```

[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Proposed Rules]
[Pages 40271-40308]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15766]

[[Page 40271]]

Vol. 78

Wednesday,

No. 128

July 3, 2013

Part II

 Department of Health and Human Services

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 Centers for Medicare & Medicaid Services

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42 CFR Part 431

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

Federal Register / Vol. 78, No. 128 / Wednesday, July 3, 2013 / 
Proposed Rules

[[Page 40272]]

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

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the Home Health Prospective 
Payment System (HH PPS) rates, including the national, standardized 60-
day episode payment rates, the national per-visit rates, the low-
utilization payment adjustment (LUPA) add-on, 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 rebasing adjustments, with a 4-year phase-in, to the 
national, standardized 60-day episode payment rates; the national per-
visit rates; and the NRS conversion factor. Finally, the proposed rule 
would 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 health agencies, 
the state's designated survey agency must carry out certain other 
responsibilities that already apply to surveys of nursing facilities 
and Intermediate Care Facilities for Individuals with Intellectual 
Disabilities (ICF-IID), including sharing in the cost of HHA surveys. 
For that portion of costs attributable to Medicare and Medicaid, we 
would assign 50 percent to Medicare and 50 percent to Medicaid, the 
standard method that CMS and states use in the allocation of expenses 
related to surveys of SNF/NF nursing homes.

DATES: To be assured consideration, comments must 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 cannot 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: 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 deliver (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 Hubert 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 stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)

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 comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Kristine Chu, (410) 786-8953, for 
information about rebasing and the HH payment reform study and report. 
Jenny Filipovits, (410) 786-8141, for information about cost allocation 
of survey expenses. Mollie Knight, (410) 786-7948, for information 
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, for information about HH CAHPS[supreg].

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable 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 Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & 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 view 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 Refinements, Effective January 1, 
2014
    B. International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) Conversion and Diagnosis Reporting 
on Home Health Claims
    1. International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) 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-

[[Page 40273]]

Visit Payment Amounts, and Nonroutine Medical Supply (NRS) 
Conversion Factor
    1. Rebasing the National, Standardized 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 Quality 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. Background
    2. Regulatory Updates
    3. Statutory Updates
    4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    5. Outlier Relationship to the Home Health Study and Report
    G. Payment Reform: Home Health Study and Report
    H. Cost Allocation of Survey Expenses
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 their corresponding terms in alphabetical order below:

ACA The Affordable Care Act.
ACH LOS Acute care hospital length of stay.
ADL Activities of daily living.
AHRQ Agency for Healthcare Research and Quality.
APU Annual payment update.
BBA Balanced Budget Act of 1997 (Pub. L. 105-33, enacted August 5, 
1997).
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (Pub. L. 106-113, enacted November 29, 1999).
CAD Coronary artery disease.
CAH Critical access hospital.
CAHPS[supreg] 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 obstructive pulmonary disease.
CVD Cardiovascular disease.
CY Calendar year.
DG Diagnostic group.
DHHS Department of Health and Human Services.
DM Diabetes mellitus.
DME Durable medical equipment.
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted February 
8, 2006).
FDL Fixed dollar loss.
FFP Federal financial participation.
FI Fiscal intermediaries.
FR Federal Register
FY Fiscal year.
GEM General equivalency mapping.
HAVEN Home assessment validation and entry system.
HCC Hierarchical condition categories.
HCIS Health care information system.
HH Home health.
HHABN Home health advance beneficiary notice.
HHAs Home health agencies.
HHCAHPS[supreg] Home Health Care Consumer Assessment of Healthcare 
Providers and Systems Survey.
HH PPS Home health prospective payment system.
HHQRP Home Health Quality Reporting Program.
HHRG Home health resource group.
HIPAA Health Insurance Portability Accountability Act of 1996 (Pub. 
L. 104-191, enacted August 21, 1996).
HIPPS Health insurance prospective payment system.
ICD-9 International Classification of Diseases, 9th Edition.
ICD-9-CM International Classification of Diseases, 9th Edition, 
Clinical Modification.
ICD-10 International Classification of Diseases, 10th Edition.
ICD-10-CM International Classification of Diseases, 10th Edition, 
Clinical Modification.
ICF-IID Intermediate care facilities for individuals with 
intellectual disabilities.
IH Inpatient hospitalization.
IPPS Acute Inpatient Prospective Payment System.
IRF Inpatient rehabilitation facility.
LTCH Long-term care hospital.
LUPA Low-utilization payment adjustment.
MAC Medicare Administrative Contractor.
MAP Measure applications partnership.
MedPAC Medicare Payment Advisory Commission.
MEPS Medical Expenditures Panel Survey.
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173, enacted December 8, 2003).
MSA Metropolitan statistical areas.
MSS Medical Social Services.
NF Nursing facility.
NQF National Quality Forum.
NRS Non-routine supplies.
OASIS Outcome & Assessment Information Set.
OBRA Omnibus Budget Reconciliation Act of 1987 (Pub. L. 100-2-3, 
enacted December 22, 1987).
OCESAA Omnibus Consolidated and Emergency Supplemental 
Appropriations Act (Pub. L. 105-277, enacted October 21, 1998).
OES Occupational employment statistics.
OIG Office of Inspector General.
OT Occupational therapy.
OMB Office of Management and Budget.
P4R Pay-for-reporting.
PAC-PRD Post-Acute Care Payment Reform Demonstration.
PEP Partial episode payment [Adjustment].
POC Plan of care.
PRRB Provider Reimbursement Review Board.
PT Physical therapy.
QAP Quality assurance plan.
QIES CMS Health Care Quality Improvement System.
PRRB Provider Reimbursement Review Board.
RAP Request for anticipated payment.
RF Renal failure.
RFA Regulatory Flexibility Act (Pub. L. 96-354, enacted on September 
19, 1980).
RHHIs Regional home health intermediaries.
RIA Regulatory impact analysis.
SCHIP State Children's Health Insurance Program.
SLP Speech-language pathology.
SN Skilled nursing.
SNF Skilled nursing facility.
TEP Technical Expert Panel.
UMRA Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted 
on March 22, 1995).

I. Executive Summary

A. Purpose

    This rule 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 episode payment rate, 
the national per-visit rates, the non-routine supplies (NRS) conversion 
factor, required under section 3131(a) of the Patient Protection and 
Affordable Care Act of 2010 (Pub. L. 111-148), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) 
(collectively referred to as the ``Affordable Care Act''). This 
proposed rule would also address: International Classification of 
Diseases, 9th Edition (ICD-9) grouper refinements; implementation of 
the International Classification of Diseases, 10th Edition (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

[[Page 40274]]

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) Grouper 
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 mix 
of services in an episode, the level of intensity of services in an 
episode, the average cost of providing care per episode, and other 
relevant factors. In addition, we must phase-in any adjustment over a 
4-year period in equal increments, not to exceed 3.5 percent of the 
amount (or amounts) in any given year, and be fully implemented by CY 
2017. As such, we are proposing rebasing adjustments to the national, 
standardized 60-day episode payment rate, the national per-visit rates, 
the NRS conversion factor, and an update to the LUPA add-on amount.
    Section 3131(d) of the Affordable Care Act also 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 associated with 
providing access to care for these populations. It also gives 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 improvements, if needed, based on the 
study findings and/or necessary additional analysis, in a Report to 
Congress due in March 2014. Our contractor held a Technical Expert 
Panel (TEP) meeting and a special Open Door Forum to gather input from 
the industry on the three vulnerable populations. We are currently 
conducting surveys of HHAs and physicians on access to care, and 
performing analyses of cost report and claims data to determine whether 
patient characteristics/types may be under-reimbursed. We will continue 
to collaborate with stakeholders, 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 care 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 subsequent year thereafter until further 
notice. Additionally, we propose two claims-based measures 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 number 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 principles and the 
statutes in 2014 with the goal of ensuring full compliance no later 
than July 2014. This proposed rule would clarify that a state Medicaid 
program must provide that, in certifying HHAs, the state's designated 
survey agency must carry out certain other responsibilities that 
already apply to surveys of nursing facilities (NF) and Intermediate 
Care Facilities for Individuals with Intellectual Disabilities (ICF-
IID), including sharing in the cost of HHA surveys. For that portion of 
costs attributable to Medicare and Medicaid, we would assign 50 percent 
to Medicare and 50 percent to Medicaid. This is the standard method 
that CMS and states use in the allocation of expenses related to 
surveys of 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          The overall economic impact
                                                       proposed rule include         of this proposed rule is an
                                                       paying more accurately for    estimated $290 million in
                                                       the delivery of home health   decreased payments to HHAs.
                                                       services.
Cost Allocation of HHA Survey                    N/A  The benefits of this rule     If implemented in the
 Expenses.                                             include clarifying that       beginning of FY 2014 we
                                                       state Medicaid programs       project that aggregate
                                                       must share in the cost of     Medicare and Medicaid home
                                                       HHA surveys. For that         health survey costs in FY
                                                       portion of costs              2014 would be approximately
                                                       attributable to Medicare      $37.2 million. As these
                                                       and Medicaid, we would        costs would be assigned 50
                                                       assign 50 percent to          percent to Medicare and 50
                                                       Medicare and 50 percent to    percent to Medicaid for
                                                       Medicaid.                     each state, the anticipated
                                                                                     national state 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.
----------------------------------------------------------------------------------------------------------------

[[Page 40275]]

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 PPS for 
all Medicare-covered HH services provided under a plan of care (POC) 
that were paid on a reasonable cost basis by adding section 1895 of the 
Act, entitled ``Prospective Payment For Home Health Services.'' Section 
1895(b)(1) of the Act requires the Secretary to establish a HH PPS for 
all costs of HH services paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires the following: (1) the 
computation of a standard prospective payment amount that includes all 
costs for HH services that would have been covered and paid for on a 
reasonable cost basis had the HH PPS not been in effect and that such 
amounts be initially based on the most recent audited cost report data 
available to the Secretary; and (2) the standardized prospective 
payment amount be adjusted to account for the effects of case-mix and 
wage levels among HHAs.
    Section 1895(b)(3)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the HH applicable percentage 
increase. Section 1895(b)(4) of the Act governs the payment 
computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act 
require the standard prospective payment amount to be adjusted for 
case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of an appropriate 
case-mix change adjustment factor for significant variation in costs 
among different units of services.
    Similarly, section 1895(b)(4)(C) of the Act requires the 
establishment of wage adjustment factors that reflect the relative 
level of wages, and wage-related costs applicable to HH services 
furnished in a geographic area compared to the applicable national 
average level. Under section 1895(b)(4)(C) of the Act, the wage-
adjustment factors used by the Secretary may be the factors used under 
section 1886(d)(3)(E) of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make additions or adjustments to the payment amount otherwise paid in 
the case of outliers due to unusual variations in the type or amount of 
medically necessary care. Section 3131(b)(2) of the Affordable Care Act 
revised section 1895(b)(5) of the Act so that total outlier payments in 
a given year would not exceed 2.5 percent of total payments 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 the new HH PPS for HH services as required by section 
4603 of the BBA, as subsequently amended by section 5101 of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act (OCESAA) for 
Fiscal Year 1999, (Pub. L. 105-277, enacted October 21, 1998); and by 
sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999, (Pub. L. 106-113, 
enacted November 29, 1999). The requirements include the implementation 
of a HH PPS for HH services, consolidated billing requirements, and a 
number of other related changes. The HH PPS described in that rule 
replaced the retrospective reasonable cost-based system that was used 
by Medicare for the payment of HH services under Part A and Part B. For 
a complete and full description of the HH PPS as required by the BBA, 
see the July 2000 HH PPS final rule (65 FR 41128 through 41214).
    Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 
109-171, enacted February 8, 2006) added 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, 65935), we implemented the pay-for-reporting requirement of the 
DRA, which was codified at Sec.  484.225(h) and (i). The pay-for-
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 the 
amendment to section 421(a) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173, 
enacted on December 8, 2003) as amended by section 5201(b) of the DRA. 
The amended section 421(a) of the MMA now requires, for HH services 
furnished in a rural area (as defined in section 1886(d)(2)(D) of the 
Act) for episodes and visits ending on or after April 1, 2010, and 
before January 1, 2016, that the Secretary increase, by 3 percent, the 
payment amount otherwise made under section 1895 of the Act.
    Section 3131(a) of the Affordable Care Act mandates that, starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment rate and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act mandates that 
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 applicable under section 1895(b)(3)(A)(i)(III) of the Act 
and be fully implemented in CY 2017.

B. System for Payment of Home Health Services

    Generally, Medicare makes payment under the HH PPS on the basis of 
a national, standardized 60-day episode payment rate that is adjusted 
for the applicable case-mix and wage index. The national, standardized 
60-day episode rate includes the six HH disciplines (skilled nursing, 
HH aide, physical therapy (PT), speech-language pathology (SLP), 
occupational therapy (OT), and medical social services (MSS)). Payment 
for 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 level by the NRS conversion factor (See section 
II.D.4.e. of this proposed rule). Payment for durable medical equipment 
(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 assign patients to a home health resource 
group (HHRG). The clinical severity level, functional severity level, 
and service utilization are computed from responses to selected data 
elements in the OASIS assessment

[[Page 40276]]

instrument and are used to place the patient in a particular HHRG. Each 
HHRG has an associated case-mix weight which is used in calculating the 
payment for an episode. Specifically, the 60-day episode base rate is 
multiplied by the case-mix weight when determining the payment for an 
episode.
    For episodes with four or fewer visits, Medicare pays national per-
visit rates based on the discipline(s) providing the services. An 
episode consisting of four or fewer visits within a 60-day period 
receives what is referred to as a LUPA. Medicare also adjusts the 
national, standardized 60-day episode payment rate for certain 
intervening events that are subject to a partial episode payment 
adjustment (PEP adjustment). For certain cases that exceed a specific 
cost threshold, an outlier adjustment may also be available.

C. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in the Federal Register. 
The August 29, 2007 final rule with comment period set forth an update 
to the 60-day national episode rates and the national per-visit rates 
under the Medicare prospective payment system for HHAs for CY 2008. The 
CY 2008 rule included an analysis performed on CY 2005 HH claims data, 
which indicated a 12.78 percent increase in the observed case-mix since 
2000. Case-mix represents the variations in conditions of the patient 
population served by the HHAs. Subsequently, a more detailed analysis 
was performed on the 2005 case-mix data to evaluate if any portion of 
the 12.78 percent increase was associated with a change in the actual 
clinical condition of HH patients. We examined data on demographics, 
family severity, and non-HH Part A Medicare expenditures to predict the 
average case-mix weight for 2005. We identified 8.03 percent of the 
total case-mix change as real, and therefore, decreased the 12.78 
percent of total case-mix change by 8.03 percent to get a final nominal 
case-mix increase measure of 11.75 percent (0.1278 * (1 - 0.0803) = 
0.1175).
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, we implemented a reduction 
over 4 years 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 and deferred finalizing a payment 
reduction for CY 2012 until further study of the case-mix change data 
and methodology was completed.
    In the CY 2012 HH PPS final rule (76 FR 68526), we updated the 60-
day national episode rates and the national per-visit rates. In 
addition, as discussed in the CY 2012 HH PPS final rule (76 FR 68528), 
our analysis indicated that there was a 22.59 percent increase in 
overall case-mix from 2000 to 2009 and that only 15.76 percent of that 
overall observed case-mix percentage increase was due to real case-mix 
change. As a result of our analysis, we identified a 19.03 percent 
nominal increase in case-mix. To fully account for the 19.03 percent 
nominal case-mix growth which was identified from 2000 to 2009, we 
finalized a 3.79 percent payment reduction in CY 2012.
    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 measure of case-mix change (23.90 percent) and the 15.97 percent 
of total case-mix change estimated as real from 2000 to 2010, we 
obtained a final nominal case-mix change measure of 20.08 percent from 
2000 to 2010 (0.2390 * (1 - 0.1597) = 0.2008). To fully account for the 
remainder of the 20.08 percent increase in nominal case-mix beyond that 
which was accounted for in previous payment reductions, we estimated 
that the percentage reduction to the national, standardized 60-day 
episode rates for nominal case-mix change would be 2.18 percent. We 
considered proposing a 2.18 percent reduction to account for the 
remaining increase in measured nominal case-mix; however, we moved 
forward with the 1.32 percent payment reduction to the national, 
standardized 60-day episode rates in the CY 2012 HH PPS final rule (76 
FR 68532).

III. Provisions of the Proposed Rule

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

    CMS clinical staff (along with clinical and coding staff from Abt 
Associates (our support contractor) and 3M (our HH PPS grouper 
maintenance 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 submission system, is the official 
grouping software of the HH PPS. As a result of that review, we 
identified two categories of codes, made up of 170 ICD-9-CM diagnosis 
codes, which we are proposing to remove from the HH PPS Grouper, 
effective January 1, 2014. The first category (Category 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 condition could not be appropriately cared for in a HH 
setting. These codes likely reflect conditions the patient had prior to 
the HH admission (for example, while being treated in a hospital 
setting). It is anticipated that the condition progressed to a less 
acute state, or is completely resolved for the patient to be cared for 
in the home setting (and that often times another diagnosis code would 
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 PPS 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 the category 
classification.

Table 2--ICD-9-CM Codes Removed From the HH PPS Grouper as of January 1,
                                  2014
------------------------------------------------------------------------
                                      ICD-9-CM Long
         ICD-9-CM  Code                description           Category
------------------------------------------------------------------------
003.1..........................  Salmonella septicemia..               1
250.20.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, not stated as
                                  uncontrolled.
250.21.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  I [juvenile type], not
                                  stated as uncontrolled.
250.22.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  II or unspecified
                                  type, uncontrolled.
250.23.........................  Diabetes with                         1
                                  hyperosmolarity, type
                                  I [juvenile type],
                                  uncontrolled.
250.30.........................  Diabetes with other                   1
                                  coma, type II or
                                  unspecified type, not
                                  stated as uncontrolled.

[[Page 40277]]

 
250.31.........................  Diabetes with other                   1
                                  coma, type I [juvenile
                                  type], not stated as
                                  uncontrolled.
250.32.........................  Diabetes with other                   1
                                  coma, type II or
                                  unspecified type,
                                  uncontrolled.
250.33.........................  Diabetes with other                   1
                                  coma, type I [juvenile
                                  type], uncontrolled.
282.42.........................  Sickle-cell thalassemia               1
                                  with crisis.
282.5..........................  Sickle-cell trait......               2
282.62.........................  Hb-SS disease with                    1
                                  crisis.
282.64.........................  Sickle-cell/Hb-C                      1
                                  disease with crisis.
282.69.........................  Other sickle-cell                     1
                                  disease with crisis.
285.1..........................  Acute posthemorrhagic                 1
                                  anemia.
289.52.........................  Splenic sequestration..               1
333.81.........................  Blepharospasm..........               2
333.84.........................  Organic writers' cramp.               2
333.93.........................  Benign shuddering                     2
                                  attacks.
333.94.........................  Restless legs syndrome.               2
348.5..........................  Cerebral edema.........               1
401.0..........................  Malignant essential                   1
                                  hypertension.
414.12.........................  Dissection of coronary                1
                                  artery.
447.2..........................  Rupture of artery......               1
493.21.........................  Chronic obstructive                   1
                                  asthma with status
                                  asthmaticus.
530.21.........................  Ulcer of esophagus with               1
                                  bleeding.
530.4..........................  Perforation of                        1
                                  esophagus.
530.7..........................  Gastroesophageal                      1
                                  laceration-hemorrhage
                                  syndrome.
530.81.........................  Esophageal reflux......               2
530.82.........................  Esophageal hemorrhage..               1
531.00.........................  Acute gastric ulcer                   1
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
531.01.........................  Acute gastric ulcer                   1
                                  with hemorrhage, with
                                  obstruction.
531.10.........................  Acute gastric ulcer                   1
                                  with perforation,
                                  without mention of
                                  obstruction.
531.11.........................  Acute gastric ulcer                   1
                                  with perforation, with
                                  obstruction.
531.20.........................  Acute gastric ulcer                   1
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.21.........................  Acute gastric ulcer                   1
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
531.31.........................  Acute gastric ulcer                   1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.40.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
531.41.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage, with
                                  obstruction.
531.50.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  perforation, without
                                  mention of obstruction.
531.51.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  perforation, with
                                  obstruction.
531.60.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
531.61.........................  Chronic or unspecified                1
                                  gastric ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
531.71.........................  Chronic gastric ulcer                 1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
531.91.........................  Gastric ulcer,                        1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
532.00.........................  Acute duodenal ulcer                  1
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
532.01.........................  Acute duodenal ulcer                  1
                                  with hemorrhage, with
                                  obstruction.
532.10.........................  Acute duodenal ulcer                  1
                                  with perforation,
                                  without mention of
                                  obstruction.
532.11.........................  Acute duodenal ulcer                  1
                                  with perforation, with
                                  obstruction.
532.20.........................  Acute duodenal ulcer                  1
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.21.........................  Acute duodenal ulcer                  1
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
532.31.........................  Acute duodenal ulcer                  1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.40.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage, without
                                  mention of obstruction.
532.41.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage, with
                                  obstruction.
532.50.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  perforation, without
                                  mention of obstruction.
532.51.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  perforation, with
                                  obstruction.
532.60.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
532.61.........................  Chronic or unspecified                1
                                  duodenal ulcer with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
532.71.........................  Chronic duodenal ulcer                1
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
532.91.........................  Duodenal ulcer,                       1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
533.00.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.01.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.10.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.
533.11.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.20.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
533.21.........................  Acute peptic ulcer of                 1
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.31.........................  Acute peptic ulcer of                 1
                                  unspecified site
                                  without mention of
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.40.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, without
                                  mention of obstruction.
533.41.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage, with
                                  obstruction.
533.50.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, without
                                  mention of obstruction.

[[Page 40278]]

 
533.51.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  perforation, with
                                  obstruction.
533.60.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, without
                                  mention of obstruction.
533.61.........................  Chronic or unspecified                1
                                  peptic ulcer of
                                  unspecified site with
                                  hemorrhage and
                                  perforation, with
                                  obstruction.
533.71.........................  Chronic peptic ulcer of               1
                                  unspecified site
                                  without mention of
                                  hemorrhage or
                                  perforation, with
                                  obstruction.
533.91.........................  Peptic ulcer of                       1
                                  unspecified site,
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
534.00.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage,
                                  without mention of
                                  obstruction.
534.01.........................  Acute gastrojejunal                   1
                                  ulcer, with
                                  hemorrhage, with
                                  obstruction.
534.10.........................  Acute gastrojejunal                   1
                                  ulcer with
                                  perforation, without
                                  mention of obstruction.
534.11.........................  Acute gastrojejunal                   1
                                  ulcer with
                                  perforation, with
                                  obstruction.
534.20.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage
                                  and perforation,
                                  without mention of
                                  obstruction.
534.21.........................  Acute gastrojejunal                   1
                                  ulcer with hemorrhage
                                  and perforation, with
                                  obstruction.
534.31.........................  Acute gastrojejunal                   1
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.40.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage,
                                  without mention of
                                  obstruction.
534.41.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer,
                                  with hemorrhage, with
                                  obstruction.
534.50.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with perforation,
                                  without mention of
                                  obstruction.
534.51.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with perforation, with
                                  obstruction.
534.60.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, without
                                  mention of obstruction.
534.61.........................  Chronic or unspecified                1
                                  gastrojejunal ulcer
                                  with hemorrhage and
                                  perforation, with
                                  obstruction.
534.71.........................  Chronic gastrojejunal                 1
                                  ulcer without mention
                                  of hemorrhage or
                                  perforation, with
                                  obstruction.
534.91.........................  Gastrojejunal ulcer,                  1
                                  unspecified as acute
                                  or chronic, without
                                  mention of hemorrhage
                                  or perforation, with
                                  obstruction.
535.01.........................  Acute gastritis, with                 1
                                  hemorrhage.
535.11.........................  Atrophic gastritis,                   1
                                  with hemorrhage.
535.21.........................  Gastric mucosal                       1
                                  hypertrophy, with
                                  hemorrhage.
535.31.........................  Alcoholic gastritis,                  1
                                  with hemorrhage.
535.41.........................  Other specified                       1
                                  gastritis, with
                                  hemorrhage.
535.51.........................  Unspecified gastritis                 1
                                  and gastroduodenitis,
                                  with hemorrhage.
535.61.........................  Duodenitis, with                      1
                                  hemorrhage.
535.71.........................  Eosinophilic gastritis,               1
                                  with hemorrhage.
536.1..........................  Acute dilatation of                   1
                                  stomach.
537.3..........................  Other obstruction of                  1
                                  duodenum.
537.4..........................  Fistula of stomach or                 1
                                  duodenum.
537.6..........................  Hourglass stricture or                1
                                  stenosis of stomach.
537.83.........................  Angiodysplasia of                     1
                                  stomach and duodenum
                                  with hemorrhage.
537.84.........................  Dielulafoy lesion                     1
                                  (hemorrhagic) of
                                  stomach and duodenum.
540.0..........................  Acute appendicitis with               1
                                  generalized
                                  peritonitis.
540.1..........................  Acute appendicitis with               1
                                  peritoneal abscess.
540.9..........................  Acute appendicitis                    1
                                  without mention of
                                  peritonitis.
541............................  Appendicitis,                         1
                                  unqualified.
542............................  Other appendicitis.....               1
543.0..........................  Hyperplasia of appendix               1
                                  (lymphoid).
557.0..........................  Acute vascular                        1
                                  insufficiency of
                                  intestine.
560.0..........................  Intussusception........               1
560.1..........................  Paralytic ileus........               1
560.2..........................  Volvulus...............               1
560.81.........................  Intestinal or                         1
                                  peritoneal adhesions
                                  with obstruction
                                  (postoperative)
                                  (postinfection).
560.89.........................  Other specified                       1
                                  intestinal obstruction.
560.9..........................  Unspecified intestinal                1
                                  obstruction.
562.02.........................  Diverticulosis of small               1
                                  intestine with
                                  hemorrhage.
562.03.........................  Diverticulitis of small               1
                                  intestine with
                                  hemorrhage.
562.12.........................  Diverticulosis of colon               1
                                  with hemorrhage.
562.13.........................  Diverticulitis of colon               1
                                  with hemorrhage.
567.0..........................  Peritonitis in                        1
                                  infectious diseases
                                  classified elsewhere.
567.1..........................  Pneumococcal                          1
                                  peritonitis.
567.21.........................  Peritonitis (acute)                   1
                                  generalized.
567.22.........................  Peritoneal abscess.....               1
567.23.........................  Spontaneous bacterial                 1
                                  peritonitis.
567.29.........................  Other suppurative                     1
                                  peritonitis.
567.31.........................  Psoas muscle abscess...               1
567.38.........................  Other retroperitoneal                 1
                                  abscess.
567.81.........................  Choleperitonitis.......               1
567.82.........................  Sclerosing mesenteritis               1
567.89.........................  Other specified                       1
                                  peritonitis.
567.9..........................  Unspecified peritonitis               1
568.81.........................  Hemoperitoneum                        1
                                  (nontraumatic).
569.3..........................  Hemorrhage of rectum                  1
                                  and anus.

[[Page 40279]]

 
569.43.........................  Anal sphincter tear-old               2
569.83.........................  Perforation of                        1
                                  intestine.
569.85.........................  Angiodysplasia of                     1
                                  intestine with
                                  hemorrhage.
569.86.........................  Dieulafoy lesion                      1
                                  (hemorrhagic) of
                                  intestine.
572.0..........................  Abscess of liver.......               1
572.1..........................  Portal pyemia..........               1
574.00.........................  Calculus of gallbladder               1
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.01.........................  Calculus of gallbladder               1
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.10.........................  Calculus of gallbladder               1
                                  with other
                                  cholecystitis, without
                                  mention of obstruction.
574.11.........................  Calculus of gallbladder               1
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.21.........................  Calculus of gallbladder               1
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.30.........................  Calculus of bile duct                 1
                                  with acute
                                  cholecystitis, without
                                  mention of obstruction.
574.31.........................  Calculus of bile duct                 1
                                  with acute
                                  cholecystitis, with
                                  obstruction.
574.41.........................  Calculus of bile duct                 1
                                  with other
                                  cholecystitis, with
                                  obstruction.
574.51.........................  Calculus of bile duct                 1
                                  without mention of
                                  cholecystitis, with
                                  obstruction.
574.60.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute cholecystitis,
                                  without mention of
                                  obstruction.
574.61.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute cholecystitis,
                                  with obstruction.
574.71.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  other cholecystitis,
                                  with obstruction.
574.80.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, without
                                  mention of obstruction.
574.81.........................  Calculus of gallbladder               1
                                  and bile duct with
                                  acute and chronic
                                  cholecystitis, with
                                  obstruction.
574.91.........................  Calculus of gallbladder               1
                                  and bile duct without
                                  cholecystitis, with
                                  obstruction.
575.0..........................  Acute cholecystitis....               1
575.2..........................  Obstruction of                        1
                                  gallbladder.
575.3..........................  Hydrops of gallbladder.               1
575.4..........................  Perforation of                        1
                                  gallbladder.
576.1..........................  Cholangitis............               1
576.2..........................  Obstruction of bile                   1
                                  duct.
576.3..........................  Perforation of bile                   1
                                  duct.
577.0..........................  Acute pancreatitis.....               1
578.0..........................  Hematemesis............               1
578.9..........................  Hemorrhage of                         1
                                  gastrointestinal
                                  tract, unspecified.
873.63.........................  Broken tooth-uncomplic.               2
998.11.........................  Hemorrhage complicating               1
                                  a procedure.
998.12.........................  Hematoma complicating a               1
                                  procedure.
998.2..........................  Accidental puncture or                1
                                  laceration during a
                                  procedure, not
                                  elsewhere classified.
------------------------------------------------------------------------

    Analysis of 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 are ``too acute,'' meaning 
that this condition could not be appropriately cared for in a HH 
setting (Category 1) or would not impact the HH POC or result in 
additional resource use (Category 2). Therefore, the inclusion of these 
diagnosis codes in the grouper was producing inaccurate overpayments.

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

1. International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) Conversion
    The Compliance date for adoption of the ICD-10-CM and ICD-10-PCS 
Medical Data Code Set is October 1, 2014, as announced in September 5, 
2012 final rule, ``Administrative Simplification: Adoption of a 
Standard for a Unique Health Plan Identifier; Addition to the National 
Provider Identifier Requirements; and a Change to the Compliance Date 
for the International Classification of Diseases, 10th Edition (ICD-10-
CM and ICD-10-PCS) Medical Data Code Sets'' (77 FR 54664). Under that 
final rule, the transition to ICD-10-CM is required for entities 
covered by the Health Insurance Portability and Accountability Act of 
1996 (HIPAA) (Pub. L. 104-191, enacted on August 21, 1996). CMS, along 
with our support contractors, Abt Associates and 3M, spent the last 2 
years implementing a process for the transition from the use of ICD-9-
CM diagnosis codes to ICD-10-CM diagnosis codes within the HH PPS 
Grouper. As we outlined in 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 General Equivalency 
Mappings (GEMs) tool. That translation list, produced by the GEMs tool, 
was then reviewed and revised to ensure the included codes are 
appropriate for use in the HH setting, based upon ICD-10-CM coding 
guidance. Modifications included:
     Elimination of codes with ``initial encounter'' extensions 
listed in the GEMs translation. ICD-10-CM codes that begin with S and T 
are used for reporting traumatic injuries, such as fractures and burns. 
These codes have a 7th character that indicates whether the treatment 
is for an initial encounter, subsequent encounter or a sequela (a 
residual effect (condition produced) after the acute phase of an 
illness or injury has terminated). The GEMs translation mapped ICD-9-CM 
traumatic injury codes to ICD-10-CM codes with the 7th character for an 
initial encounter. This extension is intended to be used when the 
patient is receiving active treatment such as

[[Page 40280]]

surgical treatment, an emergency department encounter, or evaluation 
and treatment by a new physician. These initial encounter extension 
codes are not appropriate for care in the HH setting and were deleted. 
Code extensions D, E, F, G, H, J, K, M, N, P, Q and R indicate the 
patient is being treated for a subsequent encounter (care for the 
injury during the healing or recovery phase) were included in the 
translation list in place of the initial encounter extensions. For 
example, S72.024A ``Nondisplaced fracture of epiphysis (separation) 
(upper) of right femur, initial encounter for closed fracture'' was 
deleted and S72.024D, S72.024E, S72.024F, S72.024G, S72.024H, S72.024J, 
S72.024K, S72.024M, S72.024N, S72.024P, S27.024Q, and S72.024R were 
retained for the reporting of aftercare provided by the HHA.
     Elimination of codes for non-specific conditions when the 
clinician should be able to identify a more specific diagnosis based on 
clinical assessment. The initial GEMs translation included non-specific 
codes, for example, ICD-10-CM code L02.519 ``cutaneous abscess of 
unspecified hand''. These have been deleted from the translation list 
whenever a more specific diagnosis could be identified by the clinician 
performing the initial assessment. The example code above (L02.519) was 
deleted because the clinician should be able to identify which hand had 
the abscess, and therefore, would report the injury using the code that 
specifies the right or left hand.
     The diagnostic group (DG) assignment of ICD-10-CM codes in 
the translation replicates the ICD-9-CM assignment whenever possible. 
Since ICD-9-CM to ICD-10-CM translation is not a 1-to-1 mapping 
process, there were cases where the DG assignment was ambiguous. When 
there was a conflict (such as 2 ICD-9-CM codes being translated to a 
single ICD-10-CM code that covered both conditions), DG assignment was 
based on clinical appropriateness and comparisons of relative resource 
use data (when available), such that the code was assigned to single DG 
that included other codes with similar resource use.
    A draft list of ICD-10-CM codes to be included in the HH PPS 
Grouper has been developed based upon the process outlined above and 
3M, our HH PPS Grouper maintenance contractor, has begun building and 
testing a Grouper version for use starting October 1, 2014, when OASIS-
C1, the new version of the OASIS assessment which will use ICD-10-CM 
diagnosis codes, will be implemented. The draft translation list is 
available on the CMS HHA Center Web site at http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html. We plan to 
participate in any ICD-10-CM provider outreach sessions that are 
scheduled and to provide updates, such as notifying HHAs of the draft 
translation list's availability during the HH, Hospice, and DME Open 
Door Forums and through list-serve announcements.
    We plan to post a draft ICD-10-CM HH PPS Grouper via the CMS Web 
site on or before July 1, 2014. We also plan to share the draft ICD-10-
CM HH PPS Grouper with those vendors that have registered as beta-
testers in advance of posting the draft ICD-10 HH PPS Grouper on the 
CMS Web site. The purpose of early release to the beta testers is to 
identify any significant issues early in the process. Providers who are 
interested in enrolling as a beta site can obtain more information on 
the HH PPS Grouper Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/CaseMixGrouperSoftware.html.
2. Diagnosis Reporting on Home Health Claims
    Adherence to coding guidelines when assigning diagnosis codes is 
required under HIPAA. 3M conducted analysis of OASIS records and claims 
from CY 2011 and found that some HHAs were not complying with coding 
guidelines. Section 1.A.6 in the 2012 ICD-9-CM Coding Guidelines 
require that the underlying condition be sequenced first followed by 
the manifestation. Wherever such a combination exists, there is a ``use 
additional code'' note at the etiology code, and a ``code first'' note 
at the manifestation code. These instructional notes indicate the 
proper sequencing order of the codes, etiology followed by 
manifestation. In most cases, the title of these manifestation codes 
will include ``in diseases classified elsewhere'' or ``in conditions 
classified elsewhere.'' Codes with these phrases in the title are 
generally manifestation codes. ``In diseases classified elsewhere'' or 
``in conditions classified elsewhere'' codes are never permitted to be 
used as first listed or principal diagnosis codes and they must be 
listed following the underlying condition. In ICD-10-CM, the same 
coding convention applies and can be found in section 1.A.13 of the 
ICD-10-CM guidance. Note, however, that there are also other 
manifestation codes that do not have ``in diseases classified 
elsewhere'' or ``in conditions classified elsewhere'' in their title. 
For such codes a ``use additional code'' note would still be present, 
and the rules for coding sequencing still apply. It should be noted 
that several dementia codes, which are not allowable as principal 
diagnoses per ICD-9-CM coding guidelines, are under the classification 
of ``Mental, Behavioral and Neurodevelopmental Disorders''. According 
to section 1.A6 of the ICD-9-CM coding guidelines for ``Mental, 
Behavioral and Neurodevelopmental Disorders'', dementias that fall 
under this category are ``most commonly a secondary manifestation of an 
underlying causal condition.'' To ensure additional compliance with 
ICD-10-CM Coding Guidelines, we will be adopting additional claims 
processing edits for all HH claims effective October 1, 2014. HH claims 
containing inappropriate principal or secondary diagnosis codes will be 
returned to the provider and will have to be corrected and resubmitted 
to be processed and paid. Additional details describing the specific 
edits that will be applied will be announced through a change request, 
an accompanying Medicare Learning Network article, and other CMS 
communication channels, such as the HH, Hospice, and DME Open Door 
Forum.
    Finally, effective October 1, 2014, with the implementation of ICD-
10-CM diagnosis code reporting, we anticipate that HHAs will be able to 
report all of the conditions included in the HH PPS Grouper as a 
primary or secondary diagnosis. There will no longer be a need for any 
conditions to be reported in the payment diagnosis field because all of 
the ICD-10-CM codes included in our HH PPS Grouper will be appropriate 
for reporting as a primary or secondary condition. As such, we are 
retiring Appendix D of OASIS (also referred to as Attachment D), 
effective October 1, 2014. All necessary guidance for providers is 
provided in the ICD-10-CM Coding Guidelines.

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 incentives that 
existed in the HH PPS to provide unnecessary therapy services. In that 
final rule, we described that our review of HH PPS utilization data 
showed an increase 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

[[Page 40281]]

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 
percent increase from the share 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 
that in their 2010 and 2011 Reports to Congress, the Medicare Payment 
Advisory Commission (MedPAC) suggested that the HH PPS contains 
incentives which likely result in agencies providing more therapy than 
is needed. Moreover, in its 2011 Report to Congress, 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 (non-
LUPA, non-PEP, non-outlier) episode 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 that the average amount that payment exceeded costs 
for a normal episode with 1 to 5 therapy visits was around $300 (76 FR 
68556). Therefore, we lowered the case-mix weights for high therapy 
episodes and increased the weights for episodes with little or no 
therapy. We then increased the average case-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 believed 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 episodes was too high and our reimbursement 
for non-therapy 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 expected that the average 
case-mix weight would be around 1.00, but analysis has shown that it 
has consistently been above 1.00 since the start of the HH PPS. 
Therefore, 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 same reduction factor to each weight, thereby maintaining the 
relative values in the weight set. Preliminary 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 weight 
for 2012 from 1.3517 to 1.0000. We obtain the CY 2014 proposed weights 
shown in Table 3 by dividing the CY 2013 weights (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 average is 
1.00, we inflate the national, standardized 60-day episode payment rate 
by the same factor (1.3517) used to decrease the weights. The result 
will be the starting point from which rebasing 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 accordingly. Therefore, the weight 
reduction 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
----------------------------------------------------------------------------------------------------------------
                                                                     Clinical,
                                                                    functional,     2013 HH PPS    2014 Proposed
          Payment group                     Description             and service      case-mix      HH PPS case-
                                                                      levels          weights       mix weights
----------------------------------------------------------------------------------------------------------------
10111...........................  1st and 2nd Episodes, 0 to 5            C1F1S1          0.8186          0.6056
                                   Therapy Visits.
10112...........................  1st and 2nd Episodes, 6                 C1F1S2          0.9793          0.7245
                                   Therapy Visits.
10113...........................  1st and 2nd Episodes, 7 to 9            C1F1S3          1.1401          0.8435
                                   Therapy Visits.
10114...........................  1st and 2nd Episodes, 10                C1F1S4          1.3008          0.9623
                                   Therapy Visits.
10115...........................  1st and 2nd Episodes, 11 to 13          C1F1S5          1.4616          1.0813
                                   Therapy Visits.
10121...........................  1st and 2nd Episodes, 0 to 5            C1F2S1          1.0275          0.7602
                                   Therapy Visits.
10122...........................  1st and 2nd Episodes, 6                 C1F2S2          1.1657          0.8624
                                   Therapy Visits.
10123...........................  1st and 2nd Episodes, 7 to 9            C1F2S3          1.3039          0.9646
                                   Therapy Visits.
10124...........................  1st and 2nd Episodes, 10                C1F2S4          1.4421          1.0669
                                   Therapy Visits.
10125...........................  1st and 2nd Episodes, 11 to 13          C1F2S5          1.5804          1.1692
                                   Therapy Visits.
10131...........................  1st and 2nd Episodes, 0 to 5            C1F3S1          1.1233          0.8310
                                   Therapy Visits.
10132...........................  1st and 2nd Episodes, 6                 C1F3S2          1.2520          0.9262
                                   Therapy Visits.
10133...........................  1st and 2nd Episodes, 7 to 9            C1F3S3          1.3807          1.0215
                                   Therapy Visits.
10134...........................  1st and 2nd Episodes, 10                C1F3S4          1.5094          1.1167
                                   Therapy Visits.
10135...........................  1st and 2nd Episodes, 11 to 13          C1F3S5          1.6381          1.2119
                                   Therapy Visits.
10211...........................  1st and 2nd Episodes, 0 to 5            C2F1S1          0.8340          0.6170
                                   Therapy Visits.
10212...........................  1st and 2nd Episodes, 6                 C2F1S2          1.0302          0.7622
                                   Therapy Visits.
10213...........................  1st and 2nd Episodes, 7 to 9            C2F1S3          1.2265          0.9074
                                   Therapy Visits.
10214...........................  1st and 2nd Episodes, 10                C2F1S4          1.4228          1.0526
                                   Therapy Visits.
10215...........................  1st and 2nd Episodes, 11 to 13          C2F1S5          1.6190          1.1978
                                   Therapy Visits.
10221...........................  1st and 2nd Episodes, 0 to 5            C2F2S1          1.0429          0.7715
                                   Therapy Visits.
10222...........................  1st and 2nd Episodes, 6                 C2F2S2          1.2166          0.9001
                                   Therapy Visits.
10223...........................  1st and 2nd Episodes, 7 to 9            C2F2S3          1.3903          1.0286
                                   Therapy Visits.
10224...........................  1st and 2nd Episodes, 10                C2F2S4          1.5641          1.1571
                                   Therapy Visits.
10225...........................  1st and 2nd Episodes, 11 to 13          C2F2S5          1.7378          1.2856
                                   Therapy Visits.
10231...........................  1st and 2nd Episodes, 0 to 5            C2F3S1          1.1387          0.8424
                                   Therapy Visits.
10232...........................  1st and 2nd Episodes, 6                 C2F3S2          1.3029          0.9639
                                   Therapy Visits.

[[Page 40282]]

 
10233...........................  1st and 2nd Episodes, 7 to 9            C2F3S3          1.4671          1.0854
                                   Therapy Visits.
10234...........................  1st and 2nd Episodes, 10                C2F3S4          1.6313          1.2069
                                   Therapy Visits.
10235...........................  1st and 2nd Episodes, 11 to 13          C2F3S5          1.7956          1.3284
                                   Therapy Visits.
10311...........................  1st and 2nd Episodes, 0 to 5            C3F1S1          0.9071          0.6711
                                   Therapy Visits.
10312...........................  1st and 2nd Episodes, 6                 C3F1S2          1.1348          0.8395
                                   Therapy Visits.
10313...........................  1st and 2nd Episodes, 7 to 9            C3F1S3          1.3624          1.0079
                                   Therapy Visits.
10314...........................  1st and 2nd Episodes, 10                C3F1S4          1.5900          1.1763
                                   Therapy Visits.
10315...........................  1st and 2nd Episodes, 11 to 13          C3F1S5          1.8177          1.3448
                                   Therapy Visits.
10321...........................  1st and 2nd Episodes, 0 to 5            C3F2S1          1.1160          0.8256
                                   Therapy Visits.
10322...........................  1st and 2nd Episodes, 6                 C3F2S2          1.3211          0.9774
                                   Therapy Visits.
10323...........................  1st and 2nd Episodes, 7 to 9            C3F2S3          1.5262          1.1291
                                   Therapy Visits.
10324...........................  1st and 2nd Episodes, 10                C3F2S4          1.7313          1.2808
                                   Therapy Visits.
10325...........................  1st and 2nd Episodes, 11 to 13          C3F2S5          1.9364          1.4326
                                   Therapy Visits.
10331...........................  1st and 2nd Episodes, 0 to 5            C3F3S1          1.2118          0.8965
                                   Therapy Visits.
10332...........................  1st and 2nd Episodes, 6                 C3F3S2          1.4074          1.0412
                                   Therapy Visits.
10333...........................  1st and 2nd Episodes, 7 to 9            C3F3S3          1.6030          1.1859
                                   Therapy Visits.
10334...........................  1st and 2nd Episodes, 10                C3F3S4          1.7986          1.3306
                                   Therapy Visits.
10335...........................  1st and 2nd Episodes, 11 to 13          C3F3S5          1.9942          1.4753
                                   Therapy Visits.
21111...........................  1st and 2nd Episodes, 14 to 15          C1F1S1          1.6223          1.2002
                                   Therapy Visits.
21112...........................  1st and 2nd Episodes, 16 to 17          C1F1S2          1.8331          1.3561
                                   Therapy Visits.
21113...........................  1st and 2nd Episodes, 18 to 19          C1F1S3          2.0438          1.5120
                                   Therapy Visits.
21121...........................  1st and 2nd Episodes, 14 to 15          C1F2S1          1.7186          1.2714
                                   Therapy Visits.
21122...........................  1st and 2nd Episodes, 16 to 17          C1F2S2          1.9496          1.4423
                                   Therapy Visits.
21123...........................  1st and 2nd Episodes, 18 to 19          C1F2S3          2.1807          1.6133
                                   Therapy Visits.
21131...........................  1st and 2nd Episodes, 14 to 15          C1F3S1          1.7668          1.3071
                                   Therapy Visits.
21132...........................  1st and 2nd Episodes, 16 to 17          C1F3S2          2.0252          1.4983
                                   Therapy Visits.
21133...........................  1st and 2nd Episodes, 18 to 19          C1F3S3          2.2836          1.6894
                                   Therapy Visits.
21211...........................  1st and 2nd Episodes, 14 to 15          C2F1S1          1.8153          1.3430
                                   Therapy Visits.
21212...........................  1st and 2nd Episodes, 16 to 17          C2F1S2          2.0224          1.4962
                                   Therapy Visits.
21213...........................  1st and 2nd Episodes, 18 to 19          C2F1S3          2.2294          1.6493
                                   Therapy Visits.
21221...........................  1st and 2nd Episodes, 14 to 15          C2F2S1          1.9116          1.4142
                                   Therapy Visits.
21222...........................  1st and 2nd Episodes, 16 to 17          C2F2S2          2.1389          1.5824
                                   Therapy Visits.
21223...........................  1st and 2nd Episodes, 18 to 19          C2F2S3          2.3663          1.7506
                                   Therapy Visits.
21231...........................  1st and 2nd Episodes, 14 to 15          C2F3S1          1.9598          1.4499
                                   Therapy Visits.
21232...........................  1st and 2nd Episodes, 16 to 17          C2F3S2          2.2145          1.6383
                                   Therapy Visits.
21233...........................  1st and 2nd Episodes, 18 to 19          C2F3S3          2.4691          1.8267
                                   Therapy Visits.
21311...........................  1st and 2nd Episodes, 14 to 15          C3F1S1          2.0453          1.5131
                                   Therapy Visits.
21312...........................  1st and 2nd Episodes, 16 to 17          C3F1S2          2.2682          1.6780
                                   Therapy Visits.
21313...........................  1st and 2nd Episodes, 18 to 19          C3F1S3          2.4911          1.8429
                                   Therapy Visits.
21321...........................  1st and 2nd Episodes, 14 to 15          C3F2S1          2.1415          1.5843
                                   Therapy Visits.
21322...........................  1st and 2nd Episodes, 16 to 17          C3F2S2          2.3848          1.7643
                                   Therapy Visits.
21323...........................  1st and 2nd Episodes, 18 to 19          C3F2S3          2.6280          1.9442
                                   Therapy Visits.
21331...........................  1st and 2nd Episodes, 14 to 15          C3F3S1          2.1897          1.6200
                                   Therapy Visits.
21332...........................  1st and 2nd Episodes, 16 to 17          C3F3S2          2.4603          1.8202
                                   Therapy Visits.
21333...........................  1st and 2nd Episodes, 18 to 19          C3F3S3          2.7309          2.0203
                                   Therapy Visits.
22111...........................  3rd+ Episodes, 14 to 15                 C1F1S1          1.6822          1.2445
                                   Therapy Visits.
22112...........................  3rd+ Episodes, 16 to 17                 C1F1S2          1.8730          1.3857
                                   Therapy Visits.
22113...........................  3rd+ Episodes, 18 to 19                 C1F1S3          2.0638          1.5268
                                   Therapy Visits.
22121...........................  3rd+ Episodes, 14 to 15                 C1F2S1          1.7628          1.3041
                                   Therapy Visits.
22122...........................  3rd+ Episodes, 16 to 17                 C1F2S2          1.9791          1.4642
                                   Therapy Visits.
22123...........................  3rd+ Episodes, 18 to 19                 C1F2S3          2.1954          1.6242
                                   Therapy Visits.
22131...........................  3rd+ Episodes, 14 to 15                 C1F3S1          1.9247          1.4239
                                   Therapy Visits.
22132...........................  3rd+ Episodes, 16 to 17                 C1F3S2          2.1305          1.5762
                                   Therapy Visits.
22133...........................  3rd+ Episodes, 18 to 19                 C1F3S3          2.3362          1.7283
                                   Therapy Visits.
22211...........................  3rd+ Episodes, 14 to 15                 C2F1S1          1.8508          1.3692
                                   Therapy Visits.
22212...........................  3rd+ Episodes, 16 to 17                 C2F1S2          2.0460          1.5136
                                   Therapy Visits.
22213...........................  3rd+ Episodes, 18 to 19                 C2F1S3          2.2412          1.6581
                                   Therapy Visits.
22221...........................  3rd+ Episodes, 14 to 15                 C2F2S1          1.9314          1.4289
                                   Therapy Visits.
22222...........................  3rd+ Episodes, 16 to 17                 C2F2S2          2.1521          1.5921
                                   Therapy Visits.
22223...........................  3rd+ Episodes, 18 to 19                 C2F2S3          2.3729          1.7555
                                   Therapy Visits.
22231...........................  3rd+ Episodes, 14 to 15                 C2F3S1          2.0933          1.5486
                                   Therapy Visits.
22232...........................  3rd+ Episodes, 16 to 17                 C2F3S2          2.3035          1.7042
                                   Therapy Visits.
22233...........................  3rd+ Episodes, 18 to 19                 C2F3S3          2.5136          1.8596
                                   Therapy Visits.
22311...........................  3rd+ Episodes, 14 to 15                 C3F1S1          2.0747          1.5349
                                   Therapy Visits.
22312...........................  3rd+ Episodes, 16 to 17                 C3F1S2          2.2878          1.6925
                                   Therapy Visits.
22313...........................  3rd+ Episodes, 18 to 19                 C3F1S3          2.5009          1.8502
                                   Therapy Visits.
22321...........................  3rd+ Episodes, 14 to 15                 C3F2S1          2.1553          1.5945
                                   Therapy Visits.
22322...........................  3rd+ Episodes, 16 to 17                 C3F2S2          2.3940          1.7711
                                   Therapy Visits.

[[Page 40283]]

 
22323...........................  3rd+ Episodes, 18 to 19                 C3F2S3          2.6326          1.9476
                                   Therapy Visits.
22331...........................  3rd+ Episodes, 14 to 15                 C3F3S1          2.3172          1.7143
                                   Therapy Visits.
22332...........................  3rd+ Episodes, 16 to 17                 C3F3S2          2.5453          1.8830
                                   Therapy Visits.
22333...........................  3rd+ Episodes, 18 to 19                 C3F3S3          2.7734          2.0518
                                   Therapy Visits.
30111...........................  3rd+ Episodes, 0 to 5 Therapy           C1F1S1          0.6692          0.4951
                                   Visits.
30112...........................  3rd+ Episodes, 6 Therapy                C1F1S2          0.8718          0.6450
                                   Visits.
30113...........................  3rd+ Episodes, 7 to 9 Therapy           C1F1S3          1.0744          0.7949
                                   Visits.
30114...........................  3rd+ Episodes, 10 Therapy               C1F1S4          1.2770          0.9447
                                   Visits.
30115...........................  3rd+ Episodes, 11 to 13                 C1F1S5          1.4796          1.0946
                                   Therapy Visits.
30121...........................  3rd+ Episodes, 0 to 5 Therapy           C1F2S1          0.8421          0.6230
                                   Visits.
30122...........................  3rd+ Episodes, 6 Therapy                C1F2S2          1.0263          0.7593
                                   Visits.
30123...........................  3rd+ Episodes, 7 to 9 Therapy           C1F2S3          1.2104          0.8955
                                   Visits.
30124...........................  3rd+ Episodes, 10 Therapy               C1F2S4          1.3945          1.0317
                                   Visits.
30125...........................  3rd+ Episodes, 11 to 13                 C1F2S5          1.5787          1.1679
                                   Therapy Visits.
30131...........................  3rd+ Episodes, 0 to 5 Therapy           C1F3S1          0.9352          0.6919
                                   Visits.
30132...........................  3rd+ Episodes, 6 Therapy                C1F3S2          1.1331          0.8383
                                   Visits.
30133...........................  3rd+ Episodes, 7 to 9 Therapy           C1F3S3          1.3310          0.9847
                                   Visits.
30134...........................  3rd+ Episodes, 10 Therapy               C1F3S4          1.5289          1.1311
                                   Visits.
30135...........................  3rd+ Episodes, 11 to 13                 C1F3S5          1.7268          1.2775
                                   Therapy Visits.
30211...........................  3rd+ Episodes, 0 to 5 Therapy           C2F1S1          0.7361          0.5446
                                   Visits.
30212...........................  3rd+ Episodes, 6 Therapy                C2F1S2          0.9591          0.7096
                                   Visits.
30213...........................  3rd+ Episodes, 7 to 9 Therapy           C2F1S3          1.1820          0.8745
                                   Visits.
30214...........................  3rd+ Episodes, 10 Therapy               C2F1S4          1.4049          1.0394
                                   Visits.
30215...........................  3rd+ Episodes, 11 to 13                 C2F1S5          1.6278          1.2043
                                   Therapy Visits.
30221...........................  3rd+ Episodes, 0 to 5 Therapy           C2F2S1          0.9091          0.6726
                                   Visits.
30222...........................  3rd+ Episodes, 6 Therapy                C2F2S2          1.1136          0.8239
                                   Visits.
30223...........................  3rd+ Episodes, 7 to 9 Therapy           C2F2S3          1.3180          0.9751
                                   Visits.
30224...........................  3rd+ Episodes, 10 Therapy               C2F2S4          1.5225          1.1264
                                   Visits.
30225...........................  3rd+ Episodes, 11 to 13                 C2F2S5          1.7269          1.2776
                                   Therapy Visits.
30231...........................  3rd+ Episodes, 0 to 5 Therapy           C2F3S1          1.0022          0.7414
                                   Visits.
30232...........................  3rd+ Episodes, 6 Therapy                C2F3S2          1.2204          0.9029
                                   Visits.
30233...........................  3rd+ Episodes, 7 to 9 Therapy           C2F3S3          1.4386          1.0643
                                   Visits.
30234...........................  3rd+ Episodes, 10 Therapy               C2F3S4          1.6568          1.2257
                                   Visits.
30235...........................  3rd+ Episodes, 11 to 13                 C2F3S5          1.8751          1.3872
                                   Therapy Visits.
30311...........................  3rd+ Episodes, 0 to 5 Therapy           C3F1S1          0.9324          0.6898
                                   Visits.
30312...........................  3rd+ Episodes, 6 Therapy                C3F1S2          1.1609          0.8588
                                   Visits.
30313...........................  3rd+ Episodes, 7 to 9 Therapy           C3F1S3          1.3893          1.0278
                                   Visits.
30314...........................  3rd+ Episodes, 10 Therapy               C3F1S4          1.6178          1.1969
                                   Visits.
30315...........................  3rd+ Episodes, 11 to 13                 C3F1S5          1.8463          1.3659
                                   Therapy Visits.
30321...........................  3rd+ Episodes, 0 to 5 Therapy           C3F2S1          1.1054          0.8178
                                   Visits.
30322...........................  3rd+ Episodes, 6 Therapy                C3F2S2          1.3154          0.9731
                                   Visits.
30323...........................  3rd+ Episodes, 7 to 9 Therapy           C3F2S3          1.5254          1.1285
                                   Visits.
30324...........................  3rd+ Episodes, 10 Therapy               C3F2S4          1.7353          1.2838
                                   Visits.
30325...........................  3rd+ Episodes, 11 to 13                 C3F2S5          1.9453          1.4392
                                   Therapy Visits.
30331...........................  3rd+ Episodes, 0 to 5 Therapy           C3F3S1          1.1985          0.8867
                                   Visits.
30332...........................  3rd+ Episodes, 6 Therapy                C3F3S2          1.4222          1.0522
                                   Visits.
30333...........................  3rd+ Episodes, 7 to 9 Therapy           C3F3S3          1.6460          1.2177
                                   Visits.
30334...........................  3rd+ Episodes, 10 Therapy               C3F3S4          1.8697          1.3832
                                   Visits.
30335...........................  3rd+ Episodes, 11 to 13                 C3F3S5          2.0935          1.5488
                                   Therapy Visits.
40111...........................  All Episodes, 20+ Therapy               C1F1S1          2.2546          1.6680
                                   Visits.
40121...........................  All Episodes, 20+ Therapy               C1F2S1          2.4117          1.7842
                                   Visits.
40131...........................  All Episodes, 20+ Therapy               C1F3S1          2.5419          1.8805
                                   Visits.
40211...........................  All Episodes, 20+ Therapy               C2F1S1          2.4364          1.8025
                                   Visits.
40221...........................  All Episodes, 20+ Therapy               C2F2S1          2.5936          1.9188
                                   Visits.
40231...........................  All Episodes, 20+ Therapy               C2F3S1          2.7238          2.0151
                                   Visits.
40311...........................  All Episodes, 20+ Therapy               C3F1S1          2.7140          2.0078
                                   Visits.
40321...........................  All Episodes, 20+ Therapy               C3F2S1          2.8712          2.1241
                                   Visits.
40331...........................  All Episodes, 20+ Therapy               C3F3S1          3.0014          2.2205
                                   Visits.
----------------------------------------------------------------------------------------------------------------

    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 report 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 
the 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 average case-mix of 
1.0. We plan to continue to monitor case-mix growth

[[Page 40284]]

(both real and nominal case-mix growth), and address it accordingly in 
the future.

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

1. Rebasing the National, Standardized 60-Day Episode Payment Rate
    Section 3131(a) of the Affordable Care Act mandates that starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment rate and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act mandates that 
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 applicable 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 report and claims data. We used FY 
2011 cost report data as of December 31, 2012; which was the latest, 
complete cost report data available at the time of the analysis.
a. Trimming Methodology
    When examining data from all 10,327 Medicare 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 information for calculating episode costs, reported 
significantly different data than data from prior cost reports for 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 developed a 
trimming methodology to obtain a more robust estimate of costs.
    The trimming methodology applied to the cost reports consisted of a 
two-tier process. First, providers' cost reports were compared 
longitudinally to identify large year-to-year discrepancies. Second, 
cost reports were compared cross-sectionally to cost reports from the 
same fiscal year. It should be noted that the trimming methodology was 
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 reports with missing provider numbers. In FY 2011, 
zero providers were excluded by this exclusion criterion. Next, cost 
reports that did not report the number of episodes were excluded from 
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 trimming methodology 
excluded cost reports that were significantly different from prior cost 
reports 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 number of episodes reported increased from the 
provider's previous cost report to the current cost report by: (1) More 
than a factor 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 which 
met these exclusion criteria, the process was repeated for two 
additional iterations. This exclusion criterion resulted in the 
exclusion of 171 cost reports from the FY 2011 sample. The goal of this 
longitudinal exclusion criterion was to systematically eliminate 
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 
large drops in the average number of visits per episode across the 
years, which then resulted in a lower average cost per episode. Further 
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 often outnumbered the 
number of episodes from the claims by factors of 10 or 20. Therefore, 
we developed the longitudinal trim to increase the accuracy of the data 
from the cost reports. After the longitudinal restriction was applied, 
there were 7,808 cost reports 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 MedPAC's exclusion criteria. Specifically, cost reports were 
excluded if they met 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 and 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 directly in the 
visit information.\1\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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.
     The provider reported fewer than 10 Medicare non-LUPA 
episodes on the FY cost report.
     The cost report was missing discipline-specific cost 
information where there was information on visits or vice versa.
    In Table 4, we list information on the number of cost reports 
trimmed for each criterion. After applying the cross sectional trims, 
6,252 cost reports were left in the 2011 sample. These cost reports 
were then used to estimate the average cost per visit and average cost 
per episode for 2011. We note that using the trimmed sample results in 
an estimated average cost per episode that was $1,000 more than the 
estimated cost per episode using the untrimmed, complete cost report 
sample.

[[Page 40285]]

 Table 4--Counts for Exclusion Criteria Used To Develop the Trimmed Cost
                              Report Sample
------------------------------------------------------------------------
                                                         Number of cost
          Restrictions in cost report sample                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
    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                   375
     versa...........................................
    Number of Cost Reports excluded by Cross                       1,556
     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
  1,556 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 
Administrative Contractors (MAC) was tasked with performing audits of 
100 HH cost reports. The cost reports were selected from a trimmed 
sample of FY 2010 cost reports, which was the latest data available at 
the time, and the audit sample was stratified across provider 
characteristics (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 could focus the 
audits on providers that have a significant weight in the sample and 
that may have a substantial 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 additionally 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 referred to the Zone Program 
Integrity Contractors for further fraud investigation as a result of 
the findings in their audits.
    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 pre-audit sample and the post audit sample. The 
trimmed sample resulted in a slightly higher average 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 
trimmed 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 institutional provider seeking 
inclusion in the Medicare and Medicaid programs. It contains 
information such as provider name, address, staffing, number of beds, 
ownership, and is used internally and by researchers to obtain 
certification information about the provider.
    To weight the costs per visit per discipline in our sample to be 
nationally representative, we compared the number of visits in our 
sample in each

[[Page 40286]]

provider type-size-urban/rural combination to the number of visits in 
the provider type-size-urban/rural combination as taken from the 
national 2011 claims. The visits for a particular provider were 
weighted by the ratio of the number of visits in the type-size-urban/
rural combination in the national claims over the number of visits in 
the type-size-urban/rural combination in our sample. That is, the total 
number of visits in the sample were weighted such that the total 
weights (weighted visits) in each of the type-size-urban/rural 
combination equaled the number of visits in the type-size-urban/rural 
combination as recorded on the claims, and the sum of weighted visits 
across all type-size-urban/rural combinations equals the total number 
of visits recorded on the claims. After reweighting the visits, the 
average costs per visit for each discipline for a provider was 
recalculated. We note that the weight each provider contributes to the 
average costs per visit is equal to the number of visits the provider 
reported on the cost report times the total number of visits for the 
provider's type-size-urban/rural combination in the national claims 
divided by the number of visits in the provider's type-size-urban/rural 
combination in our sample. As such, providers with a higher number of 
visits still receive 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 weighting are shown in 
Table 5. The weighting results in higher average costs per visit for 
all disciplines as compared to the un-weighted average costs per visit. 
The CMS Home Health Agency (HHA) Center Web site (http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/
center/hha.asp) provides a file with the resulting weights, the 
provider 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 Table 5. Documentation describing the fields on the cost report we 
used in our calculations is also available at http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/
center/hha.asp.

    Table 5--2011 Estimated Costs per Visit, Un-Weighted and Weighted
------------------------------------------------------------------------
                                       2011 Per-visit
             Discipline                    costs,        2011 Per-visit
                                         unweighted      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 data and FY 2011 Medicare cost report
  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 costs per visit from the 
trimmed FY 2011 HH Medicare cost report sample and the visits per 
episode estimates for each discipline from 2011 national claims data, 
we estimated the 2011 average cost per episode. As shown in Table 6, we 
multiplied the average cost per visit by the average number of visits 
for each of the six disciplines and summed the results to generate an 
estimated 60-day episode cost for 2011 of $2,453.71. This methodology 
used to calculate the episode cost is consistent with the methodology 
used in setting the 60-day episode base rate for the HH PPS in 2000. We 
note that the 2011 estimated cost per episode includes normal, PEP, and 
outlier episodes.

             Table 6--2011 Average Costs per Visit and Average Number of Visits for a 60-Day Episode
----------------------------------------------------------------------------------------------------------------
                                                                                  2011 Average
                          Discipline                             2011 Average      number of       2011 60-Day
                                                               costs per visit       visits       episode costs
----------------------------------------------------------------------------------------------------------------
Skilled Nursing..............................................          $131.51             9.43        $1,240.14
Home Health Aide.............................................            65.22             2.80           182.62
Physical Therapy.............................................           160.69             4.86           780.95
Occupational Therapy.........................................           159.55             1.15           183.48
Speech- Language Pathology...................................           170.80             0.21            35.87
Medical Social Services......................................           218.91             0.14            30.65
                                                              --------------------------------------------------
    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 
episode. To calculate the 2013 estimated average cost per episode, we 
first applied an adjustment to account for the visit distribution 
change observed in claims data from 2011 to 2012 (Table 7). We compared 
the 2011 estimated cost per episode using the 2011 visit distribution 
to the 2011 estimated cost per episode using the 2012 visit 
distribution. The 2011 estimated cost per episode is $2,453.71 when 
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 calculated an adjustment factor to 
account for the visit

[[Page 40287]]

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 available, 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
------------------------------------------------------------------------
                                        2011 Average      2012 Average
             Discipline               number of visits  number of visits
                                         per episode       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              0.14
                                     -----------------------------------
    Total Number of Visits per                   18.59             18.41
     Episode........................
------------------------------------------------------------------------
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 PPS 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
----------------------------------------------------------------------------------------------------------------
                                                    Factor for
                                                     2011-2012                                    2013 Estimated
         2011 Estimated cost per episode               visit        2012 Market     2013 Market      cost per
                                                   distribution    basket update   basket update      episode
                                                    difference
----------------------------------------------------------------------------------------------------------------
$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 payment per episode, we 
started with the CY 2012 national, standardized 60-day episode payment 
rate and applied a number of factors. Since we are proposing to reset 
the average case-mix 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 factor to account for the downward adjustment of the 
weights to an average case-mix of 1.0000, we obtain the average CY 2012 
payment per episode. Then by applying the CY 2013 payment policy 
updates (1.3 percent HH payment update percentage and the 1.32 percent 
payment reduction for nominal case-mix growth), we obtain the estimated 
average CY 2013 payment per episode. We note that the Medicare cost 
reports do not differentiate between normal, PEP, and outlier episodes 
in the reporting of costs per discipline. Therefore, the CY 2013 
estimated average cost per episode includes costs for normal, PEP, and 
outlier episodes. To compare the episode payment to the average cost of 
an episode, we add the dollars from the 2.5 percent outlier pool back 
into the payment per episode (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
----------------------------------------------------------------------------------------------------------------
                                      Budget
                                    neutrality
                                     factor to     2013 Payment                                   2013 Estimated
 2012 National, standardized 60-    account for    reduction for      2013 HH         Outlier         average
    day episode payment rate         case-mix      nominal case-  Payment update    adjustment      payment per
                                      weight        mix growth      percentage                        episode
                                   adjustment to
                                       1.00
----------------------------------------------------------------------------------------------------------------
$2,138.52.......................        x 1.3517        x 0.9868         x 1.013         / 0.975     = $2,963.65
----------------------------------------------------------------------------------------------------------------

f. Calculating the Rebasing Adjustment to the National, Standardized 
60-day Episode Payment Rate
    Comparing the 2013 estimated average payment per episode to the 
2013 estimated average cost per episode; we obtain a difference of -
13.63 percent (($2,559.59-$2,963.65)/$2,963.65) (see Table 10).

[[Page 40288]]

 Table 10--Comparison of the Average Payment per Episode to the Average
                            Cost per Episode
------------------------------------------------------------------------
                                       2013 Estimated        Percent
      2013 Payment per episode        cost per episode     difference
------------------------------------------------------------------------
$2,963.65...........................         $2,559.59            -13.63
------------------------------------------------------------------------

    Phasing-in the -13.63 percent reduction over 4 years in equal 
increments would result in an annual reduction of 3.60 percent. Since 
the Affordable Care Act states that the reduction may be 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, Medicare pays on the basis 
of a national per-visit amount by discipline, referred to as a LUPA.
a. Calculating the Rebasing Adjustment to the LUPA Per-Visit Amounts
    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 the 
rebasing of the national, standardized 60-day episode payment rate (see 
Table 6). The average cost per-visit for NRS from the cost report 
sample is added to the 2011 estimated per-visit costs per discipline 
(see section III.D.3. of this proposed rule for more information on the 
calculation of the average NRS cost per visit). The per-visit costs are 
then increased by the HH market basket in 2012 and 2013 to obtain an 
estimate of the 2013 costs per visit, per discipline.

                         Table 11--2013 Estimated Average Cost per-Visit, per-Discipline
----------------------------------------------------------------------------------------------------------------
                                  2011 Estimated                                                  2013 Estimated
           Discipline              average costs    Average NRS     2012 Market     2013 Market    average cost
                                     per visit    cost per visit   basket update   basket update     per visit
----------------------------------------------------------------------------------------------------------------
Skilled Nursing.................         $131.51         + $2.26         x 1.024         x 1.023       = $140.13
Home Health Aide................           65.22          + 2.26          x1.024         x 1.023         = 70.69
Physical Therapy................          160.69          + 2.26          x1.024         x 1.023        = 170.70
Occupational Therapy............          159.55          + 2.26         x 1.024         x 1.023        = 169.50
Speech-Language Pathology.......          170.80          + 2.26         x 1.024         x 1.023        = 181.29
Medical Social Services.........          218.91          + 2.26         x 1.024         x 1.023        = 231.69
----------------------------------------------------------------------------------------------------------------

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

                                     Table 12--2013 per-Visit Payment Rates
----------------------------------------------------------------------------------------------------------------
                                                                  2013 Per-visit                  2013 Per-visit
                                                                   payment rates      Outlier      payment rates
                           Discipline                               (excluding      adjustment      (including
                                                                     outliers)                       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 discipline for LUPA 
episodes to the estimated average cost per-visit, per-discipline, we 
observe that costs per visit are higher than the 2013 per-visit 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.

[[Page 40289]]

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

3. Rebasing the Nonroutine Medical Supply (NRS) Conversion Factor
    Payments for NRS are currently paid for by multiplying one of six 
severity levels by the NRS conversion factor. When the HH PPS was 
implemented on October 1, 2000, the national, standardized 60-day 
episode payment rate included an amount for NRS that was calculated 
based on costs from audited FY 1997 cost reports and the average cost 
of NRS unbundled and billed through Medicare part B (65 FR 41180). The 
NRS costs for all the providers in the audited cost report sample were 
weighted to represent the national population. That weighted total was 
divided by the number episodes for the providers in the audited cost 
report sample, to obtain an average cost per episode for NRS of $43.54. 
Added to this amount was $6.08 to account for the average cost of 
unbundled NRS billed through Medicare Part B, resulting in a total of 
$49.62 included in the national, standardized 60-day episode payment 
rate to account for NRS.
    As stated in our CY 2008 HH PPS proposed rule, after the HH PPS 
went into effect, we received comments and correspondence expressing 
concern about the cost of supplies for certain patients with ``high'' 
supply costs (72 FR 25427, May 4, 2007). We acknowledged that, in 
general, NRS use is unevenly distributed across episodes of care. 
Therefore, we created an NRS conversion factor of $52.35 (the amount 
CMS originally included in the national, standardized 60-day episode 
payment rate of $49.62, updated by the market basket, and after an 
adjustment to account for nominal change in case-mix) that is further 
adjusted by one of six severity levels to ensure that the variation in 
NRS usage is more appropriately reflected in the HH PPS (72 FR 49852, 
August 29, 2007). Using additional variables from OASIS items and 
targeting certain conditions expected to be predictors of NRS use based 
on clinical considerations, a classification algorithm puts cases into 
one of the six severity levels and a regression model was used to 
develop the payment weights associated with each severity level. For 
more detail on how the final six NRS severity levels and associated 
payment weights were developed please see the CY 2008 HH PPS final rule 
(72 FR 49850, August 29, 2007). The 2008 NRS conversion factor has been 
updated by HH payment update percentages in years 2009 through 2013. 
The CY 2013 NRS conversion factor is $53.97 and CY 2013 NRS payments 
range from $14.56 for severity level 1 to $568.06 for severity level 6 
(77 FR 67102).
a. Calculating the Rebasing Adjustment to the NRS Conversion Factor
    In rebasing the NRS conversion factor, we used the trimmed sample 
of 6,252 cost reports from FY 2011, as described in section III.D.1. of 
this proposed rule, to calculate a visit-weighted estimate of NRS costs 
per visit. We additionally weight these estimates to be nationally 
representative based on the same factors described in section III.D.1. 
of this 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 
number of visits per episode of 18.59 from 2011 claims data for a 2011 
estimated average NRS cost per episode of $42.01. This amount was then 
adjusted to reflect the change in the average number of visits from 
18.59, using 2011 claims data, to 18.41, using preliminary 2012 claims 
data ((1+((18.41-18.59)/18.59))= 0.9903). We 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.

                              Table 14--2013 Estimated Average NRS Cost Per Episode
----------------------------------------------------------------------------------------------------------------
                                               Adjustment for
                                                 change in       2012 Market      2013 Market     2013 Estimated
 2011 Estimated average NRS cost per episode  average episode   basket update    basket update     average NRS
                                              visits (2011 to       (2.4%)           (2.3%)          cost per
                                                   2012)                                             episode
----------------------------------------------------------------------------------------------------------------
$42.01......................................        x 0.9903           x1.024          x 1.023           $43.58
----------------------------------------------------------------------------------------------------------------

    To compare the 2013 estimated average NRS cost per episode to 2013 
estimated average NRS payment per episode; we used preliminary 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 established in CY 2008 as shown in Table 15.

[[Page 40290]]

         Table 15--Percentage of Episodes by NRS Severity Level
------------------------------------------------------------------------
                                                              Percent of
                                     Relative    Percent of   episodes,
          Severity level              weight     episodes,     CY 2012
                                                  CY 2008     (percent)
------------------------------------------------------------------------
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 consisting of all agencies whose total charges reported on
  their 2001 claims matched their total charges reported in their 2001
  cost reports (72 FR 49852).

    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 
the 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 years in equal increments would result in an annual 
reduction of 2.58 percent. Therefore, we propose to reduce the NRS 
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 percent) 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 audits 
and our analysis of NRS payments and costs, we are exploring possible 
additional edits to the cost report and quality checks at the time of 
submission to improve future cost reporting accuracy. We plan to update 
the 2012 distribution of episodes amongst the six severity levels as 
more data become available, and therefore, the estimated NRS cost per 
episode may change slightly for the final rule. For more information on 
the rebasing analyses performed, refer to the technical report titled 
``Analyses in Support of Rebasing & Updating the Medicare Home Health 
Payment Rates'' available on the CMS Home Health Agency (HHA) Center 
Web site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/center/hha.asp.

E. Proposed CY 2014 Rate Update

1. Proposed CY 2014 Home Health Market Basket Update
    Section 1895(b)(3)(B) of the Act, as amended by section 3401(e) of 
the Affordable Care Act, adds new clause (vi) which states, ``After 
determining the home health market basket percentage increase . . . the 
Secretary shall reduce such percentage . . . for each of 2011, 2012, 
and 2013, by 1 percentage point. The application of this clause may 
result in the home health market basket percentage increase under 
clause (iii) being less than 0.0 for a year, and may result in payment 
rates under the system under this subsection for a year being less than 
such payment rates for the preceding year.'' Therefore, as mandated by 
the Affordable Care Act, for CYs 2011, 2012, and 2013, the HH market 
basket update was reduced by 1 percentage point. For CY 2014, there is 
no such percentage reduction. Therefore, the CY 2014 payment rates will 
be increased by the full HH market basket update.
    Section 1895(b)(3)(B) of the Act requires that the standard 
prospective payment amounts for CY 2014 be increased by a factor equal 
to the applicable HH market basket update for those HHAs that submit 
quality data as required by the Secretary. The 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 historical data 
through the 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 quality healthcare services 
is our paramount concern. We seek to adopt measures for the HHQRP that 
promote efficient and safer care. Our measure selection activities for 
the HHQRP takes into consideration input we receive from the Measure 
Applications Partnership (MAP), convened by the National Quality Forum 
(NQF), as part of a pre-rulemaking process that we have established and 
are required to follow under section 1890A of the Act. The MAP is a 
public-private partnership 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 
measures, as required by section 1890A(a)(3) of the Act. By February 
1st of each year, the NQF must provide that input to CMS. Input from 
the MAP is located at http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx. For more details 
about the pre-rulemaking process, see the FY 2013 IPPS/LTCH PPS final 
rule at 77 FR 53376 (August 31, 2012).
    We also take into account national priorities, such as those 
established by the National Priorities Partnership at http://www.qualityforum.org/npp/, the HHS Strategic Plan http://www.hhs.gov/secretary/about/priorities/priorities.html, and the National Strategy 
for Quality Improvement in Healthcare located at http://www.healthcare.gov/news/reports/nationalqualitystrategy032011.pdf.
    To the extent practicable, we have sought to adopt measures that 
have been

[[Page 40291]]

endorsed by the national consensus organization, under contract to 
endorse standardized healthcare quality measures pursuant to section 
1890 of the Act, recommended by multi-stakeholder organizations, and 
developed with the input of providers, purchasers/payers, and other 
stakeholders.
b. Background and Quality Reporting Requirements
    Section 1895(b)(3)(B)(v)(II) of the Act states that ``each home 
health agency shall submit to the Secretary such data that the 
Secretary determines are appropriate for the measurement of health care 
quality. Such data shall be submitted in a form and manner, and at a 
time, specified by the Secretary for purposes of this clause.''
    In addition, section 1895(b)(3)(B)(v)(I) of the Act states that 
``for 2007 and each subsequent year, in the case of a HHA that does not 
submit data to the Secretary in accordance with subclause (II) with 
respect to such a year, the HH market basket percentage increase 
applicable under such clause for such year shall be reduced by 2 
percentage points.'' This requirement has been codified in regulations 
at Sec.  484.225(i). HHAs that meet the quality data reporting 
requirements are eligible for the full HH market basket percentage 
increase. HHAs that do not meet the reporting requirements are subject 
to a 2 percentage point reduction to the HH market basket increase.
    Section 1895(b)(3)(B)(v)(III) of the Act further states that 
``[t]he Secretary shall establish procedures for making data submitted 
under sub clause (II) available to the public. Such procedures shall 
ensure that a HHA has the opportunity to review the data that is to be 
made public with respect to the agency prior to such data being made 
public.''
    As codified at Sec.  484.250(a), we established that the quality 
reporting requirements could be met by the submission of OASIS 
assessments and HH Care Consumer Assessment of Healthcare Providers and 
Systems Survey (HHCAHPS[supreg]). CMS has provided quality measures to 
HHAs via the Certification and Survey Provider Enhanced Reports 
(CASPER) reports available on the CMS Health Care Quality Improvement 
System (QIES) since 2002. A subset of the HH quality measures has been 
publicly reported on the HH Compare Web site since 2003. The CY 2012 HH 
PPS final rule (76 FR 68576), identifies the current HH QRP measures. 
The selected measures that are made available to the public can be 
viewed on the HH Compare Web site located at http://www.medicare.gov/HHCompare/Home.asp.
    As stated in the CY 2012 and CY 2013 HH PPS final rules (76 FR68575 
and 77 FR67093, respectively), we finalized that we would also use 
measures derived from Medicare claims data to measure HH quality.
c. OASIS Data Submission and OASIS Data for Annual Payment Update
    The HH conditions of participation (CoPs) at Sec.  484.55(d) 
require that the comprehensive assessment must be updated and revised 
(including the administration of the OASIS) no less frequently than: 
(1) The last 5 days of every 60 days beginning with the start-of-care 
date, unless there is a beneficiary elected transfer, significant 
change in condition, or discharge and return to the same HHA during the 
60-day episode; (2) within 48 hours of the patient's return to the home 
from a hospital admission of 24 hours or more for any reason other than 
diagnostic tests; and (3) at discharge.
    It is important to note that to calculate quality measures from 
OASIS data, there must be a complete quality episode, which requires 
both a Start of Care (initial assessment) or Resumption of Care OASIS 
assessment and a Transfer or Discharge OASIS assessment. Failure to 
submit sufficient OASIS assessments to allow calculation of quality 
measures, including transfer and discharge assessments, is failure to 
comply with the CoPs.
    HHAs do not need to submit OASIS data for those patients who are 
excluded from the OASIS submission requirements under the HH CoPs Sec.  
484.1 through Sec.  484.265. As described in the December 23, 2005 
Medicare and Medicaid Programs: Reporting Outcome and Assessment 
Information Set Data as Part of the Conditions of Participation for 
Home Health Agencies final rule (70 FR 76202), we define the exclusion 
as those patients:
     Receiving only nonskilled services;
     For whom neither Medicare nor Medicaid is paying for HH 
care (patients receiving care under a Medicare or Medicaid Managed Care 
Plan are not excluded from the OASIS reporting requirement);
     Receiving pre- or post-partum services; or
     Under the age of 18 years.
    As set forth in the CY 2008 HH PPS final rule (72 FR 49863), HHAs 
that become Medicare-certified on or after May 31 of the preceding year 
are not subject to the OASIS quality reporting requirement nor any 
payment penalty for quality reporting purposes for the following year. 
For example, HHAs certified on or after May 31, 2013 are not subject to 
the 2 percentage point reduction to their market basket update for CY 
2014. These exclusions only affect quality reporting requirements and 
do not affect the HHA's reporting responsibilities as announced in the 
December 23,2005 final rule, ``Medicare and Medicaid Programs; 
Reporting Outcome and Assessment Information Set Data as Part of the 
Conditions of Participation for Home Health Agencies'' (70 FR 76202).
d. Home Health Care Quality Reporting Program Requirements for CY 2014 
Payment and Subsequent Years
(1) Submission of OASIS Data
    For CY 2014, we 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 
fulfilling one portion of the quality reporting requirement for CY 
2014. This time period would 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 each subsequent year 
beyond CY 2014, considering OASIS assessments submitted in the time 
frame between July 1 of the calendar year 2 years prior to the calendar 
year of the Annual Payment Update (APU) effective date and July 1 of 
the calendar year 1 year prior to the calendar year of the APU 
effective date as fulfilling the OASIS portion of the quality reporting 
requirement for the subsequent APU.
(2) Home Health Rehospitalization and Emergency Department Use Without 
Readmission Claims-Based Measures
    We propose to adopt two claims-based measures: (1) 
Rehospitalization during the first 30 days of HH; and (2) Emergency 
Department Use without Hospital Readmission during the first 30 days of 
HH. These measures were included on the Measures Under Consideration 
list reviewed by the MAP in December 2012 and the MAP supported the 
direction of both measures. The Rehospitalization during the first 30 
days of HH measure estimates the risk-standardized rate of unplanned, 
all-cause hospital readmissions for cases in which 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.

[[Page 40292]]

The Emergency Department Use without Readmission measure estimates the 
risk-standardized rate of unplanned, all-cause hospital readmissions 
for cases in which patients who had an acute inpatient 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 
increased risk of acute care hospital use, either through inpatient 
admission or emergency department use without inpatient admission. 
Addressing unplanned hospital readmissions is a high priority for HHS 
as our focus continues on promoting patient safety, eliminating 
healthcare associated infections, improving care transitions, and 
reducing the cost of healthcare. Readmissions are costly to the 
Medicare program and have been cited as sensitive to improvements in 
coordination of care and discharge planning for patients. Rates of 
rehospitalization remain substantial with 14.4 percent of HH patients 
experiencing an unplanned rehospitalization in the first 30 days of 
care. Currently, HHAs focus on measures of acute care hospitalization 
(applied to all HH patients) as a measure of their effectiveness. We 
will continue to publicly report the Acute Care Hospitalization and 
Emergency Department Use without Hospitalization measures, as these 
measures apply to all home health patients and will continue to be 
useful in selecting a home health agency. The proposed 
rehospitalization measures will allow HHAs to further target patients 
who entered HH after a hospitalization.
    The proposed measures of acute care utilization by previously 
hospitalized patients are developed out of the NQF endorsed claims-
based measures: (1) Acute Care Hospitalization (NQF 0171); and 
(2) Emergency Department Use without Hospitalization (NQF 
0173) to better capture acute care hospitalizations and use of 
an emergency department for patients who are recently discharged from 
the hospital. These rehospitalization measures are harmonized with NQF-
endorsed Hospital-Wide Risk-Adjusted All-Cause Unplanned Readmission 
Measure (NQF 1789) (see http://www.qualityforum.org/Publications/2012/07/Patient_Outcomes_All-Cause_Readmissions_Expedited_Review_2011.aspx) finalized for the Hospital IQR Program in 
the FY 2013 IPPS/LTCH PPS Final Rule (77 FR 53521 through 53528). 
Further, to the extent appropriate, the proposed HH rehospitalization 
measures are being harmonized with this measure and other measures of 
readmission rates developed for post-acute care (PAC) settings.
    We intend to seek NQF endorsement of the: (1) Rehospitalization 
during the first 30 days of HH; and (2) Emergency Department Use 
without Readmission during the first 30 days of HH measures. We are 
proposing to begin reporting feedback to HHAs on performance on these 
measures in CY 2014. These measures will be added to Home Health 
Compare for public reporting in CY2015. Additional details pertaining 
to these measures, including technical specifications, can be found at 
the HH Quality Initiative Web page located at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/HomeHealthQualityInits/HHQIQualityMeasures.html.
    We 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 number 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 
report 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 obtain the information they require for quality 
improvement activities related to the process measures in a less 
burdensome manner. Reducing the number of measures also facilitates the 
future development and implementation of other superior HH measures.
    Nine measures currently stratified by episode length on CASPER 
reports include:
     Depression Interventions Implemented.
     Diabetic Foot Care and Patient/Caregiver Education 
Implemented.
     Heart Failure Symptoms Addressed.
     Pain Interventions Implemented.
     Treatment of Pressure Ulcers Based on Principles of Moist 
Wound Healing Implemented.
     Pressure Ulcer Prevention Implemented.
     Drug Education on All Medications Provided to Patient/
Caregiver.
     Potential Medication Issues Identified and Timely 
Physician Contact.
     Falls Prevention Steps Implemented.
    For each of these nine measures, three versions of each measure are 
currently included on CASPER reports. The three versions are: (1) Short 
term episodes of care; (2) long term episodes of care; and (3) all 
episodes of care. We 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 episodes of care'' measures from CASPER reports. This would remove 
18 process measures from the current CASPER reports. Of note, only the 
``short term episodes of care'' measures are currently reported on HH 
Compare. These would be replaced with the analogous ``all episodes of 
care'' measures.
    No data will be lost in the elimination of the ``short and long 
term episodes of care'' measures as the ``all episodes of care'' 
measures capture all care interventions, regardless of episode length. 
Using only the ``all episodes of care'' measures 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 payment 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 quality reporting requirement for each 
payment year. Medicare claims data and HHCAHPS[supreg] data will also 
be used to measure HH care quality. We propose to adopt two claims-
based measures: (1) rehospitalization during the first 30 days of HH; 
and (2) Emergency Department Use without Hospital Readmission during 
the first 30 days of HH. We propose to reduce the number of process 
measures by eliminating the stratification by episode length, only 
reporting on the ``all episodes of care'' measures. By eliminating the 
stratification of the short and long term episodes of care measures, 
there will be a reduction in the number of HH quality measures reported 
to HHAs on confidential CASPER reports.

[[Page 40293]]

e. Home Health Care CAHPS[supreg] Survey (HHCAHPS) [supreg]
    In the CY 2013 HH PPS final rule (77 FR 67094), we stated that the 
HH quality measures reporting requirements for Medicare-certified 
agencies includes the CAHPS[supreg] HH Care (HHCAHPS[supreg]) Survey 
for the CY 2013 APU. In CY 2012, we moved forward with the 
HHCAHPS[supreg] linkage to the pay-for-reporting (P4R) requirements 
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 quarterly data submission of 
HHCAHPS[supreg] data.
(1) Background and Description of HHCAHPS[supreg]
    As part of the HHS' Transparency Initiative, we have implemented a 
process to measure and publicly report patient experiences with 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[supreg]) program and endorsed by the NQF in March 2009 
(NQF Number 0517). The HHCAHPS[supreg] survey is part of a family of 
CAHPS[supreg] surveys that asks patients to report on and rate their 
experiences with health care. The HH Care CAHPS[supreg] 
(HHCAHPS[supreg]) survey presents HH patients with a set of 
standardized 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[supreg] has been described in previous rules and it also 
available on the official HHCAHPS[supreg] Web site at https://homehealthcahps.org and in the annually-updated HHCAHPS[supreg] 
Protocols and Guidelines Manual, which is downloadable from https://homehealthcahps.org.
    For public reporting purposes, we required HHAs to report five 
measures--three composite measures and two global ratings of care that 
are derived from the questions on the HHCAHPS[supreg] survey. The 
publicly reported data are adjusted for differences in patient mix 
across HHAs. We update the HHCAHPS[supreg] data on HH Compare on 
www.medicare.gov quarterly. Each HHCAHPS[supreg] composite measure 
consists of four or more individual survey items regarding one of the 
following related topics:
     Patient care (Q9, Q16, Q19, and Q24);
     Communications between providers and patients (Q2, Q15, 
Q17, Q18, Q22, and Q23); and
     Specific care issues on medications, home safety, and pain 
(Q3, Q4, Q5, Q10, Q12, Q13, and Q14).
    The two global ratings are the overall rating of care given by the 
HHA's care providers (Q20), and the patient's willingness to recommend 
the HHA to family and friends (Q25).
    The HHCAHPS[supreg] survey focuses on areas where the HH patient is 
the best or only source for the information. The developmental work for 
the HHCAHPS[supreg] survey began in mid-2006, and the first 
HHCAHPS[supreg] survey was field-tested (to validate the length and 
content of the survey) in 2008 by the AHRQ and the CAHPS[supreg] 
grantees, and the final HHCAHPS[supreg] survey was used in a national 
randomized mode experiment in 2009 through 2010.
    The HHCAHPS[supreg] survey is currently available in English, 
Spanish, Chinese, Russian, and Vietnamese. The OMB Number on these 
surveys is the same (0938-1066). All of these surveys are on the Home 
Health Care CAHPS[supreg] Web site, https://homehealthcahps.org. We 
will continue to consider additional language translations of the 
HHCAHPS[supreg] in response to the needs of the HH patient population.
    All of the requirements about HH patient eligibility for the 
HHCAHPS[supreg] survey and conversely, which HH patients are ineligible 
for the HHCAHPS[supreg] survey are delineated and detailed in the 
HHCAHPS[supreg] Protocols and Guidelines Manual, which is downloadable 
at https://homehealthcahps.org. HH patients are eligible for 
HHCAHPS[supreg] 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[supreg] surveys 
if one of these conditions pertains to them:
     Are under the age of 18;
     Are deceased prior to the date the sample is pulled;
     Receive hospice care;
     Receive routine maternity care only;
     Are not considered survey eligible because the state in 
which the patient lives restricts release of patient information for a 
specific condition or illness that the patient has; or
     No Publicity patients, defined as patients who on their 
own initiative at their first encounter with the HHAs make it very 
clear that no one outside of the agencies can be advised of their 
patient status, and no one outside of the HHAs can contact them for any 
reason.
    We stated in previous rules that Medicare-certified HHAs are 
required to contract with an approved HHCAHPS[supreg] survey vendor. 
Medicare-certified agencies also must provide on a monthly basis a list 
of their patients served to their respective HHCAHPS[supreg] survey 
vendors. Agencies are not allowed to influence at all how their 
patients respond to the HHCAHPS[supreg] survey.
    HHCAHPS[supreg] survey vendors are required to attend introductory 
and all update trainings conducted by CMS and the HHCAHPS[supreg] 
Survey Coordination Team, as well as to pass a post-training 
certification test. We now have approximately 30 approved 
HHCAHPS[supreg] survey vendors. The list of approved HHCAHPS[supreg] 
survey vendors is available at https://homehealthcahps.org.
(2) HHCAHPS[supreg] Oversight Activities
    We stated in prior final rules that all approved HHCAHPS survey 
vendors are required to participate in HHCAHPS[supreg] oversight 
activities to ensure compliance with HHCAHPS[supreg] protocols, 
guidelines, and survey requirements. The purpose of the oversight 
activities is to ensure that approved HHCAHPS[supreg] survey vendors 
follow the HHCAHPS[supreg] Protocols and Guidelines Manual. As stated 
previously in the CY 2010, CY 2011, CY 2012, and CY 2013 final rules, 
all approved survey vendors must develop a Quality Assurance Plan (QAP) 
for survey administration in accordance with the HHCAHPS[supreg] 
Protocols and Guidelines Manual. An HHCAHPS[supreg] survey vendor's 
first QAP must be submitted within 6 weeks of the data submission 
deadline date after the vendor's first quarterly data submission. The 
QAP must be updated and submitted annually thereafter and at any time 
that changes occur in staff or vendor capabilities or systems. A model 
QAP is included in the HHCAHPS[supreg] Protocols and Guidelines Manual. 
The QAP must include the following:
     Organizational Background and Staff Experience
     Work Plan
     Sampling Plan
     Survey Implementation Plan
     Data Security, Confidentiality and Privacy Plan
     Questionnaire Attachments
    As part of the oversight activities, the HHCAHPS[supreg] Survey 
Coordination Team conducts on-site visits to all approved 
HHCAHPS[supreg] survey vendors. The purpose of the site visits is to 
allow the HHCAHPS[supreg] Coordination Team to observe the entire HH 
Care CAHPS[supreg] Survey implementation process, from

[[Page 40294]]

the sampling stage through file preparation and submission, as well as 
to assess data security and storage. The HHCAHPS[supreg] Survey 
Coordination Team reviews the HHCAHPS[supreg] survey vendor's survey 
systems, and assesses administration protocols based on the 
HHCAHPS[supreg] Protocols and Guidelines Manual posted at https://homehealthcahps.org. The systems and program site visit review 
includes, but is not limited to the following:
     Survey management and data systems;
     Printing and mailing materials and facilities;
     Telephone call center facilities;
     Data receipt, entry and storage facilities; and
     Written documentation of survey processes.
    After the site visits, HHCAHPS[supreg] survey vendors are given a 
defined time period in which to correct any identified issues and 
provide follow-up documentation of corrections for review. 
HHCAHPS[supreg] survey vendors are subject to follow-up site visits on 
an as-needed basis.
    In the CY 2013 HH PPS final rule (77 FR 67094), we codified the 
current guideline that all approved HHCAHPS[supreg] survey vendors 
fully comply with all HHCAHPS[supreg] oversight activities. We included 
this survey requirement at Sec.  484.250(c).
(3) HHCAHPS[supreg] 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[supreg] data collection and 
reporting for 4 quarters for the HHCAHPS[supreg] requirements for CY 
2014 APU. The data collection period for the CY 2014 APU includes the 
second quarter 2012 through first quarter 2013 (the months of April 
2012 through March 2013). HHAs were required to submit their 
HHCAHPS[supreg] data files to the HH CAHPS[supreg] 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., Eastern 
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. These deadlines are firm; no 
exceptions are permitted.
    We stated that we exempt HHAs receiving Medicare certification on 
or after April 1, 2012, from the full HHCAHPS[supreg] reporting 
requirement for the CY 2014 APU, because these HHAs were not Medicare-
certified in the period of April 1, 2011, through March 31, 2012. These 
HHAs would not need to complete a HHCAHPS[supreg] Participation 
Exemption Request form for the CY 2014 APU. The Participation Exemption 
Form is discussed in the Collection of Information section of this 
rule. The form was used since CY 2012, and it was cited in the PRA 
package in 2010, but it did not have its own OMB number. We have 
submitted a revised PRA package about the HHCAHPS[supreg] 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[supreg]-eligible unduplicated or unique 
patients in the period of April 1, 2011, through March 31, 2012, are 
exempt from the HHCAHPS[supreg] 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 HHCAHPS[supreg] 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[supreg] Requirements for the CY 2015 APU
    In the CY 2013 HH PPS final rule (77 FR 67094), we stated that for 
the CY 2015 APU, we would require continued monthly HHCAHPS[supreg] 
data collection and reporting for 4 quarters. The data collection 
period for CY 2015 APU includes the second quarter 2013 through the 
first quarter 2014 (the months of April 2013, through March 2014). HHAs 
are required to submit their HHCAHPS[supreg] data files to the HH 
CAHPS[supreg] Data Center for the second quarter 2013 by 11:59 p.m., 
e.d.t. on October 17, 2013; for the third quarter 2013 by 11:59 p.m., 
e.s.t. on January 16, 2014; for the fourth quarter 2013 by 11:59 p.m., 
e.d.t. on April 17, 2014; and for the first quarter 2014 by 11:59 p.m., 
e.d.t. on July 17, 2014. These deadlines are firm; no exceptions are 
permitted.
    We will continue to exempt HHAs receiving Medicare certification on 
or after April 1, 2013, from the full HHCAHPS[supreg] reporting 
requirement for the CY 2015 APU because these HHAs would not have been 
Medicare-certified throughout the period of April 1, 2012 through March 
31, 2013. These HHAs do not need to complete a HHCAHPS[supreg] 
Participation Exemption Request form for the CY 2015 APU.
    We require that all HHAs that had fewer than 60 HHCAHPS[supreg]-
eligible unduplicated or unique patients in the period of April 1, 
2012, through March 31, 2013 are exempt from the HHCAHPS[supreg] data 
collection and submission requirements for the CY 2015 APU. Agencies 
with fewer than 60 HHCAHPS[supreg]-eligible, unduplicated or unique 
patients in the period of April 1, 2012, through March 31, 2013 are 
required to submit their patient counts on the HHCAHPS[supreg] 
Participation Exemption Request form for the CY 2015 APU, posted on 
https://homehealthcahps.org on April 1, 2013, by 11:59 p.m., e.d.t. on 
January 16, 2014. This deadline is firm, as is true of all quarterly 
data submission deadlines.
(5) HHCAHPS[supreg] Requirements for the CY 2016 APU
    For the CY 2016 APU, we propose to require continued monthly 
HHCAHPS[supreg] data collection and reporting for 4 quarters. The data 
collection period for the CY 2016 APU is proposed to include the second 
quarter 2014 through the first quarter 2015 (the months of April 2014 
through March 2015). We propose that HHAs would be required to submit 
their HHCAHPS[supreg] data files to the HH CAHPS[supreg] Data Center 
for the second quarter 2014 by 11:59 p.m., e.d.t. on October 16, 2014; 
for the third quarter 2014 by 11:59 p.m., e.s.t. on January 15, 2015; 
for the fourth quarter 2014 by 11:59 p.m., e.d.t. on April 16, 2015; 
and for the first quarter 2015 by 11:59 p.m., e.d.t. on July 16, 2015. 
We propose that these deadlines be firm; no exceptions would be 
permitted.
    We propose to continue to exempt HHAs receiving Medicare 
certification after the period in which HHAs do their patient count 
(April 1, 2013 through March 31, 2014) on or after April 1, 2014, from 
the full HHCAHPS[supreg] reporting requirement for the CY 2016 APU, 
because these HHAs would not have been Medicare-certified throughout 
the period of April 1, 2013, through March 31, 2014. These HHAs would 
not need to complete a HHCAHPS[supreg] Participation Exemption Request 
form for the CY 2016 APU.
    We propose to state that all HHAs that had fewer than 60 
HHCAHPS[supreg]-eligible unduplicated or unique patients in the period 
of April 1, 2013, through March 31, 2014 would be exempt from the 
HHCAHPS[supreg] data collection and submission requirements for the CY 
2016 APU. Agencies with fewer than 60 HHCAHPS-eligible, unduplicated or 
unique patients in the period of April 1, 2013, through March 31, 2014, 
would be required to submit their patient counts on the HHCAHPS[supreg] 
Participation

[[Page 40295]]

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[supreg] Reconsiderations and Appeals Process
    HHAs should monitor their respective HHCAHPS[supreg] survey vendors 
to ensure that vendors submit their HHCAHPS data on time, by accessing 
their HHCAHPS[supreg] Data Submission Reports on https://homehealthcahps.org. This will help HHAs ensure that their data are 
submitted in the proper format for data processing to the 
HHCAHPS[supreg] Data Center.
    We propose to continue the HHCAHPS[supreg] reconsiderations and 
appeals process that we have finalized and that we have used for the CY 
2012 APU and for the CY 2013 APU. We have described the HHCAHPS[supreg] 
reconsiderations process requirements in the notification memorandum 
that the Regional Home Health Intermediaries (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 reconsideration letter/package because CMS will not contact 
the affected HHAs to request additional information or to clarify 
incomplete or inconclusive information. If clear evidence to support a 
finding of compliance is not present, the 2 percent reduction in the 
APU will be upheld. If clear evidence of compliance is present, the 2 
percent reduction for the APU will be reversed. We will notify affected 
HHAS by about mid-December. If we determine to uphold the 2 percent 
reduction, the HHA may further appeal the 2 percent reduction via the 
Provider Reimbursement Review Board (PRRB) appeals process.
f. Summary of Proposed Changes in CY 2014
    We are not proposing any changes to the HHCAHPS[supreg] Survey in 
CY 2014.
g. For Further Information on the HHCAHPS[supreg] Survey
    We strongly encourage HHAs to learn about the survey and view the 
HHCAHPS[supreg] Survey Web site at the official Web site for the 
HHCAHPS[supreg] at https://homehealthcahps.org. HHAs can also send an 
email to the HHCAHPS[supreg] Survey Coordination Team at 
HHCAHPS@rti.org, or telephone toll-free (1-866-354-0985) for more 
information about HHCAHPS[supreg].
3. Home Health Wage Index
    Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the 
Secretary to provide appropriate adjustments to the proportion of the 
payment amount under the HH PPS that account for area wage differences, 
using adjustment factors that reflect the relative level of wages and 
wage-related costs applicable to the furnishing of HH services. For CY 
2014, as in previous years, we are proposing to base the wage index 
adjustment to the labor portion of the HH PPS rates on the most recent 
pre-floor and pre-reclassified hospital wage index. We 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 
1861(m) of the Act as the beneficiary's place of residence). 
Previously, we determined each HHA's labor market area based on 
definitions of metropolitan statistical areas (MSAs) issued by the OMB. 
We have consistently used the pre-floor, pre-reclassified hospital wage 
index data to adjust the labor portion of the HH PPS rates. We believe 
the use of the pre-floor, pre-reclassified hospital wage index data 
results in an appropriate adjustment to the labor portion of the costs, 
as required by statute.
    In the CY 2006 HH PPS final rule for (70 FR 68132), we began 
adopting revised labor market area definitions as discussed in the OMB 
Bulletin No. 03-04 (June 6, 2003). This bulletin announced revised 
definitions for MSAs and the creation of micropolitan statistical areas 
and core-based statistical areas (CBSAs). The bulletin is available 
online at www.whitehouse.gov/omb/bulletins/b03-04.html. In addition, 
OMB published subsequent bulletins regarding CBSA changes, including 
changes in CBSA numbers and titles. The OMB bulletins are available at 
http://www.whitehouse.gov/omb/bulletins/index.html.
    For CY 2014, as in previous years, we are proposing to use the most 
recent pre-floor, pre-reclassified hospital wage index as the base for 
the wage index adjustment to the labor portion of the HH PPS rates. 
However, the FY 2014 pre-floor, pre-reclassified hospital wage index 
does not reflect OMB's new area delineations, based on the 2010 Census 
(outlined in OMB Bulletin 13-01, released on February 28, 2013), as 
those changes were not published until the Hospital Inpatient 
Prospective Payment System (IPPS) proposed rule (78 FR 27553) was in 
advanced stages of development. We intend to propose changes to the FY 
2015 hospital wage index based on the newest CBSA changes in the FY 
2015 IPPS proposed rule. Therefore, if CMS incorporates OMB's new area 
delineations, based on the 2010 Census, in the FY 2015 hospital wage 
index, those changes would also be reflected in the FY 2015 HH wage 
index.
    Finally, we would continue to use the methodology discussed in the 
CY 2007 HH PPS final rule (71 FR 65884) to address those geographic 
areas in which there were no IPPS hospitals, and thus, no hospital wage 
data on which to base the calculation of the HH PPS wage index. For 
rural areas that do not have IPPS hospitals, and therefore, lack 
hospital wage data on which to base a wage index, we would use the 
average wage index from all contiguous CBSAs as a reasonable proxy. For 
rural Puerto Rico, we do not apply this methodology due to the distinct 
economic circumstances that exist there, but instead continue using the 
most recent wage index previously available for that area (from CY 
2005).
    For urban areas without IPPS hospitals, we use the average wage 
index of all urban areas within the State as a reasonable proxy for the 
wage index for that CBSA. For CY 2012, the only urban area without IPPS 
hospital wage data is Hinesville-Fort Stewart, Georgia (CBSA 25980).
    The wage index values are available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Home-Health-Prospective-Payment-System-Regulations-and-Notices.html.
4. Proposed CY 2014 Payment Update
a. National, Standardized 60-Day Episode Payment Rate
    The Medicare HH PPS has been in effect since October 1, 2000. As 
set forth in the July 3, 2000 final rule (65 FR 41128), the base unit 
of payment under the Medicare HH PPS is a national, standardized 60-day 
episode payment rate. As set forth in Sec.  484.220, we adjust the 
national, standardized 60-day episode payment rate by a case-mix 
relative weight and a wage index value based on the site of service for 
the beneficiary.
    To provide appropriate adjustments to the proportion of the payment 
amount under the HH PPS to account for area wage difference, we apply 
the appropriate wage index value to the labor portion of the HH PPS 
rates. The labor-related share of the case-mix adjusted 60-day episode 
rate would continue to be 78.535 percent and the

[[Page 40296]]

non-labor-related share would continue to be 21.465 percent as set out 
in the CY 2013 HH PPS final rule (77 FR 67068). The proposed CY 2014 HH 
PPS rates use the same case-mix methodology as set forth in the CY 2008 
HH PPS final rule with comment period (72 FR 49762) and adjusted as 
described in section III.C. of this proposed rule. The following are 
the steps we take to compute the case-mix and wage-adjusted 60-day 
episode rate:
    (1) Multiply the national 60-day episode rate by the patient's 
applicable case-mix weight.
    (2) Divide the case-mix adjusted amount into a labor (78.535 
percent) and a non-labor portion (21.465 percent).
    (3) Multiply the labor portion by the applicable wage index based 
on the site of service of the beneficiary.
    (4) Add the wage-adjusted portion to the non-labor portion, 
yielding the case-mix and wage adjusted 60-day episode rate, subject to 
any additional applicable adjustments.
    In accordance with section 1895(b)(3)(B) of the Act, this document 
constitutes the annual update of the HH PPS rates. Section 484.225 sets 
forth the specific annual percentage update methodology. In accordance 
with Sec.  484.225(i), for a HHA that does not submit HH quality data, 
as specified by the Secretary, the unadjusted national prospective 60-
day episode rate is equal to the rate for the previous calendar year 
increased by the applicable HH market basket index amount minus two 
percentage points. Any reduction of the percentage change will apply 
only to the calendar year involved and will not be considered in 
computing the prospective payment amount for a subsequent calendar 
year.
    Medicare pays the national, standardized 60-day case-mix and wage-
adjusted episode payment on a split percentage payment approach. The 
split percentage payment approach includes an initial percentage 
payment and a final percentage payment as set forth in Sec.  
484.205(b)(1) and Sec.  484.205(b)(2). We may base the initial 
percentage payment on the submission of a request for anticipated 
payment (RAP) and the final percentage payment on the submission of the 
claim for the episode, as discussed in Sec.  409.43. The claim for the 
episode that the HHA submits for the final percentage payment 
determines the total payment amount for the episode and whether we make 
an applicable adjustment to the 60-day case-mix and wage-adjusted 
episode payment. The end date of the 60-day episode as reported on the 
claim determines which calendar year rates Medicare would use to pay 
the claim.
    We may also adjust the 60-day case-mix and wage-adjusted episode 
payment based on the information submitted on the claim to reflect the 
following:
     A low utilization payment provided on a per-visit basis as 
set forth in Sec.  484.205(c) and Sec.  484.230.
     A partial episode payment adjustment as set forth in Sec.  
484.205(d) and Sec.  484.235.
     An outlier payment as set forth in Sec.  484.205(e) and 
Sec.  484.240.
b. 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 national, standardized 60-day episode payment rate, we 
start with the 2013 average payment per episode ($2,963.65) calculated 
in section III.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 
percent 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 original 
national, standardized 60-day episode payment rate for the HH PPS in 
2000 per section 1895(3)(A)(i) of the Act. The Act required that the 
60-day episode base rate and other applicable amounts be standardized 
in a manner that eliminates the effects of variations in relative case 
mix and area wage adjustments among different home health agencies in a 
budget neutral manner. To calculate the standardization factor, we 
simulated total payments for non-LUPA episodes using the 2014 wage 
index and compared it to our simulation of total payments for non-LUPA 
episodes using the 2013 wage index. By dividing the total payments 
using the 2014 wage index by the total payments using the 2013 wage 
index, we obtain a standardization factor of 1.0017. We note that since 
we are implementing the adjustment to the case-mix weights in a budget 
neutral manner, there is no standardization factor needed to ensure 
budget neutrality in episode payments using the 2014 case-mix relative 
values. 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                        CY 2014 proposed
                                                                                     Outlier                                               national,
         2013 Estimated average payment per episode              2014rebasing      adjustment     Standardization     2014 HH market    standardized 60-
                                                                  adjustment         factor            factor             basket          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 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 17.

[[Page 40297]]

              Table 17--For HHAs That Do Not Submit the Quality Data--Proposed CY 2014 National, Standardized 60-Day Episode Payment Amount
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                        CY 2014 proposed
                                                                                     Outlier                          2014 HH market       national,
         2013 estimated average payment per episode             2014 rebasing      adjustment     Standardization     basket minus 2    standardized 60-
                                                                  adjustment         factor            factor       percentage points     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. The per-visit 
rates are paid by type of visit or HH discipline. The six HH 
disciplines are as follows:
     Home health aide (HH aide);
     Medical Social Services (MSS);
     Occupational therapy (OT);
     Physical therapy (PT);
     Skilled nursing (SN); and
     Speech-language pathology (SLP).
    To calculate the CY 2014 national per-visit rates, we 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 compare 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 for LUPA episodes using the 2014 wage index and comparing it 
to simulated total payments for LUPA episodes using the 2013 wage 
index. We note that the LUPA per-visit payments are not calculated 
using case-mix weights and therefore, there is no case-mix 
standardization factor needed to ensure budget neutrality in LUPA 
payments. The per-visit rates for each discipline are then updated by 
the proposed CY 2014 HH market basket update of 2.4 percent. The 
national per-visit rates are adjusted by the wage index based on the 
site of service of the beneficiary. The per-visit payment amounts for 
LUPAs are separate from the LUPA add-on payment amount, which is paid 
for episodes that occur as the only episode or initial episode in a 
sequence of adjacent episodes. The proposed CY 2014 national per-visit 
rates are shown in Tables 18 and 19.

                                              Table 18--Proposed CY 2014 National Per-Visit Payment Amounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           CY 2013 per-                                     Wage index
                                                            visit rates       CY 2014         Outlier         budget      2014 HH market    Proposed CY
                   HH discipline type                        including       rebasing       adjustment      neutrality        basket      2014 per-visit
                                                             outliers       adjustment                        factor                           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          121.23
Speech-Language 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.

                   Table 19--Proposed CY 2014 National Per-Visit Payment Amounts for HHAs That DO NOT Submit the Required Quality Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           CY 2013 per-                                     Wage index    2014 HH market
                                                            visit rates       CY 2014         Outlier         budget      basket minus 2    Proposed CY
                   HH discipline type                        including       rebasing       adjustment      neutrality      percentage    2014 per-visit
                                                             outliers       adjustment                        factor          points           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          118.86
Speech-Language Pathology...............................          139.34         x 1.035         x 0.975        x 1.0003         x 1.004          141.22
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 40298]]

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

                            Table 20--Calculation of the LUPA Add-on Amount, CY 2008
----------------------------------------------------------------------------------------------------------------
                                                                                                      Speech-
                                                                      Skilled        Physical        language
                                                                      nursing         therapy        pathology
----------------------------------------------------------------------------------------------------------------
(1) Proportional increase in minutes for an initial visit over            90.59%          55.04%          46.50%
 non-initial visits.............................................
(2) CY 2008 Per-Visit Amounts...................................         $104.91         $114.71         $124.54
(3) Excess cost for initial visits (1*2)........................          $95.04          $63.14          $57.91
(4) Percent of initial assessment visits provided by this                  77.8%           21.7%            0.5%
 discipline.....................................................
(5) Add-on amount per discipline (3*4)..........................          $73.94          $13.70           $0.29
                                                                 -----------------------------------------------
(6) Total LUPA add-on Amount (Sum of row 5).....................                      $87.93
----------------------------------------------------------------------------------------------------------------

    For this proposed rule we are using the same methodology used to 
establish the LUPA add-on amount for CY 2008. Specifically, we updated 
the analysis using 100 percent of LUPA episodes and a 20 percent sample 
of non-LUPA first episodes from preliminary CY 2012 claims data for 
episodes starting on or before May 31, 2012. 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 38.88 minutes for the first visit if SN, 32.75 minutes for 
the first visit if PT, and 32.28 minutes for the first visit if SLP. 
The average minutes for all non-first visits in non-LUPA episodes 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 per-visit 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 weights representing the share of LUPA first 
visits for SN (81.74 percent), PT (17.87 percent) and SLP (0.39 
percent) and using these weights, we calculated a LUPA add-on payment 
amount of $102.91 for LUPA episodes that occur as the only episode or 
an initial episode in a sequence of adjacent episodes.
    In lieu of a single LUPA add-on payment amount of $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 that occur as 
the only episode or an initial episode in a sequence of adjacent 
episodes, if the first skilled visit is SN, the payment for that visit 
would be $ $226.87 (1.8714 multiplied by $121.23). For more information 
on the analyses performed to update the LUPA add-on amount, please 
refer to the technical report titled ``Analyses in Support of Rebasing 
& Updating the Medicare Home Health Payment Rates'' available on the 
CMS Home Health Agency (HHA) Center Web site at: http://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html?redirect=/
center/hha.asp.
e. Nonroutine Medical Supply Conversion Factor Update
    Payments for NRS are computed by multiplying the relative weight 
for a particular severity level by the NRS conversion factor. To 
determine the CY 2014 proposed NRS conversion factor, we start with the 
2013 NRS conversion factor ($53.97) and apply the 2.58

[[Page 40299]]

percent rebasing adjustment calculated in section 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 standardization factor as the NRS payment amount calculated 
from the conversion factor is not wage or case-mix adjusted when the 
final claim payment amount is computed. The proposed NRS conversion 
factor for CY 2014 is $53.84, as shown in Table 21.

                                Table 21--Proposed CY 2014 NRS Conversion Factor
----------------------------------------------------------------------------------------------------------------
                                                                                                   Proposed CY
                                                                2014 rebasing    2014 HH market      2014 NRS
                CY 2013 NRS conversion factor                     adjustment         basket         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
----------------------------------------------------------------------------------------------------------------
                                                                      Points         Relative      Proposed NRS
                         Severity level                              (scoring)        weight      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 quality data, we again 
begin with the CY 2013 NRS conversion factor ($53.97) and apply the 
2.58 percent rebasing 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.

     Table 23--Proposed CY 2014 NRS Conversion Factor for HHAs That DO NOT Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                                   CY 2014 HH
                                                                                 market basket     Proposed CY
                CY 2013 NRS conversion factor                   2014 rebasing       minus 2          2014 NRS
                                                                  adjustment       percentage       conversion
                                                                                     points           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 quality data are 
calculated in Table 24.

      Table 24--Proposed CY 2014 NRS Payment Amounts for HHAs That DO NOT Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                      Points         Relative      Proposed NRS
                         Severity level                              (scoring)        weight      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
----------------------------------------------------------------------------------------------------------------

[[Page 40300]]

5. Rural Add-On
    Section 421(a) of the MMA required, for HH services furnished in a 
rural areas (as defined in section 1886(d)(2)(D) of the Act), for 
episodes or visits ending on or after April 1, 2004, and before April 
1, 2005, that the Secretary increase the payment amount that otherwise 
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 furnished 
in a rural area (as defined in section 1886(d)(2)(D) of the Act), on or 
after January 1, 2006 and before January 1, 2007, that the Secretary 
increase the payment amount otherwise made under section 1895 of the 
Act for those services by 5 percent.
    Section 3131(c) of the Affordable Care Act amended section 421(a) 
of the MMA to provide an increase of 3 percent of the payment amount 
otherwise made under section 1895 of the Act for HH services furnished 
in a rural area (as defined in section 1886(d)(2)(D) of the Act), for 
episodes and visits ending on or after April 1, 2010, and before 
January 1, 2016.
    Section 421 of the MMA, as amended, waives budget neutrality 
related to this provision, as the statute specifically states that the 
Secretary shall not reduce the standard prospective payment amount (or 
amounts) under section 1895 of the Act applicable to HH services 
furnished during a period to offset the increase in payments resulting 
in the application of this section of the statute.
    The 3 percent rural add-on is applied to the national, standardized 
60-day episode payment rate, national per-visit rates, LUPA add-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 Amounts for 60-Day Episodes for Services Provided in a Rural Area
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       For HHAs that DO submit quality data                                       For HHAs that DO NOT submit quality data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Proposed rural                                                        Proposed rural
                                                  Multiply by the      national                                         Multiply by the      national
  Proposed national standardized 60-day episode   3 percent rural  standardized 60- Proposed national standardized 60-  3 percent rural  standardized 60-
                  payment rate                         add-on        day episode         day episode payment rate            add-on        day episode
                                                                     payment rate                                                          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 Amounts 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                                   Multiply by the                                    Multiply by the
                                                     Proposed per-   3 percent rural   Proposed rural   Proposed per-   3 percent rural   Proposed rural
                                                       visit rate         add-on       per-visit rate     visit rate         add-on       per-visit 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           145.46
--------------------------------------------------------------------------------------------------------------------------------------------------------

              Table 27--Proposed CY 2014 NRS Conversion Factor for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
             For HHAs that DO submit quality data                   For HHAs that DO NOT submit quality data
----------------------------------------------------------------------------------------------------------------
                                  Multiply by   Proposed rural      Proposed        Multiply by   Proposed rural
  Proposed conversion factor     the 3 percent    conversion       conversion      the 3 percent    conversion
                                 rural add-on       factor           factor        rural add-on       factor
----------------------------------------------------------------------------------------------------------------
$53.84........................          x 1.03          $55.46  $52.79..........          x 1.03          $54.37
----------------------------------------------------------------------------------------------------------------

               Table 28--Proposed CY 2014 NRS Payment Amounts for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
                                                      For HHAs that DO submit       For HHAs that DO NOT submit
                                                   quality data (NRS conversion    quality data (NRS conversion
                                                         factor = $55.46)                factor = $54.37)
                                      Points     ---------------------------------------------------------------
         Severity level              (scoring)                       Total NRS                       Total NRS
                                                     Relative     payment amount     Relative     payment amount
                                                      weight         for rural        weight         for rural
                                                                       areas                           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          572.27
----------------------------------------------------------------------------------------------------------------

[[Page 40301]]

F. Outlier Policy

1. Background
    Section 1895(b)(5) of the Act allows for the provision of an 
addition or adjustment to the national, standardized 60-day case-mix 
and wage-adjusted episode payment amounts in the case of episodes that 
incur unusually high costs due to patient care needs. Prior to the 
enactment of the Affordable Care Act, section 1895(b)(5)of the Act 
stipulated that projected total outlier payments could not exceed 5 
percent of total projected or estimated HH payments in a given year. In 
the Medicare Program; Prospective Payment System for Home Health 
Agencies final rule (65 FR 41188 through 41190), we described the 
method for determining outlier payments. Under this system, outlier 
payments are made for episodes whose estimated costs exceed a threshold 
amount for each HH Resource Group (HHRG). The episode's estimated cost 
is the sum of the national wage-adjusted per-visit payment amounts for 
all visits delivered during the episode. The outlier threshold for each 
case-mix group or PEP adjustment is defined as the 60-day episode 
payment or PEP adjustment for that group plus a fixed-dollar loss (FDL) 
amount. The outlier payment is defined to be a proportion of the wage-
adjusted estimated cost beyond the wage-adjusted threshold. The 
threshold amount is the sum of the wage and case-mix adjusted PPS 
episode amount and wage-adjusted FDL amount. The proportion of 
additional costs over the outlier threshold amount paid as outlier 
payments is referred to as the loss-sharing ratio.
2. Regulatory Update
    In the CY 2010 HH PPS final rule (74 FR 58080 through 58087), we 
discussed excessive growth in outlier payments, primarily the result of 
unusually high outlier payments in a few areas of the country. Despite 
program integrity efforts associated with excessive outlier payments in 
targeted areas of the country, we discovered that outlier expenditures 
still exceeded the 5 percent, target and, in the absence of corrective 
measures, would continue do to so. Consequently, we assessed the 
appropriateness of taking action to curb outlier abuse. To mitigate 
possible billing vulnerabilities associated with excessive outlier 
payments and adhere to our statutory limit on outlier payments, we 
adopted an outlier policy that included a 10 percent agency-level cap 
on outlier payments. This cap was implemented in concert with a reduced 
FDL ratio of 0.67. These policies resulted in a projected target 
outlier pool of approximately 2.5 percent. (The previous outlier pool 
was 5 percent of total HH expenditures.)
    For CY 2010, we first returned 5 percent of these dollars back into 
the national, standardized 60-day episode payment rates, the national 
per-visit rates, the LUPA add-on payment amount, and the NRS conversion 
factor. Then, we reduced the CY 2010 rates by 2.5 percent to account 
for the new outlier pool of 2.5 percent. This outlier policy was 
adopted for CY 2010 only.
3. Statutory Update
    As we noted in the CY 2011 HH PPS final rule (75 FR 70397 through 
70399), section 3131(b)(1) of the Affordable Care Act amended section 
1895(b)(3)(C) of the Act. As amended, ``Adjustment for outliers,'' 
states that ``The Secretary shall reduce the standard prospective 
payment amount (or amounts) under this paragraph applicable to HH 
services furnished during a period by such proportion as will result in 
an aggregate reduction in payments for the period equal to 5 percent of 
the total payments estimated to be made based on the prospective 
payment system under this subsection for the period.'' In addition, 
section 3131(b)(2) of the Affordable Care Act amended section 
1895(b)(5) of the Act by re-designating the existing language as 
section 1895(b)(5)(A) of the Act, and revising it to state that the 
Secretary, ``subject to [a 10 percent program-specific outlier cap], 
may provide for an addition or adjustment to the payment amount 
otherwise made in the case of outliers because of unusual variations in 
the type or amount of medically necessary care. The total amount of the 
additional payments or payment adjustments made under this paragraph 
with respect to a fiscal year or year may not exceed 2.5 percent of the 
total payments projected or estimated to be made based on the 
prospective payment system under this subsection in that year.''
    As such, beginning in CY 2011, our HH PPS outlier policy is that we 
reduce payment rates by 5 percent and target up to 2.5 percent of total 
estimated HH PPS payments to be paid as outliers. To do so, we first 
returned the 2.5 percent held for the target CY 2010 outlier pool to 
the national, standardized 60-day episode payment rates, the national 
per visit rates, the LUPA add-on payment amount, and the NRS conversion 
factor for CY 2010. We then reduced the rates by 5 percent as required 
by section 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) 
of the Affordable Care Act. For CY 2011 and subsequent calendar years 
we target up to 2.5 percent of estimated total payments to be paid as 
outlier payments, and apply a 10 percent agency-level outlier cap.
4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    For a given level of outlier payments, there is a trade-off between 
the values selected for the FDL ratio and the loss-sharing ratio. A 
high FDL ratio reduces the number of episodes that can receive outlier 
payments, but makes it possible to select a higher loss-sharing ratio, 
and therefore, increase outlier payments for outlier episodes. 
Alternatively, a lower FDL ratio means that more episodes can qualify 
for outlier payments, but outlier payments per episode must then be 
lower.
    The FDL ratio and the loss-sharing ratio must be selected so that 
the estimated total outlier payments do not exceed the 2.5 percent 
aggregate level (as required by section 1895(b)(5)(A) of the Act). 
Historically, we have used a value of 0.80 for the loss-sharing ratio 
which, we believe, preserves incentives for agencies to attempt to 
provide care efficiently for outlier cases. With a loss-sharing ratio 
of 0.80, Medicare pays 80 percent of the additional estimated costs 
above the outlier threshold amount. We are not proposing a change to 
the loss-sharing ratio in this proposed 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 ratio in CY 2012. Simulations based on CY 2010 
claims data completed for the CY 2013 HH PPS final rule showed that 
outlier payments were estimated to comprise approximately 2.18 percent 
of total HH PPS payments in CY 2013, and as such, we lowered the FDL 
ratio from 0.67 to 0.45. We stated that lowering the FDL ratio to 0.45, 
while maintaining a loss-sharing ratio of 0.80, 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-adjusted to derive the wage-adjusted FDL 
amount, which is added to the case-mix and wage-adjusted 60-day episode 
payment amount to determine the outlier threshold amount that costs 
have to exceed before Medicare will pay 80 percent of the additional 
estimated costs.
    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

[[Page 40302]]

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 proposed increases to the CY 2014 national per-visit payment rates, 
our analysis estimates a 0.04 percentage 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, estimated outlier payments as a percent of total 
HH PPS payments would be approximately 1.94 percent. We note, however, 
that these estimates do not take in to account any changes in 
utilization 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 utilization 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 total HH PPS payments using the best 
analysis the most current and complete year of HH PPS data and will 
continue to monitor the percent 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 proposed rule, section 
3131(d) of the Affordable Care Act requires CMS to conduct a study and 
report on developing HH PPS payment revisions that will ensure access 
to care and payment for patients with high severity of illness. Our 
Report to Congress containing this study's recommendations is due no 
later than March 1, 2014. Section 3131(d)(1)(A)(iii) of the Affordable 
Care Act, in particular, states that this study may include analysis of 
potential revisions to outlier payments to better reflect costs of 
treating Medicare beneficiaries with high levels of severity of 
illness.

G. Payment Reform: Home Health Study and Report

    To address concerns that some beneficiaries 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 Affordable Care Act requires the Secretary to conduct a 
study on HHA costs involved with providing ongoing access to care to 
low-income Medicare beneficiaries or beneficiaries in medically 
underserved areas, and in treating beneficiaries with varying levels of 
severity of illness (specifically, beneficiaries with ``high levels of 
severity of illness''). Section 3131(d) of the Affordable Care Act also 
gives the Secretary the authority to explore methods to revise the HH 
PPS to account for costs related to patient severity of illness or to 
improving beneficiary access to care and examine the potential impacts 
of any potential revisions to the payment system.
    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 
potential HH PPS payment vulnerabilities and access issues, established 
and convened technical expert panel (TEP) meetings and open door forums 
to help define the vulnerable patient populations and to gain insight 
on access issues these populations may face, and performed preliminary 
analysis looking at resource costs versus Medicare reimbursement.
    In September 2011, we awarded a study contract to L&M Policy 
Research, along with subcontractors Avalere Health, Mathematica Policy 
Research, and Social & Scientific Systems, to develop an analytic plan, 
perform detailed analysis, and if necessary, develop recommendations 
for changes to the HH PPS. In 2012, we completed preliminary analyses 
on HHA costs associated with providing care for vulnerable patient 
populations. We presented our findings at a TEP meeting in December 
2012 and received extensive feedback on our analyses. We refined our 
analytic approach based on feedback from the TEP meeting and we are in 
the process of performing the refined analyses. In addition to 
examining the costs of providing care to vulnerable patient 
populations, we are assessing whether the vulnerable patient 
populations experience access issues and potential 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 collecting and analyzing the data from the 
surveys.
    The findings from our analysis of HHA costs and the survey on 
access to care for vulnerable patient populations may be used to 
develop recommendations on how to revise the current HH PPS to better 
account for costs and ensure access to care for these beneficiaries. 
Methods to revise the current HH PPS could include payment adjustments 
for services that involve either more or fewer resources, changes to 
reflect resources involved with providing HH services to low-income 
Medicare beneficiaries or Medicare beneficiaries residing in medically 
underserved area, and ways outlier payments could be revised to reflect 
costs of treating Medicare beneficiaries with high severity of illness. 
In addition, as part of the study, we may analyze operational issues 
involved with potential implementation of potential revisions to the HH 
payment system.
    The Affordable Care Act requires that the Secretary submit a Report 
to Congress regarding the study no later than March 1, 2014. The report 
may contain recommendations for revisions to the HH PPS, 
recommendations for legislation and administrative action, and 
recommendations for whether further research is needed. The Congress 
also provided CMS with the authority to conduct a separate 
demonstration project to perform additional research and further 
explore recommendations from the study. We plan to provide updates 
regarding our progress on the HH study in future rulemaking and open 
door forums.

H. Cost Allocation of Survey Expenses

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

[[Page 40303]]

proceed to amend Sec.  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 state Medicaid program must 
provide that, in certifying HHAs, the state's designated survey agency 
must carry out certain other responsibilities that already apply to 
surveys of nursing facilities and Intermediate Care Facilities for 
Individuals with Intellectual Disabilities (ICF-IID), including sharing 
in the cost of HHA surveys. Section 431.610(g) provides for the 
availability of federal financial participation (FFP) in the cost of 
such surveys, except for expenditures that the survey agency makes that 
are attributable to the state's overall responsibilities under state 
law and regulations. We believe that the principles articulated in OMB 
Circular A-87 require that HHA survey costs be allocated to Medicaid, 
Medicare and state-only programs in proportion to the benefits 
received. However, we also believe that the proposed amendment to Sec.  
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 further 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 state's allocation of costs for HHA surveys for 
adherence to OMB Circular A-87 principles and the statutes with the 
goal of ensuring full adherence by each state no later than July 2014. 
For that portion of costs attributable to Medicare and Medicaid, we 
would assign 50 percent to Medicare and 50 percent to Medicaid. This is 
the standard 50/50 method that CMS and states have used effectively for 
many years in the allocation of expenses related to surveys of SNF/NF 
nursing homes, an approach we consider to be more straight-forward and 
economical compared with calculation of unique percentages that vary 
state-to-state and year-by-year. Most importantly, a 50/50 method best 
reflects the reality that Medicare and Medicaid requirements for home 
health agencies are generally the same and each program benefits from 
the regulations.
    An alternative to the proposed 50/50 method for allocating each 
state's Medicare/Medicaid HHS survey costs would be to fix each state's 
Medicaid share each year based on the proportion of Medicaid funding 
for HH services in the state compared to the combined Medicare and 
Medicaid total funding in the most recent years for which the data are 
reasonably complete. This is the method adopted for the disbursement of 
civil monetary penalties (CMPs) in the CY 2013 HH PPS proposed rule (77 
FR 41548). However, the effective date of HHA CMPs is not until July 1, 
2014. Our preparations for imposing such CMPs in 2014 indicate that the 
annual data collection and calculations necessary for that methodology 
are (a) More complicated and burdensome than necessary, (b) involve an 
inherent data lag that could create uncertainty for states and CMS in 
preparing state survey agency budgets, (c) sufficiently variable from 
year to year to create further uncertainty for states, (d) unable to 
anticipate the effects of substantial expansion of Medicaid under the 
Affordable Care Act (which could increasingly enlarge the state 
Medicaid share) and (e) would not recognize that both Medicare and 
Medicaid programs benefit from the regulations. Therefore, we believe 
that the more efficient and advantageous method, for both CMS and 
states, would be the 50/50 allocation method that has been used 
successfully for many years in the allocation of survey costs for SNF/
NF nursing homes. We invite comment not only on the 50/50 allocation 
method for the costs of HHA survey expenses, but on whether the method 
of distribution for CMP receipts back to states and to the U.S. 
Treasury should be changed to the same 50/50 methodology. Based on such 
a 50/50 ratio for each state, and based upon the projected national HHA 
survey budget for FY 2014 of $37.2 million, if implemented in the 
beginning of FY 2014, the anticipated aggregate share for Medicaid 
would amount to $18.6 million. The cost of surveys is treated as a 
Medicaid administrative cost, reimbursable at the professional staff 
rate of 75 percent. Therefore, the state Medicaid share will be 
approximately $4.65 million on an annualized basis. The $4.65 million 
cost is spread 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 aggregate 
share to approximately $4.65 million (for 3 months of the annual $18.6 
million aggregate cost) and the state Medicaid share to approximately 
$1.16 million (25 percent of expenses for the last quarter of FY 2014).

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Unless otherwise noted, to derive average costs we used data from 
the U.S. Bureau of Labor Statistics for all salary estimates. The 
salary estimates include the cost of fringe benefits, calculated at 35 
percent of salary, which is based on the March 2011 Employer Costs for 
Employee Compensation report by the Bureau.
    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 revise any of its information collection requirements or 
burden estimates and, therefore, does not require additional OMB review 
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.).

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

    In Sec.  431.610, HHAs would be added to the survey agency 
provision concerning Medicaid state plans. Since CMS already requires 
the state survey agencies to have qualified personnel perform onsite 
inspections as appropriate, we believe that the requirement to use 
qualified staff is met in the current state Medicaid plans. As 
explained in the preamble (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 the conduct of HHA 
surveys. This is a budgeting task for which there may be

[[Page 40304]]

some incidental information collection burden. For some states we 
believe the information collection responsibility may be met within the 
context 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 0938-0193). 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 tasks, 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 resources, 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 would 
be 13.25 non-recurring hours (15/60 * 53). Applying a national average 
professional surveyor cost per hour of approximately $50.23 (inclusive 
of salary and fringe benefits), we estimate that the maximum 
information collection 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 reporting requirements 
or estimates and, therefore, does not require additional OMB review 
under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.).

C. ICRs Regarding Home Health Care CAHPS[supreg] (HHCAHPS[supreg]) 
Survey (Sec.  484.250)

    As part of the DHHS Transparency Initiative on Quality Reporting, 
CMS implements the HHCAHPS[supreg] Survey to measure and to publicly 
report patients' experiences with home health care they receive from 
Medicare-certified agencies. Section 484.250, Patient Assessment Data, 
requires that HHAs submit to CMS, HHCAHPS[supreg] data in order to 
administer the payment rate methodologies described in Sec. Sec.  
484.215, 484.230, and 484.235. The burden associated with this is the 
time and effort put forth by the HHAs to submit the HHCAHPS[supreg] 
data, the patients' burden to respond to the HHCAHPS[supreg] survey, 
and the cost to the HHAs to pay for the HHCAHPS[supreg] survey vendors 
to collect the data on their behalf. This burden is currently accounted 
for under OCN 0938-1066 (CMS-10275).
    CMS allows Medicare-certified home health agencies that serve 59 or 
fewer HHCAHPS[supreg] eligible patients, to request an exemption from 
participating in the HHCAHPS[supreg] survey. Currently, we have posted 
the HHCAHPS[supreg] Participation Exemption Request (PER) Form for the 
CY 2015 Annual Payment Update on https://homehealthcahps.org. 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[supreg] eligible 
patients in the count period that is referenced for a given calendar 
year. For the CY 2015 annual payment update, home health agencies with 
59 or fewer HHCAHPS[supreg] patients in the period of April 2012 
through March 2013 are exempt from participation in the HHCAHPS[supreg] 
Survey from April 2013 through March 2014, if they complete the HHCAHPS 
Participation Exemption Request Form for the CY 2015 Annual Payment 
Update, and the counts are verified in the CMS database for the same 
period. We are revising OCN 0938-1066 by adding the HHCAHPS[supreg] 
Participation 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[supreg] 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[supreg] 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 
aggregated 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 following hourly labor rates 
and time to complete each task: $36.27/hr and 20 min (.33 hr) for a 
home health care agency director to check the work on the Participation 
Exemption Request Form and $24.92/hr and 15 min (.25 hr) for an 
executive assistant to perform the patient count and to complete the 
form. This amounts to $18.20 per respondent ($11.97 + $6.23) or $36,400 
($18.20 x 2,000) total.

D. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection and recordkeeping 
requirements. These requirements are not effective until they have been 
approved by the OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access CMS' 
Web site at www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/, or call the Reports Clearance Office at 
410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you comment on these information collection and 
recordkeeping requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
(CMS-1450-P) Fax: (202) 395-6974; or Email: 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 subsequent document, we will respond to the 
comments in the preamble to that document.

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 (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (UMRA, March 22, 1995; Pub. L. 
104-4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563

[[Page 40305]]

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. Accordingly, we have prepared 
a regulatory impact analysis (RIA) that to the best of our ability 
presents the costs and benefits of the rulemaking. Also, the rule has 
been reviewed by OMB.

B. Statement of Need

    Section 1895(b)(1) of the Act requires the Secretary to establish a 
HH PPS for all costs of HH services paid under Medicare. In addition, 
section 1895(b)(3)(A) of the Act requires (1) the computation of a 
standard prospective payment amount include all costs for HH services 
covered and paid for on a reasonable cost basis and that such amounts 
be initially based on the most recent audited cost report data 
available to the Secretary, and (2) the standardized prospective 
payment amount be adjusted to account for the effects of case-mix and 
wage levels among HHAs. Section 1895(b)(3)(B) of the Act addresses the 
annual update to the standard prospective payment amounts by the HH 
applicable percentage increase. Section 1895(b)(4) of the Act governs 
the payment computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of 
the Act require the standard prospective payment amount to be adjusted 
for case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of appropriate 
case-mix adjustment factors for significant variation in costs among 
different units of services. Lastly, section 1895(b)(4)(C) of the Act 
requires the establishment of wage adjustment factors that reflect the 
relative level of wages, and wage-related costs applicable to HH 
services furnished in a geographic area compared to the applicable 
national average level.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make changes to the payment amount otherwise paid in the case of 
outliers because of unusual variations in the type or amount of 
medically necessary care. Section 1895(b)(3)(B)(v) of the Act requires 
HHAs to submit data for purposes of measuring health care quality, and 
links the quality data submission to the annual applicable percentage 
increase. Also, section 1886(d)(2)(D) of the Act requires that HH 
services furnished in a rural area for episodes and visits ending on or 
after April 1, 2010, and before January 1, 2016, receive an increase of 
3 percent the payment amount otherwise made under section 1895 of the 
Act.
    Section 3131(a) of the Affordable Care Act mandates that starting 
in CY 2014, the Secretary must apply an adjustment to the national, 
standardized 60-day episode payment rate and other amounts applicable 
under section 1895(b)(3)(A)(i)(III) of the Act to reflect factors such 
as changes in the number of visits in an episode, the mix of services 
in an episode, the level of intensity of services in an episode, the 
average cost of providing care per episode, and other relevant factors. 
In addition, section 3131(a) of the Affordable Care Act mandates that 
rebasing must be phased-in over a 4-year period in equal increments, 
not to exceed 3.5 percent of the amount (or amounts) in any given year, 
applicable 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 
payments under HH PPS in CY 2014. Accordingly, the following analysis 
describes the impact in CY 2014 only. We estimate that the net impact 
of the proposals in this rule is approximately $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 
standardization 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 effects of the 2.4 percent 
HH payment update percentage ($460 million increase), the effects of 
the rebasing adjustments to the national, standardized 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 comparing 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 entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of less than $7.0 million to $34.5 million in any 1 year. For 
the purposes of the RFA, we estimate that almost all HHAs are small 
entities as that term is used in the RFA. Individuals and states are 
not included in the definition of a small entity. The 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 
the preamble, constitutes our initial RFA analysis. We solicit comment 
on the RFA analysis provided.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must conform 
to the provisions of section 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 dollars, 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 tribal 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 proposed 
rule presents the estimated expenditure effects of policy changes 
proposed in this rule. We use the latest data and best analysis 
available, but we do not make adjustments for future changes in such 
variables as number of visits or case-mix.
    This analysis incorporates the latest estimates of growth in 
service use and payments under the Medicare HH benefit, based primarily 
on 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

[[Page 40306]]

the impact time period assessed. Some examples of such possible events 
are newly-legislated general Medicare program funding changes made by 
the Congress, or changes specifically related to HHAs. In addition, 
changes to the Medicare program may continue to be made as a result of 
the Affordable Care Act, or new statutory provisions. Although these 
changes may not be specific to the HH PPS, the nature of the Medicare 
program is such that the changes may interact, and the complexity of 
the interaction of these changes could make it difficult to predict 
accurately the full scope of the impact upon HHAs.
    Table 29 represents how HHA revenues are likely to be affected by 
the policy changes proposed in this rule. For this analysis, we used 
linked CY 2012 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 locations. The third column shows the payment effects of the 
wage index only. The fourth column shows the effects of the 
standardization factor only. The fifth column shows the effects of the 
rebasing adjustments to the national, standardized 60-day episode 
payment rate, the national per-visit payment rates, and NRS conversion 
factor; the 2014 wage index; and standardization. The sixth column 
displays the effects of ICD-9 coding changes and the seventh column 
shows the effects of the market basket increase. The last column shows 
the payment effects of all the proposed policies. For CY 2014, the 
average impact for all HHAs due to the effects 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 
approximately 1.5 percent.

                       Table 29--Proposed Home Health Agency Policy Impacts for CY 2014, by Facility Type and Area of the Country
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Proposed       Proposed
                                                                    Proposed CY                    rebasing, 2014     ICD-9      CY 2014 HH   Impact of
                                                        Number of    2014 wage   Standardization  wage index, and     coding       market    all CY 2014
                                                         agencies      index        (percent)     standardization    changes       basket      policies
                                                                     (percent)                     \1\ (percent)    (percent)    (percent)    (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
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
    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):
    http://www.whitehouse.gov/omb/circulars_a004_a-4), in Tables 30 and 31, we 
have prepared an accounting statement showing the classification of the 
transfers associated with the provisions of this proposed rule. Table 
30 provides our best estimate of the decrease in Medicare payments 
under the HH PPS as a result of the changes presented in this proposed 
rule.

[[Page 40308]]

Table 30--Accounting Statement: Classification 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 proposed changes in the 
classification of the cost allocation of survey expenses.

Table 31--Accounting Statement: Classification of Estimated Transfers Relating to the Medicare and Medicaid Home
                             Health Survey and Certification Costs, FYs 2013 to 2014
----------------------------------------------------------------------------------------------------------------
               Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
Federal Medicaid HH survey &
 certification costs:
Annualized Monetized Transfers.......  $17.44 Million.
From Whom to Whom?...................  Federal Government to Medicaid HH Survey Agencies.
State Medicaid HH survey &
 certification costs:
Annualized Monetized Transfers.......  $1.16 Million.
From Whom to Whom?...................  State Governments 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 impact 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 decrease), a standardization factor to ensure budget 
neutrality in episode payments using the 2014 wage index ($40 million 
increase), the 2.4 percent HH payment update percentage ($460 million 
increase), the ICD-9 grouper refinement ($100 million decrease), and 
the rebasing adjustments 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 
certain requirements that an agency must meet when it promulgates a 
final rule that imposes substantial direct requirement costs on state 
and local governments, preempts state law, or otherwise has Federalism 
implications. This rule would have no substantial direct effect on 
state and local governments, preempt state law, or otherwise have 
Federalism implications.

List of Subjects in 42 CFR Part 431

    Grant programs--health, Health facilities, Medicaid, Privacy, and 
Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services would amend 42 CFR chapter IV as set forth below:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

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

    Authority: Sec. 1102 of the Social Security Act, (42 U.S.C. 
1302).
0
2. Section 431.610 is amended by revising paragraph (g) introductory 
text to read as follows:

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

* * * * *
    (g) Responsibilities of survey agency. The plan must provide that, 
in certifying NFs, HHAs, and ICF-IIDs, the survey agency designated 
under paragraph (e) of this section will--

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

    Dated: June 10, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 14, 2013.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-15766 Filed 6-27-13; 1:37 pm]
BILLING CODE 4120-01-P
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