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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 431

CMS-1450-P

RIN 0938-AR52 Medicare and Medicaid Programs; Home Heal th Prospective Payment System Rate Update for CY 2014, Home Health Quality Repo rting Requirements, and Cost Allocation of Home Health Survey Expenses

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

ACTION: Proposed rule.

SUMMARY: This proposed rule would update the Ho me Health Prospective Payment System (HH PPS) rates, including the national, standard ized 60-day episode payment rates, the national per-visit rates, the low-utilization payment ad justment (LUPA) add-on, the nonroutine medical supplies (NRS) conversion factor, and outlier payments under the Medicare prospective payment system for home health agencies (HHAs), effective January 1, 2014. As required by the Affordable Care Act, this rule also proposes reba sing 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. Finally, the proposed rule wo uld also establish home health quality reporting requirements for CY 2014 payment and subsequent years and would clarify that a state Medicaid program must provide that, in certifying home he alth agencies, the state’s designated survey agency must carry out certain other responsibil ities that already apply to surveys of nursingCMS-1450-P 2

facilities and Intermediate Care Fa cilities for Individuals with In tellectual Disabilities (ICF-IID), including sharing in the co st of HHA surveys. For that portion of costs attributable to Medicare and Medicaid, we would assign 50 percent to Medi care and 50 percent to Medicaid, the standard

method that CMS and states use in the allocatio n of expenses related to surveys of SNF/NF nursing homes.

DATES: To be assured consideration, comments mu st be received at one of the addresses provided below, no later than 5 p.m. on August 26, 2013

. ADDRESSES: In commenting, please refer to file code CMS-1450-P. Because of staff and resource limitations, we ca nnot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically . You may submit electronic comments on this regulation to http://www.regulations.gov . Follow the "Submit a comment" instructions. 2. By regular mail . You may mail written comments to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1450-P, P.O. Box 8016, Baltimore, MD 21244-8016.

Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail . You may send written comments to the following

address ONLY:CMS-1450-P 3

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1450-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier . If you prefer, you may deli ver (by hand or courier) your

written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC--

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201 (Because access to the interior of the Hube rt H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to reta in a proof of filing by st amping in and retaining an extra copy of the comments being filed.)CMS-1450-P 4

b. For delivery in Baltimore, MD--

Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, please call (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. For information on viewing public co mments, see the beginning of the

"SUPPLEMENTARY INFORMATION" section.

FOR FURTHER INFORMATION CONTACT: Kristine Chu, (410) 786-8953, for in formation about rebasing and the HH payment reform study and report. Jenny Filipovits, (410) 786-8141, fo r information about cost allo cation of survey expenses. Mollie Knight, (410) 786-7948, for inform ation about the HH market basket. 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. Kim Roche, (410) 786-3524, for information about the HH quality reporting program. Lori Teichman, (410) 786-6684, fo r information about HH CAHPS®.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment periodCMS-1450-P 5

are available for viewing by the public, includi ng any personally identif iable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been

received: http://www.regulations.gov . Follow the search instructions on that website to view public comments. Comments received timely will also be av ailable for public inspection as they are received, generally beginning approximately 3 w eeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. EST. To schedule an appointment to vi ew public comments, phone 1-800-743-3951.

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. Provisions of the Proposed Rule A. Proposed ICD-9-CM Grouper Refi nements, Effective January 1, 2014

B. International Classification of Diseases , 10th Revision, Clinic al Modification (ICD10-CM) Conversion and Diagnosis Re porting on Home Health ClaimsCMS-1450-P 6

1. International Classification of Diseases, 10th Revision, Cl inical Modification (ICD-10- CM) Conversion 2. Diagnosis Reporting on Home Health Claims C. Proposed Adjustment to the HH PPS Case-Mix Weights D. Rebasing the National, Standardized 60- day Episode Payment Rate, LUPA Per-Visit Payment Amounts, and Nonroutine Medica l Supply (NRS) Conversion Factor 1. Rebasing the National, Standardiz ed 60-day Episode Payment Rate 2. Rebasing the Low-Utilization Payment Adjustment (LUPA) Per-Visit Payment

Amounts 3. Rebasing the Nonroutine Medical Supply (NRS) Conversion Factor E. Proposed CY 2014 Rate Update 1. Proposed CY 2014 Home Health Market Basket Update 2. Home Health Care Qu ality Reporting Program 3. Proposed Home Health Wage Index 4. Proposed CY 2014 Annual Payment Update a. National, Standardized 60-Day Episode Payment Rate b. Proposed CY 2014 National, Standardized 60-Day Episode Payment Rate c. Proposed CY 2014 National Per-Visit Rates d. Proposed Low-Utilization Payment Adjustment (LUPA) Add-On Factor e. Proposed Nonroutine Medical Supply (NRS) Conversion Factor and Relative Weights

5. Rural Add-On F. Outlier Policy 1. BackgroundCMS-1450-P 7

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 IV. Collection of Information Requirements V. Response to Comments VI. Regulatory Impact Analysis VII. Federalism Analysis Regulations Text Acronyms In addition, because of the many terms to which we refer by abbreviation in this proposed rule, we are listing these abbreviations and th eir 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 Bala nced Budget Refinement Act of 1999 (Pub. L. 106-113, enacted November 29, 1999).CMS-1450-P 8

CAD Coronary artery disease. CAH Critical access hospital. CAHPS® Consumer assessment of healthcare providers and systems.

CBSA Core-based statistical area. 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 obstructiv e 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.CMS-1450-P 9

GEM General equivalency mapping. HAVEN Home assessment validation and entry system. HCC Hierarchical condition categories. HCIS Health care information system.

HH Home health.

HHABN Home health adva nce beneficiary notice. HHAs Home health agencies.

HHCAHPS® Home Health Care Consumer Assess ment 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 Classifica tion of Diseases, 9th Edition.

ICD-9-CM International Classification of Di seases, 9th Edition, Clinical Modification.

ICD-10 International Classifica tion of Diseases, 10th Edition.

ICD-10-CM International Classification of Diseases, 10th Edition, Clinical Modification.

ICF-IID Intermediate care faci lities for individuals with intellectual disabilities. IH Inpatient hospitalization. IPPS Acute Inpatient Prospective Payment System IRF Inpatient rehabilitation facility.CMS-1450-P 10

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, Improve ment, 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 supplies.

OASIS Outcome & Assessment Information Set. OBRA Omnibus Budget Reconciliati on Act of 1987 (Pub. L. 100-2-3, enacted December 22, 1987). OCESAA Omnibus Consolidated and Emergenc y Supplemental Appropriations Act (Pub. L. 105-277, enacted October 21, 1998). OES Occupational empl oyment statistics. OIG Office of Inspector General. OT Occupational therapy. OMB Office of Management and Budget. P4R Pay-for-reporting.CMS-1450-P 11

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. PurposeCMS-1450-P 12

This rule proposes updates to 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 ep isode payment rate, the national per-visit rates, the non-routine supplies (NRS) conversion factor, required under section 3131(a) of the Patient Protection and Affordab le Care Act of 2010 (Pub. L 111-148), as amended by the Health Care and Education Reconci liation Act of 2010 (Pub. L 111-152) (collectively referred to as the “Affordable Care Act”). This proposed rule would also address: International Classification of Diseases, 9t h Edition (ICD-9) grouper refine ments; implementation of the International Classification of Diseases, 10th Ed ition (ICD-10); an adjustment to the case-mix weights; updates to the payment rates by the HH payment update percentage (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 proposed rule would also clarify state Medicaid program requirements related to the cost of HHA surveys. B. Summary of the Major Provisions We recently completed a thorough review of the ICD-9-CM codes included in our home health prospective payment system (HH PPS) Groupe r as part of our work transitioning from the

ICD-9-CM to ICD-10-CM code set. As a result of that review, we identified two categories of codes, made up of 170 ICD-9-CM diagnosis codes, which we are proposing to remove from the HH PPS Grouper, effective January 1, 2014. In addition, we are proposing to implement, on October 1, 2014, the use of ICD-10-CM codes within our HH PPS Grouper. Section 3131(a) of the Affordable Care Act requires that, starting in CY 2014, we apply an adjustment to the national, standardized 60- day episode payment rate and other applicable payment amounts to reflect factors such as changes in the number of visits in an episode, the mixCMS-1450-P 13

of services in an episode, the level of intensity of services in an epis ode, the average cost of providing care per episode, and other relevant factors. In addition, we must phase-in any adjustment over a 4-year period in equal increm ents, not to exceed 3.5 percent of the amount (or amounts) in any given year, and be fully impl emented by CY 2017. As such, we are proposing rebasing adjustments to the national, standardi zed 60-day episode paymen t rate, the national pervisit rates, the NRS conversion factor, a nd an update to the LUPA add-on amount. Section 3131(d) of the Affordable Care Act al so requires us to report on whether a home health care access problem exists for patients with high severity of illness, low income patients, and/or patients in medically underserved areas and assess the costs asso ciated with providing access to care for these populations. It also gi ves us the authority to analyze other areas of

concern in the HH PPS and allows for demonstration authority to test the PPS changes. Finally, it requires us to recommend HH PPS improvement s, if needed, based on the study findings and/or necessary additional analysis, in a Repor t to Congress due in March 2014. Our contractor held a Technical Expert Panel (TEP) meeting an d a special Open Door Forum to gather input from the industry on the three vu lnerable populations. We are currently conducting surveys of HHAs and physicians on access to care, and perfor ming analyses of cost report and claims data to determine whether patient ch aracteristics/types may be unde r-reimbursed. We will continue

to collaborate with stakeholde rs, soliciting them for their thoughts, and provide updates on our

progress. We also propose to continue to use Outcome & Assessment Information Set (OASIS) data, claims data, and patient experience of car e data, as forms of quality data to meet the requirement that HHAs submit data appropriate for the measurement of HH care quality for annual payment update (APU) 2014 and each subseque nt year thereafter until further notice.CMS-1450-P 14

Additionally, we propose two claims-based m easures of HH patients who were recently hospitalized, as these patients are at an increased risk of additional acute care hospital use. We also propose to reduce the numbe r of HH quality measures currently reported to HHAs. Lastly, we propose to review each state’s allocation of costs for HHA surveys for compliance with OMB Circular A-87 principl es and the statutes in 2014 with th e goal of ensuring full compliance no later than July 2014. This propos ed rule would clarify that a state Medicaid program must provide that, in certifying HHAs, the state’s designated survey ag ency must carry out certain other responsibilities that alr eady 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 would assign 50 percent to Medicare and 50 percent to Medicaid. This is the standard method that

CMS and states use in the allocat ion of expenses related to surv eys of skilled nursing facility (SNF)/NF nursing homes. C. Summary of Costs and Benefits

Provision Description Total Costs Total Benefits Transfers

CY 2014 HH PPS Payment Rate Update N/A The benefits of this proposed rule include paying more accurately for the delivery of home health services The overall economic impact of this proposed rule is an estimated $290 million in decreased payments to HHAs.

Cost Allocation of HHA Survey Expenses. N/A The benefits of this rule include clarifying that state Medicaid programs must share in the cost of HHA surveys. For that portion of costs attributable to Medicare and Medicaid, we would assign 50 percent to Medicare and 50 percent to Medicaid. If implemented in the beginning of FY 2014 we project that aggregate Medicare and Medicaid home health survey costs in FY 2014 would be approximately $37.2 million. As these costs would be assigned 50 percent to Medicare and 50 percent to Medicaid for each state, the anticipated national stateCMS-1450-P 15

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. Some state Medicaid programs may currently pay for HHA surveys to some extent, but the amount is unknown. II. Background A. Statutory Background

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 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 4603(a) of the BBA mandated the development of a HH PP S for all Medicarecovered HH services provided under a plan of care (POC) that were paid on a reasonable cost basis by adding section 1895 of the Act, enti tled "Prospective Payment For Home HealthCMS-1450-P 16

Services." Section 1895(b)(1) of the Act requi res 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 includ es all costs for HH services that would have been covered and paid for on a reasonable cost ba sis had the HH PPS not been in effect and that such amounts be initially based on the most recen t audited cost report da ta available to the Secretary; and (2) the standard ized prospective payment amount be adjusted to account for the

effects of case-mix and wa ge 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 ad justed for case-mix and geographic differences in wage levels. Section 1895(b)(4 )(B) of the Act requ ires the establishmen t of an appropriate case-mix change adjustment factor for significa nt variation in costs among different units of

services. Similarly, section 1895(b)(4)(C) of the Act requ ires 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 a pplicable national average level. Under section 1895(b)(4)(C) of the Act, the wage-adjustment f actors used by the Secretary may be the factors used under section 1886(d)(3)(E) of the Act. Section 1895(b)(5) of the Ac t gives the Secretary the opt ion to make additions or adjustments to the payment amount otherwise paid in the case of outliers due to unusual variations in the type or am ount of medically necessary care . Section 3131(b)(2) of theCMS-1450-P 17

Affordable Care Act revised se ction 1895(b)(5) of the Act so th at total outlier payments in a given year would not exceed 2.5 percent of total pa yments projected or estimated. The provision also made permanent a 10 percent agency-level outlier payment cap. In accordance with the statute, as amended by the BBA, we published a final rule in the July 3, 2000 Federal Register (65 FR 41128) to implement the HH PPS legislation. The July 2000 final rule established requirements for th e new HH PPS for HH serv ices as required by section 4603 of the BBA, as subsequently amended by section 5101 of the Omnibus Consolidated and Emergency Supplemental Appr opriations 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 Budg et Refinement Act (BBRA) of 1999, (Pub. L. 106-113, enacted November 29, 1999). The require ments include the implementation of a HH PPS for HH services, consolidated billing requirements, and a numbe r of other related changes.

The HH PPS described in that rule replaced the retrospective reasonable cost-based system that was used by Medicare for the payment of HH servi ces 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 Reduc tion Act of 2005 (DRA) (Pub. L. 109-171, enacted February 8, 2006) added 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 market basket percentage increase is reduced 2 percentage points. In the CY 2007 HH PPS final rule (71 FR 65884,CMS-1450-P 18

65935), we implemented the pay-fo r-reporting requirement of the DRA, which was codified at §484.225(h) and (i). The pay-fo r-reporting requirement was implemented on January 1, 2007. The Affordable Care Act made additional changes to the HH PPS. One of the changes in section 3131(c) of the Affordable Care Act is th e amendment to section 42 1(a) of the Medicare Prescription Drug, Improvement, and Mode rnization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 8, 2003) as amended by s ection 5201(b) of the DRA. The amended section 421(a) of the MMA now requires, for HH se rvices furnished in a ru ral area (as defined in section 1886(d)(2)(D) of th e Act) for episodes and visits e nding on or after April 1, 2010, and before January 1, 2016, that the Secretary increas e, 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 nati onal, standardized 60-da y episode payment rate and other amounts applicable unde r 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 averag e cost of providing care per episode, and other relevant factors. In addition, section 3131(a) of the Affordable Care Act mandates that this rebasing must be phased-in over a 4-year period in equal increments, not to exceed 3.5 percent of the amount (or amounts) in any given year app licable 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 paymen t rate that is adjusted for the applicable case-mix and wage index. The national, standardized 60-day episod e rate includes the six HH disciplines (skilledCMS-1450-P 19

nursing, HH aide, physical therapy (PT), speech-la nguage pathology (SLP), occupational therapy (OT), and medical social services (MSS)). Payment for NRS is no longer part of the national, standardized 60-day episode rate and is computed by multiplying the relative weight for a particular NRS severity leve l by the NRS conversion factor (See section II.D.4.e. of this proposed rule). Payment for durable medical e quipment (DME) covered under the HH benefit is made outside the HH PPS payment system. To adjust for case-mix, the HH PPS uses a 153-category case-mix classification system to a ssign patients to a home health resource group (HHRG). The clinical severity level, functiona l severity level, and service utilization are computed from responses to selected data elem ents 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, Medi care 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 LUPA. Medicare also adjusts the national, standardized 60-day episode paymen t rate for certain intervening events that are subject to a partial episode payment adjustment (PEP adjustme nt). For certain cases that exceed a specific cost threshold, an outlier adjust ment 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 nationa l episode rates and the national per-visit rates under the Medicare prospective payment syst em for HHAs for CY 2008. The CY 2008 ruleCMS-1450-P 20

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. Su bsequently, 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 percen t of the total case-mix change as real, and therefore, decreased the 12.78 perc ent 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 we re not related to an underlying change in patient health status, we implemented a reductio n over 4 years in 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 an d 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 pe r-visit rates. In a ddition, 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 per cent of that overall observed case-mix percentage increase was due to real case-mix cha nge. 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 nominalCMS-1450-P 21

case-mix growth which was identified from 2000 to 2009, we finalized a 3.79 percent payment

reduction in CY 2012. In the CY 2013 HH PPS final rule (77 FR 67078), we implemented a 1.32 percent reduction to the payment rates for CY 2013 to account for nominal case-mix growth through 2010. When taking into account the total measur e of case-mix change (23.90 percent) and the 15.97 percent of total case-mix change estimate d as real from 2000 to 2010, we obtained a final nominal case-mix change measure of 20.08 perc ent 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, standard ized 60-day episode rates for nominal case-mix change would be 2.18 percent. We considered pr oposing a 2.18 percent re duction 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, st andardized 60-day episode rates in the CY 2012 HH PPS final rule (76 FR 68532).CMS-1450-P 22

III. Provisions of the Proposed Rule A. Proposed ICD-9-CM Grouper Refinements, Effective January 1, 2014 CMS clinical staff (along with clinical and c oding staff from Abt Associates (our support contractor) and 3M (our HH PPS grouper mainte nance contractor), recently 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 submi ssion 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 are pr oposing to remove from the HH PPS Grouper, effective January 1, 2014. The first category (Cat egory 1 in Table 2) includes codes that we propose to remove from the HH PPS grouper based upon clinical judgment that the ICD-9-CM code is “too acute”, meaning that this conditi on 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 antici pated 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 woul d have been a more accurate reflection of the patient’s condition in the home). The second category (Category 2 in Table 2) includes codes that we propose to remove from the HH PP S Grouper based upon clinical judgment that the condition would 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 comprises ICD-9-CM codes that we propose to remove from the HH PPS grouper, effective January 1, 2014, along with th e category classification.CMS-1450-P 23

TABLE 2: ICD-9-CM Codes Removed from the HH PPS Grouper as of January 1, 2014 ICD-9-CM Code ICD-9-CM Long Description Category 003.1 Salmonella septicemia 1 250.20 Diabetes with hyperosmolarity, type II or unspecified type, not stated as uncontrolled 1 250.21 Diabetes with hyperosmolarity, type I [juvenile type], not stated as uncontrolled 1 250.22 Diabetes with hyperosmolarity, type II or unspecified type, uncontrolled 1 250.23 Diabetes with hyperosmolarity, type I [juvenile type], uncontrolled 1 250.30 Diabetes with other coma, type II or unspecified type, not stated as uncontrolled 1 250.31 Diabetes with other coma, type I [juvenile type], not stated as uncontrolled 1 250.32 Diabetes with other coma, type II or unspecified type, uncontrolled 1 250.33 Diabetes with other coma, type I [juvenile type], uncontrolled 1 282.42 Sickle-cell thalassemia with crisis 1 282.5 Sickle-cell trait 2 282.62 Hb-SS disease with crisis 1 282.64 Sickle-cell/Hb-C disease with crisis 1 282.69 Other sickle-cell disease with crisis 1 285.1 Acute posthemorrhagic anemia 1 289.52 Splenic sequestration 1 333.81 Blepharospasm 2 333.84 Organic writers' cramp 2 333.93 Benign shuddering attacks 2 333.94 Restless legs syndrome 2 348.5 Cerebral edema 1 401.0 Malignant essential hypertension 1 414.12 Dissection of coronary artery 1 447.2 Rupture of artery 1 493.21 Chronic obstructive asthma with status asthmaticus 1 530.21 Ulcer of esophagus with bleeding 1 530.4 Perforation of esophagus 1 530.7 Gastroesophageal laceration-hemorrhage syndrome 1 530.81 Esophageal reflux 2 530.82 Esophageal hemorrhage 1 531.00 Acute gastric ulcer with hemorrhage, without mention of obstruction 1 531.01 Acute gastric ulcer with hemorrhage, with obstruction 1 531.10 Acute gastric ulcer with perforation, without mention of obstruction 1 531.11 Acute gastric ulcer with perforation, with obstruction 1CMS-1450-P 24

ICD-9-CM Code ICD-9-CM Long Description Category 531.20 Acute gastric ulcer with hemorrhage and perforation, without mention of obstruction 1 531.21 Acute gastric ulcer with hemorrhage and perforation, with obstruction 1 531.31 Acute gastric ulcer without mention of hemorrhage or perforation, with obstruction 1 531.40 Chronic or unspecified gastric ulcer with hemorrhage, without mention of obstruction 1 531.41 Chronic or unspecified gastri c ulcer with hemorrhage, with obstruction 1 531.50 Chronic or unspecified gastric ulcer with perforation, without mention of obstruction 1 531.51 Chronic or unspecified gastric ulcer with perforation, with obstruction 1 531.60 Chronic or unspecified gast ric ulcer with hemorrhage and perforation, without mention of obstruction 1 531.61 Chronic or unspecified gast ric ulcer with hemorrhage and perforation, with obstruction 1 531.71 Chronic gastric ulcer without mention of hemorrhage or perforation, with obstruction 1 531.91 Gastric ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction 1 532.00 Acute duodenal ulcer with hemorrhage, without mention of obstruction 1 532.01 Acute duodenal ulcer with hemorrhage, with obstruction 1 532.10 Acute duodenal ulcer with pe rforation, without mention of obstruction 1 532.11 Acute duodenal ulcer with pe rforation, with obstruction 1 532.20 Acute duodenal ulcer with hemorrhage and perforation, without mention of obstruction 1 532.21 Acute duodenal ulcer with hemorrhage and perforation, with obstruction 1 532.31 Acute duodenal ulcer without mention of hemorrhage or perforation, with obstruction 1 532.40 Chronic or unspecified duodenal ulcer with hemorrhage, without mention of obstruction 1 532.41 Chronic or unspecified duodenal ulcer with hemorrhage, with obstruction 1 532.50 Chronic or unspecified duodenal ulcer with perforation, without mention of obstruction 1 532.51 Chronic or unspecified duodenal ulcer with perforation, with obstruction 1 532.60 Chronic or unspecified duodenal ulcer with hemorrhage and perforation, without mention of obstruction 1CMS-1450-P 25

ICD-9-CM Code ICD-9-CM Long Description Category 532.61 Chronic or unspecified duodenal ulcer with hemorrhage and perforation, with obstruction 1 532.71 Chronic duodenal ulcer without mention of hemorrhage or perforation, with obstruction 1 532.91 Duodenal ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction 1 533.00 Acute peptic ulcer of unspecifi ed site with hemorrhage, without mention of obstruction 1 533.01 Acute peptic ulcer of unspecified site with hemorrhage, with obstruction 1 533.10 Acute peptic ulcer of unspecifi ed site with perforation, without mention of obstruction 1 533.11 Acute peptic ulcer of unspecifi ed site with perforation, with obstruction 1 533.20 Acute peptic ulcer of unspecified site with hemorrhage and perforation, without mention of obstruction 1 533.21 Acute peptic ulcer of unspecified site with hemorrhage and perforation, with obstruction 1 533.31 Acute peptic ulcer of unspecified site without mention of hemorrhage and perforation, with obstruction 1 533.40 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, without mention of obstruction 1 533.41 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, with obstruction 1 533.50 Chronic or unspecified peptic ulcer of unspecified site with perforation, without mention of obstruction 1 533.51 Chronic or unspecified peptic ulcer of unspecified site with perforation, with obstruction 1 533.60 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, without mention of obstruction 1 533.61 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, with obstruction 1 533.71 Chronic peptic ulcer of unsp ecified site without mention of hemorrhage or perforation, with obstruction 1 533.91 Peptic ulcer of unspecified site, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction 1 534.00 Acute gastrojejunal ulcer with hemorrhage, without mention of obstruction 1 534.01 Acute gastrojejunal ulcer, with hemorrhage, with obstruction 1 534.10 Acute gastrojejunal ulcer with perforation, without mention of obstruction 1CMS-1450-P 26

ICD-9-CM Code ICD-9-CM Long Description Category 534.11 Acute gastrojejunal ulcer with perforation, with obstruction 1 534.20 Acute gastrojejunal ulcer with hemorrhage and perforation, without mention of obstruction 1 534.21 Acute gastrojejunal ulcer with hemorrhage and perforation, with obstruction 1 534.31 Acute gastrojejunal ulcer wit hout mention of hemorrhage or perforation, with obstruction 1 534.40 Chronic or unspecified gastrojej unal ulcer with hemorrhage, without mention of obstruction 1 534.41 Chronic or unspecified gastroje junal ulcer, with hemorrhage, with obstruction 1 534.50 Chronic or unspecified gastrojejunal ulcer with perforation, without mention of obstruction 1 534.51 Chronic or unspecified gastrojejunal ulcer with perforation, with obstruction 1 534.60 Chronic or unspecified gastroje junal ulcer with hemorrhage and perforation, without mention of obstruction 1 534.61 Chronic or unspecified gastroje junal ulcer with hemorrhage and perforation, with obstruction 1 534.71 Chronic gastrojejunal ulcer w ithout mention of hemorrhage or perforation, with obstruction 1 534.91 Gastrojejunal ulcer, unspecified as acute or chronic, without mention of hemorrhage or perforation, with obstruction 1 535.01 Acute gastritis, with hemorrhage 1 535.11 Atrophic gastritis, with hemorrhage 1 535.21 Gastric mucosal hypertrophy, with hemorrhage 1 535.31 Alcoholic gastritis, with hemorrhage 1 535.41 Other specified gastritis, with hemorrhage 1 535.51 Unspecified gastritis and g astroduodenitis, with hemorrhage 1 535.61 Duodenitis, with hemorrhage 1 535.71 Eosinophilic gastritis, with hemorrhage 1 536.1 Acute dilatation of stomach 1 537.3 Other obstruction of duodenum 1 537.4 Fistula of stomach or duodenum 1 537.6 Hourglass stricture or stenosis of stomach 1 537.83 Angiodysplasia of stomach and duodenum with hemorrhage 1 537.84 Dielulafoy lesion (hemorrhagic) of stomach and duodenum 1 540.0 Acute appendicitis with generalized peritonitis 1 540.1 Acute appendicitis with peritoneal abscess 1 540.9 Acute appendicitis without mention of peritonitis 1 541 Appendicitis, unqualified 1CMS-1450-P 27

ICD-9-CM Code ICD-9-CM Long Description Category 542 Other appendicitis 1 543.0 Hyperplasia of appendix (lymphoid) 1 557.0 Acute vascular insufficiency of intestine 1 560.0 Intussusception 1 560.1 Paralytic ileus 1 560.2 Volvulus 1 560.81 Intestinal or peritoneal adhesi ons with obstruction (postoperative) (postinfection) 1 560.89 Other specified intestinal obstruction 1 560.9 Unspecified intestinal obstruction 1 562.02 Diverticulosis of small intestine with hemorrhage 1 562.03 Diverticulitis of small intestine with hemorrhage 1 562.12 Diverticulosis of colon with hemorrhage 1 562.13 Diverticulitis of colon with hemorrhage 1 567.0 Peritonitis in infectious diseases classified elsewhere 1 567.1 Pneumococcal peritonitis 1 567.21 Peritonitis (acute) generalized 1 567.22 Peritoneal abscess 1 567.23 Spontaneous bacterial peritonitis 1 567.29 Other suppurative peritonitis 1 567.31 Psoas muscle abscess 1 567.38 Other retroperitoneal abscess 1 567.81 Choleperitonitis 1 567.82 Sclerosing mesenteritis 1 567.89 Other specified peritonitis 1 567.9 Unspecified peritonitis 1 568.81 Hemoperitoneum (nontraumatic) 1 569.3 Hemorrhage of rectum and anus 1 569.43 Anal sphincter tear-old 2 569.83 Perforation of intestine 1 569.85 Angiodysplasia of intestine with hemorrhage 1 569.86 Dieulafoy lesion (hemorrhagic) of intestine 1 572.0 Abscess of liver 1 572.1 Portal pyemia 1 574.00 Calculus of gallbladder with acu te cholecystitis, without mention of obstruction 1 574.01 Calculus of gallbladder with acu te cholecystitis, with obstruction 1 574.10 Calculus of gallbladder with ot her cholecystitis, without mention of obstruction 1 574.11 Calculus of gallbladder with ot her cholecystitis, with obstruction 1 574.21 Calculus of gallbladder without mention of cholecystitis, with 1CMS-1450-P 28

ICD-9-CM Code ICD-9-CM Long Description Category

obstruction 574.30 Calculus of bile duct with acu te cholecystitis, without mention of obstruction 1

574.31 Calculus of bile duct with acu te cholecystitis, with obstruction 1 574.41 Calculus of bile duct with ot her cholecystitis, with obstruction 1 574.51 Calculus of bile duct withou t mention of cholecystitis, with obstruction 1 574.60 Calculus of gallbladder and b ile duct with acute cholecystitis, without mention of obstruction 1 574.61 Calculus of gallbladder and bile duct with acute cholecystitis, with obstruction 1 574.71 Calculus of gallbladder and bile duct with other cholecystitis, with obstruction 1 574.80 Calculus of gallbladder and b ile duct with acute and chronic cholecystitis, without mention of obstruction 1 574.81 Calculus of gallbladder and b ile duct with acute and chronic cholecystitis, with obstruction 1 574.91 Calculus of gallbladder and b ile duct without cholecystitis, with obstruction 1 575.0 Acute cholecystitis 1 575.2 Obstruction of gallbladder 1 575.3 Hydrops of gallbladder 1 575.4 Perforation of gallbladder 1 576.1 Cholangitis 1 576.2 Obstruction of bile duct 1 576.3 Perforation of bile duct 1 577.0 Acute pancreatitis 1 578.0 Hematemesis 1 578.9 Hemorrhage of gastrointestinal tract, unspecified 1 873.63 Broken tooth-uncomplic 2 998.11 Hemorrhage complicating a procedure 1 998.12 Hematoma complicating a procedure 1 998.2 Accidental puncture or lacerati on during a procedure, not elsewhere classified 1

Analysis of CY 2012 claims data shows that the average case-mix weight before the

removal of the codes in Table 2 was 1.3517. It is estimated that the proposed removal of the 170 codes in Table 2 results in an average case- mix weight for CY 2012 of 1.3417. As described above, clinical judgment is that these codes ar e “too acute,” meaning that this condition couldCMS-1450-P 29

not be appropriately cared for in a HH setting (C ategory 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 produci ng inaccurate overpayments.CMS-1450-P 30

B. International Classification of Diseases, 10th Revision, Clinical M odification (ICD-10-CM) Conversion and Diagnosis Repor ting on Home Health Claims 1. International Classification of Diseases, 10 th Revision, Clinical M odification (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 September 5, 2012 final rule, “Administrative Simplification: Adoption of a Standard for a Un ique Health Plan Iden tifier; Addition to the National Provider Identifier Requirements; a nd a Change to the Compliance Date for the International Classification of Diseases, 10th Edition (ICD–10–CM a nd ICD–10–PCS) Medical Data Code Sets” (77 FR 54664). Under that fina l 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, spent the last 2 years implementing a process for the transition from the use of ICD-9-CM diagnosis codes to ICD-10-CM di agnosis codes within the HH PPS Grouper. As we outlined in the section above, 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, 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 Ge neral Equivalency Mappings (GEMs) tool. That translation list, produced by the GEMs tool, was then review ed 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 begi n with S and T are used for reporting traumatic injuries,CMS-1450-P 31

such as fractures and burns. These codes have a 7 th character that indicates whether the treatment is for an initial encounter, subseque nt encounter or a seque la (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 7 th character

for an initial encounter. This extension is in tended to be used when the patient is receiving active treatment such as surgical treatment, an emergency depa rtment 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 exte nsions D, E, F, G, H, J, K, M, N, P, Q and R indicate the patient is being treated for a subs equent encounter (care fo r the injury during the healing or recovery phase) were included in the tr anslation 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 delete d and S72.024D, S72.024E, S72.024F, S72.024G, S72.024H, S72.024J, S 72.024K, 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 c linician should be able to identify a more specific diagnos is 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 b een deleted from the translation list whenever a more specific diagnosis could be identified by the clinician performing the in itial assessment. The example code above (L02.519) was deleted because the clin ician should be able to identify which hand had the abscess, and therefore, w ould report the injury using the c ode that specifies the right or

left hand.

● The diagnostic group (DG) assignment of ICD-10-CM codes in the translationCMS-1450-P 32

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 2 ICD-9-CM codes being translated to a single

ICD-10-CM code that covered both conditi ons), DG assignment wa s based on clinical appropriateness and comparisons of relative reso urce use data (when available), such that the code was assigned to single DG that include d other codes with similar resource use.

A draft list of ICD-10-CM codes to be included in the HH PPS Grouper has been developed based upon the process outlined above and 3M, our HH PPS Grouper maintenance contractor, has begun building and testing a Group er 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 draf t translation list is available on the CMS HHA

Center website at http://www.cms.gov/Center/Provi der-Type/Home-Health-Agency-HHACenter.html . We plan to participate in any ICD- 10-CM provider outreach sessions that are scheduled and to provide updates, such as not ifying HHAs of the draf t translation list’s availability during the HH, Hospice, and DM E Open Door Forums and through list-serve

announcements. We plan to post a draft IC D-10-CM HH PPS Grouper via the CMS website on or before July 1, 2014. We also plan to share the dr aft 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 website. The purpose of early release to the beta testers is to identify any significant issues early in the process. Providers who are in terested in enrolling as a beta site can obtain

more information on the HH PPS Grouper website at http://www.cms.gov/M edicare/MedicareFee-for-Service-Payment/HomeHealth PPS/CaseMixGrouperSoftware.htmlCMS-1450-P 33

2. Diagnosis Reporting on Home Health Claims Adherence to coding guidelines when a ssigning diagnosis codes is required under HIPAA. 3M conducted analysis of OASIS r ecords and claims from CY 2011 and found that some HHAs were not complying with coding gui delines. 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 additi onal code” note at the etiology code, and a “code first” note at the manifestation co de. These instructional notes indicate the proper sequencing orde r of the codes, etiology followed by manifestation. In most cases, the title of these manifestation codes will in clude “in diseases classi fied elsewhere” or “in

conditions classified elsewhere.” Codes with these phrases in th e 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 di agnosis 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 would still be present, and the rules for coding sequenci ng 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 classi fication 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 unde r this category are “most commonly a secondary manifestation of an underlying causal condition.” To ensure additional compliance with ICD-10-CM Coding Guidelines, we will be adopting additionalCMS-1450-P 34

claims processing edits for all HH claims ef fective 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 announ ced 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 th e conditions included in the HH PPS Grouper as a primary or secondary dia gnosis. There will no longer be a need for any conditions to be reported in the payment di agnosis field because all of the ICD-10-CM codes

included in our HH PPS Gr ouper will be appropriate for repo rting as a primary or secondary condition. As such, we are reti ring Appendix D of OASIS (also re ferred to as Attachment D), effective October 1, 2014. All necessary guidance for providers is provided in the ICD-10-CM Coding Guidelines.CMS-1450-P 35

C. Proposed Adjustment to the HH PPS Case-Mix Weights In the November 4, 2011 CY 2012 HH PPS final rule (76 FR 68543), we recalibrated the HH PPS case-mix weights to address incentive s that existed in the HH PPS to provide unnecessary therapy services. In that final ru le, we described that our review of HH PPS

utilization data showed an incr ease in the share of episodes with very high numbers of therapy

visits. This shift was first observed in 2008 and it continued in 2009. As described in the CY 2012 HH PPS final rule, we observed an increase of 25 percent in the share of episodes with 14 or more therapy visits from 2007 to 2008. In the 2009 sample, the share with 14 or more therapy

visits continued to increase while the share of episodes with no therapy visits continued to decrease. The frequencies also indicated that the share of episodes with 20 or more therapy visits was 6 percent in 2009. This was a 50 perc ent increase from the sh are of episodes in 2007, when episodes with at least 20 therapy visits accounted for only 4 percent of episodes (76 FR 41003). Furthermore, in the CY 2012 HH PPS final rule, we described th at in their 2010 and 2011 Reports to Congress, the Medicare Paymen t Advisory Commission (MedPAC) suggested

that the HH PPS contains incentives which likely result in agenci es providing more therapy than is needed. Moreover, in its 2011 Report to C ongress, MedPAC suggested that the HH PPS may “overvalue therapy services and undervalue nontherapy services.” Our analysis of cost report data showed that in 2009, the average amount that payment exceeded cost for a normal (nonLUPA, non-PEP, non-outlier) episod e with 14-19 therapy visits was more than $1,100 and the average amount that payment exceeded costs for a normal episode with 20 or more therapy visits was more than $1,500. In contrast, we noted th at the average amount that payment exceeded costs for a normal episode with 1 to 5 thera py visits was around $300 (76 FR 68556). Therefore, we lowered the case-mix weights for high ther apy episodes and increased the weights forCMS-1450-P 36

episodes with little or no therapy. We then increased the average cas e-mix weights to 1.3440 to achieve budget neutrality to the most current, complete data available at the time, which was

2009. We stated that we believe d the revision to the payment weights would result in more accurate HH PPS payments for targeted case-mix groups while addressing MedPAC’s concerns that our reimbursement for therapy episode s was too high and our reimbursement for nontherapy episodes was too low. Also, we stated that we believed our revision of the payment weights will discourage the provision of unnecessary therapy services and will slow the growth of nominal case-mix (76 FR 68545). As described in section III.D. of this proposed rule, we are proposing to rebase the national, standardized 60-day episode payment rate . One view of the goal for rebasing is to reset the payments under the HH PPS. When the HH PPS was created, we expect ed that the average case-mix weight would be around 1.00, but analysis has shown that it ha s consistently been

above 1.00 since the start of the HH PPS. Ther efore, as part of rebasing, for CY 2014, we propose to reset the average case-mix weight to 1.00. Specifically, we propose to use the 2012 revised case-mix weights, but lower them to an average case-mix weight of 1.00. We plan to implement the weight reduction by applying the sa me reduction factor to each weight, thereby maintaining the relative values in the weight set. Preliminar y CY 2012 claims data shows that the average case-mix weight for non-LUPA episodes in 2012 is 1.3517. For CY 2014, we propose to reduce the average case-mix wei ght for 2012 from 1.3517 to 1.0000. We obtain the CY 2014 proposed weights shown in Table 3 by dividing the CY 2013 wei ghts (which are the same weights as those finalized in CY 2012 rulemaking) by 1.3517. To offset the effect of resetting the case-mix weights such that the aver age is 1.00, we inflate the national, standardized 60-day episode payment rate by the same factor (1.3517) used to decrease the weights. TheCMS-1450-P 37

result will be the starting point from which re basing adjustments are implemented. We note that the average case-mix weight for 2012 of 1.3517 is based on non-LUPA episodes starting from January 1, 2012 to May 31, 2012. As more 2012 data become available, we plan to update the estimated average case-mix weight for CY 2012 and adjust the case-mix weights and budget neutrality factor acco rdingly. Therefore, the weight re duction factor in the CY 2014 HH PPS final rule may be different from the one used to produce the proposed weights in this proposed rule. Please see the proposed weights in the Table 3. TABLE 3: Proposed CY 2014 Case-Mix Weights

Payment

group Description Clinical, functional, and service levels 2013 HH PPS Case-mix weights 2014 ProposedHH PPS Casemix Weights

10111 1st and 2nd Episodes, 0 to 5 Therapy Visits C1F1S1 0.8186 0.6056 10112 1st and 2nd Episodes, 6 Therapy Visits C1F1S2 0.9793 0.7245 10113 1st and 2nd Episodes, 7 to 9 Therapy Visits C1F1S3 1.1401 0.8435 10114 1st and 2nd Episodes, 10 Therapy Visits C1F1S4 1.3008 0.9623 10115 1st and 2nd Episodes, 11 to 13 Therapy Visits C1F1S5 1.4616 1.0813 10121 1st and 2nd Episodes, 0 to 5 Therapy Visits C1F2S1 1.0275 0.7602 10122 1st and 2nd Episodes, 6 Therapy Visits C1F2S2 1.1657 0.8624 10123 1st and 2nd Episodes, 7 to 9 Therapy Visits C1F2S3 1.3039 0.9646 10124 1st and 2nd Episodes, 10 Therapy Visits C1F2S4 1.4421 1.0669 10125 1st and 2nd Episodes, 11 to 13 Therapy Visits C1F2S5 1.5804 1.1692 10131 1st and 2nd Episodes, 0 to 5 Therapy Visits C1F3S1 1.1233 0.8310 10132 1st and 2nd Episodes, 6 Therapy Visits C1F3S2 1.2520 0.9262 10133 1st and 2nd Episodes, 7 to 9 Therapy Visits C1F3S3 1.3807 1.0215 10134 1st and 2nd Episodes, 10 Therapy Visits C1F3S4 1.5094 1.1167 10135 1st and 2nd Episodes, 11 to 13 Therapy Visits C1F3S5 1.6381 1.2119 10211 1st and 2nd Episodes, 0 to 5 Therapy Visits C2F1S1 0.8340 0.6170 10212 1st and 2nd Episodes, 6 Therapy Visits C2F1S2 1.0302 0.7622 10213 1st and 2nd Episodes, 7 to 9 Therapy Visits C2F1S3 1.2265 0.9074 10214 1st and 2nd Episodes, 10 Therapy Visits C2F1S4 1.4228 1.0526 10215 1st and 2nd Episodes, 11 to 13 Therapy Visits C2F1S5 1.6190 1.1978 10221 1st and 2nd Episodes, 0 to 5 Therapy Visits C2F2S1 1.0429 0.7715 10222 1st and 2nd Episodes, 6 Therapy Visits C2F2S2 1.2166 0.9001 10223 1st and 2nd Episodes, 7 to 9 Therapy Visits C2F2S3 1.3903 1.0286CMS-1450-P 38

Payment

group Description Clinical, functional, and service levels 2013 HH PPS Case-mix weights 2014 ProposedHH PPS Casemix Weights

10224 1st and 2nd Episodes, 10 Therapy Visits C2F2S4 1.5641 1.1571 10225 1st and 2nd Episodes, 11 to 13 Therapy Visits C2F2S5 1.7378 1.2856 10231 1st and 2nd Episodes, 0 to 5 Therapy Visits C2F3S1 1.1387 0.8424 10232 1st and 2nd Episodes, 6 Therapy Visits C2F3S2 1.3029 0.9639 10233 1st and 2nd Episodes, 7 to 9 Therapy Visits C2F3S3 1.4671 1.0854 10234 1st and 2nd Episodes, 10 Therapy Visits C2F3S4 1.6313 1.2069 10235 1st and 2nd Episodes, 11 to 13 Therapy Visits C2F3S5 1.7956 1.3284 10311 1st and 2nd Episodes, 0 to 5 Therapy Visits C3F1S1 0.9071 0.6711 10312 1st and 2nd Episodes, 6 Therapy Visits C3F1S2 1.1348 0.8395 10313 1st and 2nd Episodes, 7 to 9 Therapy Visits C3F1S3 1.3624 1.0079 10314 1st and 2nd Episodes, 10 Therapy Visits C3F1S4 1.5900 1.1763 10315 1st and 2nd Episodes, 11 to 13 Therapy Visits C3F1S5 1.8177 1.3448 10321 1st and 2nd Episodes, 0 to 5 Therapy Visits C3F2S1 1.1160 0.8256 10322 1st and 2nd Episodes, 6 Therapy Visits C3F2S2 1.3211 0.9774 10323 1st and 2nd Episodes, 7 to 9 Therapy Visits C3F2S3 1.5262 1.1291 10324 1st and 2nd Episodes, 10 Therapy Visits C3F2S4 1.7313 1.2808 10325 1st and 2nd Episodes, 11 to 13 Therapy Visits C3F2S5 1.9364 1.4326 10331 1st and 2nd Episodes, 0 to 5 Therapy Visits C3F3S1 1.2118 0.8965 10332 1st and 2nd Episodes, 6 Therapy Visits C3F3S2 1.4074 1.0412 10333 1st and 2nd Episodes, 7 to 9 Therapy Visits C3F3S3 1.6030 1.1859 10334 1st and 2nd Episodes, 10 Therapy Visits C3F3S4 1.7986 1.3306 10335 1st and 2nd Episodes, 11 to 13 Therapy Visits C3F3S5 1.9942 1.4753 21111 1st and 2nd Episodes, 14 to 15 Therapy Visits C1F1S1 1.6223 1.2002 21112 1st and 2nd Episodes, 16 to 17 Therapy Visits C1F1S2 1.8331 1.3561 21113 1st and 2nd Episodes, 18 to 19 Therapy Visits C1F1S3 2.0438 1.5120 21121 1st and 2nd Episodes, 14 to 15 Therapy Visits C1F2S1 1.7186 1.2714 21122 1st and 2nd Episodes, 16 to 17 Therapy Visits C1F2S2 1.9496 1.4423 21123 1st and 2nd Episodes, 18 to 19 Therapy Visits C1F2S3 2.1807 1.6133 21131 1st and 2nd Episodes, 14 to 15 Therapy Visits C1F3S1 1.7668 1.3071 21132 1st and 2nd Episodes, 16 to 17 Therapy Visits C1F3S2 2.0252 1.4983 21133 1st and 2nd Episodes, 18 to 19 Therapy Visits C1F3S3 2.2836 1.6894 21211 1st and 2nd Episodes, 14 to 15 Therapy Visits C2F1S1 1.8153 1.3430 21212 1st and 2nd Episodes, 16 to 17 Therapy Visits C2F1S2 2.0224 1.4962 21213 1st and 2nd Episodes, 18 to 19 Therapy Visits C2F1S3 2.2294 1.6493 21221 1st and 2nd Episodes, 14 to 15 Therapy Visits C2F2S1 1.9116 1.4142 21222 1st and 2nd Episodes, 16 to 17 Therapy Visits C2F2S2 2.1389 1.5824 21223 1st and 2nd Episodes, 18 to 19 Therapy Visits C2F2S3 2.3663 1.7506 21231 1st and 2nd Episodes, 14 to 15 Therapy Visits C2F3S1 1.9598 1.4499CMS-1450-P 39

Payment

group Description Clinical, functional, and service levels 2013 HH PPS Case-mix weights 2014 ProposedHH PPS Casemix Weights

21232 1st and 2nd Episodes, 16 to 17 Therapy Visits C2F3S2 2.2145 1.6383 21233 1st and 2nd Episodes, 18 to 19 Therapy Visits C2F3S3 2.4691 1.8267 21311 1st and 2nd Episodes, 14 to 15 Therapy Visits C3F1S1 2.0453 1.5131 21312 1st and 2nd Episodes, 16 to 17 Therapy Visits C3F1S2 2.2682 1.6780 21313 1st and 2nd Episodes, 18 to 19 Therapy Visits C3F1S3 2.4911 1.8429 21321 1st and 2nd Episodes, 14 to 15 Therapy Visits C3F2S1 2.1415 1.5843 21322 1st and 2nd Episodes, 16 to 17 Therapy Visits C3F2S2 2.3848 1.7643 21323 1st and 2nd Episodes, 18 to 19 Therapy Visits C3F2S3 2.6280 1.9442 21331 1st and 2nd Episodes, 14 to 15 Therapy Visits C3F3S1 2.1897 1.6200 21332 1st and 2nd Episodes, 16 to 17 Therapy Visits C3F3S2 2.4603 1.8202 21333 1st and 2nd Episodes, 18 to 19 Therapy Visits C3F3S3 2.7309 2.0203 22111 3rd+ Episodes, 14 to 15 Therapy Visits C1F1S1 1.6822 1.2445 22112 3rd+ Episodes, 16 to 17 Therapy Visits C1F1S2 1.8730 1.3857 22113 3rd+ Episodes, 18 to 19 Therapy Visits C1F1S3 2.0638 1.5268 22121 3rd+ Episodes, 14 to 15 Therapy Visits C1F2S1 1.7628 1.3041 22122 3rd+ Episodes, 16 to 17 Therapy Visits C1F2S2 1.9791 1.4642 22123 3rd+ Episodes, 18 to 19 Therapy Visits C1F2S3 2.1954 1.6242 22131 3rd+ Episodes, 14 to 15 Therapy Visits C1F3S1 1.9247 1.4239 22132 3rd+ Episodes, 16 to 17 Therapy Visits C1F3S2 2.1305 1.5762 22133 3rd+ Episodes, 18 to 19 Therapy Visits C1F3S3 2.3362 1.7283 22211 3rd+ Episodes, 14 to 15 Therapy Visits C2F1S1 1.8508 1.3692 22212 3rd+ Episodes, 16 to 17 Therapy Visits C2F1S2 2.0460 1.5136 22213 3rd+ Episodes, 18 to 19 Therapy Visits C2F1S3 2.2412 1.6581 22221 3rd+ Episodes, 14 to 15 Therapy Visits C2F2S1 1.9314 1.4289 22222 3rd+ Episodes, 16 to 17 Therapy Visits C2F2S2 2.1521 1.5921 22223 3rd+ Episodes, 18 to 19 Therapy Visits C2F2S3 2.3729 1.7555 22231 3rd+ Episodes, 14 to 15 Therapy Visits C2F3S1 2.0933 1.5486 22232 3rd+ Episodes, 16 to 17 Therapy Visits C2F3S2 2.3035 1.7042 22233 3rd+ Episodes, 18 to 19 Therapy Visits C2F3S3 2.5136 1.8596 22311 3rd+ Episodes, 14 to 15 Therapy Visits C3F1S1 2.0747 1.5349 22312 3rd+ Episodes, 16 to 17 Therapy Visits C3F1S2 2.2878 1.6925 22313 3rd+ Episodes, 18 to 19 Therapy Visits C3F1S3 2.5009 1.8502 22321 3rd+ Episodes, 14 to 15 Therapy Visits C3F2S1 2.1553 1.5945 22322 3rd+ Episodes, 16 to 17 Therapy Visits C3F2S2 2.3940 1.7711 22323 3rd+ Episodes, 18 to 19 Therapy Visits C3F2S3 2.6326 1.9476 22331 3rd+ Episodes, 14 to 15 Therapy Visits C3F3S1 2.3172 1.7143 22332 3rd+ Episodes, 16 to 17 Therapy Visits C3F3S2 2.5453 1.8830 22333 3rd+ Episodes, 18 to 19 Therapy Visits C3F3S3 2.7734 2.0518CMS-1450-P 40

Payment

group Description Clinical, functional, and service levels 2013 HH PPS Case-mix weights 2014 ProposedHH PPS Casemix Weights

30111 3rd+ Episodes, 0 to 5 Therapy Visits C1F1S1 0.6692 0.4951 30112 3rd+ Episodes, 6 Therapy Visits C1F1S2 0.8718 0.6450 30113 3rd+ Episodes, 7 to 9 Therapy Visits C1F1S3 1.0744 0.7949 30114 3rd+ Episodes, 10 Therapy Visits C1F1S4 1.2770 0.9447 30115 3rd+ Episodes, 11 to 13 Therapy Visits C1F1S5 1.4796 1.0946 30121 3rd+ Episodes, 0 to 5 Therapy Visits C1F2S1 0.8421 0.6230 30122 3rd+ Episodes, 6 Therapy Visits C1F2S2 1.0263 0.7593 30123 3rd+ Episodes, 7 to 9 Therapy Visits C1F2S3 1.2104 0.8955 30124 3rd+ Episodes, 10 Therapy Visits C1F2S4 1.3945 1.0317 30125 3rd+ Episodes, 11 to 13 Therapy Visits C1F2S5 1.5787 1.1679 30131 3rd+ Episodes, 0 to 5 Therapy Visits C1F3S1 0.9352 0.6919 30132 3rd+ Episodes, 6 Therapy Visits C1F3S2 1.1331 0.8383 30133 3rd+ Episodes, 7 to 9 Therapy Visits C1F3S3 1.3310 0.9847 30134 3rd+ Episodes, 10 Therapy Visits C1F3S4 1.5289 1.1311 30135 3rd+ Episodes, 11 to 13 Therapy Visits C1F3S5 1.7268 1.2775 30211 3rd+ Episodes, 0 to 5 Therapy Visits C2F1S1 0.7361 0.5446 30212 3rd+ Episodes, 6 Therapy Visits C2F1S2 0.9591 0.7096 30213 3rd+ Episodes, 7 to 9 Therapy Visits C2F1S3 1.1820 0.8745 30214 3rd+ Episodes, 10 Therapy Visits C2F1S4 1.4049 1.0394 30215 3rd+ Episodes, 11 to 13 Therapy Visits C2F1S5 1.6278 1.2043 30221 3rd+ Episodes, 0 to 5 Therapy Visits C2F2S1 0.9091 0.6726 30222 3rd+ Episodes, 6 Therapy Visits C2F2S2 1.1136 0.8239 30223 3rd+ Episodes, 7 to 9 Therapy Visits C2F2S3 1.3180 0.9751 30224 3rd+ Episodes, 10 Therapy Visits C2F2S4 1.5225 1.1264 30225 3rd+ Episodes, 11 to 13 Therapy Visits C2F2S5 1.7269 1.2776 30231 3rd+ Episodes, 0 to 5 Therapy Visits C2F3S1 1.0022 0.7414 30232 3rd+ Episodes, 6 Therapy Visits C2F3S2 1.2204 0.9029 30233 3rd+ Episodes, 7 to 9 Therapy Visits C2F3S3 1.4386 1.0643 30234 3rd+ Episodes, 10 Therapy Visits C2F3S4 1.6568 1.2257 30235 3rd+ Episodes, 11 to 13 Therapy Visits C2F3S5 1.8751 1.3872 30311 3rd+ Episodes, 0 to 5 Therapy Visits C3F1S1 0.9324 0.6898 30312 3rd+ Episodes, 6 Therapy Visits C3F1S2 1.1609 0.8588 30313 3rd+ Episodes, 7 to 9 Therapy Visits C3F1S3 1.3893 1.0278 30314 3rd+ Episodes, 10 Therapy Visits C3F1S4 1.6178 1.1969 30315 3rd+ Episodes, 11 to 13 Therapy Visits C3F1S5 1.8463 1.3659 30321 3rd+ Episodes, 0 to 5 Therapy Visits C3F2S1 1.1054 0.8178 30322 3rd+ Episodes, 6 Therapy Visits C3F2S2 1.3154 0.9731 30323 3rd+ Episodes, 7 to 9 Therapy Visits C3F2S3 1.5254 1.1285CMS-1450-P 41

Payment

group Description Clinical, functional, and service levels 2013 HH PPS Case-mix weights 2014 ProposedHH PPS Casemix Weights

30324 3rd+ Episodes, 10 Therapy Visits C3F2S4 1.7353 1.2838 30325 3rd+ Episodes, 11 to 13 Therapy Visits C3F2S5 1.9453 1.4392 30331 3rd+ Episodes, 0 to 5 Therapy Visits C3F3S1 1.1985 0.8867 30332 3rd+ Episodes, 6 Therapy Visits C3F3S2 1.4222 1.0522 30333 3rd+ Episodes, 7 to 9 Therapy Visits C3F3S3 1.6460 1.2177 30334 3rd+ Episodes, 10 Therapy Visits C3F3S4 1.8697 1.3832 30335 3rd+ Episodes, 11 to 13 Therapy Visits C3F3S5 2.0935 1.5488 40111 All Episodes, 20+ Therapy Visits C1F1S1 2.2546 1.6680 40121 All Episodes, 20+ Therapy Visits C1F2S1 2.4117 1.7842 40131 All Episodes, 20+ Therapy Visits C1F3S1 2.5419 1.8805 40211 All Episodes, 20+ Therapy Visits C2F1S1 2.4364 1.8025 40221 All Episodes, 20+ Therapy Visits C2F2S1 2.5936 1.9188 40231 All Episodes, 20+ Therapy Visits C2F3S1 2.7238 2.0151 40311 All Episodes, 20+ Therapy Visits C3F1S1 2.7140 2.0078 40321 All Episodes, 20+ Therapy Visits C3F2S1 2.8712 2.1241 40331 All Episodes, 20+ Therapy Visits C3F3S1 3.0014 2.2205

We also note that we plan to continue to evaluate and potentially revise the case-mix weights relative to one another as more recent utilization and cost re port data become available. Fully addressing MedPAC’s concerns with the way the HH PPS factors therapy visits into the case-mix system is a complex process which will require more comprehensive analysis and potentially additional structural changes to th e HH PPS. While we plan to address MedPAC’s concerns in a more comprehensive way in future years, we propose that for the short term, we use the CY 2012 case-mix weights reset to an averag e case-mix of 1.0. We plan to continue to monitor case-mix growth (both real and nominal case-mix growth), and address it accordingly in

the future.CMS-1450-P 42

D. Rebasing the National, Standardized 60-day Episode Payment Rate, LUPA Per-Visit Payment Amounts, and Nonroutine Medica l Supply (NRS) Conversion Factor 1. Rebasing the National, Standardized 60-day Episode Payment Rate Section 3131(a) of the Affordable Care Act mandates that starting in CY 2014, the Secretary must apply an adjustment to the nati onal, standardized 60-da y episode payment rate and other amounts applicable unde r 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 averag e cost of providing care per episode, and other relevant factors. In addition, section 3131(a) of the Affordable Care Act mandates that this rebasing must be phased-in over a 4-year period in equal increments, not to exceed 3.5 percent of the amount (or amounts) in any given year app licable under section 1895(b )(3)(A)(i)(III) of the Act, and be fully implemented by CY 2017. To fulfill this mandate, we have performed extensive analysis of cost repor t and claims data. We used FY 2011 cost report data as of December 31, 2012; which was the latest, complete co st report data available at the time of the analysis. a. Trimming Methodology When examining data from all 10,327 Medi care cost reports from FY 2011, we found that a number of the cost reports had missing or questionable data and extreme values. These cost reports were often missing necessary info rmation for calculating episode costs, reported significantly different data than data from prior cost reports fo r the same provider, or were markedly different than cost reports from the majority of HHAs during the same time period. Since these extreme values can significantly affect average estimated costs and are more indicative of misreporting rather than actual costs, we develo ped a trimming methodology toCMS-1450-P 43

obtain a more robust estimate of costs. The trimming methodology applied to the cost re ports consisted of a two-tier process. First, providers’ cost reports were compared longitudinally to identify large year-to-year discrepancies. Second, cost reports were compar ed cross-sectionally to cost reports from the same fiscal year. It should be noted th at the trimming methodology wa s developed using FY 2000 through FY 2010 cost reports and then applied to the FY 2011 cost reports. The first step in the trimming methodology excluded all cost re ports with missing provider numbers. In FY 2011, zero providers were excluded by this exclusi on criterion. Next, cost reports that did not report the number of episodes were excluded fr om the FY 2011 sample. This restriction eliminated 2,348 of the FY 2011 cost reports. Of these 2,348 cost reports, 1,629 were also missing data on total costs or payments. The next step in the tr imming methodology excluded cost reports that were significan tly different from prior cost re ports from the same provider. Specifically, we sorted the FY 2000 to FY 2011 cost reports by fiscal year for each provider and excluded a cost report if the num ber of episodes reported increased from the provider’s previous cost report to the current cost report by: (1) more than a fact or of ten and the new report of episodes is greater than 1,000; or (2) more than a factor of five and the new report of episodes is greater than or equal to 5,000. After dropping cost reports whic h met these exclusion criteria, the process was repeated for two additional itera tions. This exclusion criterion resulted in the exclusion of 171 cost reports from the FY 2011 sa mple. The goal of this longitudinal exclusion criterion was to systematically elim inate misreporting of episodes. Initially, we did not apply longitudinal trims; however, when looking at the cost reports from FY 2000 through FY 2011, we identified larg e drops in the average number of visits per episode across the years, which then resulted in a lower average cost per episode. FurtherCMS-1450-P 44

examination of the cause of the drops in average visits per episode led to the identification of a number of providers who seemingly misreported the number of episodes on the cost report. The

data showed that the number of episodes on the cost reports of ten outnumbered the number of episodes from the claims by factors of 10 or 20. Therefore, we develope d the longitudinal trim to increase the accuracy of the data from the cost reports. After the long itudinal restriction was applied, there were 7,808 cost report s in the FY 2011 cost report sample. After the longitudinal trims, we applied cross sectional trims to the sample, consisting of basic exclusions, some of which are similar to Me dPAC’s exclusion criteria . Specifically, cost reports were excluded if they me t any of the following criteria:

● Cost report was not settled or tentatively settled (for freestanding facilities only).

● Time covered by the cost report was less than 10 months or greater than 14 months.

● The cost report was missing total payment or total cost information.

● Costs per episode were in the highest a nd lowest 1 percent across providers in the given year.

● The cost report had a negative value for the number of visits per episode for any discipline, as reported direct ly in the visit information. 1

● The cost report showed an unreasonably high visit count (greater than 500,000,000) in any discipline. (Note : There were no cost reports with unreasonable high visit counts in FY 2011.)

● The cost report had negative average costs per visit in any discipline, derived from reported costs and visits on the cost report.

● The cost report had negative total costs.

1 Visit information was taken from worksheet S3, column 5, rows 1-6 for freestanding providers and worksheet H6, column 4, rows 1-6 for hospital-based providers.CMS-1450-P 45

● The provider reported fewer than 10 Medicare non-LUPA epis odes on the FY cost report.

● The cost report was missing discipline-sp ecific cost informa tion where there was

information on visits or vice versa. In Table 4, we list information on the number of cost reports trimme d for each criterion. After applying the cross sectiona l trims, 6,252 cost reports were left in the 2011 sample. These cost reports were then used to estimate the averag e cost per visit and average cost per episode for 2011. We note that using the trimmed sample resu lts in an estimated average cost per episode that was $1,000 more than the es timated cost per episode using the untrimmed, complete cost report sample.

TABLE 4: Counts for Exclusion Criteria Us ed to Develop the Trimmed Cost Report Sample Restrictions in Cost Report Sample # of cost reports Untrimmed sample size 10,327 Longitudinal restrictions Missing Provider Number 0 Missing Episode Count 2348 Significant Episode Change from year to year 92 2nd iteration 54 3rd iteration 25 Sample Size after Longitudinal Restrictions 7808 Cross Sectional Restrictions Not Settled (freestanding only) 874 <10 or >14 months in report 210 Missing Payments or Costs 11 Top and Bottom 1% of costs/episode 163 Greater than 500,000,000 visits 0 Negative costs per visit 5 Negative visits per episode 0 Negative total costs 0 Less than ten episodes 60 Missing visits when costs are reported or vice versa 375 Number of Cost Reports excluded by Cross 1,556CMS-1450-P 46

Restrictions in Cost Report Sample # of cost reports Sectional Restrictions Trimmed Cost Report sample 6,252 Note(s): The cross sectional restrictions are implemented simultaneously so cost reports may be counted in a number of the cross sectional restrictions (the numbers describing the cost reports for each of the cross sectional restrictions are not mutually exclusive). There were 1,55 6 cost reports excluded from the sample as a result of the cross sectional restrictions. b. Cost Report Audits To verify the integrity of the cost report data and to assess the validity of the trimming methodology, one of our Medicare Administra tive Contractors (MAC) was tasked with performing audits of 100 HH cost reports. Th e cost reports were selected from a trimmed sample of FY 2010 cost reports, which was the late st data available at the time, and the audit sample was stratified across provider characterist ics (such as agency size and ownership status) to ensure representation across provider types. Cost reports with 95 or fewer episodes were excluded from the audit sample so that we c ould focus the audits on providers that have a significant weight in the sample and that may have a substantia l influence on the average costs per visit and the cost per episode estimates. In addition, we note that the audit sample was selected from a trimmed sample that had additiona lly been cross-referenced with claims data for

accuracy. The MAC conducted 98 audits. Two providers did not provide the information needed to complete the audit. The audit results showed that the majority of providers in the audit sample overstated their costs on the cost report by an average of about 8 percent. Commonly, providers reported non-allowable costs or lacked sufficient documentation to justify the allowable costs, which led to a decrease in the costs per visit. There were a small number of cases where the costs per visit either increased or were unchanged as a result of the audit. Of the 98 providers audited, eight providers were refe rred to the Zone Program Integrity Contractors for further fraud investigation as a result of th e findings in their audits.CMS-1450-P 47

After obtaining the audit results, we applied weights to the data in the audit sample so that it would be representative of the trimmed sample and we could compare the costs per visit per discipline in the trimmed sample to the pr e-audit sample and the post audit sample. The trimmed sample resulted in a slightly higher aver age cost per episode when compared to data in the pre-audit sample. 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 proposed rule likely over-estimates the average cost per visit and average cost per episode for providers. c. Weighting the 2011 Trimmed Medicare Cost Report Sample and Computation of the 2011 Estimated Cost per Episode 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. We calculated and applied weights based on three characteristics: provider type, provider size, and the providers’ urban/rural status . We determined provider size by examining the number of episodes by provider on the 2011 claim. We determined provider type and urban/rural status by matching the tr immed cost report sample to the Provider of

Services file. The Provider of Service file is data collected through the survey and certification process conducted for any institut ional provider seeking inclusion in the Medicare and MedicaidCMS-1450-P 48

programs. It contains information such as pr ovider name, address, staffing, number of beds, ownership, and is used internally and by researchers to obtain cer tification information about the provider. To weight the costs per visit per discipline in our sample to be na tionally representative, we compared the number of vis its in our sample in each pr ovider type-size-urban/rural combination to the number of visits in the prov ider type-size-ur ban/rural combination as taken from the national 2011 claims. The visits for a part icular provider were we ighted by the ratio of the number of visits in the type-size-urban/ru ral combination in the national claims over the number of visits in the type-s ize-urban/rural combination in our sample. That is, the total number of visits in the sample we re weighted such that the total weights (weighted visits) in each of the type-size-urban/rural comb ination equaled the number of vis its in the type-size-urban/rural combination as recorded on the claims, and the sum of weighted visits across all type-sizeurban/rural combinations equals the total number of visits recorded on the claims. After reweighting the visits, the average costs pe r visit for each discip line for a provider was recalculated. We note that the weight each provide r contributes to the average costs per visit is equal to the number of visits th e provider reported on the cost re port times the total number of visits for the provider’s type-siz e-urban/rural combination in the national claims divided by the number of visits in the provide r’s type-size-urban/rural combinat ion in our sample. As such, providers with a higher number of visits still r eceive more weight in calculating the mean, aside from the type-size-urban/rural representativeness adjustment. The estimated costs per visit per episode before and after weigh ting are shown in Table 5. The weighting results in higher average costs per visit for all disciplines as compar ed to the un-weighted av erage costs per visit. The CMS Home Health Agency (HHA) Center website ( http://www.cms.gov/Center/Provider-CMS-1450-P 49

Type/Home-Health-Agency-HHA-Center .html?redirect=/center/hha.asp) provides a file with the resulting weights, the provide r number, provider type, provider size, and urban/rural status and average costs per visit by discipline that can be used to produce the weighted average costs per visit for all disciplines as presented in Ta ble 5. Documentation desc ribing the fields on the cost report we used in our calculations is also available at http://www.cms.gov/Center/ProviderType/Home-Health-Agency-HHA-Cent er.html?redirect=/center/hha.asp

. TABLE 5: 2011 Estimated Costs per Visit, Un-weighted and Weighted Discipline 2011 Per-Visit Costs, Unweighted 2011 Per-Visit Costs, Weighted Skilled Nursing $129.56 $131.51 Home Health Aide $65.07 $65.22 Physical Therapy $159.99 $160.69 Occupational Therapy $158.96 $159.55 Speech-Language Pathology $169.28 $170.80 Medical Social Services $217.63 $218.91 Source: CY 2011 Medicare claims da ta and FY 2011 Medicare cost repo rt data as of December 31, 2012. Notes(s): The costs per visit, per discipline for providers were weighted by provider type, provider size and urban/rural status to be nationally representative. Using the nationally-weighted average cost s per visit from the trimmed FY 2011 HH Medicare cost report sample and the visits per episode estim ates for each discipline from 2011 national claims data, we estimat ed 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 result s 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 include s normal, PEP, and outlier episodes. TABLE 6: 2011 Average Costs per Visit a nd Average Number of Visits for a 60-day Episode Discipline 2011 Average Costs per Visit 2011 Average Number of Visits 2011 60-Day Episode Costs Skilled Nursing $131.51 9.43 $1,240.14CMS-1450-P 50

Discipline 2011 Average Costs per Visit 2011 Average Number of Visits 2011 60-Day Episode Costs 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 Total $2,453.71 Source: CY 2011 Medicare claims data and 2011 Medicare cost report data as of December 31, 2012. d. Calculating the Estimated Average Cost per Episode To determine the rebasing adjustment to the 60-day national, standardized episode payment rate, we compared the 2013 estimated average payment per episode to the 2013 estimated average cost per epis ode. To calculate the 2013 esti mated average cost per episode, we first applied an adjustment to account for the vi sit distribution change observed in claims data from 2011 to 2012 (Table 7). We compared th e 2011 estimated cost per episode using the 2011 visit distribution to the 2011 estimated cost pe r episode using the 2012 vi sit distribution. The 2011 estimated cost per episode is $2,453.71 wh en using the 2011 visit profile and the 2011 estimated cost per episode is $2,443.34 when using the 2012 visit profile. Using the two 2011 estimated costs per episode, we cal culated an adjustment factor to account for the visit difference between 2011 and 2012 claims (1 + (2443.34- 2453.71)/2453.71 = 0.9958). We plan to update

the 2012 visit distribution as more data become av ailable, and therefore, the estimated cost per episode may change slightly for the final rule. TABLE 7: Comparison of the 2011 and 2012 Visit Distribution from Claims Data Discipline 2011 Average Number of Visits per Episode 2012 Average Number of Visits per Episode Skilled Nursing 9.43 9.39 Home Health Aide 2.80 2.62 Physical Therapy 4.86 4.88 Occupational Therapy 1.15 1.15 Speech- Language Pathology 0.21 0.23 Medical Social Services 0.14 0.14CMS-1450-P 51

Discipline 2011 Average Number of Visits per Episode 2012 Average Number of Visits per Episode Total Number of Visits per Episode 18.59 18.41 Source: CY 2011 Medicare claims data and CY 2012 Medicare claims data for episodes starting between January 1, 2012, and May 31, 2012.

After applying the adjustment to account for the visit distribution change between 2011 and 2012, we multiplied the estimated, average cost per episode by the HH market basket update for 2012 and by the HH market basket update for 2013. We note that when setting the 60-day episode base rate for the HH PP S in 2000, we also updated costs from cost reports by the market basket updates to reflect expected cost increases. This gives us an estimated, average cost per episode for CY 2013. TABLE 8: 2013 Estimated Cost per Episode

2011 Estimated Cost per Episode Factor for 2011-2012 Visit Distribution Difference 2012 Market Basket Update 2013 Market Basket Update 2013 Estimated Cost per Episode $2,453.71 X 0.9958 x 1.024 x 1.023 = $2,559.59 e. Calculating the Estimated Average Payment Per Episode To develop the 2013 estimated average paymen t per episode, we st arted with the CY 2012 national, standardized 60-day episode payment ra te and applied a number of factors. Since we are proposing to reset the average case-mi x weight from 1.3517 to 1.0000 (see section III.C. of this proposed rule), we first increased the CY 2012 60-day episode payment rate by 1.3517. 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 fact or 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 paym ent policy updates (1.3 percent HH payment update percentage and the 1.32 percent payment reduction for nominal case-mix growth), weCMS-1450-P 52

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 epis ode 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 (Table 9). In our calculation of the proposed CY 2014 national, standardized 60-day episode payment rate, we remove the outlier dollars (see Tables 16 and 17 in section III.E.4.b. of this proposed rule). TABLE 9: 2013 Estimated Average Payment Per Episode

2012 National, Standardized 60- Day Episode Payment Rate Budget Neutrality Factor to Account for Case-mix weight adjustment to 1.00 2013 Payment Reduction for Nominal

Case-Mix Growth 2013 HH Payment Update Percentage Outlier Adjustment 2013 Estimated Average Payment per Episode

$2,138.52 X 1.3517 X 0.9868 X 1.013 ÷ 0.975 =$2,963.65 f. Calculating the Rebasing Adjustment to th e National, Standardized 60-day Episode Payment

Rate Comparing the 2013 estimated average payment per episode to the 2013 estimated average cost per episode; we obtai n a difference of -13.63 percent (($2,559.59- $2,963.65)/$2,963.65) (see Table 10). TABLE 10: Comparison of the Average paym ent per episode to the Average Cost per episode 2013 Payment per Episode 2013 Estimated Cost per Episode Percent Difference $2,963.65 $2,559.59 -13.63 Phasing-in the -13.63 percent re duction over 4 years in equal in crements would result in an annual reduction of 3.60 percent. Since the Affordable Care Act states that the reduction may beCMS-1450-P 53

no more than 3.5 percent, we propose to reduce payments in each year from CY 2014 to CY 2017 by 3.5 percent. 2. Rebasing the Low Utilization Payment Adjustment (LUPA) Per-Visit Payment Amounts For episodes with four or fewer visits, Medica re pays on the basis of a national per-visit amount by discipline, re ferred to as a LUPA. a. Calculating the Rebasing Adjustment to the LUPA Per-Visit Amounts To determine the rebasing adjustment for the per-visit payment rates, we compare the current per-visit, per-discipline 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 th e rebasing of the nationa l, standardized 60-day episode payment rate (see Table 6). The averag e cost per-visit for NRS from the cost report sample is added to the 2011 estimated per-visit co sts per discipline (see s ection III.D.3. of this proposed rule for more information on the calcula tion 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

Discipline 2011 Estimated Average Costs per

Visit Average NRS Cost per Visit 2012 Market Basket Update 2013 Market Basket Update 2013 Estimated Average Cost per

Visit Skilled Nursing $131.51 + $2.26 X 1.024 X1.023 = $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,CMS-1450-P 54

standardized 60-day episode payment rate, we took the current 2013 per-visit payment rates and, for comparison purposes only, put the dollars from the 2.5 percen t outlier pool back into the payment rates (see Table 12). This allows us to compare the CY 2013 cost per-visit, perdiscipline on the Medicare cost reports (which includes normal and outlier episodes) to the CY 2013 payment per-visit, per discipline. TABLE 12: 2013 Per-Visit Payment Rates

Discipline 2013 Per-visit Payment Rates (excluding

outliers) Outlier Adjustment 2013 Per-visit Payment Rates (including outliers) 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 payment per-visit, per di scipline for LUPA episodes to the estimated average cost per-visit, per-discip line, we observe that costs per visit are higher than the 2013 pervisit payment rates (see Table 13) in the range of 19.5 percent to 33.1 percent. However, section 3131(a) of the Affordable Care Act mandates that we can only adjust the per-visit payment rates by 3.5 percent each year. Therefore, in this CY 2014 HH PPS propose rule, we propose to increase the per-visit payment rates by 3.5 percent every year from 2014 to 2017.

TABLE 13: Differences Between the CY 2013 per visit payment rates and the CY 2013 Estimated Average cost per visit Discipline 2013 Per-visit Payment Rates 2013 Estimated Average Cost per Visit Difference 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%CMS-1450-P 55

Discipline 2013 Per-visit Payment Rates 2013 Estimated Average Cost per Visit Difference

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% 3. Rebasing the Nonroutine Medical Supply (NRS) Conversion Factor Payments for NRS are currently paid for by mu ltiplying 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 paymen t 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 41 180). The NRS costs for all the providers in the audited cost report sample were weighted to represent th e 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 am ount was $6.08 to account for the average cost of unbundled NRS billed through Medi care Part B, result ing in a total of $49.62 included in the national, standardized 60-day ep isode payment rate to account for NRS.

As stated in our CY 2008 HH PP S proposed rule, after the HH PPS went into effect, we received comments and corresponden ce 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 ep isodes of care. Therefore, we created an NRS conversion factor of $52.35 (the amount CMS origin ally 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-mi x) that is further adjusted by one of six severity levels to ensure that the variation in NRS usage is mo re appropriately reflect ed in the HH PPS (72 FRCMS-1450-P 56

49852, August 29, 2007). Using additional variable s from OASIS items and targeting certain conditions expected to be predic tors of NRS use based on clinical considerations, a classification algorithm puts cases into one of the six severi ty 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 pa yment weights were 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 percentage s in years 2009 through 2013. The CY 2013 NRS conversion factor is $53.97 and CY 2013 NR S payments range from $14.56 for severity level 1 to $568.06 for severi ty level 6 (77 FR 67102). a. Calculating the Rebasing Adjustment to the NRS Conversion Factor In rebasing the NRS conversion factor, we used the trimmed sample of 6,252 cost reports from FY 2011, as described in section III.D.1. of th is proposed rule, to calculate a visit-weighted estimate of NRS costs per visit. We additiona lly weight these estimates to be nationally representative based on the same factors describe d in section III.D.1. of th is proposed 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 we multiplied the average NRS costs per visit of $2.26 by the average num ber of visits per ep isode of 18.59 from 2011 claims data for a 2011 estimated average NRS co st 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 inflated the result by the 2012 and 2013 HH market basket updates for a 2013 estimated average NRS cost per episode of $43.59 as shown in Table 14.CMS-1450-P 57

TABLE 14: 2013 Estimated Average NRS Cost Per Episode

2011 Estimated Average NRS Cost per Episode Adjustment for Change in Average Episode Visits (2011 to 2012) 2012 Market Basket Update (2.4%) 2013 Market Basket Update (2.3%) 2013 Estimated Average NRS Cost per Episode $42.01 X 0.9903 X 1.024 X 1.023 $43.58 To compare the 2013 estimated average NRS co st per episode to 2013 estimated average NRS payment per episode; we used prelimin ary 2012 claims data for non-LUPA episodes and the CY 2013 NRS conversion factor of $53.97 to determine the estimated 2013 average NRS payment per episode. The preliminary 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 esta blished in CY 2008 as shown in Table 15. TABLE 15: Percentage of Episodes by NRS Severity Level Severity Level Relative Weight Percent of Episodes, CY 2008 Percent of Episodes, CY 2012 1 0.2698 63.7% 69.5% 2 0.9742 20.6% 16.8% 3 2.6712 6.7% 6.2% 4 3.9686 5.4% 4.3% 5 6.1198 3.2% 2.9% 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 for non-LUPA HH episodes beginning on or before May, 31, 2012, as of December 31, 2012. 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 consistin g of all agencies whose total charges reported on their 2001 claims matched their total charges reported in their 2001 cost reports (72 FR 49852).

Using the distribution of 2012 claims by severity level (Table 15), the relative weights, and the CY 2013 conversion factor of $53.97, the CY 2013 estimated average NRS payment per episode is $48.38. Comparing th e 2013 estimated average NRS cost per episode to the 2013 estimated average NRS payment per episode, we obtain a difference of -9.92 percent (($43.58- $48.38)/ $48.38). Phasing-in the - 9.92 percent reduction over 4 year s in equal increments would result in an annual reduction of 2.58 percen t. Therefore, we propose to reduce the NRSCMS-1450-P 58

conversion factor in each year from 2014 to 2017 by 2.58 percent. We note 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 III.D.1.of this proposed rule, 1,756 cost reports (28.1 per cent) reported NRS charges in their claims, but listed $0 NRS costs on their cost reports. Given the need for extensive trimming of the cost reports as well as the findings from the a udits 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. We plan to update the 2012 distribution of episodes amongst the six severi ty levels as more data become available, and therefore, the estimated NRS cost per episode may change slightly fo r the final rule. For more information on the rebasing analyses perf ormed, refer to the technical report titled “Analyses in Support of Rebasing & Updating th e Medicare Home Health Payment Rates”

available on the CMS Home Health Agency (HHA) Center website at: http://www.cms.gov/Center/Provi der-Type/Home-Health-Agency-HHACenter.html?redirect=/center/hha.asp.CMS-1450-P 59

E. Proposed CY 2014 Rate Update 1. Proposed CY 2014 Home Health Market Basket Update Section 1895(b)(3)(B) of the Ac t, 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 reduc e such percentage ... for each of 2011, 2012, and 2013, by 1 percentage point. The ap plication of this clau se may result in the home health market basket percentage increase under clause (iii) be ing less than 0.0 for a year, and may result in payment rates under the system under this subsecti on 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 re duced by 1 percentage point. For CY 2014, there is no such percentage reduction. Theref ore, the CY 2014 payment rates will be increased by the full HH market basket update. Section 1895(b)(3)(B) of the Ac t requires that the standard prospective payment amounts for CY 2014 be increased by a factor equal to th e applicable HH market basket update for those HHAs that submit quality data as required by the Secretary. The proposed HH PPS market basket update for CY 2014 is 2.4 percent. This is based on Global Insight Inc.’s second quarter 2013 forecast, utilizing hi storical data through th e first 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). 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 qual ity healthcare services is our paramount concern. We seek toCMS-1450-P 60

adopt measures for the HHQRP that promote effi cient and safer care. Our measure selection activities for the HHQRP takes into consideration input we receive from the Measure Applications Partnership (MAP), convened by th e National Quality Forum (NQF), as part of a pre-rulemaking process that we have establishe d and are required to follow under section 1890A of the Act. The MAP is a public-private pa rtnership comprised of multi-stakeholder groups convened by the NQF for the primary purpose of providing input to CMS on the selection of certain categories of quality and efficiency m easures, as required by s ection 1890A(a)(3) of the Act. By February 1 st of each year, the NQF must provide that input to CMS. Input from the

MAP is located at http://www.qualityforum.org/Sett ing_Priorities/Partnership/Meas ure_Applications_Partnership.a

spx . For more details about the pre-rulemaki ng process, see the FY 2013 IPPS/LTCH PPS final rule at 77 FR 53376 (August 31, 2012). We also take into account national prioriti es, such as those established by the National Priorities Partnership at http://www.qualityforum.org/npp/ , the HHS Strategic Plan http://www.hhs.gov/secretary/abou t/priorities/priorities.html , and the National Strategy for Quality Improvement in Healthcare located at http://www.healthcare.gov/news/r eports/national qualitystrategy032011.pdf

. To the extent practicable, we have sought to adopt measures that have been endorsed by the national consensus organization, under contract to endorse sta ndardized healthcare quality measures pursuant to section 1890 of the Act, recommended by multi-stakeholder organizations, and developed with the input of providers, pu rchasers/payers, and other stakeholders. b. Background and Quality Reporting Requirements Section 1895(b)(3)(B)(v)(II) of the Act states th at “each home health agency shall submitCMS-1450-P 61

to the Secretary such data that the Secretary determines are a ppropriate 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 HHA that does not submit data to the Secretary in accordance with subclause (II) with respect to such a y ear, the HH market basket percentage increase applicable under such clause for such year sh all be reduced by 2 per centage points.” This requirement has been codified in regulations at §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 s ubject to a 2 percentage point reduction to the

HH market basket increase. Section 1895(b)(3)(B)(v)(III) of the Act further st ates 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 opportun ity to review the data that is to be made public with respect to the agency prior to such data being made public.” As codified at §484.250 (a), we established th at the quality reporti ng requirements could be met by the submission of OASIS assessments and HH Care Consumer Assessment of Healthcare Providers and Systems Survey (HHC AHPS®). CMS has provided quality measures to HHAs via the Certification and Survey Pr ovider Enhanced Reports (CASPER) reports available on the CMS Health Care Quality Improve ment System (QIES) since 2002. A subset of the HH quality measures has been publicly reported on the HH Compare website since 2003. The CY 2012 HH PPS final rule (76 FR 68576), id entifies the current HH QRP measures. The

selected measures that are made available to the public can be viewed on the HH CompareCMS-1450-P 62

website located at http://www.medicare.gov/HHCompare/Home.asp

. As stated in the CY 2012 and CY201 3 HH PPS final rules (76 FR68575 and 77 FR67093, respectively), we finalized that we woul d 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 §484.55(d) require that the comprehensive assessment must be updated and revised (inclu ding 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 tr ansfer, 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 di agnostic tests; and (3) at discharge. It is important to note that to calculate quali ty 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 Transf er or Discharge OASIS assessment. Failure

to submit sufficient OASIS assessments to a llow 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 t hose patients who are excluded from the OASIS submission requirements under the HH CoPs §484.1 through §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 th e exclusion as those patients:

● Receiving only nons killed services;CMS-1450-P 63

● For whom neither Medicare nor Medicaid is paying for HH care (patients receiving care under a Medicare or Medicaid Managed Ca re 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 prec eding year are not subject to the OASIS quality reporting requirement nor any payment penalty fo r quality reporting purp oses for the following year. For example, HHAs certified on or afte r May 31, 2013 are not subject to the 2 percentage point reduction to their market basket update fo r CY 2014. These exclusions only affect quality reporting requirements and do not affect the HHA’ s reporting responsibilit ies 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 Pr ogram Requirements for CY 2014 Payment and Subsequent Years (1) Submission of OASIS data For CY 2014, we propose 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 fu lfilling one portion of the quality reporting requirement for CY 2014. This time period woul d allow for 12 full months of data collection and would provide us with the time necessary to analyze and make any necessary payment adjustments to the payment rates for CY 2014. We propose to continue this pattern for eachCMS-1450-P 64

subsequent year beyond CY 2014, considering OAS IS assessments submitted in the time frame between July 1 of the calendar y ear 2 years prior to the calendar year of the Annual Payment Update (APU) effective date and Ju ly 1 of the calendar year 1 year prior to the calendar year of the APU effective date as fulfilling the OASIS po rtion of the quality reporting requirement for the subsequent APU. (2) Home Health Rehospitalization and Em ergency Department Use without Readmission

Claims-Based Measures We propose to adopt two claims-based measur es: (1) Rehospitalizat ion 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 incl uded 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 hospi tal readmissions for cases in wh ich patients who had an acute inpatient hospitalization in the 5 days before the start of their HH stay 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 ri sk-standardized rate of unplanned, all-cause hospital readmissions for cases in which patients who had an acute inpa tient hospitalization in the 5 days before the start of a HH stay used an emergency department but were not admitted to an acute care hospital during the 30 days following the start of a HH stay. We seek to develop a set of quality measures to report on HH patients who are recently hospitalized as these patients are at an increase d risk of acute care hosp ital 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 promotingCMS-1450-P 65

patient safety, eliminating healthcare associat ed 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 coordinatio n 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 measur es apply to all home h ealth patients and will

continue to be useful in se lecting a home health agency. The proposed rehospitalization measures will allow HHAs to further target pa tients who entered HH after a hospitalization. The proposed measures of acute care utiliza tion by previously hos pitalized 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 hospitaliz ations and use of an emergency department for patients who are recently discharged from the hospital. Thes e rehospitalization measures are harmonized with NQF-endorsed Hospital-Wide Risk-Adjusted All- Cause Unplanned Readmission Measure (NQF #1789) (see http://www.qualityforum.org/Publica tions/2012/07/Patient_Outcomes_AllCause_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 proposed HH rehospitalization meas ures are being harmonized with this measure

and other measures of readmission rates deve loped for post-acute care (PAC) settings. We intend to seek NQF endorsement of the: (1) Rehospitalizati on during the first 30 days of HH; and (2) Emergency Department Use without Readmission during the first 30 days ofCMS-1450-P 66

HH measures. We are proposing to begin repor ting feedback to HHAs on performance on these measures in CY 2014. These measures will be added to Home Health Compare for public reporting in CY2015. Additional details pertaini ng to these measures, including technical specifications, can be found at the HH Quality Initiative webpage located at http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/HomeHealthQuality Inits/HHQIQualityMeasures.html

. We seek 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. (3) Elimination of Stratification by Episode Length Process Measures We are exploring ways to reduce the numb er of HH quality measures reported to HHAs on confidential CASPER reports. We propose to reduce the total number of measures on the CASPER reports by beginning to re port only all-episodes measures for 9 process measures currently also stratified by episode length. We seek comments on this proposal to simplify reporting of process measures, which is based on the recommendation from the MAP to seek greater parsimony in these measures. Currently there are 97 quality measures included on the CASPER reports, of which 45 are process measures . This proposed reduction would 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 obt ain the information they require for quality improvement activities related to the process m easures in a less burdensome manner. Reducing

the number of measures also f acilitates the future developmen t and implementation of other superior HH measures. Nine measures currently stratified by ep isode length on CASPER reports include:CMS-1450-P 67

● Depression Interventions Implemented.

● Diabetic Foot Care and Patien t/Caregiver Education Implemented.

● Heart Failure Symptoms Addressed.

● Pain Interventions Implemented.

● Treatment of Pressure Ulcers Base d on Principles of Moist Wound Healing Implemented.

● Pressure Ulcer Prevention Implemented.

● Drug Education on All Medications Provided to Patient/Caregiver.

● Potential Medication Issues Identif ied and Timely Physician Contact.

● Falls Prevention Steps Implemented. For each of these nine measures, three versio ns 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 propose to eliminate the stratification by episode length, so that these measures are reported only for “all episodes of care”. Thus, we propose to eliminate the “short term” and “long term epis odes of care” measures from CASPER reports. This would remove 18 process measures from th e current CASPER reports. Of note, only the “short term episodes of care” measures are curr ently reported on HH Compare. These would be replaced with the analogous “al l 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 inte rventions, regardless of episode length. Using only the “all episodes of care” measures would substantially increase the number of HHAs eligible for public reporting of these measures. To summarize, for the CY 2014 payment update and for subsequent annual paymentCMS-1450-P 68

updates, we propose to continue to use a HHA’s submission of OASIS assessments between July 1, and June 30 as fulfilling one portion of the qua lity reporting requirement for each payment year. Medicare claims data and HHCAHPS® data will also be used to measure HH care quality. We propose to adopt two claims-based measures: (1) rehospitalization duri ng the first 30 days of HH; and (2) Emergency Department Use without Hospital Readmission during the first 30 days of HH. We propose to reduce the number of pr ocess measures by elimin ating the stratification by episode length, only reporting on the “all episodes of care” measures. By eliminating the

stratification of the shor t and long term episodes of care meas ures, there will be a reduction in the number of HH quality measures reported to HHAs on confidential CASPER reports.

e. Home Health Care CAHPS® Survey (HHCAHPS) ® 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® HH Care (HHCAHPS®) Survey for the CY 2013 APU. In CY 2012, we moved forward with the HHCAHPS® linkage to the pay- for-reporting (P4R) requirement s affecting the HH PPS rate update for CY 2012. We maintained the stated HHCAHPS 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 quart erly data submission of HHCAHPS® data. (1) Background and Description of HHCAHPS® As part of the HHS’ Transparency Initiative, we have implemented a process to measure and publicly report patient experiences with HH care, using a survey developed by the Agency for Healthcare Research and Quality’s (AHRQ’s) Consumer Assessment of Healthcare Providers and Systems (CAHPS®) program and endorsed by the NQF in March 2009 (NQF Number 0517). The HHCAHPS® survey is part of a family of CAHPS® surveys that asks patients toCMS-1450-P 69

report on and rate their experi ences with health care. Th e HH Care CAHPS® (HHCAHPS®) survey presents HH patients with a set of sta ndardized questions about their HH care providers and about the quality of their HH care. Prior to this survey, there was no national standard for collecting information about patient experiences that would enable valid comparisons across all HHAs. The history and development process for HHCAHPS® has been descri bed in previous rules and it also available

on the official HHCAHPS® website at https://homehealthcahps.org and in the annually-updated

HHCAHPS ® Protocols and Guidelines Manual , which is downloadable from https://homehealthcahps.org

. For public reporting purposes, we required HHAs to report five measures -- three composite measures and two global ratings of car e that are derived from the questions on the HHCAHPS® survey. The publicly reported data ar e adjusted for differences in patient mix across HHAs. We update the HHCAHPS® data on HH Compare on www.medicare.gov quarterly. Each HHCAHPS® composite measure c onsists of four or more individual survey items regarding one of th e 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 th e overall rating of care gi ven by the HHA’s care providers (Q20), and the patient’s willingn ess to recommend the HHA to family and friends (Q25). The HHCAHPS® survey focuses on areas where the HH patient is the best or onlyCMS-1450-P 70

source for the information. The developmental work for the HHCAHPS® survey began in mid2006, and the first HHCAHPS® survey was field-test ed (to validate the lengt h and content of the survey) in 2008 by the AHRQ and the CAHPS® gr antees, and the final HHCAHPS® survey was

used in a national randomized m ode experiment in 2009 through 2010. The HHCAHPS® survey is currently available in English, Spanish, Chinese, Russian,

and Vietnamese. The OMB Numb er on these surveys is the sa me (0938-1066). All of these surveys are on the Home Health Care CAHPS® website, https://homehealthcahps.org . We will continue to consider additional language tran slations of the HHCAHPS® in response to the needs of the HH patient population. All of the requirements about HH patient el igibility for the HHCAHPS® survey and conversely, which HH patients are ineligible for the HHCAHPS® survey are delineated and

detailed in the HHCAHPS ® Protocols and Guidelines Manual, which is downloadable at https://homehealthcahps.org . HH patients are eligible for HHCAHPS® if they received at least two skilled HH visits in the past 2 months, which are paid for by Medicare or Medicaid. HH patients are ineligible for inclusion in HHCAHPS® 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 el igible because the state in wh ich the patient lives restricts release of patient information for a specific condition or illness that the patient has; or

● No Publicity patients, defined as patient s who on their own initia tive at their firstCMS-1450-P 71

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-cer tified HHAs are required to contract with an approved HHCAHPS® survey vendor. Medicare-c ertified agencies also must provide on a monthly basis a list of their patients served to their respective HHCAHPS® survey vendors. Agencies are not allowed to influence at a ll how their patients respond to the HHCAHPS®

survey. HHCAHPS® survey vendors are required to a ttend introductory and all update trainings conducted by CMS and the HHCAHPS® Survey Coor dination Team, as well as to pass a posttraining certification test. We now have approximatel y 30 approved HHCAHPS® survey vendors. The list of approved HHCAHPS® survey vendors is available at https://homehealthcahps.org

. (2) HHCAHPS® Oversight Activities We stated in prior final ru les that all approved HHCAHPS su rvey vendors are required to participate in HHCAHPS® oversight activi ties to ensure compliance with HHCAHPS® protocols, guidelines, and survey requirements. The purpose of the overs ight activities is to ensure that approved HHCAHPS® su rvey vendors follow the HHCAHPS ® 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 ® Protocols and Guidelines Manual

. An HHCAHPS® 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 a ny time that changes occur in staff or vendorCMS-1450-P 72

capabilities or systems. A model QAP is included in the HHCAHPS ® 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® Survey Coordination Team conducts on-site visits to all approved HHCAHPS® survey vendors. The purpose of th e site visits is to

allow the HHCAHPS® Coordination Team to observe the entire HH Care CAHPS® Survey implementation process, from the sampling stag e through file preparation and submission, as well as to assess data security and storage. The HHCAHPS® Survey Coordination Team reviews the HHCAHPS® survey ve ndor’s survey systems, and a ssesses administration protocols

based on the HHCAHPS ® Protocols and Guidelines Manual posted at https://homehealthcahps.org . The systems and program site vi sit review includes, but is not limited to the following:

● Survey management and data systems;

● Printing and mailing ma terials and facilities;

● Telephone call cen ter facilities;

● Data receipt, entry an d storage facilities; and

● Written documentation of survey processes. After the site visits, HHCAHPS® survey ve ndors are given a defined time period inCMS-1450-P 73

which to correct any identified issues and pr ovide follow-up documentation of corrections for review. HHCAHPS® 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), we codified the current guideline that all approved HHCAHPS® survey vendors fully comply with all HHCAHPS® oversight

activities. We included this survey requirement at §484.250(c). (3) HHCAHPS® Requirements for the CY 2014 APU In the CY 2013 HH PPS final rule (77 FR 67094), we stated that we would require continued monthly HHCAHPS® data collect ion and reporting for 4 quarters for the HHCAHPS® requirements for CY 2014 APU. The data collection peri od for the CY 2014 APU includes the second quarter 2012 through first qua rter 2013 (the months of April 2012 through March 2013). HHAs were required to submit their HHCAHPS® data files to the HH CAHPS® Data Center for the second quarter 2012 by 11:59 p.m., Eastern daylight time (e.d.t.) on October 18, 2012; for the third quarter 2012 by 11:59 p.m., Ea stern standard time (e.s.t.) on January 17, 2013; for the fourth quarter 2012 by 11:59 p.m., e.d.t. on April 18, 2013; and for the first quarter 2013 by 11:59 p.m., e.d.t. on July 18, 2013. Thes e deadlines are firm; no exceptions are permitted. We stated that we exempt HHAs receiving Me dicare certification on or after April 1, 2012, from the full HHCAHPS® reporting requirement for the CY 2014 APU, because these HHAs were not Medicare-certified in the pe riod of April 1, 2011, through March 31, 2012. These HHAs would not need to complete a HHC AHPS® Participation Exemption Request form for the CY 2014 APU. The Participation Exemp tion Form is discussed in the Collection of

Information section of this rule. The form wa s used since CY 2012, and it was cited in the PRA package in 2010, but it did not have its own OM B number. We have submitted a revised PRACMS-1450-P 74

package about the HHCAHPS® survey (the package expires in March 2014) that also includes more information regarding the Participation Exemption Form.

As noted in the CY 2013 HH PPS final rule (77 FR 67094), HHAs that had fewer than 60 HHCAHPS®-eligible unduplicated or unique pa tients in the period of April 1, 2011, through March 31, 2012, are exempt from the HHCAHPS® data collection and submission requirements for the CY 2014 APU. Such HHAs were required to submit their patient counts for the period of April 1, 2011, through March 31, 2012, on the HHC AHPS® Participation Exemption Request form for the CY 2014 APU posted on https://homehealthcahps.org beginning April 1, 2012, by 11:59 p.m., e.d.t. on January 17, 2013. This deadline is firm, as are all of the quarterly data

submission deadlines. (4) HHCAHPS® 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 would require continued m onthly HHCAHPS® data collection and reporting for 4 quarters. The data collection period for CY 2015 APU in cludes the second quarter 2013 through the first quarter 2014 (the months of April 2013, thr ough March 2014). HHAs are required to submit

their HHCAHPS® data files to the HH CAHPS® Data Center for the second quarter 2013 by 11:59 p.m., e.d.t. on October 17, 2013; for the thir d 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 recei ving Medicare certifi cation on or after April 1, 2013, from the full HHCAHPS® reporting requirement for the CY 2015 APU because

these HHAs would not have been Medicare-cert ified throughout the pe riod of April 1, 2012CMS-1450-P 75

through March 31, 2013. These HHAs do not need to complete a HHCAHPS® Participation Exemption Request form for the CY 2015 APU. We require that all HHAs that had fewer than 60 HHCAHPS®-eligible unduplicated or unique patients in the period of April 1, 2012, through March 31, 2013 are exempt from the

HHCAHPS® data collection and su bmission requirements for the CY 2015 APU. Agencies with fewer than 60 HHCAHPS®-eligible, unduplicated or unique patients in the period of April 1, 2012, through March 31, 2 013 are required to submit th eir patient counts on the HHCAHPS® 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. (5) HHCAHPS® Requirements for the CY 2016 APU For the CY 2016 APU, we propose to requi re continued monthly HHCAHPS® data collection and reporting for 4 quarters. The data collection period for the CY 2016 APU is proposed to include the second quarter 2014 thro ugh the first quarter 2015 (the months of April 2014 through March 2015). We propose that HHAs would be required to submit their

HHCAHPS® data files to the HH CAHPS® 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. We propose that these deadlines be firm; no exceptions would be permitted. We propose to continue to exempt HHAs r eceiving Medicare certification after the period in which HHAs do their patient count (Apr il 1, 2013 through March 31, 2014) on or after April 1, 2014, from the full HHCAHPS® reporting requirement for the CY 2016 APU, becauseCMS-1450-P 76

these HHAs would not have been Medicare-cert ified throughout the pe riod of April 1, 2013, through March 31, 2014. These HHAs would not need to complete a HHCAHPS® Participation Exemption Request form for the CY 2016 APU. We propose to state that all HHAs that had fewer than 60 HHCAHPS®-eligible unduplicated or unique patients in the period of April 1, 2013, through March 31, 2014 would be exempt from the HHCAHPS® data collection and submission requirements for the CY 2016 APU. Agencies with fewer than 60 HHCAHPS-elig ible, unduplicated or unique patients in the period of April 1, 2013, through March 31, 2014, woul d be required to su bmit their patient counts on the HHCAHPS® Particip ation 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 would be firm, as would be all of the quarterly data submission deadlines. (6) HHCAHPS® Reconsidera tions and Appeals Process

HHAs should monitor their re spective HHCAHPS® survey vendors to ensure that vendors submit their HHCAHPS data on time, by accessing their HHCAHPS® Data Submission Reports on https://homehealthcahps.org . This will help HHAs en sure that their data are submitted in the proper format for data processing to the HHCAHPS® Data Center. We propose to continue the HHCAHPS® recons iderations and appeals process that we

have finalized and that we have used for th e CY 2012 APU and for the CY 2013 APU. We have described the HHCAHPS® reconsiderations pr ocess requirements in the notification memorandum that the Regional Home Health Inte rmediaries (RHHI)/MACs send to the affected HHAs, on behalf of CMS. HHAs have 30 days to send their documentation to support their request for reconsideration to CMS. It is important that the affected HHAs send in comprehensive information in their reconsidera tion letter/package because CMS will not contactCMS-1450-P 77

the affected HHAs to request additional informati on or to clarify incomplete or inconclusive information. If clear evidence to support a findi ng of compliance is not present, the 2 percent reduction in the APU will be upheld. If clear ev idence 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 redu ction, the HHA may further appeal the 2 percent

reduction via the Provider Reimbursement Review Board (PRRB) appeals process. f. Summary of Proposed Changes in CY 2014 We are not proposing any changes to the HHCAHPS® Survey in CY 2014. g. For Further Information on the HHCAHPS® Survey We strongly encourage HHAs to learn a bout the survey and view the HHCAHPS® Survey website at the official web site for the HHCAHPS® at https://homehealthcahps.org

. HHAs can also send an email to the HHC AHPS® Survey Coordination Team at HHCAHPS@rti.org , or telephone toll-free (1-866-354- 0985) for more information about

HHCAHPS®. 3. Home Health Wage Index Sections 1895(b)(4)(A)( ii) and (b)(4)(C) of the Act re quire the Secretary to provide appropriate adjustments to th e proportion of the payment am ount under the HH PPS that account for area wage differences, using adjustment factor s 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-reclassi fied hospital wage index. We would apply the appropriate wage index value to the labor portion of the HH PPS rates based on the site of service for the beneficiary (defined by section 1 861(m) of the Act as the beneficiary’s place ofCMS-1450-P 78

residence). Previously, we determined each HHA’s labor market area based on definitions ofmetropolitan statistical areas (MSAs) issued by the OMB. We have consistently used the prefloor, pre-reclassified hospital wa ge index data to adjust the la bor portion of the HH PPS rates. We believe the use of the pre-floor, pre-reclassi fied hospital wage inde x data results in an appropriate adjustment to the labor porti on 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 th e OMB Bulletin No. 03-04 (June 6, 2003). This

bulletin announced revised definitions for MSAs a nd 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 cha nges 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 are pr oposing to use the most recent pre-floor, prereclassified hospital wage index as the base for the wage index ad justment to the labor portion of the HH PPS rates. However, the FY 2014 pre-floo r, 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 propose changes to the FY 2015 ho spital wage index based on the newest CBSA changes in the FY 2015 IPPS proposed rule. Therefore, if CMS incorporates OMB’s new area delineations, ba sed on the 2010 Census, in the FY 2015 hospital wage index, those changes would also be re flected in the FY 2015 HH wage index. Finally, we would continue to use the methodology discussed in the CY 2007 HH PPSCMS-1450-P 79

final rule (71 FR 65884) to address those ge ographic areas in which there were no IPPS hospitals, and thus, no hospital wage data on whic h to base the calculati on of the HH PPS wage index. For rural areas that do not have IPPS hosp itals, and therefore, lack hospital wage data on which to base a wage index, we would use the average wage index from all contiguous CBSAs as a reasonable proxy. For rural Puerto Ric o, 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 wa ge index for that CBSA. For CY 2012, the only urban area without IPPS hospital wage data is Hinesville-Fort Stewart, Georgia (CBSA 25980). The wage index values are av ailable on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee- for-Service-Payment/HomeHealthPPS/HomeHealth-Prospective-Payment-System-Regulations-and-Notices.html

. 4. Proposed CY 2014 Payment Update a. National, Standardized 60-Day Episode Payment Rate

The Medicare HH PPS has been in effect si nce 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 §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 th e proportion of the payment amount under the HH PPS to account for area wage difference, we a pply the appropriate wage index value to the labor portion of the HH PPS rates. The labor-related share of the case-mix adjusted 60-dayCMS-1450-P 80

episode rate would continue to be 78.535 percent and the non-labor -related share would continue to be 21.465 percent as set out in the CY 2013 HH PPS final ru le (77 FR 67068). The proposed

CY 2014 HH PPS rates use the same case-mix me thodology as set forth in the CY 2008 HH PPS final rule with comment period (72 FR 49762) and adju sted as described in section III.C. of this proposed rule. The following are the steps we ta ke 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 in to a labor (78.535 per cent) 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. Se ction 484.225 sets forth the speci fic annual percentage update methodology. In accordance with §484.225(i), for a HHA that does not submit HH quality data, as specified by the Secretary, the unadjusted national prospective 60-d ay episode rate is equal to the rate for the previous calendar year increas ed by the applicable HH market basket index amount minus two percentage points. Any reducti on of the percentage change will apply only to the calendar year involved and will not be cons idered 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 approachCMS-1450-P 81

includes an initial percentage payment and a final percentage payment as set forth in §484.205(b)(1) and §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 disc ussed in §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 wageadjusted episode payment. The end date of the 60-day episode as reported on the claim determines which calendar year rates Me dicare would use to pay the claim. We may also adjust the 60-day case-mix a nd 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 §484.205(c) and §484.230.

● A partial episode payment adjustme nt as set forth in §484.205(d) and §484.235.

● An outlier payment as set forth in §484.205(e) and §484.240. b. Proposed CY 2014 National, Standardized 60-Day Episode Payment Rate The proposed CY 2014 national, standardized 60-day episode payment rate would be $2,862.99 as calculated in Table 16. To determine the CY 2014 proposed nati onal, standardized 60-day episode payment rate, we start with the 2013 average payment per episode ($2,963.65)

calculated in section II I.D.1. of this proposed rule. We then apply the 3.50 percent rebasing reduction (1 – 0.0350 = 0.9650) and remove the 2.5 pe rcent for outlier payments that we put back in the rates as described in section III.D.1. of this proposed rule. We subsequently apply a standardization factor (1.0017) to ensure budget neutrality in episode payments using the 2014 wage index. The application of a standardization factor was also done when setting the originalCMS-1450-P 82

national, standardized 60-day episode paym ent rate for the HH PPS in 2000 per section 1895(3)(A)(i) of the Act. The Act required that th e 60-day episode base rate and other applicable

amounts be standardized in a manner that eliminates the effects of variatio ns in relative case mix and area wage adjustments among different home h ealth agencies in a bu dget neutral manner. To calculate the standardization factor, we si mulated 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 us ing the 2014 wage index by the total payments using the 2013 wage index, we obtain a standardization factor of 1.0017. We note that since we are implementing the adju stment 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 valu es. Lastly, we update payments by the CY 2014 market basket update (2.4 percent).

TABLE 16: CY 2014 Proposed 60-day National , Standardized 60-Day Episode Payment Amount

2013 Estimated Average Payment per Episode 2014 Rebasing Adjustment Outlier Adjustment Factor Standardization Factor 2014 HH Market Basket CY 2014 Proposed National, Standardized 60-

Day Episode

Payment $2,963.65 X 0.9650 X 0.975 X 1.0017 X 1.024 =$2,860.20 The proposed CY 2014 national, standardized 60-day episode payment rate for an HHA that does not submit the require d quality data is updated by the proposed CY 2014 HH market basket update (2.4 percent) minus 2 percen tage points and is shown in Table 17.CMS-1450-P 83

TABLE 17: For HHAs that Do Not Submit the Quality Data – Proposed CY 2014 National, Standardized 60-Day Episode Payment Amount

2013 Estimated Average Payment per Episode 2014 Rebasing Adjustment Outlier Adjustment Factor Standardization Factor 2014 HH Market Basket minus 2 Percentage Points CY 2014 Proposed National, Standardized 60-Day Episode Payment $2,963.65 X 0.9650 X 0.975 X 1.0017 X 1.004 =$2,804.34

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. Th e per-visit rates are pa id 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 used the 2013 national per-visit rates adjusted to include the dollars from the 2.5 percent outlier pool as described in section III.D.2. of this proposed rule. We then apply the 3.5 percent rebasing increase to the 2013 outlier adjusted per-visit rates (1+0.035 = 1.035), remove the outlier payment adjustment that we used to inflate the rates for comparison purposes (to co mpare the rates to the estimated per visit costs) in section III.D.2. of this proposed rule, and apply a wage index budget neutrality factor of 1.0003 to ensure budget neutrality for LUPA per-visit payments after applying the 2014 wage index. We calculated the wage index budget neutrality factor by simulating total payments forCMS-1450-P 84

LUPA episodes using the 2014 wage index and co mparing it to simulated total payments for LUPA episodes using the 2013 wage index. We not e 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. The per-v isit rates for each discipline are then updated by the proposed CY 2014 HH market ba sket update of 2.4 percent. The national per-visit rates are adjusted by the wage index base d on the site of service of the beneficiary. The per-visit payment amounts for LUPAs are sepa rate from the LUPA add-on payment amount, which is paid for episodes that occur as the on ly episode or initial ep isode in a sequence of adjacent episodes. The proposed CY 2014 national per-visit rates are shown in Tables 18 and

19. TABLE 18: Proposed CY 2014 Nation al Per-Visit Payment Amounts

HH Discipline Type CY 2013 PerVisit Rates Including Outliers CY 2014 Rebasing Adjustment Outlier Adjustment Wage Index Budget Neutrality

Factor 2014 HH Market Basket Proposed CY 2014 Per-Visit Rates Home Health Aide $53.12 X 1.035 X 0.975 X 1.0003 X 1.024 $54.91 Medical Social Services $188.01 X 1.035 X 0.975 X 1.0003 X 1.024 $194.34 Occupational Therapy $129.11 X 1.035 X 0.975 X 1.0003 X 1.024 $133.46 Physical Therapy $128.24 X 1.035 X 0.975 X 1.0003 X 1.024 $132.56 Skilled Nursing $117.28 X 1.035 X 0.975 X 1.0003 X 1.024 $121.23SpeechLanguage Pathology $139.34 X 1.035 X 0.975 X 1.0003 X 1.024 $144.03

The proposed CY 2014 per-visit payment rates for an HHA that does not submit the required quality data is updated by the proposed CY 2014 HH market basket update (2.4 percent) minus 2 percentage points and is shown in Table 19.CMS-1450-P 85

TABLE 19: Proposed CY 2014 National Per-Vi sit Payment Amounts for HHAs That DO NOT Submit the Required Quality Data

HH Discipline Type CY 2013 PerVisit Rates Including Outliers CY 2014 Rebasing Adjustment Outlier Adjustment Wage Index Budget Neutrality

Factor 2014 HH Market Basket minus 2percentage points Proposed CY 2014 Per-Visit

Rates

Home Health Aide $53.12 X 1.035 X 0.975 X 1.0003 X 1.004 $53.84 Medical Social Services $188.01 X 1.035 X 0.975 X 1.0003 X 1.004 $190.54 Occupational Therapy $129.11 X 1.035 X 0.975 X 1.0003 X 1.004 $130.85 Physical Therapy $128.24 X 1.035 X 0.975 X 1.0003 X 1.004 $129.97 Skilled Nursing $117.28 X 1.035 X 0.975 X 1.0003 X 1.004 $118.86SpeechLanguage Pathology $139.34 X 1.035 X 0.975 X 1.0003 X 1.004 $141.22

d. Proposed Low-Utilization Payment Ad justment (LUPA) Add-On Factor For episodes with four or fewer visits, Medica re 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 corresponde nce suggesting that the LUPA payment rates do not adequa tely account for the front-loadi ng of costs in an episode. Commenters suggested that because of the sma ll number of visits in a LUPA episode, HHAs have little opportunity to spr ead the costs of lengt hy initial visits over a full episode (72 FR 25424). In response to comments received, we conduc ted an initial descrip tive analysis of visit log data from prior to the esta blishment of the HH PPS, showing th at initial visits were 25 to 50 percent longer than subsequent vi sits in LUPA episodes that occur as the only or initial episode. These results indicated that payment for LUPA ep isodes 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 seque nce of adjacent episodes are adjusted by applyingCMS-1450-P 86

an additional amount to the LUPA payment before adjusting for area wage differences (72 FR 49849).

The CY 2008 LUPA add-on amount was calculate d 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 pathol ogy (SLP) as, per the Medicare CoPs at §484.55(a)(1) and (a)(2), only these three discip lines 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 minut es 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 fo r all non-first visits in non-LUPA episodes (42.5 minutes, 45.6 minutes, and 48.6 minutes for SN, PT, and SLP, resp ectively). These propor tions (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 appr opriate set of weights re presenting the share of LUPA first visits for SN (77.8 pe rcent), PT (21.7 percent) and SL P (0.5 percent), we calculated a LUPA add-on payment amount of $87.93 for LUPA ep isodes that occur as the only episode or an initial episode in a sequence of adjacent ep isodes (Table 20). 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 reducti on was made to the national, standardized 60- day episode payment rate (72 FR 49849).

TABLE 20: Calculation of th e LUPA Add-on Amount, CY 2008

Skilled Nursing Physical Therapy Speech-Language PathologyCMS-1450-P 87

(1) Proportional increase in minutes for an initial visit over non-initial visits 90.59% 55.04% 46.50%

(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 this discipline 77.8% 21.7% 0.5%

(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 proposed rule we are using the same methodology used to establish the LUPA add-on amount for CY 2008. Specifically, we up dated the analysis usi ng 100 percent of LUPA episodes and a 20 percent sample of non-LUPA fi rst episodes from preliminary CY 2012 claims data for episodes starting on or before May 31, 2012. The analysis show ed that the average

excess of minutes for the first vi sit in LUPA episodes that were the only episode or an initial LUPA in a sequence of adjacent episodes wa s 38.88 minutes for the first visit if SN, 32.75 minutes for the first visit if PT, and 32.28 minutes fo r the first visit if SLP. The average minutes for all non-first visits in non-LUPA episode s was 44.62 minutes for SN, 47.88 minutes for PT, and 51.31 minutes for SLP. Those excess minutes expressed as a proportion of the average

minutes for all non-first visits in non-LUPA episodes are 87.14 percent for SN, 68.40 percent for PT, and 62.91 percent for SLP. We used these proportions to inflate the proposed LUPA pervisit payment rates in Table 18 of $121.23 for SN, $132.56 for PT, and $144.03 for SLP. We

then calculated a set of wei ghts representing the sh are of LUPA first visits for SN (81.74 percent), PT (17.87 percent) and SLP (0.39 percent) and using these weights, we calculated aCMS-1450-P 88

LUPA add-on payment amount of $102.91 for LUPA ep isodes 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 $102.91, 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 propose 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. The proposed LUPA add-on factors are: 1.8714 for SN; 1.6841 for PT; and 1.6293 for SLP. For example, for LUPA episodes th at occur as the only episode or an initial episode in a sequence of adjacent episodes, if the first skilled vi sit is SN, the payment for that visit would be $ $226.87 (1.8714 multiplied by $121.23). For more information on the analyses performed to update the LUPA add-on amount, pl ease refer to the technical report titled “Analyses in Support of Rebasing & Updating th e Medicare Home Health Payment Rates”

available on the CMS Home Health Agency (HHA) Center website at: http://www.cms.gov/Center/Provi der-Type/Home-Health-Agency-HHACenter.html?redirect=/center/hha.asp. e. Nonroutine Medical Supply Conversion Factor Update Payments for NRS are computed by multiplyi ng the relative weight for a particular severity level by the NRS conversion factor . To determine the CY 2014 proposed NRS conversion factor, we start with the 2013 NR S conversion factor ( $53.97) and apply the 2.58 percent rebasing adjustment calculated in se ction II.D.3. of this proposed rule (1-0.0258 = 0.9742). We then update the conversion factor by the proposed CY 2014 HH market basket update (2.4 percent). We do not apply a standa rdization factor as the NRS payment amountCMS-1450-P 89

calculated from the conversion factor is not wage or case-mix adjusted when the final claim payment amount is computed. The proposed NRS conversion factor for CY 2014 is $53.84, as

shown in Table 21. TABLE 21: Proposed CY 2014 NRS Conversion Factor CY 2013 NRS Conversion Factor 2014 Rebasing Adjustment 2014 HH Market Basket Proposed CY 2014 NRS Conversion Factor $53.97 X 0.9742 X 1.024 =$53.84

Using the proposed CY 2014 NRS conversion factor ($53.84), the payment amounts for the six severity levels are shown in Table 22. TABLE 22: Proposed CY 2014 NRS Payment Amounts for HHAs that DO Submit the Required Quality Data

Severity Level Points (S coring) Relative Weight Proposed NRS Payment Amount 1 0 0.2698 $ 14.53 2 1 to 14 0.9742 $ 52.45 3 15 to 27 2.6712 $ 143.82 4 28 to 48 3.9686 $ 213.67 5 49 to 98 6.1198 $ 329.49 6 99+ 10.5254 $ 566.69

For HHAs that do not submit the required qual ity data, we again begin with the CY 2013 NRS conversion factor ($53.97) a nd apply the 2.58 percent rebasi ng adjustment calculated in section II.D.3. of this proposed rule (1- 0.0258 = 0.9742). We then update the NRS conversion factor by the proposed CY 2014 HH market basket update of 2.4 percent, minus 2 percentage points. The CY 2014 NRS conversion factor for HHAs that do not submit quality data is shown

in Table 23.CMS-1450-P 90

TABLE 23: Proposed CY 2014 NRS Conversio n Factor for HHAs that DO NOT Submit the Required Quality Data CY 2013 NRS Conversion Factor 2014 Rebasing Adjustment CY 2014 HH market basket minus 2 percentage points Proposed CY 2014 NRS Conversion Factor $53.97 X 0.9742 X 1.004 $52.79

The payment amounts for the various severity levels based on the updated conversion factor for HHAs that do not submit quali ty data are calculated in Table 24.

TABLE 24: Proposed CY 2014 NRS Payment Amounts for HHAs that DO NOT Submit the Required Quality Data Severity Level Points (S coring) Relative Weight Proposed NRS Payment Amount 1 0 0.2698 $ 14.24 2 1 to 14 0.9742 $ 51.43 3 15 to 27 2.6712 $ 141.01 4 28 to 48 3.9686 $ 209.50 5 49 to 98 6.1198 $ 323.06 6 99+ 10.5254 $ 555.64

5. Rural Add-On Section 421(a) of the MMA required, for HH se rvices 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 would 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 furn ished in a rural area (a s defined in section 1886(d)(2)(D) of the Act), on or after Janua ry 1, 2006 and before January 1, 2007, that the Secretary increase the payment am ount otherwise made under sect ion 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 toCMS-1450-P 91

provide an increase of 3 percen t of the payment amount otherw ise made under section 1895 of

the Act for HH services furnished in a rural area (as defined in section 18 86(d)(2)(D) of the Act), for episodes and visits ending on or afte r April 1, 2010, and before January 1, 2016. Section 421 of the MMA, as amended, waives bu dget neutrality related to this provision, as the statute specifically states that the Secr etary shall not reduce th e 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 applica tion of this section of

the statute. The 3 percent rural add-on is applied to the national, standard ized 60-day episode payment rate, national per-visit rates, LUPA ad d-on payment, and NRS conversion factor when HH services are provided in rural (non-CBSA) areas. Refer to Tables 25 through 28 for these payment rates. TABLE 25: Proposed CY 2014 Payment Amo unts for 60-Day Episodes for Services Provided in a Rural Area For HHAs that DO Submit Quality Data Fo r HHAs that DO NOT Submit Quality Data Proposed National Standardized 60- Day Episode Payment Rate Multiply by the 3 Percent Rural Add-On Proposed Rural National Standardized 60- Day Episode Payment Rate Proposed National Standardized 60- Day Episode Payment Rate Multiply by the 3 Percent Rural Add-On Proposed Rural National Standardized 60- Day Episode Payment Rate $2,860.20 X 1.03 $2,946.01 $2,804.34 X 1.03 $2,888.47

TABLE 26: Proposed CY 2014 Per-Visit Amount s for Services Provided in a Rural Area For HHAs that DO submit quality data For HHAs that DO NOT submit quality data HH Discipline Type Proposed per-visit

rate Multiply by the 3 PercentRural AddOn ProposedRural pervisit rate Proposed per-visit

rate Multiply by the 3 PercentRural AddOn ProposedRural pervisit rate HH Aide $54.91 X 1.03 $56.56 $53.84 X 1.03 $55.46 MSS $194.34 X 1.03 $200.17 $190.54 X 1.03 $196.26 OT $133.46 X 1.03 $137.46 $130.85 X 1.03 $134.78 PT $132.56 X 1.03 $136.54 $129.97 X 1.03 $133.87 SN $121.23 X 1.03 $124.87 $118.86 X 1.03 $122.43 SLP $144.03 X 1.03 $148.35 $141.22 X 1.03 $145.46CMS-1450-P 92

TABLE 27: Proposed CY 2014 NRS Conversion Factor for Services Provided in Rural Areas For HHAs that DO submit quality data Fo r HHAs that DO NOT submit quality data Proposed Conversion

Factor Multiply by the 3 PercentRural AddOn Proposed Rural Conversion

Factor Proposed Conversion

Factor Multiply by the 3 PercentRural AddOn Proposed Rural Conversion

Factor $53.84 X 1.03 $55.46 $52.79 X 1.03 $54.37

TABLE 28: Proposed CY 2014 NRS Payment Am ounts for Services Provided in Rural Areas For HHAs that DO submit quality data (NRS Conversion Factor=$55.46) For HHAs that DO NOT submit quality data (NRS Conversion Factor=$54.37) Severity

Level Points (Scoring) Relative Weight Total NRS Payment Amount for Rural Areas Relative Weight Total NRS Payment Amount for Rural Areas 1 0 0.2698 $14.96 0.2698 $14.67 2 1 to 14 0.9742 $54.03 0.9742 $52.97 3 15 to 27 2.6712 $148.14 2.6712 $145.23 4 28 to 48 3.9686 $220.10 3.9686 $215.77 5 49 to 98 6.1198 $339.40 6.1198 $332.73 6 99+ 10.5254 $583.74 10.5254 $572.27CMS-1450-P 93

F. Outlier Policy 1. Background Section 1895(b)(5) of the Act allows for the pr ovision 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 hi gh costs due to patient care needs. Prior to the enactment of the Affordable Care Act, section 1895(b)(5)of th e Act stipulated that projected total outlier payments could not exceed 5 percent of total pr ojected or estimated HH payments in a given year. In the Medicare Program ; Prospective Payment System for Home Health Agencies final rule (65 FR 41188 through 41190), we described th e method for determining outlier payments. Under this system, outlier payments are made for episodes whose estimated costs exceed a threshold amount for each HH Resource Group (HHRG) . The episode’s estimated cost is the sum of the national wage-adjuste d per-visit payment amounts for a ll visits delivered during the episode. The outlier threshold for each case-mi x group or PEP adjustment is defined as the 60-day episode payment or PEP adjustment for th at group plus a fixed-dollar loss (FDL) amount. The outlier payment is defined to be a proportion of the wage-a djusted estimated cost beyond the wage-adjusted threshold. The threshold amount is the sum of the wage and case-mix adjusted PPS episode amount and wage-adjusted FDL amo unt. The proportion of additional costs over the outlier threshold amount paid as outlier payments is referred to as th e 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, prim arily 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,CMS-1450-P 94

target and, in the absence of corrective measures , would continue do to so. Consequently, we assessed the appropriateness of taking action to cu rb outlier abuse. To mitigate possible billing

vulnerabilities associated with excessive outlie r 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 ta rget 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 pa yment 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 fina l rule (75 FR 70397 through 70399), section 3131(b)(1) of the Affordable Care Act amended section 1895(b)(3)(C) of th e Act. As amended, “Adjustment for outliers,” states that “The S ecretary 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 Ac t 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 a ddition or adjustment to theCMS-1450-P 95

payment amount otherwise made in the case of outli ers 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 para graph 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 pe rcent 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 f actor for CY 2010. We then reduced the rates by 5 percent as required by secti on 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1)

of the Affordable Care Act. For CY 2011 a nd subsequent calendar ye ars we target up to 2.5 percent of estimated total payments to be pa id 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 possibl e to select a higher lo ss-sharing ratio, and therefore, increase outlier payments for outlier episodes. Alternatively, a lower FDL ratio means that more episodes can qualify for outlier paymen ts, 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 per cent aggregate level (a s required by sectionCMS-1450-P 96

1895(b)(5)(A) of the Act). Historically, we have used a value of 0.80 fo r the loss-sharing ratio which, we believe, preserves incentives for agenci es 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 are not proposing a change to the losssharing ratio in this propos ed rule. 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 ra tio in CY 2012. Simulations based on CY 2010 claims data completed for the CY 2013 HH PPS fina l rule showed that outlier payments were estimated to comprise approximately 2.18 percen t 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 lowe ring the FDL ratio to 0.45, while maintaining a loss-sharin g ratio of 0.80, struck 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-adjus ted 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 befo re Medicare will pay 80 pe rcent of the additional

estimated costs. Based on simulations using preliminary CY 2012 claims data, the proposed CY 2014 payments rates in section III.E. in this proposed rule, and the FDL ratio of 0.45; we estimate that outlier payments would comprise approximately 1.82 percent of total HH PPS payments in CY 2014. Simulating payments using preliminary CY 2012 claims data and the CY 2013 payment rates (77 FR 67100 through 67105); we estimate that outlier payments would comprise 1.78 percent of total payments. Given the propos ed increases to the CY 2014 national per-visitCMS-1450-P 97

payment rates, our analysis estimates a 0.04 pe rcentage point increase in estimated 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, es timated outlier payments as a percent of total HH PPS payments would be approxi mately 1.94 percent. We note, however, that

these estimates do not take in to account any changes in utiliza tion that may have occurred in CY 2013, and would continue to occur in CY 2014, due to decreasing the FDL ratio from 0.67 percent to 0.45 percent. Therefore, we not proposing a change to the FDL ratio for CY 2014 as the claims data showing any utilizati on changes that may have resulted from an FDL of 0.45 will not be available for analysis until next year. In the final rule, we will update our estimate of outlier payments as a percent of to tal HH PPS payments using the best analysis the most current and complete year of HH PPS data a nd will continue to monito r the percen t of total HH PPS payments paid as outlier payments. 5. Outlier Relationship to the HH Payment Study As we discuss in section III.G. of this pr oposed rule, section 3131(d) of the Affordable Care Act requires CMS to conduct a study a nd 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.CMS-1450-P 98

G. Payment Reform: Home Health Study and Report

To address concerns that some benefici aries are at risk of not having access to Medicare HH services, and that the current HH PPS may encourage providers to adopt selective admission patterns, section 3131(d) of the Affordab le Care Act requires the Secretary to conduct a study on HHA costs involved with providing ongoi ng access to care to low-income Medicare

beneficiaries or benefici aries 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 ex amine the potential impacts of any potential revisions to the payment system. As we stated in the CY 2013 HH PPS proposed rule (77 FR 41572), we awarded a 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 pot ential HH PPS payment vulnerabilities and access issues, established and convened technical expert panel (TEP) m eetings and open door forums to help define the vulnerable patient populations and to gain insight on access issues these populations may face, and performe d preliminary analysis looking at resource costs versus

Medicare reimbursement. In September 2011, we awarded a study contra ct to L&M Policy Research, along with subcontractors Avalere Health, Mathematica Policy Research, and Social & Scientific Systems, to develop an analytic plan, perform deta iled analysis, and if necessary, developCMS-1450-P 99

recommendations for changes to the HH PPS. In 2012, we completed preliminary analyses on HHA costs associated with providing care for vul nerable patient populations. We presented our findings at a TEP meeting in December 2012 and r eceived extensive feedback on our analyses. We refined our analytic approach based on fee dback from the TEP meeting and we are in the process of performing the refined analyses. In a ddition to examining the co sts of providing care to vulnerable patient populations , we are assessing whether the vulnerable patient populations experience access issues and poten tial factors that may prevent access to care. To do so, we mailed out HHA and physician surveys on access to care for vulnerable populations in February 2013. We are in the process of collecti ng and analyzing the data from the surveys. The findings from our analysis of HHA cost s 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 ensu re access to care for these beneficiaries.

Methods to revise the curren t HH PPS could include payment adjustments for services that involve either more or fewer resources, changes to reflect resources i nvolved with providing HH

services to low-income Medicare beneficiaries or Medicare bene ficiaries residing in medically underserved area, and ways outlier payments c ould be revised to refl ect costs of treating Medicare beneficiaries with high severity of illness. In additi on, as part of the study, we may analyze operational issues involve d 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 fo r legislation and admi nistrative action, and

recommendations for whether further research is needed. The Congress also provided CMS withCMS-1450-P 100

the authority to conduct a separate demonstratio n 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.CMS-1450-P 101

H. Cost Allocation of Survey Expenses In the CY 2013 HH PPS proposed rule (77 FR 41548), we proposed to amend §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 §431.610(g). Surveys are required for determining a provide r’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 progra ms in proportion to the benefits received. However, to provide more time for dialogue with states and for any necessary adjustments to state Medicaid Plans, we removed the propos ed provision at §431.610(g) in the for CY 2013 HH PPS final rule (77 FR 67068). We are now pr oposing to proceed to amend §431.610(g) with additional explanation of our proposal, updated cost information, and request for comment on our proposed methodologies. This proposed rule would clarify that a st ate Medicaid program mu st provide that, in certifying HHAs, the state’s designated survey agency must carry out certain other responsibilities that alrea dy apply to surveys of nursing facilities and Intermediate Care Facilities

for Individuals with Intellectua l Disabilities (IC F-IID), including sharing in the cost of HHA surveys. Section 431.610(g) provides for the availa bility of federal financ ial participation (FFP) in the cost of such surveys, except for expendi tures that the survey agency makes that are

attributable to the state’s overall responsibilities under st ate law and regulations. We believe that the principles articulated in OM B Circular A-87 require that HHA survey costs be allocated toCMS-1450-P 102

Medicaid, Medicare and state-onl y programs in proportion to the be nefits received. However, we also believe that the proposed amendmen t to §431.610(g) would add clarity, and that a proposed rule will offer states and the public additional opportunity to comment or pose questions that will furthe r aid adherence to the appropriate cost allocation principles. We further invite public comment on our proposed methods to ensure compliance with these requirements. Specifically, we propose to review each stat e’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 woul d 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 nursi ng homes, an approach we consider to be more straight-forward and economical co mpared with calculation of unique percentages that vary state-to-sta te and year-by-year. Most importa ntly, a 50/50 method best reflects the reality that Medicare and Medi caid requirements for home hea lth 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 HHS survey costs would be to fix each state’s Medicaid share each year based on the proportion of Medicai d 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 adopt ed for the disbursement of civil monetary penalties (CMPs) in th e CY 2013 HH PPS proposed rule (77 FR 41548). However, the effective date of HHA CMPs is not until July 1, 2014. Ou r preparations for imposing such CMPs in 2014

indicate that the annua l data collection and calculations n ecessary for that methodology are (a)CMS-1450-P 103

more complicated and burdensome than necessary, (b) involve an inherent data lag that could create uncertainty for states and CMS in prepar ing 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 expansi on of Medicaid under the Afford able Care Act (which could increasingly enlarge the state Medicaid share) and (e) would not recogniz e that both Medicare and Medicaid programs benefit from the regulati ons. Therefore, we believe that the more efficient and advantageous method, for both CM S 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/NF nursing homes. We invite comment not only on the 50/50 allocation method for the costs of HHA survey expenses, but on whether th e method of distribution for CMP receipts back to states and to the U.S. Treasury shoul d 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 impl emented 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 administ rative cost, reimbursable at th e professional staff rate of 75 percent. Therefore, the st ate Medicaid share will be approximately $4.65 million on an annualized basis. The $4.65 million cost is spr ead out over the 53 states/jurisdictions that currently conduct surveys under section 1864 of the Act. However, the proposed adherence date of July FY 2014 would reduce the Medicaid aggr egate share to approximately $4.65 million (for 3 months of the annual $18.6 million aggregat e cost) and the state Medicaid share to approximately $1.16 million (25 percent of expe nses for the last quarter of FY 2014).CMS-1450-P 104

IV. Collection of Information Requirements Under the Paperwork Reduction Act of 1995, we are required to provi de 60-day notice in the Federal Register and solicit public comment before a coll ection 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 co llection 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 inform ation collection burden on the affected public, including automate d 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 percen t of salary, which is based on the March 2011 Employer Costs for Employee Compensation report by the Bureau. We are soliciting public comment on each of the section 3506(c)(2)(A)-required issues for the following information collection requirements (ICRs):

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 III E.2a, this proposed rule does not re vise any of its information collection requirementsCMS-1450-P 105

or burden estimates and, therefore, does not re quire additional OMB revi ew under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

B. ICRs Regarding Cost Allocation of Home Health Agency (HHA) Survey Expenses (§431.610) In §431.610, HHAs would be added to the survey agency provision concerning Medicaid state plans. Since CMS already requires the state survey agen cies to have qualified personnel perform onsite inspections as approp riate, we believe that the require ment to use qualified staff is met in the current state Medicaid plans. As explained in the preamble (section H, Cost Allocation of Survey Expenses), we also expect that the state Medicaid plans will provide for the appropriate Medicaid share of expenses for th e conduct of HHA surveys. This is a budgeting task for which there may be some incidental info rmation collection burden. For some states we believe the information collection responsibility ma y be met within the c ontext of their current state plan, while other states may need to make a simple amendment to their state Medicaid plan via use of the existing CMS-179 form (OCN 09 38-0193). While CMS-179 would be the vehicle for transmitting the amendment to CMS, the amendment will be submitted to OMB for their review/approval under CMS-10489 (OCN 0938-NEW).

Consistent with time estimates for similar ta sks, the time required to complete this information collection is estimated to average 15 minutes per response, including the time to review instructions, search existing data resour ces, gather the data needed, and complete and review the information collection. If all states, DC, and 2 territories needed to make such a state plan amendment, the aggregate hours woul d be 13.25 non-recurring hours (15/60 * 53). Applying a national average pr ofessional surveyor cost pe r hour of approximately $50.23 (inclusive of salary and fringe benefits), we estimate that the maximum information collectionCMS-1450-P 106

cost would be approximately $667 ($50.23 * 13.25) if all states needed to file a state plan

amendment. Apart from the SPA-related requirements, this proposed rule would not revise any budget-related recordkeeping or re porting requirements or estimat es and, therefore, does not require additional OMB review under the author ity of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

C. ICRs Regarding Home Hea lth Care CAHPS® (HHCAHPS ®) Survey (§484.250) As part of the DHHS Transparency Initia tive on Quality Reporting, CMS implements the HHCAHPS® Survey to measure and to publicly report patients’ e xperiences with home health care they receive from Medicare-certified agen cies. Section 484.250, Patient Assessment Data, requires that HHAs submit to CMS, HHCAHPS® data in order to administer the payment rate methodologies described in §§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® data, the patients’ burden to respond to the HHCAHPS® survey, and the cost to the HHAs to pay for the HHCAHPS® survey vendors to coll ect the data on their behalf. This burden is currently accounted for under OCN 0938-1066 (CMS-10275).

CMS allows Medicare-certified home h ealth agencies that serve 59 or fewer HHCAHPS® eligible patients, to request an ex emption from participating in the HHCAHPS® survey. Currently, we have posted the HHCAH PS® Participation Exemption Request (PER) Form for the CY 2015 Annual Payment Update on https://homehealthcahps.org . This form is in use without an OMB control number (OCN). The form is only to be used if home health agencies have 59 or fewer HHCAHPS® eligible pati ents in the count period that is referenced for a given calendar year. For the CY 2015 annua l payment update, home health agencies withCMS-1450-P 107

59 or fewer HHCAHPS® patients in the peri od of April 2012 through March 2013 are exempt from participation in the HHCAHPS® Survey from April 2013 through March 2014, if they complete the HHCAHPS Participation Exem ption Request Form for the CY 2015 Annual Payment Update, and the counts are verified in the CMS database for the same period. We are revising OCN 0938-1066 by adding the HHCAHPS® Par ticipation Exemption Request Form for the CY Annual Payment Update and by adding our estimated burden that the form presents to Medicare-certified home health agencies.

The HHCAHPS® PER Form for the CY 2015 Annual Payment Update is a one-page

form. We estimate that it would take 15 minutes to complete the form since it only has a few items to complete including one item concerning the count of HHCAHPS® eligible patients in an annual period. We believe that it would take an additional 20 minutes to count the patients and to verify the count. The annualized aggregat ed total burden to completion of the form would be 1,160 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 follo wing 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 proposed ru le to OMB for its review of the rule’s

information collection and record keeping requirements. These requirements are not effective until they have been approved by the OMB.CMS-1450-P 108

To obtain copies of the supporting statem ent and any related forms for the proposed paperwork collections referenced above, access CMS’ Web site at www.cms.gov/Regulations-and-Guidance/Le gislation/PaperworkReductionActof1995/ , or call the Reports Clearance Office at 410–786–1326. We invite public comments on these potential information collection requirements. If you

comment on these information collection and recor dkeeping requirements, please do either of the following: 1. Submit your comments electronically as sp ecified in the ADDRESSES section of this proposed rule; or 2. Submit your comments to the Office of Info rmation and Regulatory Affairs, Office of Management and Budget, Attention: CMS Desk Officer, (CMS–1450–P) Fax: (202) 395–6974; or E-mail: OIRA_submission@omb.eop.gov

. V. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the "DATES" section of this preamble, and when we proceed with a subse quent document, we will respond to the comments in the preamble to that document.CMS-1450-P 109

VI. Regulatory Impact Analysis

A. Introduction We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (Septemb er 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regul atory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, secti on 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 Congres sional 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 notice has been designated as economically significant rule, under section 3(f)(1)of Executive Order 12866. Accord ingly, 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, s ection 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 th at such amounts be initially based on the most recent audited cost report data available to th e Secretary, and (2) the st andardized prospectiveCMS-1450-P 110

payment amount be adjusted to account for th e effects of case-mix and wage levels among HHAs. Section 1895(b)(3)(B) of the Act addresses th e 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 ad justed for case-mix and geographic differences in wage levels. Section 1895(b)(4 )(B) of the Act requir es the establishment of appropriate casemix adjustment factors for significant variation in costs among different units of services. Lastly, section 1895(b)(4)(C) of th e Act requires the esta blishment of wage adjustment factors

that reflect the relative level of wages, and wage-related co sts applicable to HH services furnished in a geographic area compared to the applicable national average level. Section 1895(b)(5) of the Ac t 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. Sect ion 1895(b)(3)(B)(v) of th e Act requires HHAs to submit data for purposes of measuring health car e quality, and links the quality data submission to the annual applicable percen tage increase. Also, section 1886(d)(2)(D) of the Act requires that HH services furnished in a rural area for ep isodes 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 nati onal, standardized 60-da y episode payment rate and other amounts applicable unde r 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 averag e cost of providing care per episode, and otherCMS-1450-P 111

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 equa l increments, not to ex ceed 3.5 percent of the amount (or amounts) in any given year, applicab le 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 proposed rule applies to Medicare pa yments 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 $290 million in decreased payments to HHAs in CY 2014. The impact of the wage index would be a decrease of $40 million. However, we applied a standardizati on factor to the rates as discussed earlier. Therefore, the net effect of the wage index impact is zero dollars. The $290 million impact

reflects the distributional eff ects of the 2.4 percent HH payment update percentage ($460 million increase), the effects of the rebasing adjustment s to the national, sta ndardized 60-day episode payment rate, the national per-visit payment rates, and the NRS conversion factor ($650 million decrease), and the effects of ICD-9 coding adjustments ($100 million decrease). The $290 million in savings is reflected in the last column of the first row in Table 29 as a 1.5 percent decrease in expenditures when compari ng the CY 2013 HH PPS to the proposed CY 2014 HH

PPS. 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 entit ies. For purposes of the RFA,

small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals a nd most other providers and supplie rs 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.CMS-1450-P 112

For the purposes of the RFA, we estimate that almo st all HHAs are small entities as that term is

used in the RFA. Individuals a nd states are not included in the de finition of a small entity. The Secretary has determined that this proposed rule would not have a significant economic impact

on a substantial number of small entities.

A discussion on the alternatives considered is presented in section VI.E. of this proposed rule. The following analysis, with the rest of th e preamble, constitutes our initial RFA analysis. We solicit comment on the RFA analysis provided. In addition, section 1102(b) of th e 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 s ection 603 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 proposed rule applies to HHAs. Therefore, the Secretary has determined that this proposed rule would 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 do llars, updated annually for inflation. In 2013, that threshold is approximately $141 million. This proposed rule is not anticipated to have an effect on state, local, or trib al governments in the aggregate, or by the private sector, of $141

million or more. D. Detailed Economic Analysis This proposed rule sets forth updates to the HH PPS rates contained in the CY 2013 HH PPS final rule. The impact analysis of this pr oposed rule presents the estimated expenditureCMS-1450-P 113

effects of policy changes proposed in this rule. We use the la test data and best analysis available, but we do not make adjustments for fu ture changes in such variables as number of

visits or case-mix. This analysis incorporates the latest estimat es of growth in service use and payments under the Medicare HH benefit, based primarily on preliminary 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 newlylegislated general Medicare program funding changes made by the Congress, or changes specifically related to HHAs. In addition, change s to the Medicare program may continue to be made as a result of the Affordable Care Act, or new statutory provi sions. Although these changes may not be specific to the HH PPS, the na ture of the Medicare program is such that the changes may interact, and the co mplexity of the interaction of these changes could make it difficult to predict accurately the full scope of the impact upon HHAs. Table 29 represents how HHA revenues are likel y to be affected by the policy changes proposed in this rule. For this analysis, we used linked CY 20 12 HH claims and OASIS assessments; the claims are for dates of service that started on or before May 31, 2012. The first column of Table 29 classifies HHAs according to a number of characteristics including provider type, geographic region, and urban and rural loca tions. The third column shows the payment effects of the wage index only. Th e fourth column shows the effect s of the standardization factor only. The fifth column shows the effects of the rebasing adjustments to the national, standardized 60-day episode pa yment rate, the national per-vi sit payment rates, and NRS conversion factor; the 2014 wage index; and stan dardization. The sixth column displays theCMS-1450-P 114

effects of ICD-9 coding changes an d the seventh column shows the effects of the market basket increase. The last column shows the payment e ffects of all the proposed policies. For CY 2014, the average impact for all HHAs due to the eff ects of rebasing is a 3.4 percent decrease in payments. The overall impact for all HHAs, in estimated total payments from CY 2013 to CY 2014, is a decrease of approxi mately 1.5 percent.

TABLE 29: Proposed Home Health Agency Policy Impacts for CY 2014, by Facility Type and Area of the Country

Number of Agencies Proposed CY 2014

Wage Index Standardization Proposed Rebasing, 2014 Wage Index, and Standardization 1 Proposed ICD-9 Coding Changes CY 2014 HH Market Basket Impact of All CY

2014 Policies All Agencies 11,152 -0.2% 0.2% -3.4% -0.5% 2.4% -1.5% Facility Type and Control Free-Standing/Other Vol/NP 1,042 0.2% 0.3% -2.9% -0.3% 2.4% -0.8% Free-Standing/Other Proprietary 8,511 -0.3% 0.2% -3.5% -0.6% 2.4% -1.7% Free-Standing/Other Government 420 -0.3% 0.1% -3.6% -0.4% 2.4% -1.6% Facility-Based Vol/NP 810 0.0% 0.2% -3.1% -0.3% 2.4% -1.0% Facility-Based Proprietary 122 -0.1% 0.1% -3.4% -0.4% 2.4% -1.4% Facility-Based Government 247 -0.2% 0.1% -3.5% -0.4% 2.4% -1.5% Subtotal: Freestanding 9,973 -0.2% 0.2% -3.4% -0.5% 2.4% -1.5% Subtotal: Facility-based 1,179 0.0% 0.2% -3.2% -0.3% 2.4% -1.1% Subtotal: Vol/NP 1,852 0.1% 0.2% -3.0% -0.3% 2.4% -0.9% Subtotal: Proprietary 8,633 -0.3% 0.2% -3.5% -0.6% 2.4% -1.7% Subtotal: Government 667 -0.3% 0.1% -3.5% -0.4% 2.4% -1.5% Facility Type and Control: Rural Free-Standing/Other Vol/NP 222 0.2% 0.1% -3.0% -0.3% 2.4% -0.9% Free-Standing/Other Proprietary 159 -0.3% 0.1% -3.6% -0.4% 2.4% -1.6% Free-Standing/Other Government 513 -0.3% 0.1% -3.6% -0.5% 2.4% -1.7% Facility-Based Vol/NP 279 0.1% 0.1% -3.2% -0.3% 2.4% -1.1% Facility-Based Proprietary 43 0.2% 0.1% -3.1% -0.4% 2.4% -1.1% Facility-Based Government 159 0.1% 0.1% -3.2% -0.3% 2.4% -1.1% Facility Type and Control: Urban Free-Standing/Other Vol/NP 882 0.2% 0.3% -2.9% -0.3% 2.4% -0.8% Free-Standing/Other Proprietary 8,148 -0.3% 0.2% -3.5% -0.6% 2.4% -1.7%CMS-1450-P 115

Number of Agencies Proposed CY 2014

Wage Index Standardization Proposed Rebasing, 2014 Wage Index, and Standardization 1 Proposed ICD-9 Coding Changes CY 2014 HH Market Basket Impact of All CY

2014 Policies Free-Standing/Other Government 159 -0.4% 0.1% -3.6% -0.4% 2.4% -1.6% Facility-Based Vol/NP 531 0.0% 0.2% -3.1% -0.3% 2.4% -1.0% Facility-Based Proprietary 79 -0.2% 0.1% -3.5% -0.4% 2.4% -1.5% Facility-Based Government 88 -0.5% 0.2% -3.6% -0.4% 2.4% -1.6% Facility Location: Urban or Rural 0.0% Rural 1,265 -0.1% 0.1% -3.4% -0.4% 2.4% -1.4% Urban 9,887 -0.2% 0.2% -3.4% -0.5% 2.4% -1.5% Facility Location: Region of the Country North 837 0.6% 0.4% -2.4% -0.3% 2.4% -0.3% Midwest 2,950 -0.5% 0.1% -3.7% -0.4% 2.4% -1.7% South 5,544 -0.5% 0.1% -3.7% -0.6% 2.4% -1.9% West 1,772 0.4% 0.3% -2.7% -0.4% 2.4% -0.7% Other 49 0.8% 0.1% -2.4% -0.2% 2.4% -0.2% Facility Location: Region of the Country (Census Region) New England 320 0.4% 0.3% -2.7% -0.3% 2.4% -0.6% Mid Atlantic 517 0.8% 0.4% -2.3% -0.3% 2.4% -0.2% East North Central 2,210 -0.6% 0.1% -3.8% -0.4% 2.4% -1.8% West North Central 740 -0.2% 0.1% -3.4% -0.4% 2.4% -1.4% South Atlantic 2,046 -0.6% 0.1% -3.8% -0.5% 2.4% -1.9% East South Central 436 -0.4% 0.1% -3.7% -0.4% 2.4% -1.7% West South Central 3,062 -0.3% 0.1% -3.6% -0.9% 2.4% -2.1% Mountain 638 0.0% 0.2% -3.2% -0.4% 2.4% -1.2% Pacific 1,134 0.6% 0.3% -2.5% -0.4% 2.4% -0.5% Facility Size (Number of 1st Episodes) < 100 episodes 3,385 -0.2% 0.2% -3.5% -0.6% 2.4% -1.7% 100 to 249 2,971 -0.4% 0.2% -3.6% -0.6% 2.4% -1.8% 250 to 499 2,237 -0.4% 0.2% -3.6% -0.6% 2.4% -1.8% 500 to 999 1,477 -0.2% 0.2% -3.4% -0.5% 2.4% -1.5% 1,000 or More 1,082 -0.1% 0.2% -3.2% -0.4% 2.4% -1.2% 1 The impact of rebasing includes the re basing adjustments to the national, standardized 60-day episode payment rate, the national per-visit rates, and the NRS convers ion factor and also includes the impact of the proposed LUPA add-on factors. The estimated impact of the NRS conversion factor rebasing adjustment, of -2.58 percent, is an overall -0.043 percent decrease in estimated payments to HHAs . The estimated impact of the pr oposed LUPA add-on factors is an overall 0.007 percent increase in payments to HHAs.

REGION KEY: New England= Connecticut, Maine, Massac husetts, 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, WestCMS-1450-P 116

Virginia; East North Central= Illinois, Indiana, Michigan, Ohio, Wisconsin; East South Central= Alabama, Kentucky, Mi ssissippi, 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 in section III.D. of this proposed rule, “Rebasing the National, Standardized 60-day Episode Payment Rate, LUPA Per-Vis it Payment Amounts, a nd Nonroutine Medical Supply (NRS) Conversion Factor,” the Affordable Care Act mandates that we rebase payments starting in CY 2014. In that section, we described our methodology for calculating the adjustments to the national, sta ndardized 60-day episode payment ra te and per-visit rates. We

note that additional factors were considered but not incorporated into the methodology for calculating the rebasing adjustments. One such fact or is a downward adjustment to the costs pervisit 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 cost s by an average of about 8 percent. Given this finding, we considered downward adjusting the cost s 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, standard ized 60-day episode payment rate to fund the 2.5 percent outlier pool. Given this mandate, we consid ered setting our target national, standardized 60-day episode payment rate for rebasing at 5 per cent below the estimated cost per episode that we derived from the 2011 cost reports. We plan to continue to evaluate these alternative factors for rebasing and may consider inco rporating these factor s into the CY 2014 HH PPS final rule. In addition to the rebasing adjustments, we considered implementing a prospectiveCMS-1450-P 117

reduction for nominal case-mix growth for CY 2014. In the past, various sources have suggested implementing a prospective nominal case-mix gr owth adjustment, which would attempt to predict the amount of nominal cas e-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 adjustment s retrospectively. That is, we use the most recent, complete data available—typically two to three years prio r to the payment year—to identify nominal casemix growth, and implement a payment reducti on to account for the observed growth. The payment reductions for nominal case-mix growth do not attempt to re-coup overpayments made in previous years due to nomina l case-mix growth. We plan to continue to monitor case-mix growth (both real and nominal case-mix growth ) as more data become available and will consider implementing prospective reductions, as well as other possible approaches, to address nominal case-mix growth in future rulemaking. F. Cost Allocation of Survey Expenses We project that aggregate Medicare and Me dicaid HH survey costs in FY 2014 will be approximately $37.2 million. As these costs would be assigned 50 percent to Medicare and 50 percent to Medicaid for each state, the anti cipated national Medicaid share would amount to $18.6 million, if implemented at the beginning of FY2014. However, the proposed adherence date of July FY 2014 would reduce the Medi caid 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 per cent. State costs for Medicaid HH surveys incurred in FY 2014, with an adherence date of July FY 2014, woul d be approximately $1.16 million (25 percent of the aggregate $4. 65 million Medicaid cost for the la st quarter of the FY), spread out across all states and two territories. While we regard Medicai d fair share of costs to reflect an existing costCMS-1450-P 118

allocation principle, the methods for making the appr opriate determinations have not been clear. Therefore, in this rule we de lineate those methods and provide th at the Medicaid responsibility

be reflected in the state Medicaid Plan. G. Accounting Statement and Table As required by OMB Circ ular A-4 (available at http://www.whitehouse.gov/om b/circulars_a004_a-4 ), in Tables 30 and 31, we have prepared an accounting statement showing the cla ssification of the transfers associ ated with the provisions of this proposed rule. Table 30 provi des our best estimate of the d ecrease in Medicare payments under the HH PPS as a result of the changes presented in this proposed rule.

TABLE 30: Accounting Statement: Classifi cation of Estimated Transfers, from the CY 2013 HH PPS to the CY 2014 HH PPS Category Transfers Annualized Monetized Transfers -$290 million From Whom to Whom? Federal Government to HH providers

Table 31 provides our best estimate of the propos ed changes in the classification of the cost allocation of survey expenses.

TABLE 31: Accounting Statement: Classificati on of Estimated Transfers Relating to the

Medicare and Medicaid Home Health Survey and Certification Costs, FYs 2013 to 2014CMS-1450-P 119

Category Transfers Federal Medicaid HH Survey & Certification Costs Annualized Monetized Transfers $17.44 Million From Whom to Whom? Federal Governme nt to Medicaid HH Survey Agencies State Medicaid HH Survey & Certification Costs Annualized Monetized Transfers $1.16 Million From Whom to Whom? State Government s to Medicaid HH Survey Agencies Medicare HH Survey & Certification Costs Annualized Monetized Transfers -$18.6 Million From Whom to Whom? Federal Government to Medicare HH Survey Agencies H. Conclusion In conclusion, we estimate that the net im pact of the proposals in this rule is approximately $290 million in CY 2014 savings. The $290 million reflects the distributional effects of an updated wage index ($40 million de crease), a standardization factor to ensure budget neutrality in episode paym ents using the 2014 wage index ($40 million increase), the 2.4 percent HH payment update percentage ($460 mill ion increase), the ICD-9 grouper refinement ($100 million decrease), and the rebasing adju stments required by section 3131(a) of the Affordable Care Act ($650 million decrease). This analysis, together with the remainder of this preamble, provides a RIA. VII. Federalism Analysis Executive Order 13132 on Federalism (August 4, 1999) establishes certa in requirements that an agency must meet when it promulgates a final rule that imposes substantial direct requirement costs on state and local governme nts, preempts state law, or otherwise has Federalism implications. This rule would have no substantial direct effect on state and local governments, preempt state law, or ot herwise have Federalism implications.CMS-1450-P 120

List of Subjects in 42 CFR Part 431 Grant programs-health, Health facilitie s, Medicaid, Privacy, and Reporting and recordkeeping requirementsCMS-1450-P 121

For the reasons set forth in the preamble, the Centers for Medicare & Me dicaid Services would amend 42 CFR chapter IV as set forth below:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION 1. The authority citation for part 43 1 continues to read as follows: Authority: Sec. 1102 of the Social Securi ty Act, (42 U.S.C. 1302). 2. Section 431.610 is amended by revising para graph (g) introductory text to read as

follows: §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 th is section will --

* * * * *CMS-1450-P

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

Dated: June 10, 2013.

_______________________________ Marilyn Tavenner,

Administrator , Centers for Medicare & Medicaid Services

.

Approved: June 14, 2013.

__________________________________ Kathleen Sebelius, Secretary , Department of Health and Human Services

. BILLING CODE 4120-01-PCMS-1450-P

<FRDOC> [FR Doc. 2013–15766 Filed 6–27–13; 1:37 pm] <BILCOD>BILLING CODE 4120–01–P

[FR Doc. 2013-15766 Filed 06/27/2013 at 4:15 pm; Publication Date: 07/03/2013]