 2.5 percent of total HH PPS payments, we implemented an FDL 
ratio of 0.67, and we maintained that ratio in CY 2012. Simulations 
based on CY 2010 claims data completed for the CY 2013 HH PPS final 
rule showed that outlier payments were estimated to comprise 
approximately 2.18 percent of total HH PPS payments in CY 2013, and as 
such, we lowered the FDL ratio from 0.67 to 0.45. We stated that 
lowering the FDL ratio to 0.45, while maintaining a loss-sharing ratio 
of 0.80, achieved an effective balance of compensating for high-cost 
episodes while allowing more episodes to qualify as outlier payments 
(77 FR 67080). The national, standardized 60-day episode payment amount 
is multiplied by the FDL ratio. That amount is wage-adjusted to derive 
the wage-adjusted FDL amount, which is added to the case-mix and wage-
adjusted 60-day episode payment amount to determine the outlier 
threshold amount that costs have to exceed before Medicare will pay 80 
percent of the additional estimated costs.
    For this final rule, simulating payments using more complete CY 
2012 claims data (a full year of data rather than preliminary data from 
the first half of 2012) and the CY 2013 payment rates (77 FR 67100 
through 67105); we estimate that outlier payments in CY 2013 would 
comprise 1.79 percent of total payments. Based on simulations using CY 
2012 claims data, the CY 2014 payments rates in section IV.E., and an 
FDL ratio of 0.45; we estimate that outlier payments in CY 2014 would 
comprise approximately 1.86 percent of total HH PPS payments in CY 
2014. Given the increases to the CY 2014 national per-visit payment 
rates and the national, standardized 60-day episode payment rate as a 
result of making the case-mix adjustment in section IV.C budget neutral 
and the starting point for the rebasing calculations in section IV.D, 
our analysis estimates a 0.07 percentage point increase in outlier 
payments as a percent of total HH PPS payment. We further estimate that 
by the end of the 4-year phase-in period required by the Affordable 
Care Act, estimated outlier payments as a percent of total HH PPS 
payments will be approximately 2.07 percent. We did not propose a 
change to the FDL ratio or loss-sharing ratio for CY 2014 as we 
believed that maintaining an FDL of 0.45 and a loss-sharing ratio of 
0.80 are appropriate given the percentage of outlier payments is 
estimated to increase as a result of the increasing the national per-
visit amounts through the rebasing adjustments and the claims data 
showing any utilization changes that may have resulted from decreasing 
the FDL of 0.45 in CY 2013 would not be available for analysis until 
next year.
5. Outlier Relationship to the HH Payment Study
    As we discuss in section IV.G. of this final rule, section 3131(d) 
of the Affordable Care Act requires CMS to conduct a study and report 
on developing HH PPS payment revisions that will ensure access to care 
and payment for patients with high severity of illness. Our Report to 
Congress containing this study's recommendations is due no later than 
March 1, 2014. Section 3131(d)(1)(A)(iii) of the Affordable Care Act, 
in particular, states that this study may include analysis of potential 
revisions to outlier payments to better reflect costs of treating 
Medicare beneficiaries with high levels of severity of illness.
    Although we did not propose any changes to the outlier policy, the 
following is a summary of the comments we received regarding outlier 
payments.
    Comment: Several commenters stated that estimated outlier payments 
as a percent of total payments for CY 2014 is below the budgeted amount 
of 2.5 percent and that the FDL ratio and/or loss-sharing ratio should 
be set so that estimated outlier payments as a percent of total 
payments would reach 2.5 percent. One commenter stated that because the 
national, standardized 60-day episode payment rate is increased as a 
result of the adjustment to the case-mix weights in section IV.C., 
fewer episodes qualify for outlier payments, contributing to estimated 
outlier payments falling short of 2.5 percent of total payments.
    Response: We did not propose a change to the FDL ratio for CY 2014 
as the claims data showing any utilization changes that may have 
resulted from an FDL of 0.45 would not be available for analysis until 
next year. In addition, we

[[Page 72310]]

note that the percentage of outlier payments is estimated to increase 
as a result of both increasing the national per-visit amounts over the 
next four years (which will increase an episode's imputed costs) and as 
a result of decreasing the national, standardized 60-day episode 
payment rate over the next four years (which will decrease the fixed-
dollar loss threshold amount). We are also concerned that if we 
decreased the FDL ratio or increased the loss-sharing ratio we could 
potentially pay more than 2.5 percent of estimated total payments as 
outlier payments and that episodes without unusual variations in the 
type or amount of medically necessary care would qualify for outlier 
payments, which is contrary to the intent of the policy. Consequently, 
for the above stated reasons, we believe that we should not make any 
changes/revisions to our outlier payment methodology at this time.
    Comment: One commenter recommended that CMS eliminate outlier 
payments in their entirety and return the 2.5 percent withhold to the 
base payment rates.
    Response: We are required in section 1895(b)(5)(A) of the Act, to 
include an outlier pool of an amount that is 2.5 percent. We do believe 
that the statute allows the Secretary the discretion as to whether or 
not to have an outlier policy under the HH PPS. To date, analysis on 
the outlier policy has not been conducted. We plan to look into whether 
or not an outlier policy remains to be appropriate as well as ways to 
maintain an outlier policy for episodes that incur unusually high costs 
due to patient care needs without qualifying episodes of care that do 
not meet that criteria or are potentially fraudulent. We recently 
awarded a new contract to address any findings from the home health 
study required by section 3131(d) of the Affordable Care Act, monitor 
the potential impact of the rebasing adjustments and other recent 
payment changes, and develop payment options to ensure ongoing access 
to care for vulnerable populations, which may include potential 
revisions to the outlier payment methodology to better reflect costs of 
treating Medicare beneficiaries with high levels of severity of 
illness.
    Comment: A few commenters stated that they do not believe that the 
10 percent agency-level cap on outlier payments is an effective fraud 
fighting policy and recommended that CMS exempt certain HHAs that serve 
high-cost patients with multiple clinical issues from the10 percent 
agency-level cap.
    Response: The 10 percent agency-level cap on outlier payments is a 
statutory requirement in section 1895(b)(5)(B) of the Act and thus we 
do not have the authority to rescind this policy or exempt HHAs from 
this provision.
    Final Decision: We are finalizing no change to the FDL ratio or 
loss sharing ratio for CY 2014. However, we will continue to monitor 
outlier payments and continue to explore ways to maintain an outlier 
policy for episodes that incur unusually high costs due to patient care 
needs without qualifying episodes of care that do not meet that 
criteria.
    The Office of Inspector General (OIG) released a Management 
Implications Report in August of 2013 that concluded there is a 
``systemic weakness that results in Medicare coverage of unnecessary 
home health care for diabetic patients''. The OIG report noted that 
investigations show that the majority of beneficiaries involved in 
fraudulent schemes have a primary diagnosis of diabetes that OIG 
Special Agents found falsified medical records documenting patients 
having hand tremors and poor vision that preventing them from drawing 
insulin in a syringe, visually verifying the correct dosage, and 
injecting the insulin themselves, when the patients did not in fact 
suffer those symptoms.
    In light of the OIG report, we conducted analysis and simulations 
performed on CY 2012 claims data. We found that nearly 44 percent of 
the episodes that would qualify for outlier payments had a primary 
diagnosis of diabetes and 16 percent of episodes that would quality for 
outlier payments had a primary diagnosis of ``Diabetes mellitus without 
mention of complication, type II or unspecified type, not stated as 
uncontrolled.'' Our simulations also estimated that approximately 81 
percent of outlier payments would be paid to proprietary agencies and 
that approximately two-thirds of outlier payments would be paid to HHAs 
located in Florida (27 percent), Texas (24 percent) and California (15 
percent).
    We conducted additional analyses on episodes in our simulations 
that would have resulted in outlier payments over $10,000. Of note, 95 
percent of episodes that would have resulted in outlier payments over 
$10,000 were for patients with a primary diagnosis of diabetes or long-
term use of insulin, most were concentrated in Florida, Texas, New York 
and California and Oklahoma, and on average, these outlier episodes had 
160 skilled nursing visits in a 60-day episode of care.\7\ Given that 
nearly half of all outlier cases in our simulation that would qualify 
for outlier payments have a primary diagnosis of diabetes and the OIG's 
assertion that there is a ``systemic weakness that results in Medicare 
coverage of unnecessary home health care for diabetic patients'' and 
investigations show that the majority of beneficiaries involved in 
fraudulent schemes have a primary diagnosis of diabetes, we believe 
that our current outlier payment methodology needs to be re-examined 
and potentially revised. With nearly 16 percent of episodes simulated 
to qualify for outlier payments having a primary diagnosis of 
``Diabetes mellitus without mention of complication, type II or 
unspecified type, not stated as uncontrolled'' we believe that episodes 
that do not have unusual variations in the type or amount of medically 
necessary care are qualifying for outlier payments, potentially through 
suspect fraudulent billing practices, which is contrary to the intent 
of the policy. As we have noted in the past (74 FR 580085), we are 
committed to addressing potentially fraudulent activities, especially 
those in areas where we see suspicious outlier payments. As we noted 
above, we plan to examine potential revisions to the outlier payment 
methodology through a new contract awarded to Abt Associates to address 
these findings and also any findings from the home health study 
required by section 3131(d) of the Affordable Care Act.
---------------------------------------------------------------------------

    \7\ This analysis simulated payments using CY 2012 claims data 
and CY 2012 payment rates. The simulations did not take into account 
the 10-percent outlier cap. Some episodes may have qualified for 
outlier payments in the simulations, but were not paid accordingly 
if the HHA was at or over its 10 percent cap on outlier payments as 
a percent of total payments.
---------------------------------------------------------------------------

G. Payment Reform: Home Health Study and Report

    Section 3131(d) of the Affordable Care Act requires the Secretary 
to conduct a study on HHA costs involved with providing ongoing access 
to care to low-income Medicare beneficiaries or beneficiaries in 
medically underserved areas, and in treating beneficiaries with varying 
levels of severity of illness (specifically, beneficiaries with ``high 
levels of severity of illness''). Section 3131(d) of the Affordable 
Care Act also gives the Secretary the authority to explore methods to 
revise the HH PPS to account for costs related to patient severity of 
illness or to improving beneficiary access to care and examine the 
potential impacts of any potential revisions to the payment system.

[[Page 72311]]

    As we stated in the CY 2013 HH PPS proposed rule (77 FR 41572), we 
awarded an initial contract to L&M Policy Research in the fall of 2010 
to perform exploratory work for the study on the vulnerable patient 
populations (that is, low-income Medicare beneficiaries, beneficiaries 
in medically underserved areas, and beneficiaries with high levels of 
severity of illness). The contractor performed a literature review of 
potential HH PPS payment vulnerabilities and access issues, established 
and convened technical expert panel (TEP) meetings and open door forums 
to help define the vulnerable patient populations and to gain insight 
on access issues these populations may face, and performed preliminary 
analysis looking at resource costs versus Medicare reimbursement.
    In September 2011, we awarded a subsequent contract to L&M Policy 
Research, along with subcontractors Avalere Health, Mathematica Policy 
Research, and Social & Scientific Systems, to develop an analytic plan, 
perform detailed analysis, and if appropriate, develop recommendations 
for changes to the HH PPS. In 2012, L&M completed preliminary analyses 
on HHA costs associated with providing care for vulnerable patient 
populations. L&M presented their findings at a TEP meeting in December 
2012 and received extensive feedback on our analyses. L&M refined their 
analytic approach based on feedback from the TEP meeting and is in the 
process of completing the refined analyses. In addition to examining 
the costs of providing care to vulnerable patient populations, survey 
data was collected and analyzed to assess whether the vulnerable 
patient populations experience access issues and identify potential 
factors that may prevent access to care. Since the CY 2014 HH PPS 
proposed rule, L&M presented the survey findings and the analyses of 
HHA costs to the technical expert panel during a webinar and received 
their feedback. The survey findings and the analyses of HHA costs are 
currently being reviewed and have not yet been finalized.
    The findings from the analysis of HHA costs and the survey on 
access to care for vulnerable patient populations may be used to 
develop recommendations on how to revise the current HH PPS to better 
account for costs and ensure access to care for these beneficiaries. 
Methods to revise the current HH PPS could include payment adjustments 
for services that involve either more or fewer resources, changes to 
reflect resources involved with providing HH services to low-income 
Medicare beneficiaries or Medicare beneficiaries residing in medically 
underserved area, and ways outlier payments could be revised to reflect 
costs of treating Medicare beneficiaries with high severity of illness. 
In addition, as part of the study, L&M may analyze operational issues 
involved with potential implementation of potential revisions to the HH 
payment system.
    The Affordable Care Act requires that the Secretary submit a Report 
to Congress regarding the study no later than March 1, 2014. The report 
may contain recommendations for revisions to the HH PPS, 
recommendations for legislation and administrative action, and 
recommendations for whether further research is needed. The Congress 
also provided CMS with the authority to conduct a separate 
demonstration project to perform additional research and further 
explore recommendations from the study. We plan to provide updates 
regarding our progress on the HH study in future rulemaking and open 
door forums.
    The following is a summary of the comments we received regarding 
the Payment Reform: Home Health Study and Report.
    Comment: One commenter stated that physical therapists and other 
home health clinicians should be active participants in the collection 
of analysis of data gathering in the study and that CMS should provide 
updates to the stakeholder community on the plan and design of the 
study.
    Response: We are currently in the process of reviewing the study 
findings but thank the commenter for their interest in being part of 
the study. We plan to provide updates to the industry and stakeholder 
community once findings are finalized.
    Comment: Several commenters encouraged CMS to review the study 
results and address any clear access or cost concerns identified in the 
study in the 2014 rule through the grouper, the case-mix weights, and/
or the outlier calculations. Some commenters encouraged CMS to 
incorporate the findings from the VNAA Vulnerable Patient Study into 
the case-mix system for CY 2014. Multiple commenters stated that the 
findings of CMS' home health study and the VNAA Vulnerable Patient 
Study should be taken into account when finalizing the rebasing 
provisions.
    Many commenters supported CMS' research on costs for vulnerable 
populations and stated that it is mainly the not-for-profit HHAs that 
treat the most vulnerable patients and that Medicare does not fully 
cover the cost of these patients. One commenter recommended that CMS 
expedite the study research and incorporate suitable adjustments to the 
HH PPS to ensure that beneficiaries with high levels of severity of 
illness or other vulnerable populations have appropriate access to home 
health services.
    Response: In September 2013, we awarded a contract to perform 
follow-on work for the home health study. The new contract with Abt 
Associates will examine the findings of the home health study, monitor 
potential impacts of rebasing and other recent policy changes, and 
develop payment reform options to ensure access to care for vulnerable 
populations and address payment vulnerabilities in the current payment 
system. Given the statutory mandate that the rebasing adjustments must 
be implemented starting at the beginning of CY 2014, we are required to 
implement the reductions before the study findings will be finalized. 
However, we will continue to assess the case-mix system and improve the 
case-mix system as necessary.
    Final Decision: We appreciate the comments on the home health study 
and will take the comments into consideration for the follow-on work 
under the new contract.

H. Cost Allocation of Survey Expenses

    In the CY 2013 HH PPS proposed rule (77 FR 41548), we proposed to 
amend Sec.  431.610(g), Relations with standard-setting and survey 
agencies, to require that Medicaid state plans explicitly include 
Medicaid's appropriate contribution to the cost of HH surveys. We 
proposed to add a reference to HHAs, along with NFs and ICFs/IIDs at 
Sec.  431.610(g).
    Surveys are required for determining a provider's or supplier's 
compliance with program participation requirements and the HHA surveys 
benefit both Medicare and Medicaid programs where the HHAs seek such 
dual certification. Thus, in accordance with OMB Circular A-87, the 
costs for surveys of HHAs that are certified for both Medicare and 
Medicaid should be shared between Medicare, Medicaid and state-only 
programs in proportion to the benefits received. However, to provide 
more time for dialogue with states and for any necessary adjustments to 
state Medicaid programs, we removed the proposed provision at Sec.  
431.610(g) in the CY 2013 HH PPS final rule (77 FR 67068). In the CY 
2014 HH PPS proposed rule we again proposed to amend Sec.  431.610(g) 
with additional explanation of our proposal and with updated cost 
information.
    We noted that a state Medicaid program must provide that, in 
certifying

[[Page 72312]]

HHAs, the state's designated survey agency must carry out certain other 
responsibilities that already apply to surveys of nursing facilities 
and Intermediate Care Facilities for Individuals with Intellectual 
Disabilities (ICF-IID), including sharing in the cost of HHA surveys. 
Section 431.610(g) provides for the availability of federal financial 
participation (FFP) in the cost of such surveys, except for 
expenditures that the survey agency makes that are attributable to the 
state's overall responsibilities under state law and regulations. We 
believe that the principles articulated in OMB Circular A-87 require 
that HHA survey costs be allocated to Medicaid, Medicare and state-only 
programs in proportion to the benefits received. However, we also 
explained that the proposed amendment to Sec.  431.610(g) would add 
clarity, and that the proposed rule would offer states and the public 
additional opportunity to comment or pose questions that will further 
aid adherence to the appropriate cost allocation principles. We further 
invited public comment on our proposed methods to ensure compliance 
with these requirements. Specifically, we proposed to review each 
state's allocation of costs for HHA surveys for adherence to OMB 
Circular A-87 principles and the statutes with the goal of ensuring 
full adherence by each state no later than July 2014. For that portion 
of costs attributable to Medicare and Medicaid, we proposed to assign 
50 percent to Medicare and 50 percent to Medicaid. This is the standard 
50/50 method that CMS and states have used effectively for many years 
in the allocation of expenses related to surveys of SNF/NF nursing 
homes, an approach we consider to be more straight-forward and 
economical compared with calculation of unique percentages that vary 
state-to-state and year-by-year. Most importantly, we explained that a 
50/50 method best reflects the reality that Medicare and Medicaid 
requirements for home health agencies are generally the same and each 
program benefits from the regulations.
    An alternative to the proposed 50/50 method for allocating each 
state's Medicare/Medicaid HHA survey costs would be to fix each state's 
Medicaid share each year based on the proportion of Medicaid funding 
for HH services in the state compared to the combined Medicare and 
Medicaid total funding in the most recent years for which the data are 
reasonably complete. This is the method adopted for the disbursement of 
civil monetary penalties (CMPs) in the CY 2013 HH PPS final rule (77 FR 
67078). However, the effective date of HHA CMPs is not until July 1, 
2014. Our preparations for imposing such CMPs in 2014 indicate that the 
annual data collection and calculations necessary for that methodology 
are (a) more complicated and burdensome than necessary, (b) involve an 
inherent data lag that could create uncertainty for states and CMS in 
preparing state survey agency budgets, (c) sufficiently variable from 
year to year to create further uncertainty for states, (d) unable to 
anticipate the effects of substantial expansion of Medicaid under the 
Affordable Care Act (which could increasingly enlarge the state 
Medicaid share) and (e) will not recognize that both Medicare and 
Medicaid programs benefit from the regulations. Therefore, we expressed 
our belief that the more efficient and advantageous method, for both 
CMS and states, would be the 50/50 allocation method that has been used 
successfully for many years in the allocation of survey costs for SNF 
and NF. We invited comment not only on the 50/50 allocation method for 
the costs of HHA survey expenses, but on whether the method of 
distribution for CMP receipts back to states and to the U.S. Treasury 
should be changed to the same 50/50 methodology.
    Based on such a 50/50 ratio for each state, and based upon the 
projected national HHA survey budget for FY 2014 of $37.2 million, if 
implemented in the beginning of FY 2014, the anticipated aggregate 
share for Medicaid would amount to $18.6 million. The cost of surveys 
is treated as a Medicaid administrative cost, reimbursable at the 
professional staff rate of 75 percent. Therefore, the state Medicaid 
share would be approximately $4.65 million on an annualized basis. The 
$4.65 million cost would be spread out over the 53 states/jurisdictions 
that currently conduct surveys under section 1864 of the Act. However, 
the adherence date of July FY 2014 would reduce the Medicaid aggregate 
share to approximately $4.65 million (for 3 months of the annual $18.6 
million aggregate cost) and the state Medicaid share to approximately 
$1.16 million (25 percent of expenses for the last quarter of FY 2014).
    We received a total of 7 pertinent comments from 5 organizations 
regarding the Cost Allocation of Survey Expenses proposal. The 
following is a summary of the comments we received.
    Comment: Two organizations supported the proposed cost allocation 
and the proposed 50/50 split between Medicare and Medicaid for that 
proportion of the overall expense attributed to those programs. The 
commenters noted that the 50/50 split has been in long-standing use for 
the allocation of survey costs for skilled nursing facilities that are 
dually certified for Medicare and Medicaid.
    Response: These comments reflect the allocation methodology 
proposed in the notice of proposed rule-making. We concur with the 
comments.
    Comment: Another commenter agreed with the preamble statement that 
costs should be allocated in proportion to benefits received, but 
disputed that the costs should be split 50/50 between Medicare and 
Medicaid. The commenter expressed the belief that Medicaid receives 
less than 50 percent of the benefit on the grounds that (a) OASIS 
(Outcome and Assessment Information Set) drives much of S&C activity, 
and no State uses OASIS in rate setting; (b) Medicare requires that 
beneficiaries be homebound, in contrast to Medicaid home health policy 
mandates; (c) Medicare and its survey activities are focused on a 
medical model in contrast to Medicaid's focus on support for activities 
of daily living and heavy reliance on home health aides rather than 
skilled nurses; and (d) about 77 percent of the commenter's state 
Medicaid home health beneficiaries are under age 65, with children 
representing 34 percent of those beneficiaries receiving Medicaid home 
health services.
    Response: We appreciate the distinctions between Medicare and 
Medicaid that the commenter makes, but do not agree that these 
distinctions are particularly relevant to the issue of survey expenses. 
Medicare and Medicaid pay for survey expenses to assess a provider's 
compliance with Conditions of Participation (CoPs). HHAs providing 
services under Medicaid's home health benefit must meet the CoPs for 
Medicare, as specified at Sec.  440.70(d). As articulated in the State 
Operations Manual at 2202.3E, if home care is provided by an entity 
required to meet the Medicare CoPs for any reason, then the entity must 
apply all the requirements of the CoPs, including the comprehensive 
assessment and OASIS data reporting requirements, to all patients of 
the agency, including patients treated under a Medicaid waiver or state 
plan, as applicable, with certain minor exceptions.
    In short, the CoPs expressed in 42 CFR part 484 benefit both 
Medicare and Medicaid patients. For example, the regulations begin with 
a focus on proper organization of the HHA and qualifications of 
personnel. The first full CoP delineates patient rights that apply 
equally to Medicare and Medicaid patients, such as informing patients 
of their rights in advance, the right to file

[[Page 72313]]

a grievance and to have a grievance investigated, the right to be 
informed and participate in planning care and treatment, the right to 
have medical records held confidentially, and the right to have his or 
her property treated with respect. An entire CoP (Sec.  484.36) is 
dedicated to home health aides, an area that the commenter observes is 
particularly important for Medicaid. Similarly, Sec.  484.55 obliges 
HHAs to conduct a timely and comprehensive assessment of the care and 
support needs of each individual. This is a basic expectation 
regardless of whether it is viewed through the lens of a medical model 
or daily living and support model.
    With regard to OASIS, some states do indeed use OASIS in their HHA 
rate-setting methodology, but such use is immaterial to the question at 
hand, since the survey process is concerned with application of the 
CoPs and quality of care, not enforcement of payment policy or the 
calculation of payment rates. Further, OASIS is an integral part of the 
comprehensive assessment process required at Sec.  484.55. The 
comprehensive assessment regulation requires that HHAs use a standard 
core data set, that is, OASIS, when evaluating adult, non-maternity 
Medicare and Medicaid patients (except those receiving exclusively 
homemaker or chore services). OASIS data must be collected and reported 
for Medicaid as well as Medicare beneficiaries in accordance with Sec.  
484.20.
    Because the focus of the survey process is on compliance with the 
CoPs, and the CoPs apply to all patients served by the HHA, it is 
largely immaterial whether the majority of the work for either Medicare 
or Medicaid is done by registered nurses or home health aides, whether 
a medical model or daily living and support model predominates, or 
whether the majority of the clientele is under or over the age of 65.
    It is arguably the case that certain specific standards tend to 
apply to some groups more than to others. For example, Sec.  484.55(c) 
requiring drug regimen review may most benefit those patients taking 
many medications, while Sec.  484.34 governing medical social work may 
most benefit individuals who face challenging social and emotional 
factors related to health problems. However, the preponderance of 
standards benefits almost all patients regardless of payment source. 
This is particularly true of the most common area identified for 
deficiency citations by surveyors as a result of the onsite survey 
process. In FY 2012, for example, the most frequently-cited 
deficiencies were for failure to ensure that a written plan of care was 
established and periodically reviewed (8.6 percent of all agencies 
surveyed), the assessment included a review of all medications (6.1 
percent), the plan of care covered applicable diagnoses and required 
services and visits (6.0 percent), a record of past and current 
findings was maintained (5.2 percent), and that care was provided in 
accordance with commonly-accepted professional standards (3.9 percent). 
Therefore, while there are differences between Medicare and Medicaid 
coverage, we do not agree that such differences materially affect the 
extent to which the CoPs benefit Medicare compared to Medicaid 
beneficiaries when the regulations are taken as a whole.
    Comment: Another commenter stated that the proposed rule would 
result in a loss of federal funds for the state and comes at a very 
inconvenient time, since the state survey agency's state funding in the 
past 3 years has been level-funded in the state budget while the survey 
agency's responsibilities have grown, the Medicare portion of survey 
agency funding has been reduced considerably, and the proposed rule 
would require changes in the state accounting system, which would add 
costs that should be recognized by CMS.
    Response: We very much appreciate the extraordinary fiscal 
constraints under which most states have recently labored. We also 
acknowledge that federal budget sequestration resulted in a decrease in 
federal funding for the Medicare portion of state survey agency 
responsibilities. Neither observation, however, directly affects the 
question of whether Medicare and Medicaid should both contribute to the 
cost of surveys, in accordance with the accounting principles 
articulated in OMB Circular A-87. We appreciate that there is some 
fiscal impact for states, but note that the Medicaid impact is 
mitigated by two major factors. First, Medicaid's share is treated as a 
Medicaid administrative cost, reimbursable at the professional staff 
rate of 75 percent. This means that the state Medicaid cost is limited 
to 25 percent of the Medicaid share. Second, we sought to provide 
states with considerable preparatory time. As discussed in the 
preamble, we first published a notice of proposed rule-making on this 
topic in 2012 (CY 2013 HH PPS proposed rule (77 FR 41548)), but 
postponed action on a final rule in order to provide more time for 
states. Further, in our latest proposal we delayed the proposed 
enforcement date until July 1, 2014 to offer even more preparatory time 
for states. In various national calls and meetings with state survey 
agencies over the past two years, we also communicated our intent to 
issue and finalize the proposal to ensure that Medicaid contributes its 
fair share of the cost of HHA surveys. The combined effect has been to 
provide states with almost 2 years advance notice of CMS enforcement. 
We believe that the FY 2013 reduction in Medicare funding for state 
survey work reinforces the need to ensure that all appropriate payment 
sources are contributing their fair share of survey expenses, rather 
than expecting Medicare to shoulder a disproportionate share.
    We appreciate that some states may need to make minor accounting 
system changes and will work with such states to accomplish the changes 
expeditiously. We expect that arrangements for Medicaid fair share 
contributions to the cost of the HHA surveys can easily be built on the 
procedures and requirements that are already in place for states to 
receive Medicaid federal financial participation for certain existing 
activities, such as the cost of surveys in nursing facilities. States 
already track the survey hours and costs associated with home health 
surveys. The 50/50 methodology specified in this rule for allocating 
expenses between Medicare and Medicaid simplifies the cost accounting. 
Further, states are already required under Sec.  431.610(h)(2) to 
remove from federal reimbursement claims the costs of surveying for HHA 
compliance with state-only laws and regulations. We therefore expect 
that there already exists the appropriate infrastructure for proper 
cost accounting, but that some states may need to establish additional, 
internal cost accounting codes. We plan to work with states to make any 
accounting system changes in state cost accounting systems that are 
necessary to ensure there are proper audit trails and data to support 
claims for federal reimbursement.
    Comment: Another commenter observed that there was a number of 
different methods that CMS could use to arrive at an appropriate split 
between Medicare and Medicaid contributions, such as the proportion of 
aggregate Medicare or Medicaid spending to the combined total spending 
of the two programs. The commenter also stated that the volume of 
survey activity in a state should inform the cost-share assigned to a 
state.
    Response: We discussed the aggregate spending method in our notice 
of proposed rule-making, and explained that we were proposing the 50/50 
split as an administratively simpler and appropriate alternative that 
has been in long-standing use with respect to

[[Page 72314]]

surveys of SNF and NF. The commenter did not recommend the aggregate 
method, nor did any other commenter, but simply expressed the aggregate 
method as an acceptable alternative. We are therefore retaining the 
proposed 50/50 cost-allocation methodology. With regard to the comment 
that survey activity in a state should inform the cost-share assigned 
to a state, our methodology would incorporate that principle. The 
amount of Medicaid funding for HHA surveys in each state would be based 
on 50 percent of the total cost of surveys in the particular state in 
question that is attributable to the Medicare and Medicaid share of 
total cost (exclusive of any state-only cost attributable to state 
licensure requirements).
    Response Based on No Comments: CMS received no comments on whether 
the method of distribution for CMP receipts back to the states and to 
the U.S. Treasury should be changed to the same 50/50 methodology. If 
CMS does propose a change in the CMP receipt distribution methodology, 
we will propose the change in the CY 2015 HH PPS proposed rule.
    Final Decision: After careful consideration of the comments, we 
conclude that it is appropriate and warranted to publish in this final 
rule the regulatory changes we proposed to ensure that state Medicaid 
programs include explicit provision to contribute to the cost of HHA 
surveys in accordance with OMB Circular A-87, with the costs that are 
attributable to Medicare and Medicaid shared on a 50/50 basis between 
the two programs.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Unless otherwise noted, to derive average costs we used data from 
the U.S. Bureau of Labor Statistics for all salary estimates. The 
salary estimates include the cost of fringe benefits, calculated at 35 
percent of salary, which is based on the March 2011 Employer Costs for 
Employee Compensation report by the Bureau.
    In the July 3, 2013, proposed rule we solicited public comment on 
each of the section 3506(c)(2)(A)-required issues for the following 
information collection requirements (ICRs). A summary of the public 
comments we received, and our responses, can be found in sections 
IV.E.2 and IV.H of this preamble. This final rule does not revise any 
of the proposed rule's PRA-related requirements or burden estimates, 
except to clarify that existing state plan provisions already address 
Medicaid coverage for state survey costs and states will not have the 
burden of submitting a State Plan Amendment (SPA) when they ensure that 
Medicaid contributes its fair share to the cost of HHA surveys 
(described below in V.B).

A. ICRs Regarding OASIS

    The information collection requirements and burden estimates 
associated with OASIS have been approved by OMB under OCN 0938-0760. 
While OASIS is discussed in preamble section IV.E.2.a, this rule does 
not revise any of its information collection requirements or burden 
estimates and, therefore, does not require additional OMB review under 
the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.).

B. Cost Allocation of Home Health Agency (HHA) Survey Expenses (Sec.  
431.610)

    In Sec.  431.610(g), HHAs have been added to the survey agency 
provision concerning state Medicaid programs. Since CMS already 
requires that state survey agencies have qualified personnel perform 
onsite inspections as appropriate, we believe that the requirement to 
use qualified staff is met in the current state Medicaid plans. As 
explained in the preamble (see section IV.H, Cost Allocation of Survey 
Expenses, of this final rule) and in the CY 2014 HH PPS proposed rule 
(78 FR 40302), we also expect that state Medicaid programs will provide 
for the appropriate Medicaid share of expenses for the conduct of HHA 
surveys. This is a budgeting and accounting task. Since state Medicaid 
plans already provide for the necessary relations with state survey 
agencies, we do not believe it will be necessary for states to submit a 
state plan amendment. We believe the responsibilities for Medicaid home 
health survey costs may be met through appropriate budgeting and 
accounting adjustments within the context of each state's current 
Medicaid plan. This rule will not revise any budget-related 
recordkeeping or reporting requirements or estimates for state Medicaid 
agencies and, therefore, does not require additional OMB review under 
the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.).

C. ICRs Regarding Home Health Care CAHPS[supreg] (HHCAHPS[supreg]) 
Survey

    In the proposed rule, CMS proposed to add the OMB number to the 
HHCAHPS Participation Exemption Request Form. CMS did not receive any 
comments about the proposed change, and CMS is moving forward with 
adding the OMB number to the Participation Exemption Request Form. This 
is discussed in the preamble in the section about the Home Health CAHPS 
(HHCAHPS) survey in the Quality Reporting Requirement section at 
IV.E.2.e. CMS implements the HHCAHPS[supreg] Survey to measure and to 
publicly report patients' experiences with home health care they 
receive from Medicare-certified agencies. Section 484.250, Patient 
Assessment Data, requires that HHAs submit to CMS, HHCAHPS[supreg] data 
in order to administer the payment rate methodologies described in 
Sec. Sec.  484.215, 484.230, and 484.235. The burden associated with 
this is the time and effort put forth by the HHAs to submit the 
HHCAHPS[supreg] data, the patients' burden to respond to the 
HHCAHPS[supreg] survey, and the cost to the HHAs to pay for the 
HHCAHPS[supreg] survey vendors to collect the data on their behalf. 
This burden is currently accounted for under OCN 0938-1066 (CMS-10275).
    CMS allows Medicare-certified home health agencies that serve 59 or 
fewer HHCAHPS[supreg] eligible patients, to request an exemption from 
participating in the HHCAHPS[supreg] survey. Currently, we have posted 
the HHCAHPS[supreg] Participation Exemption Request (PER) Form for the 
CY 2015 Annual Payment Update on https://homehealthcahps.org. The form 
is only to be used if home health agencies have 59 or fewer 
HHCAHPS[supreg] eligible patients in the count period that is 
referenced for a given calendar year. For the CY 2015 annual payment 
update, home health agencies with 59 or fewer HHCAHPS[supreg] patients 
in the period of April 2012 through March 2013 are exempt from 
participation in the HHCAHPS[supreg] Survey from April 2013

[[Page 72315]]

through March 2014, if they complete the HHCAHPS Participation 
Exemption Request Form for the CY 2015 Annual Payment Update, and the 
counts are verified in the CMS database for the same period. While the 
HHCAHPS[supreg] Participation Exemption Request Form is in use without 
an OMB control number, we are revising OCN 0938-1066 by adding the form 
and our estimated burden to that the control number.
    The HHCAHPS[supreg] PER Form for the CY 2015 Annual Payment Update 
is a one-page form. We estimate that it will take 15 minutes to 
complete the form since it only has a few items to complete including 
one item concerning the count of HHCAHPS[supreg] eligible patients in 
an annual period. We believe that it will take an additional 20 minutes 
to count the patients and to verify the count. The annualized 
aggregated total burden to completion of the form is 1,170 hr ((15 min 
+ 20 min)/60 x 2,000 Medicare-certified home health agencies) at a 
total estimated cost of $36,400 for 2,000 home health agencies.
    In deriving these figures, we used the following hourly labor rates 
and time to complete each task: $36.27/hr and 20 min (.33 hr) for a 
home health care agency director to check the work on the Participation 
Exemption Request Form and $24.92/hr and 15 min (.25 hr) for an 
executive assistant to perform the patient count and to complete the 
form. This amounts to $18.20 per respondent ($11.97 + $6.23) or $36,400 
($18.20 x 2,000) total.

D. Submission of PRA-Related Comments

    We have submitted a copy of this rule to OMB for its review of the 
rule's information collection and recordkeeping requirements. These 
requirements are not effective until they have been approved by the 
OMB.
    To obtain copies of the supporting statement and any related forms 
for the paperwork collections referenced above, access CMS' Web site at 
www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/, or call the Reports Clearance Office at 
410-786-1326.
    We invite public comments on these information collection 
requirements. If you comment on these information collection and 
recordkeeping requirements, please submit your comments to the Office 
of Information and Regulatory Affairs, Office of Management and Budget, 
Attention: CMS Desk Officer, (CMS-1450-F) Fax: (202) 395-6974; or 
Email: [email protected].
    PRA-specific comments must be received on/by January 2, 2014.

VI. Waiver of Delay in Effective Date

    In the absence of an appropriation for FY 2014 or a Continuing 
Resolution, the federal government shut down on October 1, 2013. During 
the funding lapse, which lasted from October 1, 2013 through October 
16, 2013, only excepted operations continued, which largely excluded 
work on this final rule. Accordingly, most of the work on this final 
rule was not completed in accordance with our usual schedule for final 
calendar-year-based payment rules, which aims for an issuance date of 
November 1 followed by an effective date of January 1 to ensure that 
the policies are effective at the start of the calendar year to which 
they apply. We ordinarily provide a 60-day delay in the effective date 
of final rules after the date they are issued. The 60-day delay in 
effective date can be waived, however, if the agency finds for good 
cause that the delay is impracticable, unnecessary, or contrary to the 
public interest, and the agency incorporates a statement of the 
findings and its reasons in the rule issued. We believe it would be 
contrary to the public interest to delay the effective date of the HH 
PPS, HH PPS Grouper refinements, rebasing, and quality reporting 
portions of this final rule. The HH PPS is a calendar-year payment 
system, and we typically issue the final rule by November 1 of each 
year to ensure that the payment policies for the system, associated HH 
PPS Grouper, and quality reporting requirements are effective on 
January 1, the first day of the calendar year to which the policies are 
intended to apply. Likewise, the HH PPS rebasing is required by section 
3131(a) of the Affordable Care Act to be effective for the entirety of 
calendar year 2014. If the effective date of this final rule were to be 
delayed by 60 days, the policies adopted in this final rule would not 
be effective until January 21, 2014. This would be contrary to the 
public's interest in ensuring that home health agencies and state 
survey agencies receive appropriate payments in a timely manner. For 
these reasons we find that the delayed effective date is both 
impracticable and contrary to the public interest, and we are waiving 
such delay in the effective date of this final rule.

VII. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (UMRA, March 22, 1995; Pub. L. 
104-4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct 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). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This final rule has been designated as economically 
significant, under section 3(f)(1) of Executive Order 12866, and thus 
is a major rule under the Congressional Review Act. Accordingly, we 
have prepared a regulatory impact analysis (RIA) that to the best of 
our ability presents the costs and benefits of the rulemaking. Also, 
the rule has been reviewed by OMB.

B. Statement of Need

    Section 1895(b)(1) of the Act requires the Secretary to establish a 
HH PPS for all costs of HH services paid under Medicare. In addition, 
section 1895(b)(3)(A) of the Act requires (1) the computation of a 
standard prospective payment amount include all costs for HH services 
covered and paid for on a reasonable cost basis and that such amounts 
be initially based on the most recent audited cost report data 
available to the Secretary, and (2) the standardized prospective 
payment amount be adjusted to account for the effects of case-mix and 
wage levels among HHAs. Section 1895(b)(3)(B) of the Act addresses the 
annual update to the standard prospective payment amounts by the HH 
applicable percentage increase. Section 1895(b)(4) of the Act governs 
the payment computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of 
the Act require the standard prospective payment amount to be adjusted 
for case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of appropriate 
case-mix adjustment factors for significant variation in costs among 
different units of services. Lastly, section 1895(b)(4)(C)

[[Page 72316]]

of the Act requires the establishment of wage adjustment factors that 
reflect the relative level of wages, and wage-related costs applicable 
to HH services furnished in a geographic area compared to the 
applicable national average level.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make changes to the payment amount otherwise paid in the case of 
outliers because of unusual variations in the type or amount of 
medically necessary care. Section 1895(b)(3)(B)(v) of the Act requires 
HHAs to submit data for purposes of measuring health care quality, and 
links the quality data submission to the annual applicable percentage 
increase. Also, section 1886(d)(2)(D) of the Act requires that HH 
services furnished in a rural area for episodes and visits ending on or 
after April 1, 2010, and before January 1, 2016, receive an increase of 
3 percent the payment amount otherwise made under section 1895 of the 
Act.
    Section 3131(a) of the Affordable Care Act mandates that starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment rate and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act mandates that 
rebasing must be phased-in over a 4-year period in equal increments, 
not to exceed 3.5 percent of the amount (or amounts) as of the date of 
enactment (2010) under section 1895(b)(3)(A)(i)(III) of the Act, and be 
fully implemented in CY 2017.

C. Overall Impact

    The update set forth in this rule applies to Medicare payments 
under HH PPS in CY 2014. Accordingly, the following analysis describes 
the impact in CY 2014 only. We estimate that the net impact of the 
proposals in this rule is approximately $200 million in decreased 
payments to HHAs in CY 2014. The impact of the 2014 wage index would be 
a decrease of $50 million. However, we applied a standardization factor 
to the rates as discussed earlier. Therefore, the net effect of the 
2014 wage index is zero dollars. The -$200 million impact reflects the 
distributional effects of the 2.3 percent HH payment update percentage 
($440 million increase), the effects of the rebasing adjustments to the 
national, standardized 60-day episode payment amount, the national per-
visit payment rates, and the NRS conversion factor for an impact of -
2.73 percent ($520 million decrease), and the effects of the ICD-9-CM 
HH PPS Grouper refinements of -0.62 percent ($120 million decrease). 
The $200 million in decreased payments is reflected in the last column 
of the first row in Table 33 as a 1.05 percent decrease in expenditures 
when comparing CY 2013 payments to estimated CY 2014 payments.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of less than $7.0 million to $34.5 million in any 1 year. For 
the purposes of the RFA, we estimate that almost all HHAs are small 
entities as that term is used in the RFA. Individuals and states are 
not included in the definition of a small entity. The economic impact 
assessment is based on estimated Medicare payments (revenues) and HHS's 
practice in interpreting the RFA is to consider effects economically 
``significant'' only if greater than 5 percent of providers reach a 
threshold of 3 to 5 percent or more of total revenue or total costs. As 
we discussed in the preamble of this final rule in response to comments 
(section IV.D), the majority of HHAs' visits are Medicare-paid visits 
and therefore the majority of HHAs' revenue consists of Medicare 
payments. Based on our analysis, we conclude that the policies 
finalized in this rule will not result in an estimated total impact of 
3 to 5 percent or more on Medicare revenue for greater than 5 percent 
of HHAs. Therefore, the Secretary has determined that this final rule 
will not have a significant economic impact on a substantial number of 
small entities. Further detail is presented in Table 33 below, by HHA 
type and area.
    Executive Order 13563 specifies, to the extent practicable, 
agencies should assess the costs of cumulative regulations. However, 
given potential utilization pattern changes, wage index changes, 
changes to the market basket forecasts, and unknowns regarding future 
policy changes, we believe it is neither practicable nor appropriate to 
forecast the cumulative impact of the rebasing adjustments on Medicare 
payments to HHAs for future years at this time. Changes to the Medicare 
program may continue to be made as a result of the Affordable Care Act, 
or new statutory provisions. Although these changes may not be specific 
to the HH PPS, the nature of the Medicare program is such that the 
changes may interact, and the complexity of the interaction of these 
changes would make it difficult to predict accurately the full scope of 
the impact upon HHAs for future years beyond CY 2014. We note that the 
rebasing adjustments to the national, standardized 60-day episode 
payment rate and the national per-visit rates are capped at the 
statutory limit of 3.5 percent of the CY 2010 amounts (as described in 
the preamble in section IV.D) for each year, 2014 through 2017. The NRS 
rebasing adjustment will be -2.82 percent in each year, 2014 through 
2017. As described in section IV.D of the preamble, the -2.82 percent 
rebasing adjustment will not exceed the statutory limit in CY 2014 and 
there is a very low likelihood that future adjustments of -2.82 percent 
in CY 2015 through 2017 would exceed the statutory limit.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA 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 RFA. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a metropolitan statistical area and has fewer 
than 100 beds. This final rule applies to HHAs. Therefore, the 
Secretary has determined that this rule will not have a significant 
economic impact on the operations 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 $100 
million in 1995 dollars, updated annually for inflation. In 2013, that 
threshold is approximately $141 million. This final rule is not 
anticipated to have an effect on state, local, or tribal governments in 
the aggregate, or by the private sector, of $141 million or more in CY 
2014.

D. Detailed Economic Analysis

    This final rule sets forth updates to the HH PPS rates contained in 
the CY 2013 HH PPS final rule. The impact analysis of this rule 
presents the estimated expenditure effects of policy changes in this 
rule. We use the latest data and best analysis available, but we do not 
make adjustments for future

[[Page 72317]]

changes in such variables as number of visits or case-mix.
    This analysis incorporates the latest estimates of growth in 
service use and payments under the Medicare HH benefit, based primarily 
on Medicare claims from 2012. We note that certain events may combine 
to limit the scope or accuracy of our impact analysis, because such an 
analysis is future-oriented and, thus, susceptible to errors resulting 
from other changes in the impact time period assessed. Some examples of 
such possible events are newly-legislated general Medicare program 
funding changes made by the Congress, or changes specifically related 
to HHAs. In addition, changes to the Medicare program may continue to 
be made as a result of the Affordable Care Act, or new statutory 
provisions. Although these changes may not be specific to the HH PPS, 
the nature of the Medicare program is such that the changes may 
interact, and the complexity of the interaction of these changes could 
make it difficult to predict accurately the full scope of the impact 
upon HHAs.
    Table 33 represents how HHA Medicare revenues are likely to be 
affected by the policy changes in this rule. For this analysis, we used 
linked CY 2012 HH claims and OASIS assessments; the claims are for 
dates of service that ended in CY 2012. The first column of Table 33 
classifies HHAs according to a number of characteristics including 
provider type, geographic region, and urban and rural locations. The 
second column shows the payment effects of the wage index. The third 
column shows the effects of the standardization factor. The forth 
column shows the effects of the ICD-9-CM Grouper scoring changes. The 
fifth column displays the effects of the rebasing adjustments to the 
national, standardized 60-day episode payment rate, the national per-
visit payment rates, and NRS conversion factor as well as the effects 
of the LUPA add-on factors. The sixth column shows the effects of the 
market basket increase. The seventh column shows the payment effects of 
all the finalized policies.
    Overall, HHAs are anticipated to experience a 1.05 percent decrease 
in payment in CY 2014, with freestanding HHAs anticipated to experience 
a 1.10 percent decrease in payments while facility-based HHAs and non-
profit HHAs are anticipated to experience a 0.58 percent and a 0.49 
percent decrease in payments, respectively. Government-owned HHAs are 
anticipated to experience a 0.92 percent decrease in payments and 
proprietary HHAs are anticipated to experience a 1.27 percent decrease 
in payments. Rural HHAs are anticipated to experience a decrease in 
estimated payments ranging from 0.45 percent for facility-based non-
profit HHAs to 1.08 for freestanding government-owned HHAs. Urban HHAs 
are anticipated to experience a decrease in estimated payments, ranging 
from 0.47 percent for freestanding non-profit HHAs to 1.29 percent for 
freestanding proprietary HHAs. The overall impact in the South is 
estimated to be a 1.56 percent decrease in payments whereas the overall 
impact to the ``Other'' category (for example, Puerto Rico, Guam, U.S. 
Virgin Islands), is estimated at 0.14 percent increase in payments. The 
Pacific census region is estimated to receive a 0.34 percent increase 
in payments for CY 2014; however, in contrast, the West South Central 
census region is estimated to receive a 1.74 percent decrease in 
payments for CY 2014. Finally, HHAs with less than 100 first episodes 
are anticipated to experience a 1.27 percent decrease in payments 
compared to a 0.90 percent decrease in payments in CY 2014 for HHAs 
with 1,000 or more first episodes. A substantial amount of the 
variation in the estimated impacts of the proposals in this final rule 
in different areas of the country can be attributed to variations in 
the CY 2014 wage index used to adjust payments under the HH PPS. 
Instances where the impact, due to the rebasing adjustments, is less 
than others can be attributed to differences in the incidence of 
outlier payments and LUPA episodes, which are paid using the national 
per-visit payment rates that are subject to payment increases due to 
the rebasing adjustments. We note that some individual HHAs within the 
same group may experience different impacts on payments than others due 
to the distributional impact of the CY 2014 wage index, the extent to 
which HHAs utilized the 170 ICD-9-CM codes that will be removed from 
scoring points in the HH PPS Grouper as of January 1, 2014, and the 
degree of Medicare utilization.

                            Table 33--Home Health Agency Policy Impacts for CY 2014, by Facility Type and Area of the Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             ICD-9-CM
                                            Number of     CY 2014 Wage   Standardization      Grouper      Rebasing \1\     CY 2014 HH     Impact of all
                                            agencies        index (%)          (%)            scoring           (%)       Payment update      CY 2014
                                                                                            changes (%)                   percentage (%)   policies (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Agencies...........................          11,620           -0.25             0.25           -0.62           -2.73            2.30           -1.05
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Facility Type and Control
--------------------------------------------------------------------------------------------------------------------------------------------------------
Free-Standing/Other Vol/NP.............           1,057            0.10             0.22           -0.40           -2.71            2.30           -0.49
Free-Standing/Other Proprietary........           8,967           -0.37             0.25           -0.71           -2.74            2.30           -1.27
Free-Standing/Other Government.........             421           -0.24             0.25           -0.50           -2.73            2.30           -0.92
Facility-Based Vol/NP..................             813            0.01             0.24           -0.33           -2.72            2.30           -0.50
Facility-Based Proprietary.............             117           -0.17             0.25           -0.52           -2.77            2.30           -0.91
Facility-Based Government..............             245           -0.34             0.25           -0.39           -2.75            2.30           -0.93
    Subtotal: Freestanding.............          10,445           -0.27             0.25           -0.65           -2.73            2.30           -1.10
    Subtotal: Facility-based...........           1,175           -0.04             0.24           -0.35           -2.73            2.30           -0.58
    Subtotal: Vol/NP...................           1,870            0.07             0.23           -0.38           -2.71            2.30           -0.49
    Subtotal: Proprietary..............           9,084           -0.37             0.25           -0.71           -2.74            2.30           -1.27

[[Page 72318]]

 
    Subtotal: Government...............             666           -0.28             0.25           -0.45           -2.74            2.30          --0.92
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Facility Type and Control: Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
Free-Standing/Other Vol/NP.............             205           -0.01             0.25           -0.31           -2.75            2.30           -0.52
Free-Standing/Other Proprietary........             142           -0.12             0.25           -0.43           -2.77            2.30           -0.77
Free-Standing/Other Government.........             468           -0.29             0.26           -0.58           -2.77            2.30           -1.08
Facility-Based Vol/NP..................             262            0.10             0.24           -0.34           -2.75            2.30           -0.45
Facility-Based Proprietary.............              35            0.18             0.24           -0.53           -2.77            2.30           -0.58
Facility-Based Government..............             153           -0.21             0.26           -0.34           -2.77            2.30           -0.76
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Facility Type and Control: Urban
--------------------------------------------------------------------------------------------------------------------------------------------------------
Free-Standing/Other Vol/NP.............             915            0.11             0.22           -0.40           -2.70            2.30           -0.47
Free-Standing/Other Proprietary........           8,652           -0.38             0.25           -0.72           -2.74            2.30           -1.29
Free-Standing/Other Government.........             170           -0.32             0.26           -0.54           -2.74            2.30           -1.04
Facility-Based Vol/NP..................             551           -0.01             0.24           -0.33           -2.72            2.30           -0.52
Facility-Based Proprietary.............              82           -0.25             0.26           -0.51           -2.77            2.30           -0.97
Facility-Based Government..............              92           -0.40             0.25           -0.42           -2.73            2.30           -1.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Facility Location: Urban or Rural
--------------------------------------------------------------------------------------------------------------------------------------------------------
Rural..................................           1,158           -0.11             0.25           -0.46           -2.76            2.30           -0.78
Urban..................................          10,462           -0.26             0.25           -0.62           -2.73            2.30           -1.06
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Facility Location: Region of the Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
North..................................             874            0.47             0.20           -0.36           -2.70            2.30           -0.09
Midwest................................           3,107           -0.52             0.25           -0.53           -2.76            2.30           -1.26
South..................................           5,727           -0.61             0.26           -0.77           -2.74            2.30           -1.56
West...................................           1,862            0.62             0.23           -0.46           -2.69            2.30            0.00
Other..................................              50            0.64             0.23           -0.22           -2.81            2.30            0.14
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Facility Location: Region of the Country (Census Region)
--------------------------------------------------------------------------------------------------------------------------------------------------------
New England............................             334            0.12             0.23           -0.41           -2.72            2.30           -0.48
Mid Atlantic...........................             540            0.68             0.18           -0.33           -2.69            2.30            0.14
East North Central.....................           2,343           -0.54             0.25           -0.56           -2.76            2.30           -1.31
West North Central.....................             764           -0.44             0.25           -0.43           -2.75            2.30           -1.07
South Atlantic.........................           2,122           -0.71             0.27           -0.63           -2.73            2.30           -1.50
East South Central.....................             440           -0.41             0.26           -0.57           -2.78            2.30           -1.20
West South Central.....................           3,165           -0.58             0.26           -0.99           -2.73            2.30           -1.74
Mountain...............................             672           -0.30             0.26           -0.45           -2.71            2.30           -0.90
Pacific................................           1,190            0.98             0.21           -0.47           -2.68            2.30            0.34
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Facility Size (Number of 1st Episodes)
--------------------------------------------------------------------------------------------------------------------------------------------------------
<100 episodes..........................           2,881           -0.33             0.25           -0.72           -2.77            2.30           -1.27
100 to 249.............................           2,617           -0.41             0.26           -0.78           -2.75            2.30           -1.38
250 to 499.............................           2,577           -0.42             0.26           -0.77           -2.74            2.30           -1.37
500 to 999.............................           1,878           -0.28             0.25           -0.65           -2.73            2.30           -1.11
1,000 or More..........................           1,667           -0.18             0.24           -0.54           -2.72            2.30           -0.90
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CY 2012 Medicare claims data for episodes ending on or before December 31, 2012 (as of June 2013) for which we had a linked OASIS assessment.

[[Page 72319]]

 
\1\ The impact of rebasing includes the rebasing adjustments to the national, standardized 60-day episode payment rate (-2.81 percent), the national per-
  visit rates (+3.45 percent), and the NRS conversion factor (-2.82%). It also includes the impact of the LUPA add-on factors. The estimated impact of
  the NRS conversion factor rebasing adjustment is an overall -0.05 percent decrease in estimated payments to HHAs. The estimated impact of the LUPA add-
  on factors is an overall 0.01 percent increase in payments to HHAs.
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.

E. Alternatives Considered

    As described the proposed rule (78 FR 40307), we noted that 
additional factors were considered, but not incorporated into the 
methodology for calculating the rebasing adjustments. One such factor 
was a downward adjustment to the costs per-visit as a result of the 
findings from the audits of 98 Medicare HH cost reports. The results of 
the audits showed that agencies over-reported costs by an average of 
about 8 percent. More information on the analysis of the audit results 
can be found in the report titled: ``Analyses in Support of Rebasing & 
Updating the Medicare Home Health Payment Rates--CY 2014 Home Health 
Prospective Payment System Proposed Rule'' available on the CMS Home 
Health Agency (HHA) Center Web site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/center/
hha.asp. Given this finding, we considered downward adjusting the costs 
on the cost report in order to better align payment with the agencies' 
true costs. We also considered updating costs by the HH payment update 
percentage (adjusted market basket) rather than the full HH market 
basket. In 2012 and 2013, HH payments were increased by the HH market 
basket minus one percentage point, as mandated by the Affordable Care 
Act. Furthermore, the Affordable Care Act mandates that CMS remove 5 
percent of the national, standardized 60-day episode payment rate to 
fund the 2.5 percent outlier pool. We considered setting our target 
national, standardized 60-day episode payment rate for rebasing at 5 
percent below the estimated cost per episode that we derived from the 
2011 cost reports.
    We did not incorporate any of the options discussed above as those 
changes would not impact the final rebasing adjustments to the 
national, standardized 60-day episode payment rate or national per-
visit payment rates as those adjustments are at the statutory limit (no 
more than 3.5 percent of the CY 2010 payment rates). We note that if we 
implemented the rebasing adjustments using the methodology described in 
the CY 2014 HH PPS proposed rule, the effects from the rebasing 
adjustments would have been a 3.4 percent reduction in payments to HHAs 
in CY 2014 compared to CY 2013 rather than a 2.7 percent reduction 
described above. We estimate that a 2.7 percent reduction versus a 3.4 
percent reduction in payments results in an increase in payments to 
HHAs of $140 million for CY 2014 and $1.1 billion through 2017.
    In addition to the rebasing adjustments, we considered implementing 
a prospective reduction for nominal case-mix growth for CY 2014. In the 
past, various sources have suggested implementing a prospective nominal 
case-mix growth adjustment, which would attempt to predict the amount 
of nominal case-mix growth in future years and implement a reduction to 
prevent possible overpayments due to nominal case-mix growth. To date, 
we have implemented nominal case-mix growth adjustments 
retrospectively. That is, we use the most recent, complete data 
available--typically two to three years prior to the payment year--to 
identify nominal case-mix growth, and implement a payment reduction to 
account for the observed growth. The payment reductions to date for 
nominal case-mix growth do not attempt to re-coup overpayments made in 
previous years due to nominal case-mix growth. We plan to continue to 
monitor case-mix growth (both real and nominal case-mix growth) as more 
data become available.

F. Cost Allocation of Survey Expenses

    We project that aggregate Medicare and Medicaid HH survey costs in 
FY 2014 will be approximately $37.2 million. As these costs will be 
assigned 50 percent to Medicare and 50 percent to Medicaid for each 
state, the anticipated aggregate Medicaid share would amount to $18.6 
million, if implemented at the beginning of FY2014. However, the 
enforcement date of July FY 2014 will reduce the Medicaid aggregate 
share to approximately $4.65 million. The cost of surveys is treated as 
a Medicaid administrative cost, reimbursable at the professional staff 
rate of 75 percent. Therefore, the states' portion of the Medicaid HH 
survey costs incurred in FY 2014, with an adherence date of July FY 
2014, will be approximately $1.16 million (25 percent of the aggregate 
$4. 65 million Medicaid cost for the last quarter of the FY), spread 
out across all states and two territories. Furthermore, the Federal 
Medicaid share will reflect the remaining $3.49 million, with an 
adherence date of July FY 2014. While we regard Medicaid fair share of 
costs to reflect an existing cost allocation principle, the methods for 
making the appropriate determinations have not been clear. Therefore, 
in this rule we delineate those methods and provide that the Medicaid 
responsibility be reflected in the state Medicaid Program.

G. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), in Tables 34 and 35, we 
have prepared an accounting statement showing the classification of the 
transfers associated with the provisions of this final rule. Table 34 
provides our best estimate of the decrease in Medicare payments under 
the HH PPS as a result of the changes presented in this final rule.

 Table 34--Accounting Statement: Classification of Estimated Transfers,
              From the CY 2013 HH PPS to the CY 2014 HH PPS
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$200 million

[[Page 72320]]

 
From Whom to Whom?.....................  Federal Government to HH
                                          providers
------------------------------------------------------------------------

    Table 35 provides our best estimate of the changes in the 
classification of the cost allocation of survey expenses.

  Table 35--Accounting Statement: Classification of Estimated Transfers
      Relating to the Medicare and Medicaid Home Health Survey and
                  Certification Costs, FYs 2013 to 2014
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
            Federal Medicaid HH Survey & Certification Costs
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $3.49 Million*
From Whom to Whom?.....................  Federal Government (Medicaid)
                                          to Federal Government
                                          (Medicare)
------------------------------------------------------------------------
             State Medicaid HH Survey & Certification Costs
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $1.16 Million*
From Whom to Whom?.....................  State Governments (Medicaid) to
                                          Federal Government (Medicare)
------------------------------------------------------------------------
* HH survey and certification costs reflect an adherence date of July FY
  2014.

H. Conclusion

    In conclusion, we estimate that the net impact of this rule is 
approximately $200 million in CY 2014 savings. The -$200 million 
reflects the distributional effects of an updated wage index ($50 
million decrease), a standardization factor to ensure budget neutrality 
in episode payments using the 2014 wage index ($50 million increase), 
the 2.3 percent HH payment update percentage ($440 million increase), 
the rebasing adjustments required by section 3131(a) of the Affordable 
Care Act of -2.73 percent ($520 million decrease), and the ICD-9-CM HH 
PPS Grouper refinements of -0.62 percent ($120 million decrease).

VII. Federalism Analysis

    Executive Order 13132 on Federalism (August 4, 1999) 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 substantial direct effects on the rights, roles, and 
responsibilities of states, local or tribal governments.

List of Subjects in 42 CFR Part 431

    Grant programs-health, Health facilities, Medicaid, Privacy, and 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR part 431 as set forth below:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

0
1. The authority citation for part 431 continues to read as follows:

    Authority: Sec. 1102 of the Social Security Act, (42 U.S.C. 
1302).


0
2. Section 431.610 is amended by revising paragraph (g) introductory 
text to read as follows:


Sec.  431.610  Relations with standard-setting and survey agencies.

* * * * *
    (g) Responsibilities of survey agency. The plan must provide that, 
in certifying NFs, HHAs, and ICF-IIDs, the survey agency designated 
under paragraph (e) of this section will --
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program).

    Dated: November 12, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 18, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-28457 Filed 11-22-13; 4:15 pm]
BILLING CODE 4120-01-P