Wednesday, 

August 29, 2007 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Part 484 

Medicare Program; Home Health 

Prospective Payment System Refinement 

and Rate Update for Calendar Year 2008; 

Final Rule 

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49762 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 484 

[CMS–1541–FC] 

RIN 0938–AO32 

Medicare Program; Home Health 

Prospective Payment System 

Refinement and Rate Update for 

Calendar Year 2008 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This final rule with comment 

period sets forth an update to the 60-day 

national episode rates and the national 

per-visit amounts under the Medicare 

prospective payment system for home 

health services, effective on January 1, 

2008. As part of this final rule with 

comment period, we are also rebasing 

and revising the home health market 

basket to ensure it continues to 

adequately reflect the price changes of 

efficiently providing home health 

services. This final rule with comment 

period also sets forth the refinements to 

the payment system. In addition, this 

final rule with comment period 

establishes new quality of care data 

collection requirements. 

Finally, this final rule with comment 

period allows for further public 

comment on the 2.71 percent reduction 

to the home health prospective payment 

system payment rates that are scheduled 

to occur in 2011, to account for changes 

in coding that were not related to an 

underlying change in patient health 

status (section III.B.6). 

DATES: Effective date: These regulations 

are effective on January 1, 2008. 

Comment date: We will consider 

public comments on the provisions in 

section III.B.6 that deal with the 2.71 

percent reduction to payment rates in 

2011. To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on October 29, 2007. 

ADDRESSES: In commenting, please refer 

to file code CMS–1541–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–1541– 

FC, P.O. Box 8012, Baltimore, MD 

21244–8012. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1541–FC, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection 

of Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Randy Throndset, (410) 786–0131. 

Sharon Ventura, (410) 786–1985 and 

Katie Lucas, (410) 786–7723 (for general 

issues). Kathy Walch, (410) 786–7970 

(for clinical OASIS issues). Doug Brown, 

(410) 786–0028 (for quality issues). 

Mollie Knight, (410) 786–7948; and 

Heidi Oumarou, (410) 786–7942 (for 

market basket issues). 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on the 2.71 

percent reduction to the Home Health 

Prospective Payment System (HH PPS) 

rates for 2011, as set forth in this final 

rule with comment period, to assist us 

in fully considering this issue and 

developing policies. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period will be available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

the comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://www.cms.hhs.gov/ 

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare and Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Background 

A. Requirements of the Balanced Budget 

Act of 1997 for Establishing the 

Prospective Payment System for Home 

Health Services 

B. Deficit Reduction Act of 2005 

C. Updates to the HH PPS 

D. System for Payment of Home Health 

Services 

II. Summary of the Provisions of the CY 2008 

Proposed Rule 

III. Analysis of and Response to Public 

Comments on the CY 2008 Proposed 

Rule 

A. General Comments on the CY 2008 HH 

PPS Proposed Rule 

1. Operational Issues 

2. The Schedule for Implementation of the 

CY 2008 Refinements 

3. Complexity of the System 

B. Case-Mix Model Refinements 

1. General Comments 

2. Later Episodes 

3. Addition of Variables 

4. Addition of Therapy Thresholds 

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5. Determination of Case-Mix Weights 

6. Case-Mix Change Under the HH PPS 

7. Case-Mix Groups 

8. OASIS Reporting and Coding Practices 

C. Payment Adjustments 

1. The Partial Episode Payment (PEP) 

Adjustment 

2. The Low Utilization Payment 

Adjustment (LUPA) 

3. The Significant Change in Condition 

(SCIC) Adjustment 

4. Non-Routine Medical Supplies (NRS) 

D. The Outlier Policy 

E. The Update of the HH PPS Rates 

1. The Home Health Market Basket Update 

2. The Rebasing and Revising of the Home 

Health Market Basket 

3. Wage Index 

4. Home Health Care Quality Improvement 

5. CY 2008 Payment Updates 

IV. Provisions of the Final Rule With 

Comment Period 

V. Collection of Information Requirements 

VI. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects 

C. Accounting Statement 

Addendum A. CY 2008 Wage Index for Rural 

Areas by CBSA; Applicable Pre-floor and 

Pre-reclassified Hospital Wage Index 

Addendum B. CY 2008 Wage Index for Urban 

Areas by CBSA; Applicable Pre-floor and 

Pre-reclassified Hospital Wage Index 

Addendum C. Comparison of the CY 2007 

HH PPS Wage Index and the CY 2008 

HH PPS Wage Index 

I. Background 

A. Requirements of the Balanced Budget 

Act of 1997 for Establishing the 

Prospective Payment System for Home 

Health Services 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) enacted on 

August 5, 1997, significantly changed 

the way Medicare pays for Medicare 

home health services. Section 4603 of 

the BBA governed the development of 

the home health prospective payment 

system (HH PPS). Until the 

implementation of a HH PPS on October 

1, 2000, home health agencies (HHAs) 

received payment under a cost-based 

reimbursement system. 

Section 4603(a) of the BBA provides 

the authority for the development of a 

HH PPS for all Medicare-covered home 

health services provided under a plan of 

care that were paid on a reasonable cost 

basis by adding section 1895 of the 

Social Security Act (the Act), entitled 

‘‘Prospective Payment For Home Health 

Services,’’ to the Act. 

Section 1895(b)(1) of the Act requires 

the Secretary to establish a HH PPS for 

all costs of home health services paid 

under Medicare. 

Section 1895(b)(3)(A) of the Act 

requires that (1) the computation of a 

standard prospective payment amount 

include all costs for home health 

services covered and paid for on a 

reasonable cost basis and be initially 

based on the most recent audited cost 

report data available to the Secretary, 

and (2) the prospective payment 

amounts be standardized to eliminate 

the effects of case-mix and wage levels 

among HHAs. 

Section 1895(b)(3)(B) of the Act 

addresses the annual update to the 

standard prospective payment amounts 

by the home health applicable increase 

percentage as specified in the statute. 

Section 1895(b)(4) of the Act governs 

the payment computation. Sections 

1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the 

Act require the standard prospective 

payment amount be adjusted for casemix and geographic differences in wage 

levels. Section 1895(b)(4)(B) of the Act 

requires the establishment of an 

appropriate case-mix adjustment factor 

that adjusts for significant variation in 

costs among different units of services. 

Similarly, section 1895(b)(4)(C) of the 

Act requires the establishment of wage 

adjustment factors that reflect the 

relative level of wages, and wage-related 

costs applicable to home health services 

furnished in a geographic area 

compared to the applicable national 

average level. These wage-adjustment 

factors may be used by the Secretary for 

the different geographic wage levels for 

purposes of section 1886(d)(3)(E) of the 

Act. 

Section 1895(b)(5) of the Act gives the 

Secretary the option to make additions 

or adjustments to the payment amount 

otherwise made in the case of outliers 

because of unusual variations in the 

type or amount of medically necessary 

care. Total outlier payments in a given 

fiscal year (FY) may not exceed 5 

percent of total payments projected or 

estimated. 

In accordance with the statute, we 

published a final rule (65 FR 41128) in 

the Federal Register on July 3, 2000 to 

implement the HH PPS legislation. The 

July 2000 final rule established 

requirements for the new HH PPS for 

home health services as required by 

section 4603 of the BBA, as 

subsequently amended by section 5101 

of the Omnibus Consolidated and 

Emergency Supplemental 

Appropriations Act (OCESAA) for Fiscal 

Year 1999, (Pub. L. 105–277), enacted 

on October 21, 1998; and by sections 

302, 305, and 306 of the Medicare, 

Medicaid, and SCHIP Balanced Budget 

Refinement Act (BBRA) of 1999, (Pub. L. 

106–113), enacted on November 29, 

1999. The requirements include the 

implementation of a HH PPS for home 

health services, consolidated billing 

requirements, and a number of other 

related changes. The HH PPS described 

in that rule replaced the retrospective 

reasonable cost-based system that was 

used by Medicare for the payment of 

home health services under Part A and 

Part B. 

For a complete and full description of 

the HH PPS as required by the BBA, see 

the July 2000 HH PPS final rule. 

B. Deficit Reduction Act of 2005 

On February 8, 2006, the Deficit 

Reduction Act (DRA) of 2005 (Pub. L. 

109–171) was enacted. This legislation 

affected updates to HH payment rates 

for calendar year (CY) 2006. The DRA 

also required HHAs to submit home 

health care quality data and created a 

linkage between that data and payment 

beginning in CY 2007. 

Specifically, section 5201 of the DRA 

changed the CY 2006 update from the 

applicable home health market basket 

percentage increase minus 0.8 

percentage points to a 0 percent update. 

In addition, section 5201 of the DRA 

amends section 421(a) of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173, enacted on December 8, 

2003). The amended section 421(a) of 

the MMA requires that for home health 

services furnished in a rural area (as 

defined in section 1886(d)(2)(D) of the 

Act) on or after January 1, 2006 and 

before January 1, 2007, that the 

Secretary increase the payment amount 

otherwise made under section 1895 of 

the Act for home health services by 5 

percent. The statute waives budget 

neutrality for purposes of this increase 

since it specifically states that the 

Secretary must not reduce the standard 

prospective payment amount (or 

amounts) under section 1895 of the Act 

applicable to home health services 

furnished during a period to offset the 

increase in payments resulting in the 

application of this section of the statute. 

The 0 percent update to the payment 

rates and the rural add-on provisions of 

the DRA were implemented through 

Pub. 100–20, One Time Notification, 

Transmittal 211 issued on February 10, 

2006. 

In addition, section 5201 of the DRA 

requires HHAs to submit data for 

purposes of measuring health care 

quality, and links the quality data 

submission to payment. This 

requirement is applicable for CY 2007 

and each subsequent year. If an HHA 

does not submit quality data, the home 

health market basket percentage 

increase will be reduced 2 percentage 

points. 

C. Updates to the HH PPS 

As required by section 1895(b)(3)(B) 

of the Act, we have historically updated 

the HH PPS rates annually in a separate 

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49764 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

Federal Register document. In those 

documents, we also incorporated the 

legislative changes to the system 

required by the statute after the BBA, 

specifically the MMA. On November 9, 

2006, we published a final rule titled 

‘‘Medicare Program; Home Health 

Prospective Payment System Rate 

Update for Calendar Year 2007 and 

Deficit Reduction Act of 2005 Changes 

to Medicare Payment for Oxygen 

Equipment and Capped Rental Durable 

Medical Equipment; Final Rule’’ (CMS–

1304–F) (71 FR 65884) in the Federal 

Register that updated the 60-day 

national episode rates and the national 

per-visit amounts under the Medicare 

HH PPS for home health services for CY 

2007. In addition, the November 2006 

final rule ended the 1-year transition 

period that consisted of a blend of 50 

percent of the new area labor market 

designations’ wage index and 50 percent 

of the previous area labor market 

designations’ wage index. We also 

revised the fixed dollar loss ratio, which 

is used in the calculation of outlier 

payments. According to section 

5201(c)(2) of the DRA, this final rule 

also reduced, by 2 percentage points, 

the home health market basket 

percentage increase to HHAs that did 

not submit required quality data, as 

determined by the Secretary. 

D. System for Payment of Home Health 

Services 

Generally, Medicare makes payment 

under the HH PPS on the basis of a 

national standardized 60-day episode 

payment rate that is adjusted for casemix and wage index. The national 

standardized 60-day episode payment 

rate includes the six home health 

disciplines (skilled nursing, home 

health aide, physical therapy, speechlanguage pathology, occupational 

therapy, and medical social services) 

and medical supplies. Durable medical 

equipment covered under home health 

is paid for outside the HH PPS payment. 

To adjust for case-mix, the HH PPS uses 

an 80-category case-mix classification to 

assign patients to a home health 

resource group (HHRG). Clinical needs, 

functional status, and service utilization 

are computed from responses to selected 

data elements in the OASIS assessment 

instrument. 

For episodes with four or fewer visits, 

Medicare pays on the basis of a national 

per-visit amount by discipline, referred 

to as a low utilization payment 

adjustment (LUPA). Medicare also 

adjusts the national standardized 60-day 

episode payment rate for certain 

intervening events that are subject to a 

partial episode payment adjustment 

(PEP adjustment) or a significant change 

in condition adjustment (SCIC 

adjustment). For certain cases that 

exceed a specific cost threshold, an 

outlier adjustment may also be 

available. 

II. Summary of the Provisions of the CY 

2008 Proposed Rule 

We published a proposed rule in the 

Federal Register on May 4, 2007 (72 FR 

25356) that set forth a proposed update 

to the 60-day national episode rates and 

the national per-visit amounts under the 

Medicare prospective payment system 

for home health services. In accordance 

with section 1895(b)(3)(B) of the Act, 

the standard prospective payment 

amounts are to be increased by a factor 

equal to the applicable home health 

market basket update for those HHAs 

that submit quality data as required by 

the Secretary. The proposed home 

health market basket update for CY 2008 

was 2.9 percent. For HHAs that fail to 

submit the required quality data, the 

home health market basket update 

would be reduced by 2 percentage 

points. 

Sections 1895(b)(4)(A)(ii) and (b)(4)(C) 

of the Act require the Secretary to 

establish area wage adjustment factors 

that reflect the relative level of wages 

and wage-related costs applicable to the 

furnishing of home health services and 

to provide appropriate adjustments to 

the episode payment amounts under the 

HH PPS to account for area wage 

differences. As set forth in the July 3, 

2000 final rule (65 FR 41128), the 

statute provides that the wage 

adjustment factors may be the factors 

used by the Secretary for the purposes 

of section 1886(d)(3)(E) of the Act for 

hospital wage adjustment factors. In the 

CY 2008 proposed rule (72 FR 25449), 

we proposed to use the 2008 pre-floor 

and pre-reclassified hospital wage index 

(not including any reclassification 

under section 1886(d)(8)(B) of the Act) 

to adjust rates for CY 2008 and would 

publish those final wage index values in 

the final rule. 

As part of the CY 2008 proposed rule 

(72 FR 25435), we also proposed to 

rebase and revise the home health 

market basket to reflect FY 2003 

Medicare cost report data, the latest 

available and most complete data on the 

structure of HHA costs. In the proposed 

rebased and revised home health market 

basket, the labor-related share was 

77.082 (an increase from the current 

labor-related share of 76.775). The 

proposed non-labor-related share was 

22.918 (a decrease from the current nonlabor-related share of 23.225). The 

increase in the proposed labor-related 

share using the FY 2003 home health 

market basket was primarily due to the 

increase in the benefit cost weight. 

The CY 2008 proposed rule (72 FR 

25358) also proposed refinements to the 

payment system. Extensive research was 

conducted to investigate ways to 

improve the performance of the casemix model. This research was the basis 

for our proposals to refine the case-mix 

model. We proposed to refine the casemix model to reflect different resource 

costs for early home health episodes 

versus later home health episodes and 

to expand the case-mix variables 

included in the payment model. For 

2008, we proposed a 4-equation casemix model that recognizes and 

differentiates payment for episodes of 

care based on whether a patient is in 

what is considered to be an early (1st or 

2nd episode in a sequence of adjacent 

episodes) or later (the 3rd episode and 

beyond in a sequence of adjacent 

episodes) episode of care as well as 

recognizing whether a patient was a 

high therapy (14 or more therapy visits) 

or low therapy (13 or fewer therapy 

visits) case. We defined episodes as 

adjacent if they were separated by no 

more than a 60-day period between 

claims. Analysis of the performance of 

the case-mix model for later episodes 

revealed two important differences for 

episodes occurring later in the home 

health treatment compared to earlier 

episodes: higher resource use per 

episode and a different relationship 

between clinical conditions and 

resource use. We also proposed that 

additional variables include scores for 

certain wound and skin conditions; 

more diagnosis groups such as 

pulmonary, cardiac, and cancer 

diagnoses; and certain secondary 

diagnoses. The proposed 4-equation 

model resulted in 153 case-mix groups. 

In addition, we proposed to replace 

the current single therapy threshold of 

10 visits with three therapy thresholds 

at 6, 14, and 20 visits. We proposed that 

payment for additional therapy visits 

between the three thresholds would 

increase gradually, incorporating a 

declining, rather than a constant, 

amount per added therapy visit. The 

proposed approach would not reduce 

total payments to home health providers 

because the payment model would still 

predict total resource cost. We noted 

that the combined effect of the new 

therapy thresholds and payment 

gradations was expected to reduce the 

undesirable emphasis in treatment 

planning on a single therapy visit 

threshold, and to restore the primacy of 

clinical considerations in treatment 

planning for rehabilitation patients. 

In the May 4, 2007 proposed rule (72 

FR 25395), we further proposed to make 

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an adjustment for case-mix that was not 

due to a change in the underlying health 

status of the home health users. Section 

1895(b)(3)(B) of the Act requires that in 

compensating for case-mix change, a 

payment reduction must be applied to 

the standardized payment amount. At 

the time of publication of the proposed 

rule, the most recent available data, 

from which to compute an average casemix weight, or case-mix index, under 

the HH PPS rule, was from 2003. Using 

the 2003 data, the average case-mix 

weight per episode for initial episodes 

was 1.233. Analysis of a 1-percent 

sample of initial episodes from the 

1999–2000 data under the HH IPS 

revealed an average case-mix weight of 

1.125. Standardized to the distribution 

of agency type (freestanding proprietary, 

freestanding not-for-profit, hospitalbased, government, and skilled nursing 

facility (SNF)-based) that existed in 

2003 under the HH PPS, the average 

weight was 1.134. We noted this time 

period is likely not free from 

anticipatory response to the HH PPS, 

because we published our initial HH 

PPS proposal on October 28, 1999. The 

increase in the average case-mix using 

this time period as the baseline resulted 

in an 8.7 percent increase (from 1.134 to 

1.233; 1.233–1.134=0.099; 0.099/ 

1.134=0.087; 0.087×100=8.7 percent). 

We proposed that the 8.7 percent of 

case-mix change that occurred between 

the 12 months ending September 30, 

2000 and the most recent available data 

at the time from 2003 be considered 

case-mix change unrelated to change in 

health status, also referred to as 

‘‘nominal case-mix change.’’ We 

proposed to apply this reduction over 3 

years at 2.75 percent per year. Our 

analysis on the average case-mix under 

the HH PPS using an Abt Associates’

case-mix study sample from October 

1997 to April of 1998 as the baseline 

revealed an increase in the average casemix of 23.3 percent (from 1.0 during 

October 1997 to April 1998 to 1.233 in 

2003). Because we believed the HHAs 

response to BBA provisions, such as the 

home health interim payment system 

(HH IPS) during this period, could have 

produced data from this sample that 

reflected a case-mix in flux, we were not 

confident that the trend in the case-mix 

index (CMI) between the time of the Abt 

Associates case-mix study sample and 

2003 data, used in the analysis for the 

proposed rule, reflected only changes in 

nominal coding practices. Conversely, 

the average case-mix for a sample data 

set for 12 months ending September 30, 

2000 (HH IPS baseline) was found to be 

1.125, standardized to 1.134. Using this 

time period as the base-line from which 

to measure nominal change in case-mix 

under the HH PPS, we identified an 8.7 

percent change (increase) in the average 

CMI that would not be due to a change 

in the patient health status (1.233, 2003 

rate ¥1.134, September 2000 baseline = 

0.099; 0.099/1.134 = 0.087). 

Consequently, we proposed to account 

for that 8.7 percent in case-mix change, 

that we considered to be nominal by 

reducing the national 60-day episode 

rate by 2.75 percent, per year, for 3 years 

(subject to change upon analysis of 

newer, 2005 data for the final rule), 

beginning in CY 2008. 

Additionally, we proposed to modify 

a number of existing HH PPS payment 

adjustments. Specifically, we proposed 

modifying the LUPA by increasing the 

payment, by $92.63, for LUPA episodes 

that occur as the only episode or the 

initial episode during a sequence of 

adjacent episodes. It has been suggested, 

by the industry, that LUPA payment 

rates do not adequately account for the 

front-loading of costs in an episode. Our 

analysis showed that these types of 

LUPAs require longer visits, on average, 

than non-LUPA episodes, and that the 

longer average visit length is due to the 

start of care visit, when the case is 

opened and the initial assessment takes 

place. Consequently, these analyses 

indicate that payments for such 

episodes may not offset the full cost of 

initial visits. We also proposed 

eliminating the significant change in 

condition (SCIC) payment adjustment. 

The current SCIC policy allows an HHA 

to adjust payment when a beneficiary 

experiences a SCIC during the 60-day 

episode that was not envisioned in the 

original plan of care. Because of the 

apparent difficulty HHAs have in 

interpreting the SCIC policy, their 

negative margins, the decline in the 

occurrence of SCICs, and the estimated 

little impact on outlays in eliminating 

the SCIC policy, we proposed to 

eliminate the SCIC policy. 

In the development of the HH PPS, 

non-routine medical supplies (NRS) 

were accounted for by attributing $49.62 

to the standardized episode payment. In 

the CY 2008 proposed rule (72 FR 

25427), we proposed to apply a severity 

adjustment to the NRS portion of the 

HH PPS standardized episode payment. 

Specifically, we proposed a five-severity 

group level approach that we believe 

would account for NRS costs based on 

measurable conditions, would be 

feasible to administer, and offered 

HHAs some protection against episodes 

with extremely high NRS costs. Finally, 

we did not propose to modify the 

existing Partial Episode Payment (PEP) 

Adjustment. At the time of the proposed 

rule, our analysis did not suggest a more 

appropriate alternative payment policy. 

However, we solicited the public for 

suggestions and comments on this 

aspect of the HH PPS for ways to 

improve the PEP adjustment policy. 

Section 1895(b)(5) of the Act also 

allows for the provision of an addition 

or adjustment to account for outlier 

episodes, which are those episodes that 

incur unusually large costs due to 

patient care needs. Under the HH PPS, 

outlier payments are made for episodes 

for which the estimated cost exceeds a 

threshold amount. The wage adjusted 

fixed dollar loss (FDL) amount 

represents the amount of loss that an 

agency must bear before an episode 

becomes eligible for outlier payments. 

Section 1895(b)(5) of the Act requires 

that the estimated total outlier payments 

may not exceed 5 percent of total 

estimated HH PPS payments. With 

outlier payments having increased in 

recent years, and given the unknown 

effects that the proposed refinements 

may have on outliers, we proposed to 

maintain the FDL ratio of 0.67. We 

stated, in the proposed rule (72 FR 

25434), that we believed this would 

continue to meet the statutory 

requirement of having an outlier 

payment outlay that does not exceed 5 

percent of total HH PPS payments, 

while still providing for an adequate 

number of episodes to qualify for outlier 

payments. We further stated in the 

proposed rule (72 FR 25434) that we 

would rely on the latest data and best 

analysis available at the time to estimate 

outlier payments and update the FDL 

ratio in the final rule if appropriate. 

Finally for CY 2007, we specified 10 

OASIS quality measures as appropriate 

for measurements of health care quality. 

These measures were to be submitted by 

HHAs to meet their statutory 

requirements to submit data for a full 

increase in their home health market 

basket percentage increase amount. For 

CY 2008, we proposed to expand the set 

of 10 measures by adding up to 2 

National Quality Forum (NQF)-endorsed 

measures. The proposed additional 

measures for 2008 were as follows: 

• Emergent Care for Wound Infection, 

Deteriorating Wound Status 

• Improvement in the Status of Surgical 

Wounds 

Accordingly, for CY 2008, we 

proposed to consider the 12 OASIS 

quality measures submitted by HHAs to 

CMS for episodes beginning on or after 

July 1, 2006 and before July 1, 2007 as 

meeting the reporting requirement for 

CY 2008. 

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III. Analysis of and Responses to Public 

Comments on the CY 2008 Proposed 

Rule 

In response to the publication of the 

CY 2008 HH PPS proposed rule, we 

received approximately 150 items of 

correspondence from the public. We 

received numerous comments from 

various trade associations and major 

organizations. Comments also originated 

from HHAs, hospitals, other providers, 

suppliers, practitioners, advocacy 

groups, consulting firms, and private 

citizens. The following discussion, 

arranged by subject area, includes our 

responses to the comments and, where 

appropriate, a brief summary as to 

whether or not we are implementing the 

proposed provision or some variation 

thereof. 

A. General Comments on the CY 2008 

HH PPS Proposed Rule 

1. Operational Issues 

Overall, commenters were pleased 

with the proposed changes to the HH 

PPS. However, commenters did express 

concerns over the burden they 

perceived that would be placed on 

HHAs to accomplish a number of the 

proposed changes. 

Comment: Commenters generally 

appreciated CMS’s plan to automatically 

adjust claims to reflect the actual 

amount of therapy provided versus that 

initially reported in OASIS item M0826, 

Therapy Need, but two commenters 

noted that for payment adjustments to 

be made accurately, Medicare’s 

Common Working File (CWF) system 

must contain timely, accurate 

information. Numerous commenters 

were concerned that the creation of 

M0110 (Episode Timing) would be 

burdensome, as agencies do not have 

the information to complete them. The 

commenters did not want to be 

penalized if M0110 was answered 

incorrectly, and wanted to avoid 

administrative burden from having to 

cancel and resubmit final claims and 

Request for Anticipated Payments 

(RAPs). 

Response: CMS has made efforts over 

the last several years to reduce internal 

processing delays and ensure that the 

CWF is updated with claim receipts 

more quickly overall. While new errors 

may arise that delay processing, we will 

seek to correct them as swiftly as 

possible in light of all the competing 

demands on our systems. 

The factor that most affects the 

timeliness and accuracy of the CWF is 

how promptly within the 15 to 27 

month timely filing period each 

provider submits its claims. Medicare 

systems can only process to the greatest 

degree of accuracy based on the 

information received to date. In all 

instances where we foresee submission 

or processing lags affecting the accuracy 

of claim payments under the refined 

system, we are designing processes to 

retrospectively adjust paid claims at the 

point when the delayed information is 

received. For example, the CWF will 

automatically adjust claims up or down 

to correct for episode timing (early or 

later, from M0110) and for therapy need 

(M0826) when submitted information is 

found to be incorrect. 

No cancelling and resubmission on 

the part of HHAs will be required in 

these instances. Additionally, as the 

proposed rule noted, providers have the 

option of using a default answer 

reflecting an early episode in M0110 in 

cases where information about episode 

sequence is not readily available. 

Comment: Most commenters 

supported the elimination of OASIS 

item M0175 from the case-mix model, as 

they sometimes found it difficult to 

code accurately. Some commenters 

thought that we were eliminating 

M0175 from the OASIS entirely, and 

supported that. Several recommended 

that we also stop retrospective M0175 

audits. One asked that we keep M0175 

as a case-mix variable, and apply the 

points to patients who have been 

admitted directly from a hospital. 

Response: We appreciate the support 

of our decision to eliminate M0175 as a 

case-mix variable. We are not 

eliminating M0175 from the OASIS, as 

is explained in section III.E.4, but only 

removing it from the case-mix model. 

The M0175 item’s results across the four 

equations were difficult to interpret, and 

the item’s explanatory power (with 

respect to contribution to the R-squared 

statistic) was small. Therefore, M0175 

was not included as a case-mix variable 

in our final case-mix model. 

The M0175 item is part of the original 

HH PPS case-mix model and was 

reflected in the determination of 

payments under that system. The 

retrospective M0175 audits are still 

necessary to correct payments that were 

made inappropriately under the original 

HH PPS. These payment corrections 

have been repeatedly recommended to 

CMS by HHS’s Office of Inspector 

General. 

Comment: One commenter proposed 

that the timeliness of information on 

Medicare systems would be increased 

by the removal of the option to submit 

no-RAP LUPA claims. The commenter 

believes that requiring RAPs for all 

episodes will speed submission of 

episodes to Medicare. 

Response: The no-RAP LUPA billing 

mechanism was created as part of the 

original implementation of the HH PPS 

in response to concerns from the home 

health industry that requiring RAPs for 

brief LUPA episodes presented an 

administrative burden. Absent 

consistent feedback throughout the 

home health industry that the benefits 

of removing this billing mechanism 

would outweigh the costs, we plan to 

retain the no-RAP LUPA process. 

However, we note this billing 

mechanism is an operational issue and 

we have not received many comments 

on this issue. It should be further noted 

that requiring the submission of RAPs 

for all episodes will not necessarily 

speed the submission of those RAPs in 

all cases. RAPs, like no-RAP LUPAs, can 

also be submitted at any point in the 

timely filing period. 

Comment: One commenter asked 

whether home health services received 

when a beneficiary is enrolled in a 

Medicare Advantage (MA) Plan will be 

considered in determining the sequence 

of adjacent episodes in cases where the 

beneficiary has disenrolled from the MA 

Plan and resumes his or her coverage 

under the Medicare fee-for-service 

program. 

Response: Medicare does not typically 

receive claim-by-claim or individual 

service data on beneficiaries enrolled in 

MA Plans. As a result, the information 

is not available to determine whether a 

beneficiary has been receiving home 

health services under the plan or for 

how long. Medicare systems will 

determine sequences of adjacent 

episodes based on the fee-for-service 

episode information currently housed in 

the CWF and accessible to Medicare 

providers through eligibility inquiry 

transactions. 

Comment: A commenter believed that 

the addition of multiple payment tiers 

based on therapy usage would create a 

problem concerning beneficiary 

notification of their financial obligation 

to pay for home health services. Many 

beneficiaries are now enrolled in 

Medicare replacement plans that require 

a co-pay on the episodic rate. The 

Medicare Conditions of Participation 

(CoPs) at 42 CFR 484.10 require that the 

HHA notify the patient in advance of his 

or her liability for payment. The 

commenter believed some consideration 

needs to be made about the obligations 

of HHAs to meet this requirement as it 

is virtually impossible to calculate the 

rate and provide notices of the changing 

rate prior to providing service. 

Response: The provisions of this rule 

apply to Medicare’s fee-for-service HH 

PPS and do not apply to Medicare 

Advantage/Medicare Choice plans 

where co-pays for home health services 

provided under the plan may exist. As 

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long as the patient meets the Medicare 

fee-for-service eligibility requirements, 

and the HHA provides covered services 

that are reasonable and necessary based 

on the patient’s plan of care, there 

would be no financial obligation on the 

part of the patient. However, if the 

patient asks the HHA for services 

outside the scope of the Medicare home 

health benefit, or the HHA provides 

non-covered services, the HHA would 

be required to provide the patient with 

financial liability information via the 

Advanced Beneficiary Notification 

(ABN). The multiple payment tiers (that 

is, multiple therapy thresholds) would 

not affect the determination of the 

patient’s financial liability. That 

liability would be outside the scope of 

the Medicare home health benefit, and 

would be determined between the HHA 

and the patient. This comment is 

beyond the scope of this final rule with 

comment period, which deals with 

payment under HH PPS to fee-forservice HHAs. 

Comment: Several commenters wrote 

that smaller, rural agencies are 

particularly disadvantaged by the 

changes in the proposed rule. They were 

concerned that the proposed changes 

will limit the ability of agencies to 

survive or compete, which could limit 

access for patients. This may impact 

rural patients more than urban patients. 

Another commenter noted that CMS 

derives resource costs by weighting each 

minute reported on the claim by the 

national average labor market hourly 

rate for the discipline, and summing the 

total. The commenter believed that it is 

not realistic to attribute the same 

resource cost to rural beneficiaries as to 

urban beneficiaries, who have more 

social programs available to them. 

Additionally, this method does not 

account for the significant travel costs 

associated with rural beneficiaries. The 

commenter added that this is why there 

has periodically been a rural add-on. 

Response: Our impact tables show 

that rural agencies, on average, will 

experience a modest reduction in total 

payments between 2007 and 2008—less 

than 2 percent. Factors in the reduction 

are discussed in section VI.B. These 

include the small reduction in the 

average case-mix weight in 2008 among 

rural agencies, the impact of the wage 

index, and several other factors 

discussed in that section. The offsetting 

positive effect of the annual payment 

update offsets most of the total negative 

effect of the changes. 

Medicare prices are adjusted for the 

cost differences among different 

locations. Although we use 

standardized national average resource 

cost estimates for developing the 

relative case-mix weights, the pricing 

procedure applied after accounting for 

standardized resource costs adjusts for 

geographic differences in cost levels. We 

have no data to effectively evaluate the 

comments on the disadvantages 

attributed to rurally residing 

beneficiaries. 

Comment: A commenter suggested 

raising the RAP to 75 percent of the base 

rate. Another commenter noted that the 

proposed rule is silent on the need to 

increase the RAP, even though program 

abuse of the RAP has not materialized. 

This commenter proposed that the RAP 

be increased to 80/20 for all providers 

who have participated in the HH PPS 

since its inception, and noted that CMS 

would retain the right to reduce this 

level for abuse of the RAP. The 

commenter further proposed that less 

established providers could operate 

under current RAP rules until they had 

a 5 year record of responsible Medicare 

performance. 

Response: Before HH PPS 

implementation, HHAs were 

accustomed to billing Medicare on a 30- 

day cycle or receiving periodic interim 

payments. The change to a 60-day 

episode of care under HH PPS, 

combined with concerns over delays 

due to claims processing times, 

documentation requirements, and 

medical review, led us to address 

agency cash flow concerns in our 1999 

HH PPS proposed rule. At that time, we 

proposed a split percentage payment to 

ensure that agencies have adequate cash 

flow to maintain quality services to 

beneficiaries. In 2000, we implemented 

the RAP which paid 60 percent up front 

for an initial episode, as we recognized 

that some administrative costs were 

front-loaded; the remaining 40 percent 

would be paid after submission of the 

final claim. We allowed a RAP of 50 

percent for a subsequent episode, with 

the remaining 50 percent paid upon 

receipt of the final claim. 

We expect agencies to follow normal 

business practices with regard to 

financing their operations. The current 

RAP percentage splits are reasonable 

given the RAP’s purpose, therefore, we 

do not see a need to increase them. 

Moreover, we believe our current 

process protects against abuse, as an 

agency’s RAP may be reduced or 

withheld when protecting Medicare 

program integrity warrants this action. 

Comment: Two commenters wrote 

that they are unable to make meaningful 

public comment because CMS has not 

released the impact file that would 

enable modeling of the proposed 

changes. Agencies are unable to plan 

operationally and financially for these 

changes. 

Response: We do not agree that 

agencies are unable to plan 

operationally and financially for these 

changes. We worked with a large, 20- 

percent sample of 2005 claims, which 

would not permit us to produce 

accurate summaries at the agency level 

for many agencies, which would be 

required for a file of the type mentioned 

by the commenter. Our proposed rule 

impact table provided average case-mix 

weights for agencies to use as estimates, 

according to the detailed subgroup to 

which they belong. Consistent with 

resources available, we opted to provide 

a simple preliminary grouper to assist 

agencies in understanding the impacts. 

We also provided preliminary grouper 

logic (‘‘pseudocode’’) for software 

developers assisting some agencies to 

evaluate the impacts. 

Comment: A number of commenters 

noted that home health agencies provide 

quality care that saves Medicare money 

in hospital or other inpatient facility 

benefits. Several commenters expressed 

concern that the proposed changes do 

not consider today’s health picture, with 

an aging population, a wave of baby 

boomers entering retirement, a shortage 

of nurses, high fuel costs, and the cost 

of technological advances such as 

telehealth and physician’s portal. 

Response: The goal of the refinements 

in this regulation is to pay as accurately 

as possible given the case-mix of 

patients in home health agencies today. 

We appreciate the broad context 

referenced in this comment, and will 

continue to work with the home health 

industry and the public to understand 

and anticipate changes that affect proper 

pricing of home health services. 

Comment: A commenter suggested 

that we revise the regulation requiring 

that orders and plans of care for home 

health patients be signed by a physician. 

Another commenter asked that the CoPs 

be changed to allow therapists, in 

addition to nurses, to open a case, as it 

could improve the ability to accurately 

project therapy requirements for 

patients. 

Response: We appreciate these 

comments, but note that this regulation 

updates the HH PPS payment rates and 

does not change any of the CoPs. 

Sections 1814(a)(2)(c) and 

1835(a)(2)(A)(ii) of the Act require that 

orders and plans of care be established 

and periodically reviewed by a 

physician. The CoP dictating the 

physician signature requirements on the 

plan of care is detailed in 42 CFR 

484.18(b) and (c). 

Moreover, in 42 CFR 484.55(a)(1), 

agencies are required to have a 

registered nurse conduct an initial 

assessment. We note, however in 42 

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CFR 484.55(a)(2), the home health CoP 

regulations state that ‘‘when 

rehabilitation therapy service * * * is 

the only service ordered by the 

physician, and if the need for that 

service establishes program eligibility, 

the initial assessment visit may be made 

by the appropriate rehabilitation skilled 

professional.’’

Comment: A commenter noted that 

CMS currently uses salary information 

to estimate the costs of a visit, and does 

not include overhead costs. This 

method assumes indirect costs are 

proportional to direct costs. The 

commenter believes this assumption 

may be incorrect, and suggested 

examining cost report data to see if 

further review provides better data on 

overhead costs. This information could 

be combined with claims information 

about home health charges to better 

assess labor costs. These two sources of 

information could be used to compute 

the per-visit discipline costs for 

different types of episodes. 

Response: CMS’ methodology does 

assume that overhead costs are 

proportional to direct labor costs. We 

will continue to consider the 

appropriate role of cost reports in 

understanding potential improvements 

to our methodology. At this time, we 

believe the role is limited, as 

demonstrated by the limitations on cost 

report reliability pertaining to the 

derivation of cost-to-charge ratios for the 

analysis of NRS payments. We urge 

agencies to put more resources into 

accurately completing the cost reports 

for future use in payment refinements. 

Comment: A commenter suggested 

that the recommendations from the two 

Technical Expert Panel (TEP) meetings 

be shared with the industry, and that 

the industry be allowed to provide 

feedback, as these affected the 

development of the proposed rule. 

Response: The TEP was administered 

by Abt Associates. The panel was not 

asked for, nor did it produce, consensus 

recommendations. Abt Associates used 

TEP participants as a sounding board 

about differing aspects of the research 

approach and the refinements emerging 

from it at the time of the TEP meeting. 

Comment: A commenter asked that 

we provide detailed technical 

specifications and grouper software 

with issuance of the final rule. 

Response: We intend to issue detailed 

specifications and a grouper software 

package as soon as possible after the 

issuance of this rule. 

Comment: A commenter noted that 

there was an error in Table 5 posted to 

CMS’ Web Site. 

Response: Table 5 was originally 

posted with an error, but was replaced 

with a corrected version. The correct 

version was promptly posted on the 

CMS Web site. 

Comment: Regarding dual eligibles, a 

commenter suggested that CMS improve 

the alignment of HHRGs and Medicare 

coverage guidelines for homebound 

status and medical necessity, 

particularly for cases that receive 

coverage under ‘‘Assessment and 

Observation’’ or ‘‘Management and 

Evaluation of the Care Plan’’ guidelines. 

Improved alignment of the payment 

system and coverage rules is critical to 

addressing ongoing disputes between 

state Medicaid agencies and the 

Medicare program regarding Third Party 

Liability. 

Response: These comments are 

outside the scope of this regulation; 

however, we will take them under 

consideration when evaluating the need 

for additional guidance on Medicare 

coverage guidelines. 

Comment: A commenter is concerned 

that the proposed HH PPS refinements 

place emphasis on therapy and would 

support a system that provides for the 

utilization of restorative nursing as a 

substitution for therapist visits. The 

expansion of this type of service 

utilization will ultimately provide better 

patient outcomes and address the 

growing demand for restorative services. 

Response: The proposed refinements 

were developed within the disciplines 

covered by the home health benefit. A 

specialty of restorative nursing is not 

recognized within those disciplines. 

Moreover, we do not have evidence 

about effects on patient outcomes from 

implementing the commenter’s 

proposal. 

Comment: A commenter believed it is 

important for CMS to align regulatory 

and reimbursement decisions so that 

they reflect the needs of patients as 

outlined by the Institute of Medicine. 

The commenter stated that the proposed 

regulation signals a change in which the 

home health industry would be asked to 

move from its current focus on acute 

and rehabilitative services to the 

provisions of more long-term care 

services of the type offered prior to HH 

PPS implementation. The commenter 

asked CMS to clarify whether it prefers 

Medicare home health services to 

emphasize more sophisticated 

treatments or whether it expects home 

health services to be used solely for 

long-term care and/or custodial services, 

which have traditionally been the 

purview of Medicaid. 

Response: We disagree that the 

proposals signal a shift away from acute 

and rehabilitative services. The 

proposals recognize that a minority of 

patients have an extended period of 

incapacitation and need for medically 

necessary nursing or rehabilitative or 

assistive services, while they continue 

to meet the homebound requirement. 

Agencies are expected to apply the 

statutory eligibility and coverage 

criteria. 

Comment: A commenter questioned 

whether the increase seen in costs of 

late episodes is due to end-of-life care 

given to patients who did not want 

hospice care. 

Response: We appreciate the 

comment. We note, however, our 

analysis did not focus on whether or not 

the patient had a terminal illness. 

2. The Schedule for Implementation of 

the CY 2008 Refinements 

In the May 4, 2007 proposed rule, we 

proposed to implement the finalized 

updates and refinements on January 1, 

2008. However, we did recognize that 

there may be operational considerations, 

affecting CMS or the industry, which 

could necessitate an implementation 

schedule that results in certain 

refinements becoming effective on 

different dates (a split-implementation). 

We solicited the public for suggestions 

and comments on this matter. 

Comment: Several commenters 

expressed concern about the amount of 

time available for providers to make any 

necessary changes to their billing 

systems and administrative processes 

between the publication of this rule and 

the implementation date of episodes 

beginning on January 1, 2008. They 

were concerned about the 

administrative burden, and that CMS 

does not have a contingency plan to 

facilitate interim payments to HHAs that 

are unable to bill Medicare under the 

revised HH PPS. A contingency 

payment arrangement would ensure that 

no provider is presented with a 

significant cash flow problem because of 

the tight timeframe involved. Several 

commenters suggested we convene an 

ongoing series of implementation 

meetings including Medicare 

contractors, the home health 

community, and the vendors who 

support the home health industry to 

reduce the likelihood of delays and 

errors. One commenter asks for 

additional resources to help providers 

cope with this major change. Another 

asked that we not follow a splitimplementation plan. 

Response: While the changes 

described by this rule are significant, 

their overall impact on provider billing 

practices are far less extensive than 

those required for the initial 

implementation of HH PPS. We also 

anticipate the time period between the 

issuance of this final rule with comment 

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period and the implementation date will 

be longer than the period that was 

available between publication of the 

final rule on July 3, 2000, and initial 

implementation of the HH PPS on 

October 1, 2000. CMS expects to issue 

final implementing instructions and 

educational materials about the casemix refinement changes as soon as it is 

feasible after finalization of the 

proposals contained in this final rule 

with comment period. We also plan to 

conduct outreach through industry 

associations and representatives of 

software companies that serve home 

health agencies to facilitate this 

transition. 

CMS plans to conduct calls with 

vendors, hold OASIS training, and 

continue the use of the home health 

Open Door Forums (ODFs) as 

mechanisms to provide information to 

HHAs regarding implementation. 

Regarding cash flow issues and 

contingency plans, CMS is taking steps, 

internally, to test systems changes 

before implementation. We do not feel 

that the vulnerabilities that existed 

when we moved from a cost-based 

system to a prospective payment system 

exist today in moving to a refined HH 

PPS system. Consequently, we do not 

feel it is necessary to create an elaborate 

contingency plan as was needed for the 

implementation of the HH PPS. 

Comment: Several commenters 

expressed that an implementation date 

of January 1, 2008 be delayed because 

the HH PPS reform changes are 

significant, and providers will have to 

educate all of their employees on the 

changes in addition to working closely 

with the vendors to initiate complex IT 

changes. Because as providers, they 

must also implement the changes 

throughout the organization, to both 

clinical and financial staff, the 

commenters suggested that CMS delay 

the implementation date to October 1, 

2008 to allow ample time for providers 

to make all the necessary adjustments. 

The commenters also requested that 

CMS release of the home health CoPs 

coincide with the implementation of HH 

PPS refinement requirements to ease the 

burden of staff training. It was also 

suggested that the implementation be 

linked to future ICD–9–CM coding 

manuals. 

Response: We recognize that the 

changes described in this rule are 

significant. However, the overall impact 

on provider billing practices is far less 

significant than the impact resulting 

from the initial implementation of the 

HH PPS when we were moving from a 

reasonable cost-based system to that of 

a prospective payment system. And as 

mentioned previously, there is more 

time between the issuance of this rule 

and the effective date (January 1, 2008) 

than there was for the initial 

implementation of the HH PPS. 

Consequently, we believe that there will 

be sufficient time for agencies and their 

vendors to make the changes necessary 

to implement the system on January 1, 

2008. Regarding the home health CoPs, 

these are on a separate track from our 

home health payment regulations, and 

will be implemented through a separate 

rule-making process. 

While we recognize that 

implementing the updates and 

refinements of this rule is an ambitious 

task, we believe that it is in the best 

interest of the industry, CMS, and home 

health recipients to implement a 

finalized set of refinements without 

further delay and without a splitimplementation. The refinements will 

work together to improve the accuracy 

and appropriateness of the HH PPS, 

which has not undergone major 

refinements since its inception in 

October of 2000. Updates to the HH PPS 

are not linked, specifically, to coding 

manuals, and thus there would be no 

advantage to delaying implementation 

to any future coding manual update. 

CMS will make every effort to 

communicate the instructions necessary 

for HHAs to implement all of the 

changes to the HH PPS, in a timely 

manner so that implementation of these 

changes occurs as smoothly as possible. 

Comment: Several commenters 

expressed that the comment period was 

too brief to afford providers enough time 

to understand the proposed changes and 

assess the impact that the changes will 

have on their businesses. 

Response: We provided the 60-day 

comment period from the date of 

display, with the 60-day period for 

comments ending on June 26, 2007. We 

acknowledge that in the publication of 

the May 4, 2007 proposed rule, the 

comment period was incorrectly listed 

as closing on July 3, 2007. The correct 

date for the close of the comment period 

was June 26, 2007. Recognizing the 

implication of this incorrect date, CMS 

alerted the public to the correct date 

through listserves, open door forums, 

and the publication of a correction 

notice on May 11, 2007 (72 FR 26867). 

We believe the comment period, as 

corrected, provided adequate time for 

commenters to review the proposals and 

assess their options. 

Comment: Several commenters 

questioned the listing of an earlier 

deadline on the internet for submission 

of public comments, June 26, 2007, 

rather than the deadline published in 

the Federal Register, July 3, 2007. 

Response: We recognize that there 

was an inadvertent technical error in the 

May 4, 2007 proposed rule in that July 

3, 2007 was incorrectly noted as the 

close of the comment period. 

Subsequent to that publication, a 

correction notice was published on May 

11, 2007 (72 FR 26867), noting that error 

and correctly stating that the end of the 

comment period for the HH PPS 

proposed rule was June 26, 2007 and 

not July 3, 2007. 

We believe we made reasonable 

efforts to quickly alert the public to the 

error such that adequate time to 

comment on the proposed rule was 

provided. 

3. Complexity of the System 

In general, our goal for the proposed 

refinements was to ensure that the home 

health payment system continues to 

produce appropriate compensation for 

providers while creating opportunities 

for home health agencies to manage 

home health care efficiently. We also 

believe it is important in any refinement 

to maintain an appropriate degree of 

operational efficiency. 

Comment: Several commenters stated 

that the goal of ‘‘operational simplicity’’

is not achieved by the proposed 

refinements. One commenter stated that 

the proposed system is twice as 

complex as the current system, thus 

making it more difficult for providers to 

understand how it works. Moreover, the 

commenter stated it will make it more 

difficult for providers to manage the 

level of services provided for each 

HHRG with the payment for that HHRG. 

Response: We acknowledge the 

proposed refined system is more 

complex than the current system. The 

proposed refinements to the current 

system represent an attempt to pay more 

accurately for the range and intensity of 

home health services that are provided 

to our beneficiaries. 

The proposed refinements are derived 

from the concepts that form the basis of 

the current payment approach. We agree 

that any refinements to the system will 

take time and training to learn. CMS has 

conducted extensive outreach regarding 

the proposed refinements. We have 

posted a Fact Sheet which summarizes 

the proposed changes on our home 

health Web site to assist agencies in 

understanding the differences between 

the current system and the proposed 

refinements. We have developed and 

posted an Excel toy grouper, which 

allows agencies to see the effect of the 

new proposal on their payments (see 

‘‘Toy Grouper’’ on the CMS Home 

Health Web site at: http:// 

www.cms.hhs.gov/center/hha.asp). We 

have posted the draft pseudocode for 

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the HHRG grouper software at the same 

Web site address. We also continue to 

plan for additional training and 

outreach. 

We have also developed claims 

processing procedures to reduce the 

amount of administrative burden 

associated with using a more complex 

case-mix model. For example, providers 

do not have to determine whether an 

episode is early (the initial episode in a 

sequence of adjacent episodes or the 

next adjacent episode, if any) or later 

(all adjacent episodes beyond the 

second episode) if they choose not to. 

Information from Medicare systems will 

be used during claims processing to 

automatically address this issue. We 

will also relieve providers of the 

responsibility for resubmitting a claim if 

the number of therapy visits delivered 

during an episode is more than or less 

than the number originally forecasted 

on the OASIS. 

Comment: A commenter stated that 

the Excel toy grouper did not allow for 

enough digits in the ICD–9 codes to 

effectively capture the degree of change 

needed. The commenter also noted that 

each case had to be added individually, 

which resulted in increased entering 

time; the results were confusing to the 

commenter. 

Response: We believe that the 

requirement that the ICD–9 codes be 

entered exactly as they appear in the 

proposed rule and the current grouper 

documentation does not negate the 

usefulness of the Excel toy grouper. The 

instructions imbedded in the Excel toy 

grouper specify the requirements for 

entering the ICD–9 codes. We provided 

the Excel toy grouper as a courtesy to 

allow users to more easily calculate the 

proposed new CY 2008 HHRGs and 

resulting payments rather than having 

only the grouper pseudocode for 

analysis. Moreover, the majority of 

feedback from commenters regarding 

the Excel toy grouper indicated that the 

tool is helpful and easy to use. 

B. Case-Mix Model Refinements 

In the proposed rule, we proposed to 

refine the case-mix model to reflect 

different resource costs for early home 

health episodes versus later home 

health episodes and to expand the casemix variables included in the payment 

model. We proposed additional 

variables including scores for certain 

wound and skin conditions; more 

diagnosis groups such as pulmonary, 

cardiac, and cancer diagnoses; and 

certain secondary diagnoses. We also 

proposed to replace the current single 

therapy threshold of 10 visits with three 

therapy thresholds (6, 14, and 20 visits). 

In addition, we proposed that payment 

for therapy episodes would increase 

gradually between the first and third 

therapy thresholds. For a complete 

description of the proposed case-mix 

refinements model and the underlying 

research, we refer readers to the CY 

2008 HH PPS proposed rule (72 FR 

25358–25420) published on May 4, 

2007. 

1. General Comments 

Comment: A commenter wrote that an 

industry analysis of 2006 HH PPS data 

using the proposed case-mix model 

showed a decline in reimbursement for 

specific populations with congestive 

heart failure (CHF), chronic obstructive 

pulmonary disease (COPD), ulcers, 

diabetes, orthopedic diagnoses, and 

neurological diagnoses. Given these 

findings, the commenter asked how the 

proposed case-mix refinement could 

improve reimbursement. The 

commenter suggested that CMS use 

more current diagnosis data so as not to 

skew the results, and score secondary 

diagnoses. Other commenters echoed 

the concern that the refinement was 

based on ‘‘old’’ data. A couple of 

commenters noted that there has been a 

philosophical change to front-load visits 

in home health which has not been 

captured by the data. 

Response: We are unable to 

specifically address the industry 

analysis mentioned above without more 

detailed information on their analysis. 

We note the proposed case-mix model 

pays for more diagnoses than under the 

current HH PPS model, including 

recognition of point-bearing diagnoses 

for heart disease and COPD. Agencies 

will continue to receive points to the 

extent that patients have certain 

conditions or diagnoses (for example, 

ulcers, diabetes, orthopedic diagnoses, 

and neurological diagnoses). Agencies 

can also receive points for secondary 

diagnoses, thereby accounting for 

multiple co-morbidities. Also, the 

proposed case-mix model allows points 

for some resource intensive interactions. 

Furthermore, agencies will be receiving 

improved reimbursement for supplies, 

particularly those related to ulcers or 

wounds. We believed the model as 

proposed would better align agency 

costs with payments. 

We further note that the proposed 

refinement research was based upon 

data files created from a 20-percent 

sample of claims data collected between 

2001 and 2004. OASIS data was further 

linked to claims and cost reports. 

However for this final rule with 

comment period, we used more recent 

data, claims processed from 2005, with 

the associated OASIS data. Therefore, 

this final rule with comment period is 

based upon the most recent data 

available, and reflects any philosophical 

or diagnosis changes that the industry 

has experienced. 

Comment: A commenter suggested 

that the case-mix refinement model was 

too complex, and suggested that we 

simplify it so that the assessment can 

drive clinical and functional dimension 

scores that are the same regardless of the 

number of therapy visits or timing of the 

episode. Subsequent factors could be 

added into the case-mix for the 

sequential number of the episode and 

for the number of visits. 

Response: Based on our data analysis, 

implementing the commenter’s 

suggestion would ignore patterns in the 

data that we think reflect differences 

between patients and would thereby 

reduce accuracy. We have tried to strike 

a balance between simplicity and 

complexity. The new system is more 

complex than the old system but this is 

a natural outgrowth of our attempt to 

pay more accurately for the range and 

intensity of home health services that 

can be provided to our beneficiaries. 

As noted in the discussion of 

complexity in section III.A.3, a system 

may seem initially overly complex 

when it is new. We believe the proposed 

refinements are clearly focused, and are 

a logical outgrowth of the original 

payment system. We detail our attempts 

to make the proposed refinements easier 

to understand and implement in a 

previous comment in section III.A.3. 

Comment: One commenter noted that 

the proposed diagnosis changes may 

negatively impact providers who are 

currently providing care to those in 

early episodes with less than 14 therapy 

visits. Those providers have worked 

hard to help patients become 

independent and rehabilitated as soon 

as possible. 

Response: Our proposal was intended 

to refine and to better fit costs incurred 

by agencies for patients with differing 

characteristics and needs under the 

prospective payment system. The 

resource cost estimates are derived from 

minutes spent on visits in the home 

during a 60-day period. The source of 

the minutes data is a very large, 

representative sample of Medicare 

claims. Therefore, we expect that the 

proposal does reflect agencies’ average 

costs for patients with characteristics 

measured on the OASIS and used in 

defining payment groups. 

Comment: While supporting the 

concept behind the new case-mix 

system, a commenter is concerned about 

any payment system that ties payments 

explicitly to the level of services 

provided. Under the proposed system, 

HHAs could seek higher payments by 

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providing more therapy or providing 

later episodes of home care. The 

commenter notes that HHA margins will 

increase with the number of therapy 

visits. 

Response: We are attuned to concerns 

about payment incentives that could 

drive up therapy visits unnecessarily. 

We implemented a gradual increase in 

payments between the proposed first 

and third therapy thresholds to achieve 

two goals: (1) To better match costs to 

payments; and (2) to avoid incentives 

for providers to distort patterns of good 

care created by the increase in payment 

that would occur at each proposed 

therapy threshold. As a disincentive for 

agencies to deliver more than the 

appropriate, clinically determined 

number of therapy visits, we also 

proposed that any per-visit increase 

incorporate a declining, rather than a 

constant, amount per added therapy 

visit. We will monitor the impact of the 

changes implemented, including on 

home health agency margins, and will 

propose further refinements to the 

therapy threshold, as well as other 

aspects of the HH PPS, if warranted. 

Comment: Several commenters were 

concerned that paying more for later 

episodes would lead to gaming, with 

patients on service longer than is 

appropriate. One commenter noted the 

growth in HHAs in her area had led to 

more competition for patients; providers 

may not be discharging patients when 

they should. Additionally, this 

commenter felt the fiscal intermediaries 

(FIs) concentrate review activities on 

larger agencies where there is the 

greatest potential for risk of harm to 

beneficiaries or where the dollars 

recovered are greater. The commenter 

encouraged discussion and investigation 

of these issues. Another commenter was 

concerned that the proposed case-mix 

refinements created incentives for less 

efficient and less effective care if 

agencies provided unneeded care just to 

extend the length of stay. A third 

commenter felt that the proposal would 

lead to unwarranted recertification of 

episodes. 

Response: We appreciate the concerns 

and will monitor the use of home health 

visits. Additionally, we will share these 

concerns with the Regional Home 

Health Intermediaries (RHHIs). 

Comment: A commenter’s analysis of 

the proposed changes to the case-mix 

system found that it would result in a 

more even distribution of payments 

relative to costs. The commenter’s 

analysis resulted in a more uniform 

payment to cost ratio. The commenter 

noted the proposed refinement would 

reduce the differences in financial 

returns among different types of 

patients, and reduce the provider’s 

preference for some patients. 

Response: We appreciate the 

commenter’s assessment of the 

proposed changes to the case-mix 

system, and agree that the proposed 

refinements improve the performance 

and payment accuracy of the HH PPS. 

We agree that these changes will reduce 

incentives to select patients based upon 

perceived financial advantages. 

Comment: A commenter noted that an 

analysis of the coefficient of variation 

(CV) of the proposed HHRGs found it to 

be more internally homogeneous. The 

average CV has dropped from 0.81 in 

the current system to 0.75 for the 

proposed HHRGs. The reduction in 

variation means that the new resource 

groups are better at identifying episodes 

with similar resource use than under the 

current system. Further, the reduction 

in within-group variation reduces the 

potential for providers to select the least 

costly patients in a resource group and 

makes a modest improvement in the 

accuracy of the system. 

Response: We agree with the 

commenter, and believe that the 

proposed payment system better 

matches payments to costs. We also 

believe that the payments will be more 

accurate, and will benefit patients as 

well as agencies. 

Comment: Since this is the first time 

the case-mix index has been updated 

since the inception of HH PPS, and 

considering the rapid pace of change 

that can occur in health care delivery, 

a commenter suggested CMS update the 

case-mix index with greater frequency 

to ensure that payments reflect agency 

costs. 

Response: We will continue to 

monitor the performance of any 

finalized case-mix model, and will make 

changes to it as necessary. Future 

refinements may occur at more frequent 

intervals, depending on the research 

outcomes. We recognize that changes in 

health care delivery may also affect the 

model, and will monitor those as well. 

Comment: A commenter asked CMS 

to accept all pertinent diagnoses. The 

commenter believed that without a 

complete clinical picture, the ability to 

accurately assess patient severity, 

evaluate outcomes, and make policy 

decisions is seriously jeopardized. 

Response: We agree that a complete 

clinical picture of the patient is 

necessary to accurately assess patient 

severity and evaluate outcomes. To 

qualify for Medicare coverage of home 

health services, a beneficiary must be 

under the care of a physician who 

establishes the plan of care (POC). The 

POC must contain all pertinent 

diagnoses as stipulated in 42 CFR 

484.18(a). All diagnoses listed in OASIS 

M0230/240 and M0246 should be 

pertinent and are expected to be listed 

in the patient’s POC. 

2. Later Episodes 

In the proposed rule, for 2008 we 

proposed a 4-equation case-mix model 

that recognizes and differentiates 

payment for episodes of care based on 

whether a patient is in what is 

considered to be an early (1st or 2nd 

episode in a sequence of adjacent 

episodes) or later (the 3rd episode and 

beyond in a sequence of adjacent 

episodes) episode of care as well as 

recognizing whether a patient was a 

high therapy (14 or more therapy visits) 

or low therapy (13 or fewer therapy 

visits) case. Early episodes are defined 

as to include not only the initial episode 

in a sequence of adjacent episodes, but 

also the next adjacent episode, if any, 

that followed the initial episode. Later 

episodes are defined as all adjacent 

episodes beyond the second episode. 

Episodes are considered to be adjacent 

if they are separated by no more than a 

60-day period between claims. The 

analysis of the performance of the casemix model for later episodes revealed 

two important differences for episodes 

occurring later in the home health 

treatment compared to earlier episodes: 

(1) Higher resource use per episode and 

(2) a different relationship between 

clinical conditions and resource use. 

Comment: We received a question 

about the case-mix weights for early 

versus later episodes when the service 

utilization is for 16 to 17 therapy visits 

(S2; see table 3, III.B.5). In all other 

gradients except this one, the case-mix 

weight is greater for later episodes than 

for early episodes. The commenter 

asked why in this case the later episodes 

were not associated with a higher casemix weight. 

Response: The model results in Table 

4 of the proposed rule (72 FR 25388) 

indicated that the higher cost for later 

episodes was associated with clinical 

and functional severity levels above the 

base levels C1 and F1, and not at or 

below the base levels C1 and F1. The 

amount isolated in the payment 

regression associated with 16 to 17 

therapy visits was simply not higher for 

later episodes. 

Comment: Several commenters asked 

for clarification of the definition of early 

and later episodes and adjacent 

episodes. 

Response: Early episodes are defined 

as the initial episode or the next episode 

in a sequence of adjacent episodes. 

Therefore an early episode can be the 

first or second episode in a series of 

adjacent episodes, or even the first and 

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only episode that a patient has. Later 

episodes are defined as all subsequent 

adjacent episodes beyond the second 

episode. Episodes are considered to be 

adjacent if they are contiguous, meaning 

that they are separated by no more than 

a 60-day period between episodes. This 

means any gaps are less than or equal 

to 60 days in length. In determining a 

gap, we only consider whether the 

beneficiary was receiving home health 

care from traditional fee-for-service 

Medicare. If the beneficiary transfers 

from a managed care plan, that time 

under managed care is considered part 

of the gap. 

For example, if the beneficiary has not 

received home health care through 

traditional Medicare for at least 60 days, 

and then receives home health care from 

agency A, that is an early episode. If that 

episode receives a PEP adjustment and 

agency B recertifies the beneficiary for 

a second episode, that second episode is 

also an early episode. However, the 

beneficiary could have received home 

health care from other traditional 

Medicare providers within 60 days 

before coming to agency A. The 

designation of early or later would 

depend upon how many adjacent 

episodes of care were received prior to 

coming to agency A. The CWF will 

examine claims upon receipt in 

comparison to all previously processed 

episodes to make sure the episode is 

correctly designated as early or later. 

The 60-day period to determine a gap 

that will begin a new sequence of 

episodes will be counted in most 

instances from the calculated 60-day 

end date of the episode. That is, in most 

cases CWF will count from ‘‘day 60’’ of 

an episode without regard to an earlier 

discharge date in the episode. The 

exception to this is for episodes that 

were subject to PEP adjustment. In PEP 

cases, CWF will count 60 days from the 

date of the last billable home health 

visit provided in the PEP episode. 

Regarding PEP adjustments, consider 

the following example: An episode is 

opened on January 1, 2008 which would 

normally span until February 29, 2008. 

If this episode were not subject to a PEP 

adjustment, any episode within 60 days 

following February 29, 2008 would be 

considered an adjacent episode. In the 

case of a PEP adjustment, the 

determination of an adjacent episode 

would no longer be based on day 60, but 

would instead be based on the latest 

billable visit in the episode. Assume in 

the example, the patient is transferred to 

another HHA (triggering the PEP 

adjustment) on February 15, 2008 but 

the last billable visit is provided on 

February 13, 2008. In this case, any 

episode within 60 days following the 

February 13, 2008 visit would be 

considered an adjacent episode. 

Intervening stays in inpatient 

facilities will not create any special 

considerations in counting the 60-day 

gap. If an inpatient stay occurred within 

an episode, it would not be a part of the 

gap, as counting would begin at ‘‘day 

60’’ which in this case would be later 

than the inpatient discharge date. If an 

inpatient stay occurred within the 

period after the end of HH episode and 

before the beginning of the next one, 

those days would be counted as part of 

the gap just as any other days would. 

If episodes are received after a 

particular claim is paid that change the 

sequence initially assigned to the paid 

episode (for example, by service dates 

falling earlier than those of the paid 

episode, or by falling within a gap 

between paid episodes), Medicare 

systems will initiate automatic 

adjustments to correct the payment of 

any necessary episodes. 

Upon receipt of a HH episode coded 

to represent the early episode in a 

sequence, Medicare systems will search 

the episode history records that are 

maintained for each beneficiary. If two 

or more adjacent episodes are found on 

that history, the claim for the new 

episode will be recoded to represent its 

sequence correctly and paid according 

to the changed code. In addition, when 

any new episode is added to those 

history records for each beneficiary, the 

coding representing episode sequence 

on previously paid episodes will be 

checked to see if the presence of the 

newly added episode causes the need 

for changes to those episodes. If the 

need for changes is found, Medicare 

systems will initiate automatic 

adjustments to those previously paid 

episodes. 

For example, a given episode is 

initially determined to be, and paid as 

the second episode (early) in a sequence 

of episodes. After some period of time, 

a claim is submitted by another HHA 

that occurs before the previously 

designated first episode in the sequence 

of adjacent episodes and is less than 60 

days before the beginning of that 

previously designated first episode. In 

such a case, the episode corresponding 

to the newly submitted claim becomes 

the first episode of this sequence of 

adjacent episodes and thus is 

considered to be an early episode. The 

episode previously designated as the 

first episode in the sequence of episodes 

now becomes the second episode in the 

sequence of adjacent episodes and is 

thus still considered to be an early 

episode. The real change occurs with 

the episode previously described as the 

second episode in the sequence of 

adjacent episodes. Under this scenario, 

that original second episode is now 

considered to be the third episode in the 

sequence of adjacent episodes, thus 

changing its status from that of an early 

episode to that of a later episode. 

Comment: A commenter noted that 

CMS determined its four equation 

model based on information collected 

from the OASIS data set. The data 

collection is required for both Medicare 

and Medicaid patients. The commenter 

stated that the analysis by CMS 

included a period of time when 

instructions dictated collection of all 

information from payer sources. The 

data is inclusive of the Medicaid 

patients, who under Medicare 

regulations, would not be eligible for the 

third or additional episodes of care. The 

commenter questioned the type of 

patients served in third or later 

episodes, noting that the CMS data 

suggest that few patients fall into the 

new equations. The commenter believed 

that one group of patients includes 

those with severely infected wounds, 

Parkinson’s disease, Amyotrophic 

Lateral Sclerosis (ALS), stroke, or 

similar conditions, while another group 

includes those receiving B–12 injections 

and catheter care, or Medicaid patients. 

Response: We used data from 

Medicare episodes only, linked to the 

OASIS assessment that generated the 

HHRG. Medicare episodes include 

episodes of some patients who are 

dually eligible for Medicare and 

Medicaid. Later episodes include both 

Medicare-only and dually eligible 

patients with a variety of conditions and 

needs. 

To summarize, we are implementing 

the proposed aspect of the case-mix 

model that recognizes and differentiates 

payment for episodes of care based on 

whether a patient is in what is 

considered to be an early or later 

episode of care as we believe that it 

better accounts for the higher resource 

use per episode and the different 

relationship between clinical conditions 

and resource use that exists in later 

episodes. 

3. Addition of Variables 

In the proposed rule, for 2008 we 

proposed to expand the case-mix 

variables to include scores for 

conditions such as infected surgical 

wounds, abscesses, chronic ulcers, and 

gangrene; more diagnosis groups such as 

pulmonary, cardiac, and cancer 

diagnoses; and certain secondary 

diagnoses. 

Comment: Several commenters were 

concerned that we had not included a 

variable for informal caregivers. One 

commented that higher costs for these 

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patients are not captured because of the 

unmeasured effects of multiple comorbidities, patient non-compliance, 

and the tendency to live alone. Several 

commenters felt that CMS’ policy 

position on caregivers placed the fear of 

negative incentives above the needs of 

the beneficiary. Commenters were 

concerned that payment incentives 

might limit access for patients without 

caregivers or result in institutional care. 

Others suggested that we refine OASIS 

items related to caregiver access to 

produce more reliable information about 

the actual roles caregivers play in 

meeting the day-to-day needs of home 

health patients, and the time they are 

available. Some commenters expressed 

concern that these patients would have 

difficulty accessing care due to their 

high costs. We were asked to conduct 

further research into the role of 

caregivers and their affect on costs. 

Response: OASIS item M0350 asks 

whether there are assisting persons in 

the home, other than the home care 

agency staff. We recognize that the data 

collected by this item is limited in the 

information it collects regarding 

caregivers. However, in the absence of 

other data, we used this item in our 

analysis. We found that on average, 

episodes without caregivers would be 

underpaid. However the score to be 

gained by adding this variable was not 

large, and the overall ability of the fourequation model to explain resource 

costs is minimally improved by adding 

this variable. As we noted in the 

proposed rule, we believe this variable 

raises significant policy concerns. We 

maintain that a case-mix adjustment 

should not discourage assistance from 

family members of home care patients, 

nor should it make patients feel that 

there is some financial stake in how 

they report their familial supports 

during convalescence. We believe that 

adjusting payment in response to the 

absence of a caregiver would introduce 

negative incentives with adverse affects 

on home health Medicare beneficiaries. 

We will continue to study the effects of 

caregivers on the case-mix model. 

Using our final analytic data set, we 

rechecked the contribution of this 

variable to explain home health 

resource use. We found no change from 

what was described for this variable in 

the proposed rule. Consistent with our 

original policy on this item, we did not 

include this variable in the final fourequation model of this rule. We will 

continue to explore additional 

refinements to the OASIS instrument to 

gather more information regarding the 

roles caregivers play in home health 

care and to better quantify any 

unmeasured effects of multiple comorbidities, patient non-compliance, or 

living alone. 

Comment: Several commenters were 

concerned that a variable for Medicare/ 

Medicaid dual eligibles was not 

included in the payment model. One 

commenter noted that the increased 

costs associated with dual eligibles have 

been confirmed by MedPAC in hospital 

DSH studies, and it is unlikely that 

these costs disappear once the patient is 

in home health. Another noted that 

these patients have longer lengths of 

stay and multiple co-morbidities. 

Several commenters noted that 

Medicaid numbers are not consistently 

reported in OASIS because Medicaid is 

not the primary payer. Others suggested 

that CMS compare the impact of 

Medicaid eligibility by studying 

resource use of a sample of home health 

patients enrolled in a Medicaid program 

from Medicaid files against home health 

patients without Medicaid. 

Response: HHAs are required to 

complete OASIS item M0065, which 

asks for the patient’s Medicaid number, 

whether or not Medicaid is the 

reimbursement source for the home care 

episode. CMS has sought to improve the 

accuracy of the OASIS data through 

extensive training and guidance on 

proper use of OASIS. Additionally, the 

OASIS guidelines provide clear 

instructions to complete M0065. 

Therefore we believe it is appropriate to 

use M0065 in an analysis of resource 

use in patients with Medicaid. After 

accounting for a broad range of clinical 

and functional factors which predict 

resource use, M0065 was found to have 

a low score, suggesting that having 

Medicaid is not a strong predictor of 

resource use. Accordingly, we did not 

propose to include a Medicaid variable 

in the case-mix model. Using our final 

analytic data set, we rechecked the 

contribution of this variable to explain 

home health resource use. We found no 

change from what was described for this 

variable in the proposed rule. Consistent 

with our original policy on this item, we 

did not include this variable in the final 

four-equation model of this rule. We 

will continue to study the effect of dual 

eligibles on the case-mix model, and we 

encourage HHAs to complete M0065 as 

required. 

Comment: A commenter asked that 

we evaluate the impact of adding a casemix variable for patients aged 85 or 

older, who have greater care needs, and 

for diabetics. The commenter also 

expressed concern that providers in 

Southern states would be more affected 

by proposed policies noted in the 

proposed rule, as these parts of the 

country serve larger populations of two 

groups at high risk for diabetes. 

Response: In considering variables for 

inclusion in the model, we analyzed the 

relationship between resource use and 

patient characteristics. We were able to 

measure resource use directly from the 

claims sample and patient 

characteristics from the OASIS 

assessments. Variables were assessed for 

statistical performance and for policy 

appropriateness. Diabetes is taken into 

account as a point-bearing case-mix 

diagnosis under the current HH PPS, 

and under this final rule with comment 

period continues to receive points as 

either a primary or a secondary 

diagnosis (see Table 2A for the points 

given). 

Our research did not find the 

proportion of home health beneficiaries 

85 or older to be increasing. The 

literature reports that those 85 or older 

were actually less likely to be admitted 

to home health agencies (McCall et al., 

2003). Additionally, we tested an age 

variable and found it was not associated 

with greater resource use after 

controlling for other factors. As such, 

we did not include it in our case-mix 

model. Accordingly, we did not propose 

to include a variable for those 85 and 

older in the refinements. 

Comment: A commenter stated that 

the proposed rule refers to unnamed 

variables which while correlated with 

higher home health cost, were not 

considered in the case-mix because of 

negative treatment incentives they could 

create. The commenter believed CMS 

should specify these alternatives which 

were not adopted along with the reason 

for dismissing them. 

Response: As in our original HH PPS 

proposal, we avoided including a score 

for catheter-using patients in the casemix system, out of concern that this 

would work against catheter removal at 

the appropriate time. However, for the 

proposed refinement approach, we did 

include a score in the non-routine 

supplies model out of concern that 

agencies would fail to admit patients 

with supplies costs. 

Comment: A commenter objected to 

the proposal to eliminate M0610 

(behavioral problems) as a case-mix 

variable. The commenter noted that 

patients with behavioral problems, 

including those without formal 

psychiatric diagnoses, consume large 

amounts of resources. The commenter 

asked for further data to support 

removal of M0610. 

Response: We have added case-mix 

scores to the system for psychiatric 

conditions, as they are better markers 

for increased resource use related to 

behavioral problems than M0610. When 

the psychiatric conditions were 

included in the model, M0610 does not 

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add further predictive power (that is, it 

was not statistically significant). 

Comment: Several commenters asked 

that V-codes be included in the casemix diagnosis list as they are 

appropriately prevalent in home care 

due to ICD–9 coding guidelines. One 

commenter suggested V-codes be added 

as interactions. A number of 

commenters also asked for more 

guidance regarding coding, especially in 

the use of V-codes. Several commenters 

noted that they have had to hire 

certified coders. 

Response: We have included selected 

codes from the V44 and V55 code 

categories in Tables 2B and 10B. The 

major use of V-codes in the home health 

setting occurs when a person with a 

current or resolving disease or injury 

encounters the health care system for 

specific aftercare of that disease or 

injury. V-codes are less specific to the 

clinical condition of the patient than are 

numeric diagnosis codes. A single Vcode could substitute for various 

numeric codes each of which describes 

a specific different clinical condition. 

For more guidance regarding coding 

especially in the use of V-codes please 

see the CDC Web site noted below to 

obtain a copy of the ICD–9–CM Official 

Coding Guidelines effective November 

15, 2005. (http://www.cdc.gov/nchs/ 

datawh/ftpserv/ftpicd9/ftpicd9.htm.) 

Comment: CMS currently allows 

points for bowel ostomies, but 

reimbursement points should be 

allocated to all ostomies. A commenter 

suggested we add V55.0–V55.9 to the 

non-routine supply list to capture 

patients needing supplies for non-bowel 

ostomies. 

Response: It is important to note that 

all ostomies were not included in the 

original HH PPS payment because the 

OASIS instrument does not capture all 

ostomies, for example, the tracheostomy 

is not included in the OASIS 

instrument. Therefore, we do not have 

data for all ostomies. However, we have 

tested the non-routine supplies for 

stoma conditions for which we have 

added appropriate ‘‘status (V44) Vcodes’’ and ‘‘attention (V55) V-codes’’ to 

the model. 

Comment: A commenter asked that 

we include fracture aftercare codes and 

orthopedic correction codes (V54.01–

V54.9) as point bearing codes. 

Response: The HH PPS does not rely 

on V-codes, except as mentioned above. 

Therefore we are continuing to require 

agencies to list the underlying problem 

that led to the V-codes in M0246 of the 

OASIS assessment. The numeric 

fracture codes are listed in Table 2B and 

are expected to be assigned when 

indicated to our optional payment item 

M0246. When a fracture code is 

assigned to M0246 it will be expected 

that the appropriate aftercare V-code 

from V54.1 through V54.8 will be 

assigned to M0230. We note, however, 

that assigning of V54.01, V54.02 and 

V54.09 is considered generally 

inappropriate in the post-acute care 

setting. 

Comment: The proposed rule 

designates the dementia codes 290.0 

series as manifestation codes in the 

Psych 2 diagnosis group. A commenter 

stated those codes can only be placed as 

secondary diagnoses, but the proposed 

rule only offers points when Psych 2 

conditions are primary diagnoses. 

Patients with these diagnoses require 

considerable resources even when the 

primary focus of the plan of care is 

another diagnosis. Commenters 

suggested allowing case-mix points 

when Psych 2 diagnoses are in the 

secondary position. 

Response: The ICD–9–CM code 

category 290, Dementia, codes are listed 

in the ‘‘Psych 2—Degenerative and other 

organic psychiatric disorders’’. The 

ICD–9–CM code category 290 codes are 

point bearing regardless of whether the 

codes are primary or secondary 

diagnoses. We have removed the 

manifestation designation for these 

codes. 

Comment: Commenters noted that key 

surgical complication codes (996 and 

997 series) have been omitted from the 

case-mix. These series include joint 

prosthesis complications, amputation 

complications, skin graft complications, 

transplanted organ complications, etc. 

They believed these codes should be 

added to the case-mix diagnoses. 

Response: We disagree. It is not 

appropriate to add these codes to the 

case-mix because these codes represent 

complications that are typically treated 

initially in the inpatient setting. 

Comment: One commenter asked that 

we add 728.87 and 781.3 back to the 

table of point-bearing diagnosis codes. 

This commenter also asked that we add 

the 414 series of diagnosis codes. 

Response: We disagree with the 

suggestion that 728.87, Muscle 

weakness (generalized) and 781.3, Lack 

of Coordination, should be added to 

Table 2B. The conditions assigned to the 

781.3 and 728.87 diagnosis codes are 

identified as nonspecific conditions that 

represent general symptomatic 

complaints in the elderly population as 

such. We believe inclusion of these 

codes would threaten to move the casemix model away from a foundation of 

reliable and meaningful diagnosis codes 

that are appropriate for home care. 

We agree with the addition of the 

diagnostic category 414, ‘‘Other forms of 

chronic ischemic heart disease’’ codes 

to the case-mix model, with one 

exception. We are not including code 

414.9, ‘‘Chronic ischemic heart disease, 

unspecified’’, because this is a 

nonspecific code and there are 

numerous specific codes that we would 

expect to be used for this condition. As 

noted previously, we believe the 

implementation of the refined HH PPS 

will better reflect more accurate 

payments, and we are taking steps to 

ensure the least amount of burden for 

HHAs. 

Comment: Several commenters noted 

that the neuro 3 code list included ICD–

9 diagnosis 436, which is an outdated 

code. They asked that it be replaced 

with 434.91. 

Response: We are aware of the ICD–

9–CM changes effective October 1, 2004 

to the classification of unspecified 

cerebrovascular accident (CVA). Before 

this change these conditions were 

indexed to 436, Acute but ill-defined 

cerebrovascular disease. In order to 

comply with the ‘‘ICD–9–CM Official 

Guidelines for Coding and Reporting’’, 

effective November 15, 2006, we have 

deleted codes in categories 430–437 

listed in the ‘‘Neuro 3-Stroke’’

diagnostic category of Table 2B of the 

proposed rule. The conditions in 

categories 430–437 identify the cause of 

the initial onset of an acute stroke and 

must not be assigned in the home health 

setting. 

Agencies should use ICD–9–CM code 

category 438, Late Effects of 

Cerebrovascular disease, for conditions 

occurring at any time after the onset of 

an acute stroke. The coding guidelines 

indicate that these ‘‘late effects’’ include 

neurologic deficits that persist after the 

initial onset of conditions classifiable to 

430 through 437. The neurologic deficits 

caused by cerebrovascular disease may 

be present from the onset or may arise 

at any time after the onset of the 

condition classifiable to 430 through 

437. 

To summarize, we deleted diagnosis 

codes from Table 2B in the following 

situations: 

• The code was assigned to a minor 

condition or mild symptom that may be 

found in the elderly population; 

• The code was a non-specific code or 

• The code could not be assigned 

within the home health setting. 

We believe the deletion of these codes 

directly correlates with the goals 

stipulated in the proposed rule. 

Specifically, the proposed rule 

stipulated that the case-mix system 

avoid, to the fullest extent possible, 

nonspecific or ambiguous ICD–9–CM 

codes, codes that represent general 

symptomatic complaints in the elderly 

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population, and codes that lack 

consensus for clear diagnostic criteria 

within the medical community. The 

diagnosis codes listed in Table 2C at the 

end of section III.B.5 are identified as 

minor conditions or mild symptoms that 

may be found in the elderly population 

or identified as non-specific conditions 

and as noted above, have been deleted 

as point-bearing diagnosis codes. The 

following discussion provides further 

explanation of the specific changes to 

the diagnoses occurring in Table 2B 

(also found at the end of section III.B.5): 

• Deletion of constipation and mild, 

unspecified burns; 

• Deletion of acute stroke codes 

(categories 430–437); 

• Revision of code category 410, 

Acute Myocardial Infarction and 

• Addition of code category 414, 

Other forms of chronic ischemic heart 

disease. 

Constipation 

The clinical condition of constipation 

(ICD–9–CM codes 564.00, 564.01, 

564.02, and 564.09) was originally 

included in the GI group. Occurrences 

of constipation as a primary diagnosis 

were extremely rare. Therefore, the 

analysis was conducted with 

constipation as a secondary diagnosis 

separate from the rest of the diagnoses 

in the GI group. The results of this 

analysis show 2, 5, 1, and 5 points from 

leg 1 to leg 4, respectively, of the fourequation model (please see Table 2A at 

the end of section III.B.5). However, this 

likely reflects selective coding by 

providers of only those patients with 

more severe forms of this condition 

without inclusion of the many patients 

with mild constipation symptoms. 

Constipation is both a clinical symptom 

and a medical diagnosis (ICD–9–CM 

564). It is relatively common in the 

elderly population with a prevalence 

ranging from 15 to 20 percent in the 

community setting. The clinical acuity 

of patients with constipation can range 

from asymptomatic to extreme distress 

(including abdominal pain and 

impending bowel obstruction). The 

ICD–9–CM codes, however, do not 

distinguish the severity levels of these 

patients. Since there are no specific 

diagnostic clinical criteria for 

constipation that are widely accepted 

throughout the medical community, 

clinicians are free to assign this 

diagnosis to all patients with even 

minimal symptoms of constipation 

regardless of severity. If additional 

points were allowed for constipation 

under the HH PPS, we would expect to 

find a large increase in the number of 

patients with this diagnosis simply 

because HHAs would be allowed to 

begin including all patients with 

constipation symptoms, not just those 

who are more severely affected. 

Furthermore, the ICD–9–CM category 

564 (Functional Digestive Disorders Not 

Elsewhere Classified) specifically 

excludes those clinical conditions that 

are more accurately identified by other 

more specific ICD–9–CM diagnostic 

codes. Therefore, codes 564.00, 564.01, 

564.02 and 564.09 have been deleted 

from the Gastrointestinal Disorders 

diagnostic category in Table 2A (found 

at the end of section III.B.5). Most 

patients with significant constipation 

symptoms can be captured with other 

ICD–9–CM diagnostic codes that are 

more specific than the codes for 

constipation. 

First Degree Burns 

A first degree burn is a minor selflimited condition that usually requires 

no professional medical attention. The 

skin typically displays mild redness 

without blisters. The most common 

example of a first degree burn is mild 

sunburn. Neither bandages nor medical 

supplies are required for first degree 

burns. This condition is often not coded 

as a diagnosis for medical billing 

because it rarely requires any 

professional medical treatment. 

Therefore the actual frequency of first 

degree burns is underreported in 

medical claims databases. Because the 

severity of this condition is so minimal, 

we do not think it is appropriate to 

include it in the four-equation case-mix 

model. In addition, no medical supplies 

are required for treatment of this 

condition so it would be inappropriate 

to include it in Table 10B for NonRoutine Supplies. 

Late Effects of Cerebrovascular Disease 

To comply with the ‘‘ICD–9–CM 

Official Guidelines for Coding and 

Reporting’’, Effective November 15, 

2006 we have deleted codes in 

categories 430–437 listed in the ‘‘Neuro 

3-Stroke’’ diagnostic category from 

Table 2B of the proposed rule. The 

conditions in categories 430–437 

identify the cause of the initial onset of 

an acute stroke and must not be 

assigned in the home health setting. 

The ICD–9–CM coding guidelines 

stipulate the assignment of code 

category 438, Late Effects of 

Cerebrovascular disease, for conditions 

occurring at any time after the onset of 

an acute stroke. The coding guidelines 

indicate that these ‘‘late effects’’ include 

neurologic deficits that persist after the 

initial onset of conditions classifiable to 

430–437. The neurologic deficits caused 

by cerebrovascular disease may be 

present from the onset or may arise at 

any time after the onset of the condition 

classifiable to 430–437. Table 2C 

includes these codes as deletions from 

Table 2B of the proposed rule. 

Acute Myocardial Infarction 

We have also revised code category 

410, Acute Myocardial Infarction, in the 

‘‘Heart Disease’’ category of Table 2B of 

the proposed rule, to comply with ICD–

9–CM coding instruction (see Table 2C 

at the end of section III.B.5 for the list 

of the 410 codes to be included). The 

code category 410 has been replaced in 

Table 2B with specific codes from 

category 410, (410.x2 ). The specific 

codes designate an episode of care 

following the initial episode of care. The 

fifth-digit sub-classification of 2 is for 

use with code category 410 to designate 

an episode of care following the initial 

episode when the patient is admitted for 

further observation, evaluation, or 

treatment for a myocardial infarction 

that has received initial treatment but is 

still less than 8 weeks old. 

We have also revised code category 

045, Acute Poliomyelitis, in the Neuro 

2-Peripheral Neurological disorders 

section of Table 2B to correlate with 

ICD–9–CM coding instructions by 

replacing this code with code 138, Late 

effects of acute poliomyelitis(see Table 

2C at the end of section III.B.5). 

Chronic Ischemic Heart Disease 

We also evaluated the appropriateness 

of code suggestions from commenters, 

and we have inserted codes from ICD–

9–CM code category 414, other forms of 

chronic ischemic heart disease to Table 

2B. The only code from category 414 

that was not included is 414.9, ‘‘Chronic 

ischemic heart disease, unspecified’’

due to the non-specificity of the code 

and the fact that we would expect that 

other codes from this category would be 

used if appropriate. 

Table 2C lists those codes noted above 

that have been deleted or added to Table 

2B in the proposed rule. Tables 2A, 2B, 

and 2C are found at the end of section 

II.B.5. We recognize that some HHAs 

have used ICD–9–CM coding in the past 

which will no longer meet future coding 

standards, as discussed above. For 

example, some acute stroke codes were 

recognized in the original case-mix 

system, and we included them in the 

modeling of the refined system finalized 

in this rule to capture the effects on the 

diagnosis group score. However, we 

assume that these acute stroke codes 

will not be used in the future, and these 

changes are reflected in the codes listed 

in Table 2B. 

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4. Addition of Therapy Thresholds 

In the proposed rule, for 2008, we 

proposed to discontinue the use of a 

single 10-therapy threshold, for the 

purpose of payment, and proposed to 

implement three therapy thresholds at 

6, 14, and 20 visits. We proposed using 

graduated steps (groupings of 1 to 4 

visits) between these three thresholds to 

provide an equitable increase in 

payment that would not otherwise occur 

between the three threshold levels. As a 

disincentive for agencies to attempt to 

reach a therapy level higher than the 

appropriate, clinically determined 

number of therapy visits, we proposed 

to decelerate the increase in payment 

with each grouping of additional 

therapy visits between the therapy 

thresholds. 

For example, if the current proposed 

model produces an average value for 

each additional grouping of therapy 

visits above 6 and below 14 visits, we 

would incrementally decrease the 

marginal payment for each grouping of 

therapy visits as the number of therapy 

visits grow. At this time, no study has 

been performed to study the clinically 

appropriate number of visits primarily 

because of the resources required to 

perform such a study. Under fee-forservice Medicare, beneficiaries can 

select clinicians to treat and act on their 

behalf so long as the clinicians meet the 

CoPs, such as licensing (qualified nurses 

and therapists), and other forms of 

credentialing (CoPs). In the research 

vacuum that exists, the Medicare 

program relies upon the providers to 

determine the clinically appropriate 

number of visits. However, we found 

that a payment system with an incentive 

such as the 10-visit-therapy threshold 

indicated that such reliance was 

perhaps misplaced. Our revised system 

of multiple thresholds and smoothing 

(that is, graduated per-visit payments 

between the thresholds) is an attempt to 

reduce the financial incentive that we 

saw as distorting clinically appropriate 

decision making. MedPAC has stated 

repeatedly that the home health benefit 

would be enhanced by a better 

understanding and definition of 

appropriate clinical standards (e.g., 

Report to the Congress: Medicare 

Payment Policy, MedPac, March 2006, 

p. 195). We believe it would take years 

of research to determine with sufficient 

precision for payment purposes and 

claims processing what is clinically 

appropriate. We will continue to rely on 

the RHHIs during normal medical 

review operations to consider therapy 

treatment plan appropriateness on a 

case-by-case basis. Of course, we also 

continue to rely in good faith on the 

professional judgment of certified 

agencies and their clinicians to select 

appropriate courses of treatment for 

their patients. 

Comment: Many commenters 

supported our proposal to have multiple 

therapy thresholds. However, several 

questioned the point allocation for 

functional variables in relation to 

therapy. One commenter was concerned 

that this could lead to gaming, where 

agencies prescribe 14 visits instead of 10 

visits, noting that almost all patients 

who need 10 physical therapy or rehab 

visits could benefit from 14 visits. The 

commenter was concerned that the cost 

to agencies would be prohibitive, and 

would force them to replace physical 

therapists with physical therapy 

assistants, to drop therapy services 

altogether, or gaming to receive 

reasonable reimbursement. Another 

commenter noted that the dollar 

increments between 6 and 14 visits were 

so modest that they may create payment 

deficits. 

Response: We appreciate the 

comments supporting our multiple 

therapy thresholds. We disagree with 

the commenter’s concern that our 

increased therapy thresholds will be 

cost prohibitive and will force providers 

to replace physical therapists with 

physical therapy assistants or to drop 

therapy services altogether. The goal of 

the case-mix refinements is to better 

align payment with actual agency costs. 

Changing to multiple therapy thresholds 

with a gradual increase in payment 

better aligns costs and payments and 

avoids incentives for providers to distort 

patterns of good care. 

Specifically, because we used 

multiple regression to derive the point 

values, with indicator variables for 

therapy visits (for example, 7 to 9 

therapy visits) included in the 

regression model, the point allocations 

for functional variables take into 

account the range of visits into which 

the treatment plan falls. The point 

allocations therefore serve to define 

more precisely the average resources 

used by a patient given that a certain 

range of therapy visits is to be delivered. 

We are aware that the new threshold of 

14 therapy visits may be misperceived 

as a new target for treatment. We do, 

however, intend to monitor 

administrative data for indications of 

gaming, which could include shorter 

lengths for prior therapy visits and 

increased frequencies of episodes with 

14 or more visits without evidence that 

an increase in the number of therapy 

visits was appropriate for the patients. 

We believe that the need to spend on 

therapy visits, in order to get paid for 

high therapy treatment plans, will 

provide a natural disincentive to game 

the system, and that imposing on the 

regression model a mildly decelerating 

trend in the resources per added therapy 

visit between 6 and 20 therapy visits 

will further mitigate against gaming. We 

detail the resource cost values that 

impose a decelerating trend in the fourequation model in Table 1. We have 

updated this table using 2005 data. If a 

potential problem is detected through 

data analysis processes with our RHHIs, 

then the RHHIs may conduct Medical 

Review of claims identified as potential 

problems to determine if the services 

rendered were reasonable and 

necessary. 

Comment: While supporting the 

concept of a graduated therapy 

threshold, several commenters were 

concerned that the reimbursement 

decrease was so substantial. One 

commenter noted that his calculations 

showed that it would require 17 therapy 

visits under the proposed system to 

receive the same therapy adjustment as 

under the current system, when the 10- 

therapy threshold is met. The 

commenter noted the resource intensity 

of therapy services, and asked that we 

consider a greater payment allocation 

for visits from 10 to 14. Another 

commenter noted that the new therapy 

thresholds will minimize payment for 

orthopedic cases. This commenter 

recommended that the therapy 

threshold be changed to 6, 12, and 20 

to allow adequate compensation for 

therapy visits. 

Response: The original 10-visit 

therapy threshold supported treatment 

plans involving 10 therapy visits and 

higher, so one should not expect that 

weights under the original system for 10 

visits would be comparable to weights 

under the new system for 10 therapy 

visits. Compared to the original system, 

weights under the new system are more 

precise with respect to the cost of a 

given range of therapy (for example, a 

range of 16 to 17 therapy visits). It is 

important to understand that the 

regression method modeled the addition 

to total resource cost for treatment plans 

with each range of therapy visits in 

Table 4 of the proposed rule—not just 

the addition to cost from therapy visits. 

Therefore, the services utilization 

severity levels cannot be noted strictly 

as direct costs for added ranges of 

therapy visits, though the cost of added 

therapy visits is certainly very 

important in producing the values noted 

in Table 4 of the proposed rule and thus 

the proposed relative case-mix weights. 

The proposal was not intended to 

propose minimized payment for 

orthopedic cases, but to reflect to the 

best of our ability the treatment 

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Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 49777 

practices extant in the data for different 

types of patients and costs experienced 

by a wide range of patients in the data 

analyzed. 

Comment: A commenter stated that 

the variations in payment introduced by 

multiple therapy thresholds were not 

consistent with a regression model. This 

commenter’s initial analysis indicated 

that agencies can obtain significant 

additional payments when they provide 

14 therapy visits as opposed to 13 

therapy visits when all other OASIS 

answers remain constant, even though 

the scoring in the 3rd and 4th equations 

is different from the scoring in the 1st 

and 3rd equations. The commenter 

stated that the inconsistencies found in 

this review make it difficult to 

understand how CMS arrived at the 

proposed increments between HHRGs. 

The commenter asks for additional 

information on how CMS arrived at the 

increments in payment between the 

various levels of therapy services 

proposed. 

Response: For an early episode, Table 

4 in the proposed rule indicated that 

agencies would receive an additional 

$2,191.76¥$1,771.84=$419.42 before 

wage adjustment for treatment plans 

involving 14 or 15 therapy visits. For 

later episodes, agencies would receive 

an additional $2,198.69- 

$1,907.93=$290.76. In the final version 

of Table 4, which is based on CY2005 

data, agencies would receive an 

additional $366.03 for early episodes 

and $504.44 for later episodes. These 

values result from using indicator 

variables in the regression for differing 

ranges of therapy visits (ranges 

indicated in Tables 3 and 4 of the 

proposed rule) and from reintroducing 

the decelerated payments per added 

therapy visit at the stage of the payment 

regression. Our technique for 

reintroducing the decelerated payments 

was to estimate a variant of the fourequation model that did not incorporate 

deceleration. From this, we were able to 

compare the added payments for the 

proposed ranges of therapy visits with 

and without deceleration in order to 

adjust the services utilization (S-level) 

marginal resource cost estimates of the 

payment regression appropriately. 

Comment: Several commenters 

questioned the $36 estimated marginal 

cost of adding a seventh therapy visit to 

an episode with 6 therapy visits and the 

deceleration of payments, as the source 

for this information was not cited, and 

the dollars appear to be significantly 

below agency costs. One commenter 

asks for additional information 

regarding how CMS identified an 

incremental cost of $36 between the 6th 

and 7th therapy visits. Another 

commenter noted that the Excel toy 

grouper produced an increased payment 

of $402 for the seventh visit. 

Response: We cited the source for the 

starting value of $36 in the proposed 

rule (72 FR 25364). It was the addition 

to total resource cost from comparing 

episodes with 7 therapy visits to 

episodes with 6 therapy visits, based on 

a variant of the four-equation model that 

allowed for a separate marginal addition 

to cost associated with each separate, 

individual number of therapy visits. 

Thus, this value was entirely data 

driven, given the entire set of clinical, 

functional, and therapy indicator 

variables used in the four-equation 

model. In the final version, the updated 

analysis yielded a starting value of $42 

instead of $36. The declining trend was 

modeled by decrements of 1.5 units 

instead of 1 unit. Please see Table 1 at 

the end of this section for details. It 

should be understood that the resource 

cost measure is not equivalent to the 

average cost of a therapy visit, as it is 

derived from national Bureau of Labor 

Statistics survey data on the direct 

hourly wage and benefit cost of therapyrelated clinical disciplines in home 

care. We convert minutes per episode 

reported on claims into resource cost 

dollars using the national wage and 

benefit data. Table 4 of the proposed 

rule indicated that the therapy 

increment for services utilization 

severity S3 encompasses treatment 

plans that include 7, 8, or 9 therapy 

visits. We intend to monitor payments 

under the system in the future for 

evidence that agencies are failing to 

provide the full range of visits included 

in each S-level. 

Comment: Several commenters 

questioned our assumption that most 

patients would require 6 to 13 visits and 

that 14 or more therapy visits would not 

be normal. They note that therapy 

services are resource intensive. A 

commenter disagreed with our 

statement that several common 

treatment plans only require about 6 

visits, using the example of falls. 

Response: Abt Associates conducted 

TEP meetings on December 15, 2005 

and March 14, 2006. These TEP 

meetings provided an opportunity for 

experts, industry representatives, and 

practitioners in the field of home health 

care to provide feedback on Abt’s 

research examining the HH PPS and 

exploration of payment policy 

alternatives. Abt received input from 

TEP members as to what the appropriate 

levels for the therapy threshold would 

be based on clinical conditions of home 

health patients. Different sets of therapy 

thresholds were discussed at TEP 

meetings. Abt considered this feedback 

when developing recommendations for 

refinements to the HH PPS. 

Comment: A commenter strongly 

disagreed that patients with a high risk 

of falls should be used as an example of 

patients with a treatment plan 

commonly requiring 6 therapy visits (72 

FR 25363). The comment did not 

include an alternate illustration or 

example of a common treatment plan 

requiring 6 therapy visits, however, the 

commenter did agree with us that there 

are therapy treatment plans within the 

6 visit range. 

The commenter stated that ‘‘clinical 

experience with homebound Medicare 

patients at high risk for falls indicates 

that these patients typically have 

significant problems with balance and 

gait. They may also be receiving 

treatments that elevate their risk, 

including the use of diuretics.’’ The 

commenter is concerned that payment 

contractors will apply this example to 

the medical review process and deny 

needed visits to patients at risk for falls 

who have extensive therapy needs. 

Response: We used the example of 

patients with a risk of falls as typically 

receiving six therapy visits based on 

input from Abt Associates, using 

information from their TEP. According 

to the TEP, physicians may deliberately 

order short term plans of care for 

patients because they want the patient 

to proceed to outpatient therapy as soon 

as possible. A short-term plan of care of 

six visits will typically involve 

evaluation, safety/falls assessment and 

prevention intervention, with the 

possibility of more than one therapy 

discipline being involved. 

We disagree with the commenter that 

the RHHIs will apply the example of 

patients with a high risk of falls as a 

basis for their decision on the 

determination of coverage. Section 

20.1.2 in Chapter Seven of the Medicare 

Benefit Policy Manual explains the 

following: ‘‘The intermediary’s decision 

on whether care is reasonable and 

necessary is based on information 

reflected in the home health plan of 

care, the OASIS as required by 42 CFR 

484.55 or a medical record of the 

individual patient. Medicare does not 

deny coverage solely on the basis of the 

reviewer’s general inferences about 

patients with similar diagnoses or on 

data related to utilization generally, but 

bases it upon objective clinical evidence 

regarding the patient’s individual need 

for care.’’ It is at the discretion of the 

contractor to determine the use of its 

resources. If a potential problem is 

detected through their data analysis 

processes, then they may conduct 

Medical Review of claims to determine 

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49778 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

if the services rendered were reasonable 

and necessary. 

Comment: A commenter was 

concerned that CMS planned to conduct 

automatic medical reviews of every 

episode requiring 20 or more therapy 

visits. While this commenter agreed that 

such cases are unusual, there was 

concern that the threat of automatic 

medical review could provide an 

incentive for providers to restrict the 

number of visits to individuals who 

need a higher level of intervention. 

Another commenter asked if HHAs 

should anticipate an increase in therapy 

Additional Documentation Requests 

(ADRs) from the RHHIs, at least 

initially, as we validate the 

appropriateness of the new therapy 

thresholds and the accuracy of provider 

coding. The commenter noted that 

increases in ADRs lead to unfunded 

increases in administrative costs, even if 

they result in no adjustments. 

Response: The intermediary’s 

decision on whether care is reasonable 

and necessary is based on information 

reflected in the home health plan of 

care, the OASIS as required by 42 CFR 

484.55 or a medical record of the 

individual patient. Medicare does not 

deny coverage solely on the basis of the 

reviewer’s general inferences about 

patients with similar diagnoses or on 

data related to utilization generally, but 

bases it upon objective clinical evidence 

regarding the patient’s individual need 

for care. As mentioned above, it is at the 

discretion of the contractor to determine 

the use of its resources. If a potential 

problem is detected through their data 

analysis processes, then they may 

conduct Medical Review of claims to 

determine if the services rendered were 

reasonable and necessary. 

Medical review targets problem areas 

which demonstrate significant risk to 

the Medicare program as a result of 

inappropriate payments, overutilization, abusive billing and 

unnecessary services. Here, the 

Medicare Contractors (RHHIs) use 

different parameters to target their 

review of home health claims. The 

decision regarding which claim to 

review depends on the information 

obtained from data analysis which 

includes all providers submitting claims 

for payment. A provider’s claims may be 

subject to review if they do not meet the 

coverage, coding, and billing guidelines 

contained in the statute, regulations, 

coverage guidance, CMS manuals, and 

contractor policies. 

Comment: A commenter noted that 

providers are sensitive to financial 

incentives associated with therapy 

visits, but that it is difficult to anticipate 

how utilization may change under the 

proposed system. The commenter asked 

that analysis of changes in therapy 

under the new system be a key priority 

for future research. The commenter also 

noted that higher payments for third 

and later episodes appear reasonable, 

but suggested further research into the 

nature of third and subsequent episodes. 

Response: We agree that financial 

incentives can affect care provided, and 

we will monitor the effects of the 

refined payment system. We will be 

analyzing changes in therapy under the 

refined system and will conduct further 

refinement research as appropriate. 

Comment: A commenter noted that 

adding therapy thresholds in the revised 

case-mix regression model improved the 

ability of the model to predict resource 

use, with substantially increased Rsquared for both early and later 

episodes, as compared to the R-squared 

values for a single therapy threshold 

model (72 FR 25365, May 4, 2007). The 

commenter asked what the improved Rsquared values were, and if they were 

statistically significant. Further, the 

commenter asked if there were concerns 

that the randomness being measured 

was truly not random, which would 

raise questions about the 

appropriateness of a linear regression 

model and its associated R-squared. 

Response: Abt Associates estimated 

models without therapy thresholds 

using the basic four-equation structure. 

The basic four-equation structure 

incorporates a threshold at 14 therapy 

visits. After adding thresholds to this 

model at 6 and 20 visits, and adding 

per-visit therapy variables, the Rsquared statistic increased by 

approximately 0.10. We subsequently 

modified the approach to the per-visit 

therapy variables, as described in the 

proposed rule. We believe the linear 

model is appropriate based on results of 

experimentation with nonlinear 

specifications during the research. This 

technical topic is treated in the Abt 

Associates Final Technical Report. 

Comment: A commenter noted that 

the four-equation model actually 

contains a fifth equation for 20 or more 

therapy visits and asked for clarification 

regarding how to code as early or later 

episodes in this case. 

Response: The OASIS item for early 

or later episodes (M0110) needs to be 

completed for all episodes, regardless of 

the number of therapy visits. The 

estimated number of therapy visits must 

also be entered into OASIS (M0826). 

The episode will then be assigned an 

appropriate HHRG by the grouper, and 

priced out correctly by the Pricer. The 

system will automatically verify the 

accuracy of the early/later designation, 

and correct the payment if necessary. 

As explained in the proposed rule (72 

FR 25388), we collapsed all episodes 

with visits over 19 when we saw the 

results of the four-equation model. 

These episodes are grouped in the 

payment regression, and severity 

distinctions are made using the 

breakpoints described in that last 

column (20+ therapy visits) of Table 3, 

Severity Group Definitions: Fourequation model (72 FR 25387). 

We note the labeling of Table 3 in the 

proposed rule left the impression among 

some readers that there was a fifth 

equation. The commenter may have 

been confused because Table 3 in the 

proposed rule shows a separate column 

for all episodes with 20 or more visits, 

which can give the appearance of a fiveequation model rather than a fourequation model. However, there are 

only four equations from which to draw 

case-mix points. Table 2A of the 

proposed rule gives a description of 

each diagnosis group, followed by four 

columns with the four ‘‘legs’’ of the 

four-equation model. If an episode has 

20 or more visits, the case-mix points 

would come from the second leg if it is 

an early episode, and from the fourth leg 

if it is a later episode. The table column 

headers indicate that these two legs are 

for 14 or more therapy visits. As 

explained in the proposed rule, we 

found strong similarities in the casemix-adjusted costs for early and later 

episodes with 20 or more therapy visits. 

In other words, the results of the fourequation model indicated that predicted 

costs for the same clinical and 

functional severity levels across the two 

equations (equations 2 and 4) were 

highly similar. Therefore, to reduce the 

number of groups and thereby simplify 

the system at the payment regression 

stage, we treated episodes with 20 or 

more therapy visits the same (that is, we 

used the same indicator variables for 

clinical and functional severity, 

regardless of whether the episode was 

from the early or later equation for 14 

plus therapy visits). 

In summary, upon examining the CY 

2005 data on the resource cost trends by 

number of therapy visits, we changed 

the starting value for the marginal cost 

of going from six therapy visits to seven 

therapy visits from $36 to $42, 

consistent with the observed value in 

the data. The declining trend was 

modeled by decrements of 1.5 units, as 

shown in Table 1, because the marginal 

value observed in the data was no 

higher than $30 when going from 14 to 

15 therapy visits. Had we used 

decrements of 1.0 units, as in the 

proposed rule, the imposed values 

would have descended to a value of $34, 

which is less consistent with the 

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observation when going from 14 to 15 

therapy visits. Using 1.5-unit 

increments, the imposed values 

descended to a value of $29, which is 

more consistent with the actual data. 

We are implementing the three 

therapy thresholds of 6, 14, and 20. The 

groups of visits in final Table 1, used to 

achieve graduated steps of increased 

payment between the therapy 

thresholds, have not changed as a result 

of modeling with the newer, most 

current 2005 data. The deceleration of 

the increase in payment with each 

individual visit between the therapy 

thresholds is being implemented as in 

the final Table 1 (see below). 

TABLE 1.—RESOURCE COST VALUES IMPOSING DECELERATION TREND IN FOUR-EQUATION MODEL

Equation and services utilization severity level 

Number of 

therapy visits in 

severity level 

Resource cost 

values imposed 

in regression 

procedure 

1st and 2nd Episodes, 6–13—Therapy Visits: 

S3 ............................................................................................................................................................. 7, 8, 9 42, 40.50, 39 

S4 ............................................................................................................................................................. 10 37.50 

S5 ............................................................................................................................................................. 11, 12,13 36, 34.50, 33 

1st and 2nd Episodes, 14–19—Therapy Visits: 

S1* ............................................................................................................................................................ 14*, 15 *, 29 

S2 ............................................................................................................................................................. 16, 17 27.50, 26 

S3 ............................................................................................................................................................. 18, 19 24.50, 23 

3rd+ Episodes, 6–13—Therapy Visits: 

S3 ............................................................................................................................................................. 7, 8, 9 42, 40.50, 39 

S4 ............................................................................................................................................................. 10 37.50 

S5 ............................................................................................................................................................. 11, 12, 13 36, 34.50, 33 

3rd+ Episodes, 14–19—Therapy Visits: 

S1* ............................................................................................................................................................ 14*, 15 *, 29 

S2 ............................................................................................................................................................. 16, 17 27.50, 26 

S3 ............................................................................................................................................................. 18, 19 24.50, 23 

* No value was imposed in the regression procedure for a 14th therapy visit (because the regression intercept estimate for the grouping step 

automatically includes the resource cost impact of this visit). 

5. Determination of Case-Mix Weights 

In the proposed rule, we revised the 

case-mix weights, as noted in the 

previous sections of this final rule with 

comment period, describing the 

refinements. In this section, we describe 

the final revisions to the case-mix model 

and the determination of the final casemix weights. For specifics, see the tables 

at the end of this section. 

Comment: A number of commenters 

supported the higher case-mix weights 

for third and subsequent episodes of 

care. However, two commenters were 

concerned that the analysis weighted 

third and subsequent episodes more 

highly because Medicaid data is 

included in the OASIS (M0150), and 

Medicaid patients account for 85 

percent of all third and subsequent 

episodes. They noted that most agencies 

have fewer than two episodes per 

patient, and would be adversely affected 

by the proposed weights. Another noted 

that patients new to home health often 

have a high degree of anxiety, and 

therefore need more frequent contact. 

Additionally, ‘‘best practice’’ guidelines 

recommend a higher level of care during 

the first few weeks of a home health 

episode. This commenter asked CMS to 

reconsider a payment adjustment based 

on early rather than later episodes. 

Several commenters suggested 

eliminating the early or later episode 

distinction and redistributing the 

weights amongst all episodes. They 

claimed that this would simplify the 

model and eliminate the difficulties of 

determining early or later status of 

patients using the CWF. One commenter 

proposed that we use a two-equation 

model that excludes reference to 

enhanced reimbursement for the third 

and fourth episodes. The commenter 

suggested that not having increased 

reimbursement for later episodes would 

more accurately reflect the way the 

majority of patients are receiving care 

and reduce the incentive to drive up 

costs and possibly reduce patient 

independence. 

Response: The later episodes reflect 

patients who tend on average to have 

higher resource needs and extended 

stays in home health care. The later 

episode distinction resulted from our 

attempts to differentiate the resources 

needed by long-stay patients. Many 

observers in the past indicated it would 

be appropriate for the case-mix system 

to recognize that the Medicare home 

health benefit serves a minority who are 

experiencing an extended period of 

illness and incapacitation. It is not 

possible to always identify all these 

cases upon admission, and an 

administratively feasible way to address 

this situation is to create a provision 

specifically for these cases when they 

reach a milestone indicative of an 

extended stay in home care. The 

provision for separate groups for longstay patients is not made at the expense 

of shorter-stay patients, as our data 

analysis showed a modest difference in 

resource cost over the 60-day 

certification period. That some patients 

at the start of care need frequent visits 

is accounted for in our data by the 

resource cost measure for the entire 60- 

day period. We agree that agencies 

should follow best practice guidelines 

that are intended to bring about early 

independence and avoid hospital 

readmissions by front-loading visits 

when appropriate. Further, we do not 

believe the payment incentives 

associated with the long-stay equations 

are so strong as to that they distort the 

fundamental goals of returning patients 

to health and independence as soon as 

possible. 

Comment: A commenter asked if the 

M0230/240/246 case-mix scores can 

now be combined or should only the 

highest case-mix score be considered in 

evaluating the clinical dimension. The 

commenter asked that we clarify Table 

2A of the proposed rule, and asked how 

to handle episodes with 20 or more 

visits. Another commenter asked if only 

those co-morbidities that are actually 

being addressed in the care plan are to 

be included. 

Response: Case-mix scores from 

different diagnosis groups in Table 2A 

are additive; a diagnosis group is a line 

item in the table. Points cannot be given 

more than once for diagnoses in the 

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same group. For example, a patient with 

both heart disease and hypertension 

would not get points twice for item 11 

in Table 2A. However, a patient with a 

Neuro 3 diagnosis who meets criteria for 

points for Items 16 and 17 in Table 2A 

would be eligible for points from both 

items. A summary of the guidelines 

used in scoring is posted at the CMS 

home health Web site and entitled ‘‘Toy 

Grouper Logic Guidelines’’ (Web site 

address: http://www.cms.hhs.gov/ 

center/hha.asp). In the footnote to the 

final Table 2A, we have clarified that 

scores are additive. 

In addition, the commenter may have 

been confused because Table 3 shows a 

separate column for all episodes with 20 

or more visits, which can give the 

appearance of a five-equation model 

rather than a four-equation model. 

However, there are only four equations 

from which to draw case-mix points. 

Table 2A gives a description of each 

diagnosis group, followed by four 

columns with the four ‘‘legs’’ of the 

four-equation model. If an episode has 

20 or more visits, the case-mix points 

would come from the second leg if it is 

an early episode, and from the fourth leg 

if it is a later episode. The table column 

headers indicate that these two legs are 

for 14 or more therapy visits. 

Comment: A number of commenters 

expressed concern about the impact of 

changes made to the point allocation for 

OASIS functional variables in 

relationship to therapy. The current 

case-mix system allocates 6 to 9 points 

for M0700 (ambulation) deficits. 

However, the proposed case-mix 

refinement system allocates zero points 

for ambulation deficits in two of the 

three equations, including both 

equations for 14 or more therapy visits. 

Two commenters also noted that the 

point allocation for M0690 (transfers) 

were affected unless the patient 

required 13 or more therapy visits. They 

were concerned that the proposed new 

case-mix methodology was not 

capturing the appropriate points to 

allow for necessary resources for 

functionally impaired patients. The 

commenters proposed that CMS study 

this further before imposing a negative 

adjustment. 

Response: The proposed fourequation model cannot be compared on 

a point-by-point basis with the current 

case-mix model. The models are based 

upon different data sets, and the model 

structures are different (for example, a 

single equation model versus a fourequation model; a single therapy 

threshold versus multiple therapy 

thresholds). Under the current model, 

an episode receives a functional score 

severity level of F0, F1, F2, F3, F4, or 

F5 based on having 0 to 30 or more 

points. Under the proposed fourequation model, an episode receives a 

functional score of severity level F1, F2, 

or F3 based on having 0 to 10 or more 

points, and depending on the episode 

timing and number of therapy visits. 

Because the models are not directly 

comparable, it cannot be assumed that 

fewer points under the proposed model 

results in a negative payment 

adjustment. 

The points given in Table 2A of the 

proposed rule were derived from 

modeling actual claims data, and 

represent prior experience in home 

health care. The score is the value of the 

regression coefficient for the variable, 

and measures the impact of the data 

element on total resource cost of the 

episode. For this final rule with 

comment period, we updated the 

dataset using 2005 data in the regression 

analysis, and this resulted in some 

changes in the scores presented in Table 

2A of this rule. We will also continue 

to study the case-mix model, and will 

make additional refinements as needed. 

Comment: A commenter noted that it 

appears that some individual items in 

Table 2A of the proposed rule have the 

potential to move the clinical dimension 

from the lowest (C1) to the highest (C3). 

Response: This is correct. We 

determined the points based on our 

research. One example would be an 

early episode with a primary diagnosis 

in the skin 1 group (item 25 in Table 

2A); diagnoses in this category are 

resource intensive. 

Comment: Several commenters asked 

that we clarify the reason for linking the 

case-mix adjustment for 781.2 (gait 

abnormality) with pressure ulcers. 

Persons receiving therapy for gait 

training are not typically bed or chair 

bound and therefore it is unlikely that 

they would have pressure ulcers. 

Additionally, points are not allocated 

for the gait disorder diagnosis in the 14 

plus therapy visit equations. 

Response: The regression model 

indicated that patients with pressure 

ulcers are overall more clinically 

compromised if they also have the 

diagnosis of 781.2 than pressure ulcer 

patients without the diagnosis of 781.2. 

As to the points allocated for this type 

of patient, because we are adopting a 

graduated payment for therapy in the 14 

plus visit category, the gait disorder 

diagnosis does not add any additional 

explanatory power to the model and is 

not statistically significant. 

In summary, in the proposed rule, we 

stated our intention to update the data 

used for the four-equation model and 

validate the model. We based our 

proposal on FY 2003 claims and linked 

OASIS assessments, a period before Vcodes were allowed on OASIS. For 

validation, we used a random 20% 

sample of 2005 claims linked to OASIS 

assessments to create an analytic file for 

modeling case-mix. We examined the 

diagnoses fields on the OASIS 

assessments (M0230/M0240/M0245) for 

indications that some diagnoses groups 

in the proposed model might be 

reported at differing rates in 2005 than 

in 2003, and we did find some changes. 

For example, we observed lower rates of 

reporting primary diagnoses for the 

neurological diagnosis groups, 

orthopedic groups other than gait 

abnormality, cardiac group, and some of 

the cancer diagnosis codes. We observed 

somewhat higher primary diagnosis 

rates for the diabetes, hypertension, and 

degenerative and other organic 

psychiatric groups. Secondary diagnosis 

reporting typically decreased only by 

about 1 percentage point for each of the 

proposed diagnosis groups. Moreover, a 

preliminary validation of the model on 

FY 2005 data indicated that the results 

were substantially the same as the 

results of modeling resources in the 

four-equation structure using FY 2003 

data. We concluded that the proposed 

four equation model in the proposed 

rule was reliable notwithstanding 

reporting changes expected from the 

introduction of V-codes on OASIS. We 

made a number of refinements based on 

the validation model we estimated using 

the FY 2005 analytic file. We 

subsequently updated the data to CY 

2005 and made some further 

refinements. The final results are shown 

in Tables 1, 2a, and 3. The R-square 

statistic for the final case-mix model is 

0.45. 

Major differences in the 2005 data 

compared to the 2003 data concerned a 

small number of the primary and 

secondary diagnosis groups we 

identified for the case-mix model in the 

proposed rule: Cancer and psychiatric 

conditions [affective and other 

psychoses, depression (Psych 1 Group) 

and degenerative and other organic 

psychiatric disorders (Psych 2 Group)]. 

When we examined the model’s 

estimates of cancer-related marginal 

resources and marginal resources of the 

Psych 1 group, we found that a 

distinction between primary and 

secondary diagnoses was not needed, as 

scores were generally similar across the 

equations. For Psych 2, only primary 

diagnoses contributed to this group in 

the proposed rule model. However, the 

updated estimates indicated secondary 

diagnoses should be recognized in the 

model, so we combined secondary with 

primary diagnoses into a new group for 

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these psychiatric conditions. Because 

these changes eliminated distinctions 

between primary and secondary 

diagnosis positioning on OASIS M0230/ 

M0240, we welcomed them as a 

simplification of the case-mix model. 

We also believe there are advantages 

from moving away from separate scores 

for primary and secondary diagnosis 

reporting. Specifically, it reduces 

potential incentives to alter the 

placement of codes based on financial 

considerations. The final model 

includes two diagnosis groups with 

differing scores for primary and 

secondary diagnoses: Diabetes and 

certain skin conditions [specifically, 

traumatic wounds, burns, and postoperative complications (Skin 1)]. 

In addition, we added stroke (‘‘Neuro 

3’’ diagnosis group) as a primary 

diagnosis, irrespective of any 

interactions. The final result in the 

updated data of using this re-defined 

stroke variable was an added score in 

equation 2 of the model (early episodes, 

14 or more therapy visits). Along with 

this change, the data revealed some 

differences in the cost-increasing 

interactions with stroke, which are 

reflected in the final model. The final 

model indicates added points when 

stroke is accompanied by dressing and/ 

or ambulation functional limitations, as 

well as dysphagia. 

Interactions involving the other three 

neurological groups also reflected some 

changes. For example, we found that 

separating the interactions of functional 

limitations with multiple sclerosis 

(Neuro 4) into two line items in the 

proposed table 2A did not work well in 

the new data, despite results obtained 

with the data used for the proposed 

rule. However, combining all four 

functional limitation interactions 

recognized in the proposed model 

produced useful results. Based on 

estimates from the new data, we also 

modified the interaction of toileting 

with the remaining neurological groups, 

brain disorders and paralysis (Neuro 1) 

and peripheral neurological disorders 

(Neuro 2). The data revealed that 

peripheral neurological disorders 

(Neuro 2) in this interaction were no 

longer statistically significant, so this 

group was removed from the 

interaction. 

In the 2005 data, a cost-increasing 

effect from incontinence was not 

observed, so it was deleted from the 

four-equation model. An interaction in 

the proposed model involving 

incontinence and certain neurological 

conditions [brain disorders and 

paralysis (Neuro 1) was no longer 

statistically significant, so this variable 

was removed as well. 

Other differences in the four-equation 

model generally were small point 

changes for specific scores. For 

example, a primary diagnosis of 

diabetes incurred an increase of one 

point in three of the four equations, 

while the interaction of stroke and 

dysphagia incurred a loss of one point 

in the third equation and a gain of one 

point in the first equation. 

We tested a suggestion from a 

commenter to include V-codes from 

ICD–9–CM for stoma. We defined 

variables using selected V-codes to serve 

as markers for patients with stoma other 

than colostomies and gastrostomies, 

which were already measured or 

proxied in our variable set. This change 

resulted in the addition of two major 

types of stoma. Specifically, we added 

appropriate variables in both the casemix model and the NRS model to 

capture patients with resource needs or 

supplies cost needs due to tracheostomy 

and urostomy/cystostomy. We are 

implementing as final the case-mix 

weights and scoring resulting from the 

four-equation model with therapy 

thresholds at 6, 14, and 20 therapy visits 

and with an early or later episode 

distinction. We have updated our 

modeling to use 2005 data, which 

resulted in some changes in case-mix 

weights and item scoring. We are 

implementing as final the versions of 

Tables 2A, 2B, 2C, 3, 4, and 5 that are 

shown below. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

6. Case-Mix Change Under the HH PPS 

Section 1895(b)(3)(B)(iv) of the Act 

specifically provides the Secretary with 

the authority to adjust the standard 

payment amount (or amounts) if the 

Secretary determines that the case-mix 

adjustments resulted (or would likely 

result) in a change in aggregate 

payments that is the result of changes in 

the coding or classification of different 

units of services that do not reflect real 

changes in case-mix. The Secretary may 

then adjust the payment amount to 

eliminate the effect of the coding or 

classification changes that do not reflect 

real changes in case-mix. 

In the proposed rule, in order to 

identify whether the adjustment factor 

was needed, we first determined the 

current average case-mix weight per 

paid episode. The most recent available 

data from which to compute an average 

case-mix weight, or case-mix index 

(CMI), under the HH PPS was from 

2003. Using the most current available 

data from 2003, the average case-mix 

weight per episode for initial episodes 

is 1.233. To proceed with the CMI 

adjustment, next we determined the 

baseline year needed to evaluate the 

trend in the average case-mix per 

episode. 

There were two different baseline 

years that were considered from which 

to measure the increase in case-mix: 1) 

A cohort that used home care from 

October 1997 to April 1998 (the Abt 

case-mix study sample which was used 

to develop the current case-mix model) 

and 2) the cohort that used home care 

during the 12 month period ending 

September 30, 2000 (HH IPS Baseline). 

The increase in the average case-mix 

using the Abt Associates case-mix study 

sample as the baseline was 23.3 percent 

(from 1.0 to 1.233). There were several 

advantages to using data from Abt 

Associates case-mix study as the 

baseline from which we measured the 

increase in case-mix. The time period 

was free from any anticipatory response 

to the HH PPS, and data from this time 

period were used to develop the original 

HH PPS model. Also, this is the only 

nationally representative dataset from 

the 1997 to 1998 time period that 

measured patient characteristics using 

an OASIS assessment form comparable 

to the one currently adopted for the HH 

PPS. However, agencies included in this 

sample were volunteers for the study 

and could not be considered a perfectly 

representative, unbiased sample. 

Furthermore, the response to Balanced 

Budget Act of 1997 provisions such as 

the home health interim payment 

system (HH IPS) during this period 

might produce data from this sample 

that reflect a case-mix in flux; for 

example, venipuncture patients were 

suddenly no longer eligible, and longterm care patients were less likely to be 

admitted. Therefore, we were not 

confident the trend in the CMI between 

the time of the Abt Associates study and 

2003 reflected only changes in coding 

practices due to real change in case-mix. 

We then looked to the HH IPS 

baseline period, the 12 month period 

ending 9/30/2000. Analysis of a 1- 

percent sample of initial episodes from 

the 1999 through 2000 data under the 

HH IPS revealed an average case-mix 

weight of 1.125. Standardized to the 

distribution of agency type (freestanding 

proprietary, freestanding not-for-profit, 

hospital-based, government, and SNFbased) that existed in 2003 under the 

HH PPS, the average weight was 1.134. 

We noted this time period was likely 

not free from anticipatory response to 

the HH PPS, because we published our 

initial HH PPS proposal on October 28, 

1999. The increase in the average casemix using this time period as the 

baseline was 8.7 percent (from 1.134 to 

1.233; 1.233–1.134=0.099; 0.099/ 

1.134=0.087; 0.087*100=8.7 percent). 

As a result of various studies, analysis 

of OASIS data, and changes to the home 

health benefit as due to the BBA, we 

stated our belief that change in case-mix 

of 13.4 percent between the time of the 

Abt Associates case-mix study and the 

end of the HH IPS period reflected 

substantial change in the real case-mix. 

In contrast to that 13.4 percent, we 

considered that the 8.7 percent increase 

in the national case-mix index between 

the HH IPS baseline and the CY 2003 

could not be considered a real increase 

in case-mix. Trend data on visits from 

the proposed rule (72 FR 25393), 

resource data presented in the proposed 

rule (72 FR 25394), and our analysis of 

changes in rates of health characteristics 

on OASIS assessments and changes in 

reporting practices all led to our 

conclusion that the underlying case-mix 

of the population of home health users 

was essentially stable between the HH 

IPS baseline and CY 2003. Our research 

showed that HHAs have reduced 

services while the CMI continued to 

rise. In addition to the trend analysis, 

we conducted several additional kinds 

of analyses of data and documentary 

materials related to home health casemix coding change. The results 

supported our view that the change in 

the CMI since the HH IPS baseline 

mostly reflected provider responses to 

the changes that accompanied the HH 

PPS, including particulars of the 

payment system itself and changes to 

OASIS reporting requirements. Our 

analyses indicated generally modest 

changes in overall OASIS health 

characteristics between the two periods 

noted above, a specific pattern of 

changes in scaled OASIS responses that 

was not indicative of material 

worsening of presenting health status, 

various changes in the OASIS reporting 

instructions that helped account for 

numerous coding changes we observed, 

and a large increase in post-surgical 


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patients with their traditionally lower 

case-mix index. 

Therefore, based upon our trend 

analysis we believed the change in the 

case-mix index between the Abt casemix sample (a cohort admitted between 

October 1997 and April 1998) and the 

HH IPS period (the 12 month period 

ending September 30, 2000) is due to 

real case-mix change. We took this view, 

even though we understood that there 

could be some issue as to whether this 

period was affected by case-mix change 

due to providers anticipating, in the last 

year of HH IPS, the forthcoming casemix system, with its incentives to 

intensify rehabilitation services. The 

change from these two periods is from 

1.00 to 1.134, an increase of 13.4 

percent. However, we did not propose 

to adjust for case-mix change based on 

this change in values, as some of that 

change reflected real change in casemix. However, we did propose that the 

8.7 percent of case-mix change that 

occurred between the 12 months ending 

September 30, 2000 (HH IPS baseline, 

CMI=1.134), and the most recent 

available data from 2003 (CMI=1.233), 

be considered a change in the CMI that 

does not reflect a ‘‘real’’ change in casemix, but rather is a ‘‘nominal’’ change 

in case-mix. We proposed a reduction in 

HH PPS national standardized 60-Day 

episode payment rate to offset the 

change in coding practice that has 

resulted in significant growth in the 

national case-mix index since the 

inception of the HH PPS that is not 

related to ‘‘real’’ change in case-mix. 

Our past experience establishing other 

prospective payment systems also led us 

to believe a proposal to make this 

adjustment for nominal change in casemix was warranted. In other systems, 

Medicare payments were almost 

invariably found to be affected by 

nominal case-mix change. We 

considered several options for 

implementing this case-mix change 

adjustment. Those options included 

accounting for the entire ¥8.7 percent 

increase in case-mix with an 8.0% 

adjustment in CY 2008, incorporating an 

adjustment of ¥5.0 percent in CY 2008 

and an adjustment of ¥2.7 percent in 

CY 2009, or incorporating an adjustment 

of ¥4.35 percent in CY 2008 and an 

adjustment of ¥4.35 percent in CY 

2009. However, because of the potential 

impact our proposed adjustment might 

have on providers, we proposed and 

requested comment on whether to 

adjust for the nominal increase in 

national average CMI by gradually 

reducing the national standardized 60- 

day episode payment rate over 3 years. 

During that period we stated that we 

would continue to update our estimate 

of nominal case-mix change and adjust 

the national standardized 60-day 

episode payment rate accordingly for 

any nominal change in case-mix that 

might occur. We proposed to implement 

a 3-year phase-in of the total downward 

adjustment for nominal changes in casemix by reducing the national 

standardized 60-day episode payment 

rate by 2.75 percent each year up to and 

including CY 2010. That annual 

reduction percent was based on the new 

current estimate of the nominal change 

in case-mix that occurred between the 

HH IPS baseline (+0.099) and 2003. 

However, we also stated that, if, at the 

time of publication of the final CY 2008 

HH PPS rule, updates of the national 

claims data to 2005 indicated that the 

nominal change in case-mix between 

the HH IPS baseline and 2005 was not 

+0.099, we would revise the percentage 

reduction in the next year’s update. The 

revision would be determined by the 

ratio of the updated 3-year annual 

reduction factor to the previous year’s 

annual reduction factor. For example, 

the scheduled annual reduction factor 

was estimated to be 0.9725 (equivalent 

to a 2.75 percent reduction); for CY 2008 

we would multiply this reduction factor 

by the ratio of the updated reduction 

factor to 0.9725. Therefore, for the CY 

2010 rule, which would govern the third 

and final year of the proposed case-mix 

change adjustment transition period, we 

would obtain the CY 2007 national 

average CMI to compute the updated 

value for nominal case-mix change 

adjustment. Again, we would form the 

ratio of the updated adjustment factor to 

the previous year’s effective adjustment 

factor. The annual updating procedure 

avoids a large reduction for the final 

year of the phase-in, in the event that 

the CY 2007 national average case-mix 

index reflects continued growth since 

CY 2005. 

We stated our plan to continue to 

monitor changes in the national average 

CMI to determine if any adjustment for 

nominal change in case-mix is 

warranted in the future. 

Comment: A number of commenters 

asked that we eliminate the 2.75 percent 

case-mix change adjustment. They 

argued that the acuity of home care 

patients is rising, citing earlier 

discharges from hospitals or skilled 

nursing facilities. A number of 

commenters argued that patient 

characteristics have changed, with more 

patients 85 and older receiving home 

health care, along with more patients 

with resource intensive diagnoses. 

Several commenters noted the increase 

in patients with knee or hip 

replacements. Another noted that if 

providers were inflating the case-mix, 

they would expect OASIS data shown in 

Table 10 of the proposed rule to change 

accordingly. 

Response: Our identification of casemix change was based on a number of 

factors that revealed coding changes to 

higher clinical, functional, or utilization 

severity without an actual change in the 

status of home health patients. These 

are described in detail in the HH PPS 

proposed rule (72 FR 25392–25422). 

Since publication of the proposed 

rule, we updated our analysis to use 100 

percent of the HH IPS file for our 

baseline and a 20-percent sample of 

2005 claims data. We used all episodes 

rather than just initial episodes. This 

change in our sample selection 

approach does not materially change the 

estimate of case-mix change, whether 

comparing the baseline to HH PPS 2003 

or HH PPS 2005. The 2005 data yielded 

an average CMI of 1.2361, as compared 

to the average CMI of 1.0960 from the 

100 percent HH IPS sample. Therefore, 

the updated change measurement is 

(1.2361 ¥1.0960)/ 1.0960 = 12.78 

percent. As explained in the summary at 

the end of this section, where we 

describe the results of the Abt 

Associates model we used to identify 

real case-mix change, we adjusted this 

result downward by 8.03 percent to get 

a final case-mix change measure of 

11.75 percent (0.1278 * (1¥0.0803) = 

0.1175). To account for the 11.75 

percent increase in case-mix which is 

not due to a change in the underlying 

health status of Medicare home health 

patients, we are finalizing the proposed 

2.75 percent reduction of the national 

standardized 60-day episode payment 

rate for 3 years beginning in 2008 and 

extending that adjustment period to a 

fourth year via a 2.71 percent reduction 

for 2011. We are seeking comment on 

the 2.71 percent case-mix change 

adjustment for 2011. 

We have conducted several analyses 

to determine if any portion of the above 

case-mix change measurement could be 

considered real versus nominal, i.e. not 

related to real change in the essential 

underlying health status of the home 

health user population. First, Abt 

Associates developed a model to predict 

the case-mix weights on large samples 

which is described at the end of this 

section. The model accounted for 

changes in the age structure of the home 

health user population, and changes in 

the types of patients being admitted to 

home health. To account for changes in 

the types of patients, we used four main 

classes of variables: Variables describing 

(1) the utilization of Medicare Part A 

services in the 120 days leading up to 

home health, (2) the type of 

preadmission acute care stay when the 

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patient last had such a stay, (3) variables 

describing living situation, and (4) 

variables summarizing Part A 

expenditures in the 120 days leading to 

home health. The variables for changes 

in the type of acute care stay classified 

stays into APR DRG case-mix groups, a 

classification system that incorporates a 

severity classification for each case-mix 

group, basic type of stay (procedure 

versus medical) indicator, and risk of 

mortality indicators during the stay. We 

also incorporated a set of variables 

describing agency ownership and 

organizational form, to adjust for the 

large effect on measured case-mix from 

the change in the types of agencies that 

occurred since the HH IPS baseline. The 

model is described in detail at the end 

of this section. 

The results of the analysis indicated 

that a small amount of measured casemix change is real, but that most of it 

is unrelated to the underlying health 

status of home health users. 

Second, some commenters suggested 

that HHA patients have more resource 

intensive diagnoses. We conducted 

analyses using FY 2000 through CY 

2006 data for several conditions 

emblematic of home health patients. 

The analyses indicated that admissions 

to home health agencies were down 

slightly for persons with hip fractures, 

congestive heart failure, and 

cerebrovascular accidents. These results 

are shown in Table 8, ‘‘Percent Share of 

Home Health Admissions and Mean 

Time Prior to Entering a Home Health 

Episode, for Five Conditions, FY 2000–

CY 2005’’. Estimates are based on a 10 

percent random sample (n=388,684 to 

522,973, depending on the calendar 

year; statistically these are considered 

large samples). The data for CY2006 

come from the first quarter of the year 

only. We used total episodes, both 

initial and recertification episodes, for 

this analysis. As our previous analysis 

on the 1 percent HH IPS sample and the 

20 percent CY 2003 sample indicated no 

significant shift in the balance between 

initial and non-initial episodes, we 

believe that the annual rates and means 

in the table are appropriately measured, 

and account for the complete mix of 

patients seen by agencies. For defining 

the type of acute discharge, we used the 

same definitions that were used in a 

CMS study cited by one commenter who 

noted that increases in knee 

replacement patients have occurred 

(CMS, ‘‘Medicare Beneficiary Access to 

Rehabilitation Care,’’ June 8, 2007). 

According to Table 8, the share of total 

patients admitted to HHAs with hip 

fracture acute discharges in the 14 days 

leading up to home health declined over 

the period, from .82 percent to .59 

percent. The share of total patients 

admitted with CHF acute discharges 

declined from 3.31 percent to 2.62 

percent, a decline of 21 percent. The 

share of total patients admitted with 

CVA acute discharges declined steadily, 

from 1.52 percent to .97 percent, a onethird decrease. Admissions for hip 

replacements exhibited no clear trend; 

the range of rates during the period is 

between 1.36 percent and 1.64 percent. 

For these conditions, the results are not 

clearly indicative of more severe casemix. 

We note that admissions for knee 

replacements are rising, from 1.89 

percent to 2.75 percent in the years from 

HH IPS to 2005. However, the overall 

percent of knee replacement patients in 

the national home health caseload is not 

large, at less than 3 percent at any given 

time. We accounted for the change in 

the share of caseload due to knee 

replacement patients in the Abt 

Associates case-mix model using the 

APR DRG classifications, described 

above and at the end of this section. The 

results from the model indicated that 

this change, in combination with other 

changes that were offsetting, was not 

enough to move the real case-mix index 

more than a small amount beyond the 

baseline. 

Third, we examined the length of time 

between discharge and the home health 

episode start, to develop evidence that, 

on average, patients enter home care in 

a more sickly condition than was the 

case in FY 2000. Table 8 shows the 

average number of days between acute 

care discharge and the first day of the 

home health episode for patients with 

acute discharges due to the same five 

conditions: Hip fracture, congestive 

heart failure, cerebrovascular accident, 

hip replacement, and knee replacement 

surgery. The results show no change in 

the mean time prior to entering a home 

health episode for the first three 

conditions. We believe this result partly 

reflects increased use of institutional 

post-acute care among the home health 

population. Specifically, there was an 

increased use of SNFs and LTCHs 

between the HH IPS baseline and CY 

2000. SNF stays grew by 2.8 percent, 

and SNF days of stay grew by 8.5 

percent. LTCH hospital days grew by 38 

percent. IRF stays and days did not 

grow, but IRF use is only one-third that 

of SNF use among home health patients. 

As shown in Table 8, days prior to 

entering home health declined for hip 

replacement and knee replacement 

patients. As commenters have 

suggested, these statistics may reflect 

less use of post-acute institutional care 

on average for these two groups. 

However, the increasing share of the 

home health caseload due to these 

groups is not large enough to drive the 

national case-mix nominal average to 

the CMI levels reached in our follow-up 

year, 2005. Further, we have taken the 

contribution of this effect into account 

in the Abt Associates case-mix model 

described above and at the end of this 

section. 

While we have seen an increase in the 

proportion of patients with diabetes 

according to OASIS diagnosis coding 

information, our research showed that 

HHAs have reduced services while the 

case-mix index continued to rise. We 

identified a dramatic decline in the 

number of home health visits per 60 day 

episode (Table 6). The average number 

of visits per episode in 2005 was 20.53, 

compared to 26.88 during HH IPS. 

After adjusting for wage and benefits 

growth (by holding wage and benefit 

estimates constant at FY 2000 levels), 

we find that average resource costs have 

declined slightly from 1999 to 2005, 

from $451.39 to $447.41 (see Table 7). 

For most of the calendar quarters 

displayed in Table 7, average resource 

costs after adjusting for wage growth 

were substantially below the HH IPS 

baseline. At the same time, the case-mix 

indexes at admission and for total 

episodes have increased (see Table 7). 

Resource costs are based on visit time 

reported on claims, and thus are laborrelated. If the CMI is increasing, 

suggesting that patients are more 

clinically severe, have more functional 

impairments, and require more visits, 

we would have expected resource costs 

to increase as well. However, by 2005 

average resources per episode were still 

below HH IPS levels, after adjusting for 

wage growth. Notably, it is not until 

2005 (when, according to Bureau of 

Labor Statistics wage survey data, wages 

rose significantly), that unadjusted 

resources are significantly higher than 

the HH IPS baseline level. 

Comment: Several commenters noted 

that the growth in Medicare Advantage 

(formerly known as Medicare + Choice) 

programs has shifted low acuity patients 

out of traditional Medicare, leaving 

those patients with higher needs in 

traditional Medicare. They felt this 

contributed to an increase in the average 

case-mix index. 

Response: Medicare Advantage 

programs provide managed care benefits 

which are different from the traditional 

Medicare benefit. For further 

information on these managed care 

benefits, please refer to the Internet only 

manual 100–01, ‘‘Medicare General 

Information, Eligibility, and 

Entitlement’’, chapter 5, subsection 80. 

This manual is available on CMS’ home 

health Web Site at http:// 

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www.cms.hhs.gov/center/hha.asp. 

These managed care programs were not 

considered in our analysis of the casemix change adjustment as they are 

separate benefits from traditional 

Medicare. We cannot make comparisons 

or draw conclusions based upon any 

benefit other than traditional Medicare. 

Comment: Many commenters felt that 

the 2.75 percent case-mix change 

adjustment failed to account for OASIS 

training on accurate assessment and on 

OASIS use. The commenters felt this led 

to OASIS scores which reflect a more 

accurate picture of the home health 

patient rather than case-mix up-coding. 

Two commenters noted that there was 

systematic undercoding prior to training 

and guidance on OASIS and diagnosis 

coding. Some commenters argued that 

CMS has benefited from agency 

undercoding, resulting in agencies 

underpaying themselves. 

Response: We agree that some of the 

changes seen in OASIS characteristics 

are partly due to emphasis on proper 

application of OASIS guidelines. We 

also believe that there were incentives 

driven by payment and quality program 

changes that interacted with the 

subjective aspects of the assessment 

process to cause nominal coding 

changes. Diagnosis coding entails some 

discretion by the Agency: In some cases 

more than one diagnosis could 

reasonably be called primary. Thus, we 

believe the significant growth, for 

example, in orthopedic diagnoses partly 

reflects the financial incentives that 

colored the diagnosis selection process. 

Our examination of National Claims 

History data revealed an increase in 

Medicare knee replacement patients. 

However, these patients account for 

only about 2.75 percent of the national 

home health caseload at any given time. 

With such a small share of the caseload, 

they do not drive the case-mix index by 

themselves. Hip replacement patients 

did not increase as a share of episodes 

by 2006, although their share appeared 

to increase slightly between HH IPS and 

CY 2003 (see Table 8). However, 

Medicare hip replacement patients also 

are not a large factor in the overall home 

health caseload, accounting for only 

between 1.36 percent and 1.64 percent 

of episodes in the years 2000 to 2006. 

Further, ADL functioning can be 

difficult to assess due to variability 

within patients and the multiple 

dimensions of functional limitations. 

Quality measures and financial 

incentives may combine to bias agencies 

towards assessing a patient with a moresevere rating at the start of care. 

Incentives apparently led to hightherapy treatment plans, aided by the 

10-therapy threshold. 

Our analyses in the proposed rule 

reviewed information pertaining to 

changes in OASIS guidance and 

potential coding improvements that may 

have resulted. In August 2000 official 

guidance on OASIS coding affected a 

number of case-mix items. Functional 

items began to emphasize the patient’s 

ability to perform the item safely. This 

may have caused several ADL statistics 

to shift away from the completely 

independent level. Another August 

2000 change in OASIS instructions 

affected the pain item, M0420. 

Additional strategies for assessing pain 

were offered, and guidance on whether 

the pain was well controlled took into 

account patient adherence to pain 

medication. Many patients trade off 

pain control for diminution of 

medication-related side-effects. These 

changes likely increased the number of 

patients assessed with pain. The OASIS 

instructions regarding assessment of 

urinary incontinence were also 

expanded to consider mobility and 

cognition, which may have led to 

increased rates of reporting of this item. 

Furthermore, in August 2000 there 

were two changes to the OASIS manual 

that could have increased the number of 

patients with surgical wounds. First, the 

definition of a surgical wound was 

expanded to include medi-port sites and 

other implanted infusion devices or 

venous access devices. Therefore more 

skin openings could be assessed as 

wounds under M0488, a case-mix item, 

provided the site is the most 

problematic. The second change 

allowed a muscle flap performed to 

surgically replace a pressure ulcer to be 

considered a surgical wound, and not a 

pressure ulcer. This again would have 

added to the number of surgical 

wounds. 

All the above we believe indicates 

that the increased reporting rates seen in 

some OASIS items do not represent a 

change in underlying health status of 

HH PPS patients. Numerous 

commenters noted that they had 

changed OASIS coding as a result of 

training. This is consistent with 

nominal versus real change in patient 

characteristics. 

Comment: A commenter wrote that in 

future, it would be beneficial to have a 

more systematic approach to measuring 

changes in OASIS coding practices. For 

example, CMS should consider efforts 

such as the collection of OASIS from 

independent entities for comparison to 

agency assessments or on-site visits to 

check agency coding practices. The 

commenter noted that the need for 

better data is particularly acute because 

this rule will present another 

opportunity for case-mix increases due 

to coding improvement, so there should 

be a prospective adjustment as well. The 

commenter suggested CMS consider a 

combined (retrospective and 

prospective) case-mix change 

adjustment for this rule that would be 

taken over a longer period of time. 

Furthermore, the commenter suggested 

CMS should also continue to evaluate 

coding changes in future years to 

determine if additional coding 

improvement is occurring. 

Response: While we agree it would be 

beneficial to have a more systematic 

approach to measuring changes in 

OASIS coding practices, to do so in a 

manner suggested by the commenter 

would require significant new 

resources, especially since the methods 

involve primary data collection. We will 

explore methods to examine agency 

coding practices. To make the best use 

of administrative data, rather than 

expensive-to-collect primary data, we 

intend to analyze changes in 

relationships among types of resources 

used in the episode, by case-mix group 

and type of patient, controlling for the 

most reliable measures of patient 

condition available. This may provide 

evidence to supplement our monitoring 

of resources presented in the proposed 

rule and this regulation. We will 

continue to monitor average minutes per 

visit reported on claims. We will also 

monitor changes in the comorbidities 

reported alongside primary diagnoses, 

to assess changes in relationships 

among the diagnoses reported on 

OASIS. We will examine diagnosis 

coding and OASIS item coding for 

coding improvements as well as abuses. 

We agree that the refinements will 

present another opportunity for casemix change due to coding 

improvements. We did not pursue a 

prospective adjustment for nominal 

case-mix change because we believe it is 

subject to error. We believe our proposal 

to phase in adjustments based on 

retrospective analysis is an appropriate 

response. Phasing in adjustments limits 

the demands for operational 

adjustments by agencies. Our 

retrospective approach is consistent 

with this regulation’s request for further 

comment from the public on the fourth 

year of case-mix change adjustment, 

which is based on results of our 

empirical analysis since the proposed 

rule was issued. 

Comment: A commenter noted that 

the proportional increase in therapy 

services is due to both a decrease in 

other services and the underutilization 

of therapy services in past episodes of 

care prior to HH PPS. Additionally, the 

use of therapists in collaboration with 

nurses has helped ensure more accurate 

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coding of the OASIS, particularly in the 

functional component area. 

Response: We agree that there has 

been a shift toward rehabilitative 

services, which increased the 

proportion of therapy services relative 

to skilled nursing or home health aide 

services. This suggests there may have 

been some substitution of therapy 

services for nursing services and 

perhaps for home health aide services. 

We have not identified any studies 

substantiating the idea that therapy was 

underutilized, nor have we identified 

studies indicating that the dramatic 

drop in aide services undoubtedly 

means that aides were overutilized. One 

unpublished study of the service 

reductions during HH IPS suggests that 

beneficiaries who were financially 

better off did increase their use of 

privately paid care services as a result 

of the reduction in services which came 

about during the HH IPS period. 

Whether this indicates that services 

were previously overprovided is unclear 

(McKnight, Robin, ‘‘Home Care 

Reimbursement, Long-term Care 

Utilization, and Health Outcomes,’’

NBER Working Paper Series, Working 

Paper #10414, National Bureau of 

Economic Research, Cambridge, MA 

April 2004). Accordingly, review of the 

studies does not enable us to draw a 

firm conclusion about which types of 

services could be characterized as 

under- or overutilized before HH PPS. 

However, the implications of the results 

of the Abt Associates model of case-mix 

change (described at the end of this 

section) are that during HH PPS 

agencies provided more therapy to 

patients than they did under HH IPS, 

and that most of this increase cannot be 

explained by changes in patient health 

status. 

In response to this comment, we 

measured the growth in utilization of 

any therapy services and therapy 

services above the 10 visit threshold, 

among total episodes between HH IPS 

and HH PPS. We found during HH IPS 

that 39.90 percent of episodes involved 

therapy services, compared to 50.45 

percent of episodes during CY 2005. 

However, the proportion of episodes 

using therapy services at a level of 10 

visits or more changed from 17.0 

percent to 26.4 percent. Thus, therapy 

utilization at or above the 10 visit 

threshold grew twice as fast as therapy 

utilization below the 10 visit threshold. 

These statistics show that the great bulk 

of the growth in therapy utilization was 

at or above the ten visit therapy 

threshold. 

We believe the data indicate that 

agencies’ therapy treatment plans were 

strongly influenced by financial 

incentives. Implications of the analysis 

of case-mix change performed by Abt 

Associates suggest the shift to more 

intensive therapy plans cannot be 

explained by changes in patient health 

status. 

We recognize and appreciate the 

contribution of therapists in 

collaboration with nurses in ensuring 

OASIS coding accuracy. As noted 

previously, increases in coding accuracy 

contribute to nominal case-mix change. 

Improvement in coding accuracy has 

also occurred with the introduction of 

other prospective payment systems. 

Comment: Several commenters felt 

the 2.75 percent case-mix change 

adjustment was based upon a flawed 

analysis, with an insufficient sample 

size. They cited the reduction in the 

model’s R-squared along with 

MedPAC’s report that the coefficient of 

variation was greater than 1 for 60 of the 

80 case-mix groups. 

Response: Based on the updated 

analysis, the final case-mix change 

measurement was based upon 100 

percent of HH IPS claims and a 20- 

percent sample of 2005 HH PPS claims, 

a greater number of HH IPS claims than 

used in the proposed rule. Both absolute 

sample sizes are considered quite large 

in statistical terms. Therefore sample 

size can no longer be considered an 

issue in the case-mix change adjustment 

calculation. We did not use the 

regression model cited by the 

commenter to determine the amount of 

the case-mix change adjustment; 

however we used regression analysis to 

model the case-mix index, relying on a 

set of variables that were independent of 

agency coding incentives (see the 

analysis description at the end of this 

section). 

We also note that the commenter’s 

reliance on the MedPAC comments is 

misplaced as the MedPAC comments 

dealt with a review of the case-mix 

refinements and not of the case-mix 

change adjustment. MedPAC’s 

comments, which are publicly available, 

state that MedPAC did not 

independently assess the case-mix and 

patient data in our analysis of case-mix 

change. However, MedPAC analyzed the 

refinements in the proposed rule, 

including an analysis of the coefficient 

of variation (CV). Their CV analysis 

found that the proposed system yields 

more internally homogeneous HHRGs 

with less within-in group variation in 

the number of visits provided. They 

reported that the average CV fell from 

0.81 for the current system to 0.75 for 

the proposed system, and that the drop 

in CV meant that the new resource 

groups can better identify episodes with 

similar resource use than under the 

current system. 

Comment: Several commenters wrote 

that the average annual per patient 

expenditures for home health services 

dropped from 2001 to 2003, and 

therefore do not suggest that case-mix 

weights are increasing. 

Response: Data from the annual 

Medicare & Medicaid Statistical 

Supplement indicate that annual 

payments per user of home health 

services have actually increased from 

$2,936 in the year 2000 to $4,314 in 

2005. Our analysis clearly shows that 

the average case-mix weights have 

increased. Generally, payments per user 

are affected by increases in the billed 

case-mix weights and by annual rate 

updates. 

Comment: From 2000 to 2003, HHAs 

altered care practices to achieve 

improved patient outcomes, shifting 

from dependency-oriented care to care 

designed to achieve self-sufficiency and 

independence. The increased use of 

therapy services and decreased use of 

home health aides are indicative of this 

change. Changing to multiple therapy 

thresholds to align payment incentives 

with care and the use of a case-mix 

change adjustment that primarily 

reflects growth in therapy utilization is 

an unnecessary adjustment that 

‘‘double-dips’’ on rate adjustments. 

Response: One goal of the case-mix 

refinements is to better match payments 

with agency costs. Changing to multiple 

therapy thresholds with a gradual 

increase in payment better aligns costs 

and payments and avoids incentives for 

providers to distort patterns of good care 

that would occur at each proposed 

therapy threshold. As a disincentive for 

agencies to provide more care than is 

appropriate, we proposed that any pervisit increase incorporate a declining, 

rather than constant, amount per added 

therapy visit. The final case-mix change 

adjustment addresses nominal case-mix 

change that occurred between the HH 

IPS baseline and 2005, and our adjusted 

calculation of that nominal case-mix 

change allows for a real increase in casemix that reduces the nominal 

measurement by 8.03 percent. The 

multiple therapy thresholds and the 

case-mix change adjustment are 

unrelated and do not doubly adjust the 

rate as each adjustment is clearly 

warranted by the data. 

Comment: Some commenters stated 

their belief that incentives in HH PPS 

led many agencies to seek out higher 

case-mix cases and avoid lower casemix cases to maximize reimbursement 

following HH PPS implementation. 

They agreed this would create real casemix change versus nominal change. 

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Response: In the Abt Associates 

analysis of changes in the case-mix 

index, the model controlled for changes 

in health status of home health patients, 

measured independently of the OASIS. 

From that analysis, we identified a 

small amount of real case-mix change 

between the HH IPS baseline and 2005. 

An analysis by MedPAC in 2005 

(‘‘Home Health Agency Case-mix and 

Financial Performance,’’ MedPAC, 

Washington, DC, December 2005) 

addressed the possibility that reductions 

in total visits per episode along with 

shifts in resources among the case-mix 

groups after HH PPS began gave 

agencies the ability to realize higher 

margins on some case-mix groups 

(particularly high-therapy case-mix 

groups, with their high weights) more 

than for others. However, while margins 

may have become advantageous among 

some of the case-mix groups after HH 

PPS began, we believe, based on the 

data, that the real case-mix of those 

groups changed very little. 

Comment: A commenter argued that 

the underlying premise of the HH PPS 

system was to control Medicare home 

health utilization through an episodic 

payment because CMS was unable to 

define appropriate and efficient visit 

levels. Therefore, he believed it is 

inconsistent to recognize the expected 

reduction of visits under HH PPS but 

argued that real case-mix change did not 

occur during that period. He noted that 

such a position demonstrates that the 

HH PPS did not increase the efficiency 

of care delivery. 

Response: Our initial analysis in the 

proposed rule indicated that agency 

coding practices changed for a variety of 

reasons, including improved coding, 

changes in OASIS instructions, specific 

issues (such as confusion about healing 

status of surgical wounds and effects of 

education in the proper use of trauma 

codes in the ICD–9–CM classification 

system), as well as financial incentives. 

The subsequent Abt Associates analysis 

of real case-mix change reinforced the 

conclusion that very little of the coding 

change reflected real case-mix change. 

The trend in resources diverged 

dramatically from the trend in the 

average case-mix weight, particularly 

through 2004 (see Table 7), without any 

commensurate link to evidence 

concerning home health cost of care. 

Comment: A commenter felt that CMS 

assumes that all legitimate change in 

case-mix ended with the 

implementation of HH PPS because the 

HH IPS created sufficient incentives to 

maximize all real case-mix change. This 

rationale fails to consider that 20 

percent of HHAs had such high cost 

limits under HH IPS that these agencies 

were not incentivized to create real 

case-mix change until after HH PPS 

implementation. The commenter 

believed that a review by CMS of its 

data during the HH IPS period would 

allow it to document the subset of HHAs 

whose case-mix was not responsive to 

HH IPS. 

Response: CMS has done analysis that 

accounts for real case-mix change after 

HH PPS implementation, and only a 

small amount of real case-mix change 

occurred. The analysis takes the 

commenter’s idea into account (see the 

end of this section for details). That is, 

the case-mix model we used to predict 

real change in case-mix measures the 

national level of real case-mix by CY 

2005, using CY 2005 data on home 

health patients’ characteristics. We 

compared these results to the national 

average from the HH IPS baseline year, 

and found that a small increase in real 

case-mix had occurred. 

The commenter suggested that some 

agencies were not incentivized to make 

case-mix change until the 

implementation of the HH PPS. We 

believe that it is more appropriate to 

implement a nationwide approach to 

the issue of case-mix change 

adjustment. As noted previously, an 

individual agency approach would be 

administratively burdensome and 

difficult to implement. Policies to 

address the identity of agencies in light 

of changes to organizational structures 

and configurations would need to be 

developed. Furthermore, smaller 

agencies might have difficulty in 

providing accurate measures of real 

case-mix change because of their small 

caseloads. 

Comment: A commenter noted that 

CMS asserts that OASIS items not used 

for payment were more stable than those 

used to increase HH PPS payment. The 

commenter stated that if these items 

reflect patient severity, then these items 

should be included in the HH PPS 

payment formula. 

Response: Our process of selecting the 

case-mix items was explained in the HH 

PPS Final Rule, implementing the HH 

PPS (65 FR 41193). Essentially, not all 

items on the OASIS were equally 

important in explaining case-mix, and 

not all items on the OASIS were equally 

appropriate to use in a payment system. 

That does not mean such items are 

irrelevant in understanding the health 

status of the home health user 

population. 

Comment: Several commenters wrote 

that by using the average case-mix 

weight, CMS is equally cutting payment 

to both high and low average case-mix 

agencies. This across-the-board cut 

would punish those who did not inflate 

the case-mix equally with those whose 

case-mix was inflated. A more equitable 

approach would be to reduce 

proportionally the proposed cut for 

those agencies whose individual casemix weight was below the mean in the 

study period. Several commenters noted 

that their average case-mix remained 

stable or declined since HH IPS. 

Another commenter asked for a ‘‘hold 

harmless’’ provision for the non-profit 

or other efficient HHAs where the casemix index is less than 1. 

Response: We believe that it is more 

appropriate to implement a nationwide 

approach to the issue of case-mix 

change adjustment. An individual 

agency approach would be 

administratively burdensome and 

difficult to implement. Policies to 

address the identity of agencies in light 

of changes to organizational structures 

and configurations would need to be 

developed. Furthermore, smaller 

agencies might have difficulty in 

providing accurate measures of real 

case-mix change because of their small 

caseloads. 

Comment: A commenter wrote that 

CMS’s findings of coding ‘‘creep’’

among other provider types (long term 

care hospitals, inpatient rehabilitation 

facilities, and acute care hospitals) 

discredit the agency’s conclusion that 

HHA case-mix change is due to nominal 

change rather than real change. Another 

commenter wrote that CMS’ case-mix 

change findings were consistent with 

the prior experience of other 

prospective payment systems. 

Response: We agree with the 

comment that our case-mix change 

findings are similar to those seen in 

other prospective payment systems. Our 

conclusion that case-mix change is 

almost completely due to nominal 

change is based upon multiple analyses 

of health characteristics, of resource 

costs, and consideration of other factors 

such as the effects of the Balanced 

Budget Act of 1997. Regardless of 

similar findings of nominal change 

among other provider types, the HH 

specific analyses utilized here show that 

a case-mix change adjustment in HH 

PPS is appropriate. 

Comment: Several commenters noted 

that the proposed case-mix change 

adjustment will cripple home health 

agencies’ ability to survive and compete 

at a time when home health is the only 

hope for an affordable national health 

approach. They noted that the nursing 

shortage and rising fuel costs have 

driven up agency costs and made it 

difficult for agencies to attract and 

retain staff. One commenter believed 

these costs more than compensate for 

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any coding ‘‘creep’’ that may have 

occurred. 

Response: We share the commenters’

concerns about the nursing shortage and 

rising fuel costs. However, case-mix 

change is based upon actual patient 

characteristics and is not to be used to 

compensate for cost differentials. 

Comment: Several commenters noted 

that the shift to high therapy episodes 

(with 10 or more visits) accounts for 

over 70 percent of the change in casemix from 1999 to 2003. This occurred 

because those patients requiring more 

therapy visits are in more clinically and 

functionally severe conditions than 

those who do not. The commenters 

recommended that this effect be 

excluded from the case-mix change 

adjustment calculation and that the 

remaining case-mix change adjustment 

be eliminated entirely to recognize the 

additional costs to HHAs for training 

staff and making operational 

modifications as a result of the 

refinements that are not reimbursed. 

Response: Our analysis of OASIS 

items in Table 10 of the proposed rule 

indicated basic stability in the health 

characteristics of HHA patients. Our 

subsequent analysis of case-mix change 

found a small amount of real change, 

and therefore, we modified the case-mix 

change adjustment accordingly. 

Given that more therapy sources were 

provided, the implication of our 

analysis of real change in case-mix is 

that more therapy was provided to 

substantially the same patient mix that 

agencies served in the HH IPS period. 

We consider the refinements to be 

evolutionary, not a paradigm shift in our 

payment methodology. For example, we 

have added only one new item from the 

OASIS, the item on injectable 

medication use. In addition, we 

dropped M0175 from the case-mix 

algorithm, in part due to the challenges 

faced by agencies in accurately 

ascertaining the information needed for 

M0175. Furthermore, we dropped other 

items because they are no longer useful 

in explaining resource use (see 

discussion of changes to the case-mix 

model scoring table, Table 2A, in 

section III.B.5). Thus, we believe the 

commenter overstated the impact on 

agencies of having to adjust to the 

refinements. While these case-mix 

refinements will entail staff training and 

operational modifications, we believe 

the refinements as implemented will 

result in a better alignment of costs to 

payments, which should benefit the 

agencies. 

Comment: One commenter suggested 

that the case-mix change was due to 

clinicians determining the ICD–9 coding 

under the HH PPS, and suggested that 

more education and training would help 

bring about better coding. He noted 

there are differences in FI 

implementation, interpretation, or 

follow-up related to ICD–9 coding. 

Response: We recognize that there 

have been improvements in coding 

practices, and we encourage home 

health agencies to follow ICD–9–CM 

guidelines in coding patient diagnoses. 

Home health coding guidance is 

available on CMS’ Home Health Web 

Site at http://www.cms.hhs.gov/center/ 

hha.asp, under ‘‘Billing/Payment’’ and 

then under ‘‘Home Health Coding and 

Billing’’. ICD–9–CM official coding 

guidance is available from the Centers 

for Disease Control Web Site at: http:// 

www.cdc.gov/nchs/datawh/ftpserv/ 

ftpicd9/ftpicd9.htm. CMS staff 

continues to meet regularly with FI 

representatives to resolve coding issues 

as they arise. 

Comment: A commenter noted that 

CMS assumed relative stability of 

resource utilization that should have 

been already matched by a 

corresponding stability in the case-mix 

index. Thus, the commenter believed 

there is an assumption by CMS that 

agencies had perfect understanding and 

application of OASIS at the time HH 

PPS was implemented. 

Response: CMS did not assume 

agencies possessed perfect 

understanding of OASIS or lesser 

understanding of OASIS. We based our 

case-mix change adjustment on the 

evidence that patient health status did 

not change substantially even though 

improved understanding of and 

application of OASIS occurred. 

Comment: A commenter wrote that 

the 2.75 percent case-mix change 

adjustment rate is really higher because 

our calculation is based upon the 2007 

base rate after adjusting it for the market 

basket increase and for outliers. 

Response: The case-mix change 

adjustment was correctly applied in the 

process of determining the budget 

neutral expenditure target in our 

payment simulation for the refined HH 

PPS system. The statute provides that 

any case-mix change adjustment be 

applied to the national standardized 60- 

day episode payment amount, which 

includes the market basket update and 

adjustment for outliers. 

Comment: Several commenters 

suggested that we evaluate the impact of 

the coding changes before implementing 

any case-mix change adjustment or that 

we use claims data to test the impact of 

the coding changes, and make this 

available. 

Response: The case-mix change 

adjustment is designed to address the 

case-mix change which has already 

occurred. Implementation of a case-mix 

change adjustment does not depend on 

the effect of the HH PPS refinements 

proposed. We believe that the 

refinements will better match payments 

to costs and have already tested this 

using claims data. 

Comment: Several commenters 

suggested that the case-mix change 

adjustment resulted from the FIs failing 

to do their jobs. One suggested that the 

appropriate way to resolve upcoding 

issues is through medical review. If 

medical review occurred and upcoded 

episodes were then adjusted, the casemix change adjustment is essentially 

‘‘double-dipping’’, taking back dollars a 

second time. Another commenter writes 

that there is no medical review data 

supporting an industry wide pattern of 

case-mix upcoding. One commenter 

suggested we focus on audits and 

recovery of inappropriate payments 

rather than implement a case-mix 

change adjustment. Another argued that 

therapy services increases in the casemix weight change has the character of 

a retroactive claim denial without a 

claim review. 

Response: Medical review affects such 

a small proportion of paid claims that 

we do not believe taking it into account 

would materially affect the estimate of 

nominal coding change, nor did we rely 

upon it in performing our case-mix 

change adjustment analysis. When we 

initially reviewed the National Claims 

History files to check for adjustments to 

HHRGs from medical review, we found 

error in the field containing the 

information. We decided not to use this 

field in correcting the HHRGs on paid 

claims in our research files. However, 

we did correct errors in OASIS item 

M0175 (concerning the patient’s 

preadmission stay history) in our 

analyses. The statute provides authority 

to take into account and adjust for 

changes in case-mix coding not due to 

changes in the underlying health status 

of home health patients. 

Comment: One commenter noted that 

the venipuncture patients who were no 

longer eligible for Medicare home health 

care due to BBA changes had a very low 

case-mix. Their loss from the Medicare 

home health patient population would 

cause the overall average case-mix to 

increase. This could account for some 

portion of the increase in case-mix seen. 

Another commenter asked if 

venipuncture patients were included in 

the baseline HH IPS sample. 

Response: We accounted for the loss 

of venipuncture patients by using the 

last year of HH IPS as our baseline. At 

such time agencies would have 

complied with the changes in patient 

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eligibility requirements, and this would 

have been reflected in our claims data. 

Comment: Several commenters noted 

that the cost reports do not reflect all 

agency costs, which included those for 

telehealth, that have improved care and 

outcomes. If all agency costs were 

included, CMS would see an increase in 

resource costs which corresponds to the 

increase in the case-mix index. Another 

commenter wrote that resource costs 

actually decreased early in HH PPS and 

then increased. 

Response: The statute does not 

provide payment for Medicare home 

health services provided via a 

telecommunications system. Section 

1895(e)(1) of the Act provides that 

telehealth services do not substitute for 

in-person home health services and are 

not considered a home health visit for 

the purposes of eligibility or payment 

under the Medicare home health 

benefit. As stated in 42 CFR 409.48(c), 

a visit is an episode of personal contact 

with the beneficiary by staff of the HHA, 

or others under arrangements with the 

HHA for the purposes of providing a 

covered HH service. The provision 

clarifies that there is nothing to 

preclude an HHA from adopting 

telemedicine or other technologies that 

they believe promote efficiency, but 

those technologies will not be 

specifically recognized or reimbursed by 

Medicare under the home health 

benefit. 

Our measure of resource costs for 

home health is based upon total minutes 

of time reported on the claim for each 

discipline’s visits. Resource costs result 

from weighting each minute by the 

national average labor market hourly 

rate for the individual discipline that 

provided the minutes of care. Bureau of 

Labor Statistics data are used to derive 

this hourly rate. The sum of the 

weighted minutes is the total resource 

cost estimate for the claim. This method 

standardizes the resource cost for all 

episodes in the analysis file. This 

method assumes that the non-labor costs 

per episode are proportional to the labor 

costs. Our payment rates with an annual 

market basket updates since the initial 

HH PPS final rule (July 3, 2000) are 

designed to reflect the agency’s costs. 

Telehealth costs are not part of the 

home health market basket and thus do 

not contribute to the annual updates. 

Market basket updates are also intended 

to account for the changes in wages. 

Table 7 indicates the trajectory of 

resource costs, with and without 

adjustment for wage growth. The data 

do indicate that resource costs did 

decrease at the beginning of HH PPS. 

Adjusted resources remained flat until 

approximately the last six quarters of 

the time period. Moreover, resources 

rose steadily throughout most of the 

time period, and these increases are 

compensated through market basket 

updates. 

Comment: Several commenters were 

concerned about the absence of Abt’s 

Technical Report, which made analysis 

of the proposed case-mix change 

adjustment and case-mix refinements 

difficult. 

Response: We understand the 

commenter’s desire for Abt’s Technical 

Report, but note that due to 

unanticipated difficulties in completing 

a useful draft, we were unable to issue 

that report. We intend to issue the final 

report when it is completed and that the 

final draft to be useful to the lay reader. 

We expect that the results will be based 

on highly technical analyses that 

necessitate careful attention from the lay 

public. We will provide a link to Abt’s 

report on our Web Site once the report 

is available. 

Comment: Another commenter 

asserted that therapy utilization is the 

most important patient characteristic in 

the case-mix model, but that therapy 

utilization is discounted in the case-mix 

change adjustment analysis. The 

commenter contended that if therapy 

utilization were considered a patient 

characteristic, it would explain most of 

the increase in the average case-mix 

index, and thus the case-mix change 

adjustment could be reduced or 

eliminated. The commenter suggested 

that CMS withdraw its proposed casemix change adjustment for 2008, 2009, 

and 2010. Furthermore, CMS should 

design and implement an evaluation 

method to analyze changes in case-mix 

weight that utilizes proper standards 

related to the home health relevant 

factors in the analysis such as changes 

in per patient annual expenditures, 

patient clinical, functional, and service 

utilization data, and dynamic factors in 

the Medicare system that impact the 

nature of patients served with home 

health care. 

Response: We believe that the Abt 

Associates case-mix model was 

developed to measure real changes in 

case-mix addresses this critique. In 

response to the suggestion in the 

comments from the National 

Association for Home Care and Hospice, 

we used patient expenditures on Part A 

services in the 4 months leading to the 

home health episode, rather than the 

total of annual expenditures suggested 

in the comment. Studies in the field are 

not consistent in defining a time period 

for measuring this variable, which is 

used to serve as a proxy for health 

status. For example, a study by 

Mathematica Policy Research of the 

effects of the home health prospective 

payment demonstration used 6 months 

of data on expenditures to control for 

general health status [‘‘The Impact of 

Home Health Prospective Payment on 

Medicare Service Use and 

Reimbursement’’, Mathematica Policy 

Research, Princeton, N.J., December 

2000]. We chose to use 4 months’ of 

data on Part A expenditures in part 

because there is no consensus, and our 

available analysis files captured this 

measure. We decided to avoid using 

OASIS measures in the model (except 

for reported living situation) in favor of 

measurements external to the home 

health providers, namely irrefutable 

demographic measures, National Claims 

History Part A utilization measures, and 

hospitalization-related patient 

characteristics. As previously noted, we 

also adjusted for the change in types of 

Medicare agencies that followed the 

start of HH PPS. We believe that there 

is little useful analysis that can be 

garnered from separately measuring 

dynamic factors in the Medicare system 

that impact the nature of patients served 

in home health care. The model we use 

measures the actual characteristics of 

patients that are in the agency caseload, 

and is the best reflection of the case-mix 

in the HHA. 

Comment: A commenter was 

concerned that because LUPA episodes 

retain their original case-mix, they may 

be contributing to the increase in the 

average case-mix index. 

Response: LUPA episodes were not 

used in the measurement of case-mix 

change in either our analysis or in the 

Abt Associates model of real case-mix 

change. 

Comment: A commenter wrote that if 

1.233 actually represented average 

Medicare case-mix in 2003, then the 

average payment, per 60-day episode, 

would have been $2,856. The 

commenter asked that CMS disclose 

their average 2003 payment amounts for 

all paid episodes, inclusive of full term 

and those experiencing downcode 

adjustments. 

Response: It is not clear how the 

commenter got the figure of $2,856. The 

standardized national rate per 60-day 

episode for CY 2003 was $2,159.39. If 

the commenter multiplies this figure by 

the average case-mix weight for 2003 of 

1.233, the result is $2,663 before any 

wage adjustment. The $2,663 also does 

not include any adjustments for LUPAs, 

PEPs, or SCICs. The average case-mix 

weight, of 1.233 from the proposed rule, 

for 2003 is calculated after taking 

downcoding adjustments but is only 

calculated from initial episodes. 

Downcoding adjustments are taken 

when the Request for Anticipated 

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Payment (RAP) reports a high-therapy 

case-mix group, but the final claim does 

not. Using a 10 percent sample of 2003 

paid claims data, the average payment 

per initial episode is estimated to be 

$2,614. This figure includes the effects 

of the wage adjustment, as well as the 

downward effect of adjustments for 

SCICs, PEPs, and outliers. 

Comment: A commenter suggested 

that CMS re-evaluate the coding of 

M0488, surgical wounds, as the 

increased incidence of the early/partial 

granulation response is not an example 

of up-coding only. Rather, it is due to an 

increased understanding of how to 

appropriately code items per OASIS 

guidelines. 

Response: This is an example of 

nominal coding change due to improved 

coding practices. As noted in the 

proposed rule, we recognized the 

contribution of such sources of change 

in determining and assessing the casemix change adjustment. 

Comment: A commenter disputed that 

the average case-mix weight of Abt 

model was 1.0, and argued that the 

timeframe includes a period in which 

real case-mix change occurred. 

Therefore, the commenter asserted that 

the statute does not allow an 

adjustment. 

Response: By construction, the 

average case-mix weight of the original 

Abt model was equal to 1.0. This means 

that we used the case-mix group 

assignments in the original Abt case-mix 

study’s sample of episodes, and divided 

each group’s average resources by the 

overall sample average. Using this 

approach, the average case-mix weight 

from this procedure must then be 1.0. 

The sample was selected to be 

representative of home health agencies 

nationally, but we were reliant on 

volunteers for the study. According to 

statistical theory, it is highly likely that 

another sample of volunteer agencies 

selected to be nationally representative 

using the same selection procedure 

would have produced similar estimates 

of resource cost. It is impossible to 

know how different the 1998 to 2003 

trajectory of the average case-mix weight 

might be had other agencies’ data been 

available. That is, one reason why we 

selected a baseline other than the Abt 

Associates study sample. Choosing the 

HH IPS baseline allowed us to use a 

consistent sample of agencies and one 

that is nationally representative, 

irrespective of whether any agencies 

would be prepared to volunteer for a 

study. 

Comment: A number of commenters 

felt that HH patient characteristics were 

not stable. One commenter noted that 

the baseline 1999 to 2000 HH IPS 

population excluded costly long-term 

patients who were embraced by HH PPS 

from 2000 to 2003. The commenter 

noted that the problem with the 

proposed refinements is the case-mix 

adjuster’s inability to cope with therapy 

utilization by long term users, not the 

absence of these patients from the 

system. The commenter cited an April 

2000 GAO report which contends that it 

has been difficult to develop a case-mix 

adjustment method that adequately 

described resource use, particularly for 

long term users. 

The commenter noted that by 

statutory directive, HH PPS was crafted 

to ensure quality access to all eligible 

beneficiaries; by regulatory design, casemix adjustment was engineered to 

remove incentives for providers to 

ostracize expensive patients. The 

commenter asserted that CMS’

conclusion that patient characteristics 

remained essentially stable is in direct 

conflict with the goal of HH PPS to 

create a payment system which would 

allow equitable treatment of HH IPSexcluded patients and thus create a 

population that was fundamentally 

different than that which existed in the 

HH IPS baseline year. 

Response: First, we noted that after 

the BBA, venipuncture-only patients, 

who were often the long-term users, 

were no longer eligible for the home 

health benefit. The exclusion of these 

patients helped stabilize the 

characteristics of the home health 

patient population. Second, we are 

unclear as to the commenter’s statement 

that the intent of the HH PPS was to 

create a different population group. 

High-therapy patients were not absent 

from the national caseload during the 

final year of the HH IPS period. We note 

here again, as we did in the proposed 

rule, that the utilization of therapy was 

climbing rapidly during the last year of 

the HH IPS. Therapy utilization 

continued to climb after HH PPS began. 

Even if we were to agree that the goal 

of the HH PPS was to redress the 

possible exclusion of certain high-cost 

patients during the HH IPS, we also note 

that our model predicting change in the 

real case-mix accounts for a possible 

return of HH IPS-excluded patients to 

the system. 

Comment: A commenter believed that 

errors built into the original case-mix 

adjuster are so large that it is impossible 

to reasonably carve out an 8.7 percent 

case-mix change adjustment. The 

commenter noted that service utilization 

accounted for 62.5 percent of the 

estimated predictive power of the 

original model, the actual R-squared 

factor for all episodes was 21.9, and 

several significant weighting factors 

were known to be unreliable (M0230, 

M0460). Additionally, the commenter 

noted that the OASIS instrument was a 

source of error because it was designed 

to measure outcomes by asking nurses 

to assess the ability of a patient to do a 

task, as compared to a performancebased measure. 

Response: As we have noted, we 

refined the case-mix model to better 

address some of the concerns expressed 

by the commenter. In the proposed rule, 

we summarized the case-mix model’s 

ability to predict resource use with the 

measure of model fit known as the Rsquared statistic. We explained that the 

original HH PPS regulation’s model was 

based on initial episodes only. We used 

initial episodes because of sample size 

limitations of the original Abt study 

sample of 90 agencies. When we began 

refinement research using claims from 

the National Claims History, we added 

later episodes to the analysis samples. 

We found that the overall R-squared 

statistic of the original HH PPS case-mix 

model after adding the later episodes to 

the HH PPS-period analysis samples 

was 0.21. Our data analyses indicate 

that the R-squared before adding later 

episodes to the sample is higher than 

0.21; we reported in the proposed rule 

that the R-squared statistic on initial 

episodes was reduced to 0.29 by 2003. 

The R-squared statistic was originally 

0.34 in the Abt study sample, as noted 

in the July 3, 2000 Final Rule (65 FR 

41193). It should be understood that the 

later episodes are a minority of episodes 

(29 percent). Therefore, the model still 

adequately fits approximately 71 

percent of all episodes. 

Furthermore, we disagree with the 

suggestion that the OASIS instrument 

was a source of large error. The case-mix 

measure is based on OASIS items, and 

the scientific reliability of OASIS items 

has been studied. OASIS items used in 

the case-mix model generally have good 

reliability. Item M0460, Stage of most 

problematic pressure ulcer, and item 

M0230/M0240, Diagnoses and severity 

index, have ‘‘substantial’’ reliability, 

according to a report prepared for CMS 

by the Center for Health Services 

Research in Denver, Colorado (Volume 

4, OASIS Chronicle and 

Recommendations, OASIS and 

Outcome-based Quality Improvement in 

Home Health Care, Feb. 2002). In this 

report, a rating system commonly used 

in reliability research was used. A 

‘‘substantial’’ reliability rating was 

assigned if the weighted Kappa 

reliability statistic or percent agreement 

was at least 0.61. For these two items, 

the reliability values were at least 0.70. 

In summary, the performance of the 

original case-mix model is strong 

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enough to define a case-mix change 

adjustment. The measure of model fit 

comparable to the original one from the 

Abt case-mix study has declined 

somewhat, as might be expected over 

time. Yet the model fit has remained 

adequate for a strong majority of 

episodes. The OASIS assessment items 

have acceptable reliability. So we 

disagree with the comment that errors 

built into the case-mix adjuster are too 

large to be the basis for a case-mix 

change adjustment. 

Comment: The proposed rule stated 

that HHAs had no incentive to bring 

about nominal changes in case-mix preHH HH PPS. A commenter disputed 

this, noting that HHAs could have 

affected the case-mix weight in a 

manner not anticipated or not 

responded to by CMS. 

Response: We based our proposal for 

adjusting payments for nominal casemix change on the observed average 

weight from a statistically valid sample 

representing the last four quarters before 

HH PPS began. We believe it is the 

appropriate baseline from which to start 

measuring coding changes that 

Medicare did not intend to pay for 

under HH PPS. We explained the other 

reasons for using this as the baseline in 

the proposed rule (72 FR 25392–25393). 

Comment: A commenter questioned 

the decision not to use the October 1997 

through April 1998 study sample data as 

the baseline. CMS had noted that the 

agencies in the sample were volunteers, 

and the commenter noted that volunteer 

agencies represented less than 1 percent 

of the agencies in existence. The 

commenter also noted that the decrease 

in visits does not necessarily result in a 

decrease in resource costs. He stated 

that if the reduction in visits was 

weighted toward lower cost visits (such 

as home health aides), then that would 

imply that a greater portion of the visits 

done in subsequent years were higher 

cost visits (nursing, therapy, social 

worker). The average cost per visit 

would then be higher in those 

subsequent years, and therefore the total 

resource cost would be higher. The 

commenter gave the elimination of 

venipuncture as a qualifying skill as an 

example. 

Response: The commenter may have 

confused an agency which volunteers to 

participate in a study with a voluntary, 

or non-profit, agency. The agencies used 

in the study sample included a mix of 

organizational types. 

We accounted for the use of visits as 

a measure of resource costs by 

weighting the visit minutes according to 

the labor costs of the discipline 

involved. Thus, the resource cost 

measure summarizes the effects of both 

a shift to higher-cost visits and a general 

reduction in visits. 

Comment: The proposed rule stated 

that CMS expected the growth in the 

case-mix index to be accompanied by 

more consumption of services, but that 

instead CMS measured slightly lower 

resource consumption. A commenter 

noted that this conclusion does not 

consider that payments to home health 

agencies during this period were not 

being fully adjusted for inflation, and 

therefore the natural reaction of 

agencies would be to improve efficiency 

and lower resource consumption when 

possible in order to survive. 

Response: Margin analysis by 

MedPAC, CMS, and the Government 

Accountability Office has indicated that 

Medicare margins under HH PPS have 

generally exceeded 10 percent. 

Therefore, we find the commenter’s 

conclusion that agencies responded to 

ensure survival counterintuitive, 

because it would appear that in general, 

the payments made under HH PPS 

covered their Medicare costs. We have 

not studied efficiency outcomes among 

Medicare home health agencies, but 

economic theory would suggest that 

entities become more efficient under 

bundled payment. We also note that 

experts who study health services have 

suggested there may be an incentive to 

stint on services under prospective 

payment. 

To summarize our case-mix analysis, 

Abt Associates developed a case-mix 

prediction model designed to measure 

real change in case-mix. We used two 

data sets in applying this model. First, 

we estimated the model on an HH IPS 

sample. The HH IPS sample consisted of 

394,479 non-LUPA episodes 

representative of total episodes during 

the last 12 months of HH IPS. The 

episodes were simulated from claims 

using the same methodology that we 

used to define episodes and link them 

to OASIS assessments for our case-mix 

change analysis noted in the proposed 

rule. We used the model coefficient 

estimates to predict case-mix on a HH 

PPS sample. The HH PPS sample 

consisted of 876,199 non-LUPA 

episodes representative of total episodes 

during CY 2005. Both samples were 

restricted to non-LUPA episodes with a 

matched OASIS assessment from the 

national OASIS repository. 

The purpose of this case-mix model is 

to predict the average case-mix weight 

in the 2005 HH PPS year, based on a 

regression model estimated from the HH 

IPS baseline year. Then, only the home 

health population changes (as 

represented by the independent 

variables for the HH PPS year) affect the 

average case-mix weight predicted from 

the model. In effect, the model assumes 

that the population’s real case-mix 

would have evolved to the predicted 

levels if HH IPS had continued beyond 

October 2000, or had HH PPS not been 

implemented. The independent 

variables (noted below) used to make 

the predictions purposely do not come 

from OASIS (with one exception, family 

situation variables) so that the model is 

not based on potentially up-coded 

variables from home health agency 

coding on OASIS. We use demographic 

and non-home health Part A claims 

history variables as the predictors. We 

also include agency type and 

organizational form variables which 

help explain the level of case-mix. The 

predictive ability of the full model, as 

indicated by the R-squared statistic, is 

0.17. 

With each successive stage of model 

development, new sets of variables were 

added to measure the effect on the 

average prediction in the sample 

representing the 2005 time period. The 

first phase of the model is based on 

demographic variables, consisting of a 

large set of age-by-race and age-by-sex 

groups. The predicted average case-mix 

weight did not change appreciably 

when using these variables alone to 

make predictions, although we noted 

that those beneficiaries in the 85-andolder age group grew in prevalence and 

contributed positively to the case-mix 

index. This effect was offset by changes 

in the prevalence of other demographic 

groups, to produce only minor change 

in the average case-mix weight during 

this model stage. 

The second phase of the model added 

12 variables representing inpatient 

utilization for acute hospitals, long-term 

care hospitals, IRF, and SNF, as 

identified in the National Claims 

History. Three variables captured the 

presence of any hospital, SNF, or IRF 

stays in the 14 days leading up to the 

beginning of the episode. A fourth 

variable represented episodes where 

there was no acute, IRF, or SNF stay in 

the 14 days before the home health 

episode. An additional 8 variables 

captured the number of inpatient days 

of stay by type of stay during the 14 

days leading up to the beginning of the 

episode, and, before that, the number of 

inpatient days in the period 15 to 120 

days leading up to the beginning of the 

episode. The days of stay categories 

were: Acute hospital, long-term care 

hospital, IRF, and SNF. 

The results from adding these 

variables to the demographic variables 

were an increase in the average 

prediction of 0.6 percent beyond the 

average during the HH IPS baseline. The 

proportion of episodes preceded by 

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hospital stays in the 14 days leading up 

to the episode declined between HH IPS 

and HH PPS, 2005, from 38.5 percent to 

33.4 percent. Since this variable was 

associated in the model with a 0.09 unit 

decline in case-mix weight, the lower 

prevalence of acute hospital use was an 

important factor in the increase in the 

average prediction. Another important 

contributor to these results was the 

growth in SNF days, including growth 

during the 14 day pre-episode period 

and the 15- to 120-day pre-episode 

period. These variables were associated 

with an increase in case-mix weight. 

The average number of IRF days 

declined during the 15- to 120-day preepisode period, from 0.68 during HH 

IPS to 0.52 during HH PPS 2005. (We 

again included recertification episodes 

in the total episodes in this sample.) 

While the number of IRF days is 

associated in the model with higher 

case-mix, the decline in total IRF days 

between HH IPS and CY 2000 meant 

that this factor helped offset the casemix increasing effect of the hospital and 

SNF days variables on the predictions. 

The third phase of the model added 

family situation variables, including 

whether the patient during the episode 

lived alone, with a spouse, with other 

family members, with paid help or with 

others. The results from adding these 

variables moved the predicted average 

higher than the baseline by only 0.1 

percent. 

The fourth phase of the model added 

scores of variables representing the 

hospital case-mix group assignment for 

the last acute hospital stay for the 

patient in the National Claims History. 

We used the All-Patient-DRGs (APR 

DRG) classification algorithm to assign 

the case-mix group. We specified 

variables for all the APR DRG groups 

that met our sample size standards 

(minimum of 25 cases). Typically, the 

stays generating the APR DRG 

assignments occurred within six weeks, 

and overall three-quarters of the stays 

occurred within the previous 8.6 

months. The purpose of using these 

variables was to incorporate more 

information about the patient’s 

condition, especially some measure of 

case severity into the model. The APR 

DRG algorithm uses comorbidity data on 

the hospital claim to generate severity 

levels for each case-mix group. As an 

example, the model included four 

differing severity levels for knee 

replacement stays, which are included 

in APR DRG group 302. A general 

indicator that the stay was procedurerelated was also included. This 

indicator had a large effect in the model, 

suggesting an increase in the HH casemix weight of about 0.34 if the last acute 

stay was for a procedure. At the same 

time, the proportion of episodes 

associated with an acute procedure 

increased from HH IPS to HH PPS 2005 

by only one percent, from 19 percent to 

20 percent. This meant that the 

procedure effect would not be strong in 

moving the average prediction between 

the HH IPS sample and the HH PPS 

sample. 

The net effect on the predictions from 

the model at this stage was to increase 

the level of the case-mix average relative 

to the HH IPS baseline, but the effect 

was very small. It is notable that the 

predictive power of the model increased 

by more than three percentage points. In 

addition, the model indicated various 

effects as expected, including 

substantially higher HH PPS case-mix 

weight associated with conditions such 

as intracranial hemorrhage; 

cerebrovascular accidents; other 

disorders of the nervous system; 

respiratory system diagnosis with 

ventilator support; respiratory infections 

and inflammations; pneumothorax and 

pleural effusion; respiratory system 

signs, symptoms, and other diagnoses; 

major esophageal disorders; hip 

fractures; electrolyte disorders except 

hypovolemia related; septicemia; 

pneumonia; and complications of 

treatment. The model did not indicate 

higher case-mix weights associated with 

many other hospital case-mix groups, 

such as hip and knee replacements, 

major and nonmajor respiratory 

procedures, cardiac defibrillator 

implant, cardiac valve procedures with 

cardiac catheterization, and coronary 

artery bypass graft. It should be noted 

again that these effects are estimated 

after controlling for whether the stay 

was procedure-related. Thus, the 

negative coefficient for knee 

replacements indicates that the effect of 

having had a knee replacement before 

home health reduces the size of the 

general positive effect from having had 

a procedure. One of the strongest 

impacts on the predictions came from 

the APR DRG for nonspecific 

cerebrovascular accident and 

precerebral occlusion without 

infarction; in the HH IPS sample, about 

1.2 percent of the episodes were 

preceded by a stay of this type, but in 

the HH PPS 2005 sample the episode 

percentage was down to about 0.4 

percent. The loss of this type of case 

was one of the important contributors 

that offset the case-mix increasing 

effects of some of the other changes. 

The fifth phase of the model adjusted 

for the change in the types of home 

health agencies between HH IPS and CY 

2005. This adjustment is analogous to 

the adjustment we made in the 

proposed rule estimate of the HH IPS 

baseline average case-mix weight. The 

adjustment in the proposed rule 

standardized the HH IPS baseline for the 

decline in episodes delivered by 

hospital-based agencies. At this stage, 

given the contribution of all variables 

added to this point, the increase in the 

predicted average case-mix weight 

compared to the HH IPS baseline was 

0.7 percent. 

Finally, we added expenditure 

variables for Part A utilization in the 

120 days leading up to the home health 

episode. These variables, which were 

adjusted for price increases, subdivided 

the expenditures by type of stay. The 

expenditures related to long-term care 

hospital stays, SNF stays, and inpatient 

rehabilitation stays were associated with 

higher case-mix weights. Because the 

model controlled for stay events and 

days of stay, we believe these variables 

may proxy the intensity of care during 

the inpatient periods. The model 

estimates using all variables included by 

this final stage increased the average 

case-mix weight compared to the HH 

IPS baseline by 0.95 percent. 

The unadjusted total measure of casemix change was calculated by taking the 

difference between the 2005 actual 

average case-mix and the HH IPS actual 

average case-mix (our baseline). This 

unadjusted measure (12.78 percent) 

included both real and nominal change. 

We used our full 6-phase model to 

derive the proportion of case-mix 

change which was real; the full model 

result yielded a predicted average casemix for 2005. When we took the 

difference between this model result 

and the HH IPS actual average case-mix 

(our baseline), the result was the real 

case-mix change. 

The resulting real case-mix change 

was then divided by the total measure 

of case-mix change (real plus nominal) 

to determine the proportion by which 

the total measure of case-mix change 

would need to be reduced in order to 

account for real case-mix change. That 

proportion was 8.03 percent. Therefore, 

we reduced the 12.78 percent measure 

of total case-mix change by 8.03 percent 

(real case-mix change) to derive the 

nominal case-mix change adjustment of 

11.75 percent (0.1278 * (1 ¥ 0.0803) = 

0.1175). This 11.75 percent change in 

case-mix is 1.03 percentage points lower 

than the unadjusted total change in 

case-mix, which is 12.78 percent. 

While the total measure of case-mix 

increase is 11.75 percent, it could be 

misinterpreted that the total of the 

adjustments to be made in each of the 

next four years equals 10.96 percent 

(2.75 + 2.75 + 2.75 + 2.71 = 10.96), if 

the adjustment were taken in one year. 

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This would be an incorrect method of 

solving for the total adjustment if taken 

in one year. If we accounted for the full 

11.75 percent increase in case-mix in a 

single year, that percentage reduction to 

the rates would be 10.51 percent (1/(1 

+ .1175) = 0.894855; 1 ¥ 0.894855 = 

.1051). Over the 4-year period, we are 

taking the same 10.51 percent 

adjustment ((1 ¥ 0.0275) * (1 ¥ 0.0275) 

* (1 ¥ 0.0275)*(1 ¥ 0.0271) = 0.894823; 

1 ¥ 0.894823 = 0.105177 = 10.52 

percent; a difference of 0.01 percent 

from the single-year total adjustment of 

10.51 percent is due to rounding). Note 

that the percentage reduction is less 

than the percentage increase; because 

the new baseline is higher, in 

percentage terms the reduction 

necessary to get back to the original 

baseline will be less than the percentage 

increase. In determining the yearly 

percentage reductions, we first opted to 

keep the 2.75 percent per year reduction 

which we had proposed. Accounting for 

the compounding effect of a 2.75 

percent reduction in each of the first 3 

years, the 4th year reduction necessary 

to bring about a total reduction of 10.51 

percent is 2.71 percent. Note that the 

sum of the 4-year nominal reduction of 

10.95 percent is only an approximation 

of the 10.51 percent since it does not 

account for the compounding effect of 

the annual reductions. For this final rule 

with comment period, we are finalizing 

the proposed 2.75 percent reduction of 

the national standardized 60-day 

episode payment rate for 3 years 

beginning in 2008 and extending that 

adjustment period to a fourth year via a 

2.71 percent reduction for 2011, in order 

to fully address the 11.75 percent 

change in case-mix unrelated to real 

case-mix change. We are seeking 

comment on the 2.71 percent case-mix 

change adjustment for 2011. We will 

continue to monitor and measure the 

nominal change in case-mix. As we 

discussed in the proposed rule, if 

updates of the national claims data 

indicate that the nominal change in 

case-mix between the HH IPS baseline 

and the latest available national claims 

data show a change, we will revise the 

percentage reduction in future year’s 

update of the annual reduction factor. 

Similar to how it was described in the 

proposed rule, the revision would be 

determined by the ratio of the updated 

4-year annual reduction factor to the 

previous year’s annual reduction factor. 

For the CY 2011 rule, which governs the 

fourth and final year of the case-mix 

change adjustment transition period, we 

would obtain the CY 2008 national 

average CMI to compute the updated 

value for the nominal case-mix change 

adjustment. Again, we would form the 

ratio of the updated adjustment factor to 

the previous year’s effective adjustment 

factor. Depending on the growth of the 

nominal change in case-mix, measured 

in any given subsequent year, in future 

rulemaking, CMS may adjust the 

percentage reduction in the second and/ 

or third year, elect to adjust the 

percentage reduction in only the fourth 

year, or adjust the percentage reduction 

in any combination of years. The annual 

updating procedure avoids a large 

reduction for the final year of the phasein, in the event that the CY 2008 

national average CMI reflects continued 

growth in the nominal change in casemix since CY 2005. The calculation of 

the adjusted national prospective 60-day 

episode payment rate for case-mix and 

area wage levels is set forth in 42 CFR 

484.220. We are revising 42 CFR 

484.220 to address the annual 

percentage reductions due to changes in 

case-mix that are not a real change in 

case-mix. For this final rule with 

comment period, we are specifically 

soliciting comment on the 2.71 percent 

adjustment to the HH PPS 60-day 

episode payment rate in the fourth year 

to account for the change in case-mix 

that is not considered real, i.e., that is 

not related to an underlying change in 

patient health status. 

The final versions of tables 6, 7, and 

8, which are discussed in this section on 

case-mix change adjustment, are shown 

below. 

TABLE 6.—AVERAGE NUMBER OF

HOME HEALTH VISITS PER EPISODE

Year 

Total home 

health visits 

(excluding 

LUPAs) 

1997 ...................................... 36.04 

1998 ...................................... 31.56 

HH IPS .................................. 26.88 

2001 ...................................... 21.67 

2002 ...................................... 21.49 

2003 ...................................... 21.01 

2004 ...................................... 20.66 

2005 ...................................... 20.53 

Note: Excludes LUPAs, RAPs, episodes 

with data problems and no matched OASIS. 

The HH IPS data is from the 100 percent file 

for FY 2000. 

TABLE 7.—AVERAGE RESOURCE COST AND CMI 

Period 

Resources CMI 

Average 

resource 

cost 

Standardized to CY 

2000 labor 

rates 

Admissions All 

HH IPS 

1999Q4 ............................................................................................................................ $451.11 $451.39 1.1165 1.0796 

2000Q1 ............................................................................................................................ 468.27 468.27 1.1040 1.0822 

2000Q2 ............................................................................................................................ 475.34 475.34 1.1277 1.1026 

2000Q3 ............................................................................................................................ 471.64 471.64 1.1448 1.1186 

HH PPS 

2000Q4 ............................................................................................................................ N/A N/A N/A N/A 

2001Q1 ............................................................................................................................ $432.14 $419.60 1.1855 1.1651 

2001Q2 ............................................................................................................................ 440.98 428.18 1.1930 1.1801 

2001Q3 ............................................................................................................................ 445.96 433.02 1.1980 1.1756 

2001Q4 ............................................................................................................................ 446.80 433.84 1.2025 1.1853 

2002Q1 ............................................................................................................................ 453.76 426.42 1.2086 1.1843 

2002Q2 ............................................................................................................................ 454.65 427.25 1.2027 1.1874 

2002Q3 ............................................................................................................................ 457.49 429.92 1.2127 1.1871 

2002Q4 ............................................................................................................................ 460.96 433.17 1.2243 1.1996 

2003Q1 ............................................................................................................................ 454.77 422.58 1.2182 1.1931 

2003Q2 ............................................................................................................................ 461.18 428.53 1.2326 1.2060 

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TABLE 7.—AVERAGE RESOURCE COST AND CMI—Continued 

Period 

Resources CMI 

Average 

resource 

cost 

Standardized to CY 

2000 labor 

rates 

Admissions All 

2003Q3 ............................................................................................................................ 460.15 427.58 1.2333 1.2044 

2003Q4 ............................................................................................................................ 464.71 431.81 1.2497 1.2178 

2004Q1 ............................................................................................................................ 462.26 427.31 1.2434 1.2117 

2004Q2 ............................................................................................................................ 473.42 437.63 1.2572 1.2239 

2004Q3 ............................................................................................................................ 476.77 440.72 1.2634 1.2252 

2004Q4 ............................................................................................................................ 479.90 443.61 1.2709 1.2314 

2005Q1 ............................................................................................................................ 487.19 417.40 1.2680 1.2298 

2005Q2 ............................................................................................................................ 509.91 436.87 1.2697 1.2341 

2005Q3 ............................................................................................................................ 518.92 444.58 1.2810 1.2358 

2005Q4 ............................................................................................................................ 522.22 447.41 1.2882 1.2443 

Note: HH IPS data based on 100% National Claims History File. The averages reported in the proposed rule may differ slightly from averages 

reported here because of slight changes in methodology and further data cleaning. 

TABLE 8.—PERCENT SHARE OF HOME HEALTH EPISODES AND MEAN TIME PRIOR TO ENTERING A HOME HEALTH

EPISODE, FOR FIVE CONDITIONS, FY 2000–CY 2006 

Condition FY 2000 CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 *

Hip fracture: 

percent share ................................................................ 0.82 0.83 0.75 0.72 0.70 0.62 0.59 

days prior to entering .................................................... 7.19 7.12 7.18 7.21 7.30 7.09 7.12 

Congestive heart failure: 

percent share ................................................................ 3.31 3.05 2.95 2.87 2.71 2.43 2.62 

days prior to entering .................................................... 3.38 3.28 3.35 3.33 3.36 3.40 3.37 

Cerebrovascular accident: 

percent share ................................................................ 1.52 1.45 1.40 1.29 1.14 1.03 0.97 

days prior to entering .................................................... 4.32 4.23 4.21 4.29 4.20 4.33 4.31 

Hip replacement: 

percent share ................................................................ 1.47 1.64 1.63 1.59 1.64 1.45 1.36 

days prior to entering .................................................... 6.45 6.32 6.26 6.28 5.91 5.58 5.40 

Knee replacement: 

percent share ................................................................ 1.89 2.20 2.30 2.43 2.58 2.70 2.75 

days prior to entering .................................................... 5.40 5.30 5.41 5.18 4.92 4.60 4.15 

Note: Time prior to entering is number of days between hospital discharge and beginning of home health episode, for discharges occurring 

within 14 days of the start of the home health episode. 

For beneficiaries with more than 1 hospital discharge in the 14 day period leading up to the home health episode, time prior to entering is from 

the last hospital discharge immediately preceding the home health episode. * CY 2006 data for first quarter of the year only. 

7. Case-Mix Groups 

Comment: Two commenters were 

concerned that the proposed case-mix 

model results in loss of all identifiable 

meaning from a case-mix group or 

HHRG. The commenters asked for a 

mechanism to produce a unique HHRG, 

Health Insurance Prospective Payment 

System (HIHH PPS) code, or other 

designation for each of the 153 case-mix 

groups and five NRS severity levels. 

They believed providers need a unique 

identifier for each case-mix group to 

facilitate communication, analysis, and 

financial comparison. 

Response: While it is true that the 

HHRG code represents the severity 

levels in the clinical, functional and 

service domains, it no longer represents 

a one-to-one match with a case-mix 

weight under the proposed refined 

payment case-mix system. However, a 

code with this one-to-one relationship 

to a payment weight will exist in the 

form of the HIHH PPS code produced by 

the Grouper software. We plan that the 

first position of the five position HIHH 

PPS code will represent the payment 

grouping step that applies to the 

episode. The second, third and fourth 

positions will represent the clinical, 

functional and service domains arrived 

at under the payment equation that 

applies for that grouping step. The fifth 

position will represent the NRS severity 

level. The final code structure for these 

HIHH PPS codes and the complete list 

of codes will be published in Medicare 

instructions and on our Web site, 

shortly after the issuance of this final 

rule. 

Comment: Several commenters 

remarked that the increase from 80 to 

153 HHRGs was complex and would 

create an administrative burden. 

Additionally, it will require extensive 

training of staff. They asked that the 

implementation be postponed or be 

phased-in. 

Response: As we noted previously, we 

have tried to strike a balance between 

simplicity and complexity. The refined 

system is more complex than the old 

system but this is a natural outgrowth of 

our attempt to pay more accurately for 

the range and intensity of home health 

services that can be provided to our 

beneficiaries. 

A refined system may seem overly 

complex just because it is new. 

However, we believe the proposed 

refinements are clearly focused, and 

logically stem from the original casemix payment system. We agree that any 

refined system will take time and 

training to learn. As explained in the 

response to a comment in section 

III.A.3, we have taken several measures 

to make the proposed refinements easier 

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to understand, and we trust that these 

measures will assist HHAs in 

implementing this refined system. 

8. OASIS Reporting and Coding 

Practices 

Comment: Several commenters 

expressed concern that some pressure 

ulcers are not stageable due to eschar. 

They noted that proper care includes 

debridement, which is costly due to 

supplies and clinician time. Once 

debridement occurs, the ulcer would be 

stageable, but the HHA would have no 

way to note the change in condition 

since the SCIC adjustment has been 

eliminated. The commenters 

recommended allowing staging of these 

ulcers in accordance with National 

Pressure Ulcer Advisory Panel 

guidelines. 

Response: We are aware of recent 

revisions issued by the National 

Pressure Ulcer Advisory Panel 

(NPUAP). The NPUAP guidance is 

essentially permitting the assessment of 

a wound for staging when the wound 

bed is not completely covered with 

eschar or slough. If the bed of the ulcer 

is completely covered with eschar/ 

slough, NPUAP guidance stipulates that 

the wound cannot be staged until some 

of the necrotic tissue is removed. After 

reviewing the NPUAP guidance we have 

revised the instructions accompanying 

the OASIS item to allow a wound to be 

staged if the bed of the wound is 

partially covered by necrotic tissue and 

if the presence of eschar does not 

obscure the depth of the tissue loss. 

Comment: We received a number of 

comments supporting our decision to 

allow additional case-mix diagnoses for 

certain conditions and for allowing 

points for some comorbidities. One 

supported the scoring of secondary 

diagnoses to account for the costincreasing effects of comorbidities. A 

few commenters suggested more rows 

for entering diagnoses in M0240 

(‘‘other’’ diagnoses). They note that to 

follow ICD–9–CM coding guidance 

based on severity ranking, there will be 

many instances where the case-mix 

diagnoses that impact the plan of care 

and resource utilization will not be 

captured for patients with multiple comorbidities, leading to underpayment 

for the sickest patients if coding rules 

are followed. It would also address 

OASIS diagnosis spaces fields in 

preparation for ICD–10, which will 

significantly increase the number of 

required diagnosis codes. 

Response: We appreciate the 

comments supporting our decision to 

allow additional case-mix diagnoses and 

for allowing points for comorbidities/ 

secondary diagnoses. 

As we noted in the proposed rule (72 

FR 25361, and 25362), scores were 

assigned to certain secondary diagnoses 

and used to account for the costincreasing effects of comorbidities. 

However, with most diagnosis groups, 

we did not make a distinction in the 

final case-mix model between primary 

placement and secondary placement of 

a condition in the reported list of 

diagnoses. We made case-by-case 

decisions on this question based on 

differences in the impact on resource 

cost between the primary diagnosis and 

secondary diagnosis. If differences were 

small, we combined cases reporting the 

conditions, regardless of whether the 

listed position of the diagnosis was 

primary or secondary. We believe this is 

an important protection against 

unintended and undesirable incentive 

effects that could arise if agencies 

perceive opportunities to change the 

placement of the diagnosis due to nonclinical reasons. 

Concerning the comment suggesting 

we add more lines for entering 

diagnoses in M0240, we disagree that 

more lines are needed for M0240. 

However, as noted in the proposed rule, 

we did make changes to the OASIS to 

enable agencies to report secondary 

case-mix diagnosis codes (see 72 FR 

25362). Specifically, the addition of 

secondary diagnoses to the proposed 

case-mix system (see Table 2A of the 

proposed rule, case-mix adjustment 

variables and scores) requires that the 

OASIS allow for reporting of instances 

in which a V-code is coded in place of 

a case-mix diagnosis other than the 

primary diagnosis. A case-mix diagnosis 

is a diagnosis that determines the HH 

PPS case-mix group. Currently, the 

OASIS allows for reporting of instances 

of displacement involving primary 

diagnosis only for M0245. 

Consequently, because of the nature and 

significance of the changes needed, as 

noted in the proposed rule, we deleted 

the OASIS item M0245 and replaced it 

with a new OASIS item M0246. 

We disagree with the comments 

suggesting that if ICD–9–CM coding 

guidance is based on severity ranking in 

the OASIS, there will be many instances 

where the case-mix diagnoses that 

impact the plan of care and resource 

utilization will not be captured for 

patients with multiple co-morbidities, 

leading to underpayment for the sickest 

patients. It is significant to note that the 

logic for determining both the primary 

and secondary diagnoses remains 

unchanged (see the OASIS 

Implementation Manual, Definition 

Section of M0230/240 as well as 

Attachment D to Chapter 8). The 

primary diagnosis is determined based 

on the condition most related to the 

current plan of care. This diagnosis may 

or may not be related to a patient’s 

recent hospital stay but must relate to 

the services rendered by the HHA. 

Comment: A commenter asked that 

we adopt ICD–10 guidelines, and study 

the impact of coding changes on HH 

PPS. 

Response: We agree that it is 

important to have an accurate and 

precise coding system. The Department 

will continue to study whether or not to 

propose ICD–10–CM and ICD–10–PCS 

as the new HIPAA standard to replace 

ICD–9–CM. 

Comment: A commenter suggests that 

M0826 be asked only if the patient is 

expected to be a higher need case. 

Response: We disagree. Home health 

providers are expected to assess and 

document each patient’s need for 

therapy. M0826 is required to be coded 

by providers regardless of the patient’s 

expected case-mix assignment. The 

coding of M0826 should be in 

compliance with Medicare home health 

CoPs 42 CFR 484.55, 42 CFR 484.18, 

and 42 CFR 484.32. 

Provider instructions for coding 

M0826 are provided in Chapter 8 of the 

OASIS Implementation Manual. Those 

instructions allow providers to answer 

‘‘000’’ if no therapy services are needed, 

or answer with the total number of 

therapy visits indicated or planned for 

the Medicare payment episode for 

which this assessment will determine 

the case-mix group. Providers may also 

answer ‘‘not applicable’’ when this 

assessment will not be used to 

determine a Medicare case-mix group. 

Comment: A commenter asked that 

we expand the wound section of the 

OASIS to include all wounds, especially 

diabetic ulcers and arterial ulcers. 

Response: The diagnosis codes for 

diabetic and arterial ulcers were in the 

proposed rule for both the case-mix 

diagnosis and non-routine supply 

diagnosis tables. As a result of further 

research, we are also adding two 

additional arterial ulcer codes to final 

tables 2B and 10B (see ICD–9–CM codes 

447.2 and 447.8). 

However, such review and expansion 

of OASIS is beyond the scope of this 

rule. OASIS will continue to capture 

diabetic and arterial ulcers in both the 

diagnosis section and the basic woundrelated section (M0440). OASIS item 

M0440 measures the presence of a skin 

lesion or open wound. 

OASIS items are only part of a 

comprehensive assessment and include 

only those items that have proven useful 

for outcome measurement and risk 

factor adjustment. Therefore only the 

types of wounds that are relevant to 

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these OASIS purposes or outcome 

measurement or risk factor adjustment 

have been included in OASIS, though 

other types of wounds such as diabetic 

and arterial ulcers are extremely 

important to assess and document in the 

patient’s clinical record. 

Comment: A commenter wrote that 

changes to the OASIS items M0230/240/ 

246 are complex, and the instructions 

need to be clearer for column 4. The 

commenter suggested that the 

instructions read, ‘‘Complete ONLY IF 

the V-code in Column 2 is reported in 

place of a case-mix diagnosis that is a 

multiple coding situation.’’

Response: The commenter has 

literally repeated the precise 

instructions we have issued in Column 

4 of the OASIS, M0230/240/246 as a 

suggestion for clearer instructions. It is 

significant to note that Column 4 does 

stipulate the following: ‘‘Complete 

ONLY if the V-code in Column 2 is 

reported in place of a case-mix 

diagnosis that is a multiple coding 

situation.’’

In reference to assigning V-codes on 

the OASIS, a case-mix diagnosis is a 

diagnosis that gives a patient a score for 

Medicare Home health HH PPS casemix group assignment. A case-mix 

diagnosis may be the primary diagnosis, 

‘‘other’’ diagnosis, or a manifestation 

associated with a primary or other 

diagnosis. Diagnoses listed under 

columns 3 and 4 of OASIS, M0230/240/ 

246 should be documented on the 

patient’s Plan of Care in compliance 

with 42 CFR 484.18(a). V-code reporting 

on the OASIS became effective in 

October 2003 in compliance with 

HIPAA. Providers assigning V-codes on 

the OASIS are expected to comply with 

all of the following long-standing home 

health diagnosis coding requirements, 

which can be found in the document 

entitled ‘‘Medicare Home Health 

Diagnosis Coding’’ on the CMS Home 

Health Web site at: http:// 

www.cms.hhs.gov/HomeHealthPPS/ 

03_coding&billing.asp. 

Comment: Another commenter 

suggested that we revise the instructions 

for M0080 and M0090 to recognize the 

new complexities of completing M0230/ 

240/246 correctly. 

Response: Chapter 8 of the OASIS 

Implementation Manual will be updated 

to accommodate changes to the OASIS 

items. 

C. Payment Adjustments 

1. The Partial Episode Payment (PEP) 

Adjustment 

Currently, HH PPS provides for an 

adjusted proportional payment for 60- 

day episodes interrupted by a 

beneficiary elected transfer or a 

discharge and return to the same HHA 

within the 60-day period. The PEP 

adjusted episode is paid based on the 

span of days including start of care date 

or first billable service date and 

including the last billable service date 

under the original plan of care before 

the intervening event. As noted in the 

proposed rule, descriptive analysis was 

conducted to better understand the 

patient characteristics associated with 

PEP-adjusted episodes and the 

circumstances under which PEPadjusted episodes occurred. Analysis of 

patient characteristics revealed no 

appreciable differences between 

patients in normal episodes (that is, no 

HH PPS payment adjustments, such as 

LUPA, PEPs, or SCICs) and patients in 

PEP episodes with regard to conditions 

or clinical characteristics. The mix of 

visits in PEP episodes was found to be 

similar to that of normal episodes. 

The descriptive analyses conducted 

by Abt Associates also looked at the 

different components that make up PEP 

episodes. The analysis showed that PEP 

episodes have significantly shorter 

service periods on average than all 

episodes other than LUPA and SCIC 

episodes. The number of visits in a PEP 

episode, on average, represented 75 

percent of the average number of visits 

for normal episodes. We have used the 

span of billable visits in the PEP 

payment adjustment because of the 

HHA’s involvement in decisions 

influencing the intervening events for a 

beneficiary who elected to transfer or 

discharge and returned to the same 

HHA during the same 60-day episode 

period. Agencies have some flexibility 

in discharge decisions that affect the 

likelihood of incurring a partial episode, 

whether or not a hospital stay 

intervenes. They also have indirect 

influence on a beneficiary’s decision to 

transfer to another home care provider 

through the quality of care they provide. 

Data suggested that PEP episodes are 

rare and, therefore, the current PEP 

policy may be serving as a deterrent to 

premature discharge. Consequently, we 

did not propose to change the PEP 

policy. 

Comment: Several commenters raised 

concerns about a specific situation that 

can arise under the existing PEP policy. 

In the specific situation mentioned, the 

second provider in the PEP can admit a 

beneficiary whose plan of care goals 

were already met by the first provider. 

The commenter suggests that the FIs) 

review those admissions to determine if 

the care provided by second agency was 

medically necessary. A PEP can occur 

because of transfer to another agency. 

Response: We will share this concern 

with our fiscal intermediaries and 

suggest that they direct medical review 

activities for PEP episodes as 

appropriate. 

Comment: A commenter noted that 

when a PEP occurs due to a transfer to 

another agency, the first agency is often 

surprised. The commenter asks CMS to 

automatically check for proper protocol 

by the second agency to ensure that the 

first agency is not caught off guard. 

Response: We appreciate this 

comment. Our analysis of a 20-percent 

sample of 2003 episodes showed that 

approximately 3 percent of all episodes 

were PEP adjusted. Of those PEP 

episodes, approximately 55 percent of 

PEP-adjusted episodes involved a 

discharge and return to the same HHA, 

about 42 percent involved a transfer to 

another agency, and approximately 3 

percent involved a move to managed 

care. 

Chapter 10 (Section 10.1.13) of the 

Medicare claims processing manual 

does provide a process for the initial 

HHA and the receiving (new) HHA to 

follow in when a transfer to another 

HHA results in a PEP situation. In order 

for a receiving (new) HHA to accept a 

beneficiary elected transfer, the 

receiving HHA must document that the 

beneficiary has been informed that the 

initial HHA will no longer receive 

Medicare payment on behalf of the 

patient and will no longer provide 

Medicare covered services to the patient 

after the date of the patient’s elected 

transfer in accordance with current 

patient rights requirements at 42 CFR 

484.10(e). The receiving HHA must also 

document in its records that it accessed 

the RHHI inquiry system to determine 

whether or not the patient was under an 

established home health plan of care 

and contacted the initial HHA on the 

effective date of transfer. In such cases, 

the previously open episode will be 

automatically closed in the Medicare 

claims processing systems as of the date 

services began at the HHA the 

beneficiary transferred to, as reported in 

the RAP; and the new episode for the 

‘‘transfer to’’ agency will begin on that 

same date. 

Comment: Several commenters noted 

that PEP episodes are underpaid. Two 

commenters said that agencies are 

especially concerned with PEP 

situations where patients are discharged 

when the plan of care goals are met but 

return to the same agency within the 60- 

day period, often for a condition that 

was not related to the first plan of care. 

In those cases, agencies can receive a 

significant reduction in payment for the 

first episode despite provision of all 

visits authorized under a plan of care. 

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Similarly, two commenters 

recommended that CMS not apply PEP 

to cases where the patient is discharged 

with the plan of care goals met yet 

returns to the same HHA with a new 

medical issue. The commenters believed 

maintenance of the PEP policy in its 

current form also raises questions 

regarding how ‘‘early’’ and ‘‘later’’

episodes will be defined in the 

proposed payment system. 

Response: As discussed in the 

proposed rule, the PEP adjustment 

provides a simplified approach to the 

episode definition and accounts for key 

intervening events in a patient’s care 

defined as a beneficiary elected transfer, 

or a discharge and return to the same 

HHA that warrants a new start of care 

for payment purposes, OASIS, and 

physician certification of the new plan 

of care (72 FR 25422, 25423). The 

discharge and return to the same HHA 

during the 60-day episode period is only 

recognized when a beneficiary reached 

the treatment goals in the original plan 

of care. The original plan of care must 

be terminated with no anticipated need 

for additional home health services for 

the balance of the 60-day period. This 

policy ensures that we do not provide 

full payment for two episodes at any 

time during a given certified 60-day 

episode. Results from our refinement 

research provided evidence that there is 

some front-loading of visits compared to 

normal episodes, causing PEP episodes 

to have a faster average rate of visits 

during the span of days used to prorate 

the episode payment. 

Early episodes are defined to include 

not only the initial episode in a 

sequence of adjacent episodes, but also 

the next adjacent episode, if any, that 

followed the initial episode as the first 

two episodes in a sequence of adjacent 

episodes. Later episodes are defined as 

all adjacent episodes beyond the second 

episode. Episodes are considered to be 

‘‘adjacent’’ if they are separated by no 

more than a 60-day period between 

episodes. This holds true regardless of 

the type of episode. The end of a PEP 

episode is denoted as the last billable 

visit date. The gap in days between an 

episode with a PEP adjustment and the 

next episode would be calculated using 

the last billable visit of the PEP and the 

from-date of the subsequent episode. 

Comment: A commenter asked that 

PEPs be considered from the beginning 

of the episode rather than the first visit 

due to care coordination activities. The 

commenter asserted that agencies 

should receive at least the LUPA rate if 

the episodic payment under PEP would 

be lower than the LUPA. Moreover, the 

commenter noted that since the 

inception of HH PPS, the PEP has been 

implemented in such a way that an 

initial home health agency does not 

receive appropriate recognition from the 

beginning of the episode, recognizing 

that currently the PEP begins at the first 

visit rather than the beginning of the 

episode. 

Response: We do not believe that it is 

appropriate to generate another episode 

type based upon a per-visit basis. At the 

inception of the HH PPS, we decided 

that paying for LUPA episodes on a pervisit basis was appropriate due to the 

extremely low number of visits 

provided in such an episode. One of the 

goals of a PPS for home heath was to 

move away from a system that pays on 

a per-visit basis. 

Comment: A commenter suggested 

that CMS eliminate the PEP due to its 

adverse clinical, administrative, and 

financial impact. The commenter stated 

PEP adjustments require significant 

resource utilization for agencies with 

minimal reimbursement as HHAs frontload costs. Additionally, the commenter 

further noted while HHAs have 

developed strategies to minimize 

hospitalizations and SNF admissions, 

the HHAs often cannot affect the 

patient’s level of acuity or social 

situation, which can result in a PEP 

episode. 

Response: We disagree with the 

commenter. We believe the PEP 

adjustment is provided in a manner that 

maintains the opportunity for Medicare 

patients to choose the provider with 

which they feel most comfortable while 

ensuring that the Medicare Trust Funds 

are protected by a policy that ensures 

adequate payment levels that reflect the 

care provided by each HHA to a 

beneficiary in a transfer situation. 

Comment: A commenter was 

disappointed that CMS did not make 

changes in the PEP adjustment to more 

accurately allocate costs, believing that 

the current methodology often 

underpays in the case of PEP transfers. 

Specifically, the commenter felt it is 

particularly troubling when the PEP 

occurs without the first agency’s 

knowledge as often the patient has had 

an intervening hospital stay and is 

advised by the hospital that it is 

preferable or required that the patient 

use a hospital-based HHA upon 

discharge, thus generating the PEP. 

There are cases where the patient or 

family is confused and seeks care from 

a second agency, believing that using 

two HHAs is allowable and is better 

than having just one. The commenter 

again noted that these visits tend to be 

front-loaded, and prorating from first to 

last billable visit systematically 

underpays the initiating agency and 

penalizes agencies who follow QIO 

advice on front-loading visits to avoid 

re-hospitalization. The commenter 

suggested that CMS prorate the initial 

PEP episode based on the ratio of days 

between the first billable visit and 

discharge to the subsequent agency. 

Response: As stated in the proposed 

rule, we believe that HHAs have some 

flexibility in discharge decisions that 

affect the likelihood of incurring a 

partial episode (72 FR 25423), whether 

or not a hospital stay intervenes (72 FR 

25423). HHAs also have indirect 

influence on a beneficiary’s decision to 

transfer to another HHA through the 

quality of care they provide. 

Additionally, current data suggest that 

PEP episodes are rare, and therefore, the 

current PEP policy may be serving as a 

deterrent to premature discharge. We 

believe that the PEP adjustment is 

provided in a manner that maintains the 

opportunity for Medicare patients to 

choose the provider with which they 

feel most comfortable. We also note that, 

as we did in the proposed rule, in many 

cases an HHA received payment for an 

additional full episode which it might 

not have received had the first episode 

not been subject to a PEP adjustment (72 

FR 25423). We do recognize that PEP 

episodes provide, on average, 75 percent 

of the average number of visits for 

normal episodes, which parallels the 

QIO’s advice to HHAs to provide more 

visits early in an episode of care to 

prevent re-hospitalizations. 

Comment: A commenter asked that 

we reopen the episode if a patient 

returns to the HHA within 60 days, and 

only pay for the time services were 

given. 

Response: HHAs have some flexibility 

in discharge decisions that affect the 

likelihood of incurring a partial episode, 

whether or not a hospital stay 

intervenes. They also have indirect 

influence on a beneficiary’s decision to 

transfer to another home care provider 

through the quality of care they provide. 

Whether or not a given episode remains 

open is subject to whether or not the 

goals of the plan of care have been met 

and a particular HHAs’s discharge 

policy. We believe that it would be 

inappropriate for CMS to dictate 

whether or not or when an HHA should 

discharge a patient, as we believe those 

sorts of decisions are best left up to the 

HHA. Consequently we do not believe 

that a policy to reopen an episode if the 

patient returns to the HHA within the 

60 days would be an appropriate policy. 

In addition, we believe that prorating an 

episode, as the commenter suggests, 

would unnecessarily further complicate 

the PEP payment policy. 

In summary, there are several 

methods that could be used to refine the 

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PEP adjustment methodology, as 

recommended by commenters. Another 

possible approach could involve 

weighting the payment to reflect the 

front-loading of visits, but it is not clear 

at this time what an appropriate 

approach to refinement of the PEP 

policy would be. We intend to study the 

comments provided, continue public 

discussion on this issue, and look 

towards the possible refinement of this 

adjustment in future rulemaking. 

2. The Low-Utilization Payment 

Adjustment (LUPA) 

The low utilization payment 

adjustment (LUPA) reduces the 60-day 

episode payment when minimal 

services are provided during a 60-day 

episode. LUPAs are episodes with four 

or fewer visits and receive a wageadjusted average per visit amount per 

home health discipline, instead of a full 

60-day episode payment. The home 

health industry suggests that the LUPA 

payment rates do not adequately 

account for the front-loading of costs in 

an episode. In performing our 

refinement research, we found that the 

average visit lengths in these initial 

LUPAs are 16 to 18 percent higher than 

the average visit lengths in initial nonLUPA episodes. For a complete 

description of the LUPA review, 

analysis, and research performed, we 

refer to the CY 2008 HH PPS proposed 

rule (72 FR 25423–27). In the proposed 

rule, we proposed to increase payment 

by $92.63 for LUPA episodes that occur 

as the first or only episode in a sequence 

of adjacent episodes. 

Comment: Several commenters asked 

that NRS supplies, particularly catheters 

and ostomy supplies, be reimbursed as 

part of the LUPA payment. One 

suggested that we develop a NRS addon using diagnostic categories. Others 

noted that some LUPAs require wound 

care supplies or chest drains. Several 

commenters believed that we proposed 

to remove the NRS payment from 

LUPAs and asked that we reconsider 

this proposal. One suggested we 

reimburse HHAs 200 percent of the 

supply cost to cover overhead or 

establish a fee schedule that lists out 

reimbursement rates for medical 

supplies. 

Response: LUPA episodes are paid on 

a per-visit basis. Currently LUPA 

payments include NRS paid under a 

home health plan of care, NRS possibly 

unbundled to Part B, and a per-visit 

ongoing OASIS reporting adjustment. 

Moreover, contrary to the commenters’

statements, the original 2000 NRS 

amount of $1.94 included in the LUPA 

per visit rates has been updated 

annually and has not been removed. 

Furthermore, our analysis of NRS 

showed that NRS charges for non-LUPA 

episodes are almost 3 times higher than 

for LUPA episodes. In the proposed 

rule, we expressed concerns that adding 

an additional amount to LUPA 

payments for NRS could promote 

increases in medically unnecessary 

home health episodes, and therefore did 

not propose any additional payments for 

NRS costs for LUPA episodes (72 FR 

25430.) 

An analysis of a 20-percent sample of 

home health episodes covering more 

than 3 years of experience with HH PPS 

revealed that there were approximately 

179,845 LUPA episodes. While some 

LUPA patients were in high severity 

groups, overall LUPA patients had 

somewhat lower clinical and functional 

severity. These data indicated that 

LUPAs are serving as a low-end outlier 

payment for certain episodes that incur 

unexpectedly low costs. Other LUPA 

episodes result from expected care 

patterns for patients with particular 

conditions (for example, neurogenic 

bladder). 

Section 1861(m)(5) of the Act, 

specifically, includes catheters, catheter 

supplies, and ostomy bags and supplies 

as a covered home health supply. They 

are considered to be non-routine in 

nature, and are bundled into the HH 

PPS payment rates. Catheters and 

catheter supplies are on our list of NRS 

codes subject to consolidated billing 

which is posted on CMS’s home health 

Web Site at http://www.cms.hhs.gov/ 

center/hha.asp (go to ‘‘Billing/ 

Payment’’, and then ‘‘Home Health 

Coding and Billing’’). 

Comment: While there was 

widespread support for the revised 

LUPA payment, many commenters 

asked that the additional $92.63 apply 

to all LUPAs and not just to the first and 

only LUPA or the initial LUPA in a 

series of adjacent episodes. A number of 

commenters noted that the 

reimbursement still does not cover the 

costs of LUPA episodes and suggested 

increasing the payments further. 

Response: The proposed additional 

payment of $92.63 was intended to 

cover the front-loading of costs which 

occurs in an initial assessment in a 

LUPA episode. We analyzed LUPA 

episodes and found that the average 

visit length for nursing for an initial 

assessment averaged twice as long as the 

length of other visits. Similarly, the 

initial assessment visit made by a 

physical therapist was 25 percent longer 

than other physical therapy visits. We 

did not find that all visits in LUPA 

episodes were longer than average, and 

as such, we proposed to provide the 

additional $92.63 only for those LUPAs 

that are the first in a series of adjacent 

episodes or the only episode. After 

updating the payment model using 2005 

data and re-analyzing the characteristics 

of all LUPAs, the results continue to 

support providing a revised payment for 

LUPA episodes, but only for those that 

occur as the first episode in a sequence 

of adjacent episodes or the only episode. 

Using the updated 2005 data, the 

additional revised payment for first 

episode LUPAs or the only episode is 

$87.93. 

Comment: We received universal 

support for the revised LUPA payment, 

but several commenters noted that due 

to treatment timing, HHA clinicians 

often must make an additional, nonchargeable visit for the sole purpose of 

completing an OASIS follow-up 

assessment in the required 5-day 

window or for a recertification visit. 

These can occur with catheter and 

vitamin B–12 patients. The commenters 

claimed the costs for these visits are not 

captured in claims data as HHAs are 

prohibited from billing for assessmentonly visits. Again, this claim often 

occurs with catheter patients. Another 

commenter noted that CMS only 

included an estimate of additional 

minutes of direct service cost for 

assessment in its LUPA cost calculation, 

rather than the entire administrative 

cost the agency bears. Another noted 

that our analysis may have been 

influenced by data issues in industry 

cost reports. One commenter asked for 

higher reimbursement for acute patients 

who cannot remain at home and become 

a LUPA patient through no fault of the 

HHA. 

Response: We derived a revised final 

value for the increase to LUPA episodes 

that occur as the only episode or the 

initial episode during a sequence of 

adjacent episodes from a new data base 

consisting of visit line items from a 

large, representative sample of claims in 

2005. This method enabled us to 

measure the entire excess of minutes 

due to both OASIS and administrative 

activities of the type cited in the 

comment. This database showed that 

the average excess of minutes for the 

first visit in episodes that were single 

LUPAs or initial LUPAs in a sequence 

of episodes was 38.5 for the first visit if 

skilled nursing, 25.1 for the first visit if 

physical therapy, and 22.6 for the first 

visit if speech therapy. We then 

expressed these excess values as a 

proportion of the average number of 

minutes for all nonfirst visits in nonLUPA episodes (42.5, 45.6, and 48.6 for 

skilled nursing, physical therapy, and 

speech therapy, respectively). We then 

proportionately inflated the per-visit 

payment, using LUPA per-visit payment 

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rates, in accordance with these excess 

values. Finally, using an appropriate set 

of weights representing the share of 

LUPA first visits for skilled nursing 

(77.8 percent), physical therapy (21.7 

percent), and speech therapy (0.5 

percent), respectively, we calculated the 

revised increase of $87.93 for LUPA 

episodes that occur as the only episode 

or the initial episode during a sequence 

of adjacent episodes. We did not use 

cost reports in computing the LUPA 

revised payment amount. We also do 

not take into account the underlying 

reasons leading to a LUPA. 

Comment: Several commenters were 

unclear about how we propose to 

identify the timing of a LUPA episode 

as an only episode or initial episode in 

a series of adjacent episodes. Another 

noted commenter believed that the 

LUPA continuing episode will be 

determined from claims data where the 

start-of-care date is the same as the 

‘‘from’’ date. 

Response: A LUPA episode is 60 days 

long. An initial episode is an episode in 

which a gap of greater than 60 days 

exists before the from-date of that LUPA 

episode. A LUPA episode that exists as 

an only episode is an episode with a gap 

of greater than 60 days both before the 

beginning and after the end of the LUPA 

episode. LUPAs, other than only 

episodes, would be considered as 

adjacent episodes to other episodes if no 

more than 60 days occur between the 

end of one episode and the beginning of 

the next, except for those episodes that 

have been PEP-adjusted. 

Comment: A commenter noted that 

the LUPA payments cover about half the 

costs of rural agencies, and asked that 

we increase LUPA payment rates, 

particularly for rural agencies. 

Response: The per-visit rates used for 

payment of LUPA episodes and used in 

the outlier calculation are based on visit 

cost data from audited cost reports. We 

believe this to be the most appropriate 

and accurate data on which to base 

these rates. Currently, there exists no 

rural add-on for home health services 

provided in a rural area. However, 

LUPA payments are wage adjusted to 

account for geographic differences. 

Comment: Several commenters noted 

that the home health industry had not 

billed for supplies or kept good records 

of supplies used, and that this 

contributed to the difficulty in 

analyzing NRS use in general and in 

LUPA episodes. One commenter 

suggested that billing for non-routine 

medical supplies, specifying the type of 

supply and quantity, should be made 

mandatory for all episodes and LUPAs 

to gather data for future evaluation of 

diagnosis and rates of payment. The 

commenter also wanted it made 

mandatory for all episodes and LUPAs 

to support any request for payment 

based upon severity scores and severity 

levels, or such payment will be negated. 

Another commenter suggested we 

require that supplies be charged on 

claims in order to receive NRS payment. 

Response: We will continue to study 

supply use, and will make 

improvements to our method of 

accounting for NRS costs as the data 

warrant. We encourage HHAs to 

develop in-house mechanisms to 

improve their supply tracking, and to 

report supplies used on their claims. In 

section III.C.4, we address the 

mandatory reporting of supplies. 

Comment: A commenter noted that 

CMS has determined that later episodes 

cost 7 percent more, but has chosen not 

to differentiate early and later LUPA 

episodes. The commenter questioned 

data that increases payment for one 

payment type and does not do the same 

for another payment type. 

Response: Providing for an additional 

payment for initial and only LUPA 

episodes is actually similar to the 

concept of early and later episodes 

proposed for the full 60-day episode 

payment. The results of data analysis 

done on LUPA episodes did not support 

providing a revised payment for LUPA 

episodes that exist as the second or 

subsequent LUPA episode in a sequence 

of adjacent episodes, as the case-mix 

model does for all other types of 

episodes. Instead, data do support a 

revised payment for initial and only 

LUPA episodes. 

Comment: While we received 

widespread support for the revised 

LUPA payment, a commenter noted that 

the analysis focused principally on 

nursing and physical therapy visits for 

LUPAs. The commenter encouraged 

CMS to examine the presence of other 

home health service visits (social 

service, occupational or speech therapy) 

to ensure that the proposed payment 

amount recognizes all service costs 

incurred with these initial visits. 

Response: LUPA episodes average 

approximately 2.5 visits. In an initial or 

only LUPA episode, the first billable 

visit for the episode must be a skilled 

visit. Consequently, the first visits of an 

initial or only LUPA episode would be 

either nursing or physical or speech 

therapy visits. It is these start of care 

nursing and physical or speech therapy 

visits that occur when the case is 

opened and the initial assessment takes 

place, that are longer than the average 

visit length. Consequently, we believe it 

appropriate to base the revised payment 

for initial and only LUPA episodes on 

nursing and physical or speech therapy 

visit rates. 

To summarize, additional analysis did 

not support that all LUPA episodes are 

negatively impacted by the front-loading 

of assessment costs and administrative 

costs. Consequently, for this final rule, 

we are implementing the proposed 

provision of paying a revised payment 

amount to LUPA episodes that occur as 

the only episode or the first episode in 

a sequence of adjacent episodes. That 

additional amount has been calculated 

to be $87.93, for CY 2008. To account 

for the additional payment to LUPA 

episodes that occur as the first episode 

in a sequence of adjacent episodes or as 

the only episode, and maintain budget 

neutrality, we reduce the national 

standardized 60-day episode payment 

rate. 

3. The Significant Change in Condition 

(SCIC) Adjustment 

In the proposed rule, for 2008, we 

proposed to eliminate our SCIC policy, 

which allowed an HHA to adjust 

payment when a beneficiary 

experiences a SCIC during the 60-day 

episode that was not envisioned in the 

original plan of care. The SCIC policy 

was designed and implemented 

primarily to protect HHAs from 

receiving a lower, inadequate payment 

for a beneficiary who unexpectedly got 

worse and became more expensive to 

the agency during the course of a 60-day 

episode. Our margin analysis suggested 

that, on average, SCIC episodes had 

negative margins. We proposed to 

eliminate the SCIC policy based on the 

findings of our analysis and the 

apparent difficulty the industry had in 

interpreting when to apply the SCIC 

adjustment policy. For a full description 

of the SCIC review and analysis, see CY 

2008 HH PPS proposed rule (72 FR 

25425–25426). 

Comment: Several commenters were 

concerned that with the elimination of 

the SCIC, there would be no avenue for 

reimbursement of supplies that were 

needed as a result of a change in 

condition. Some commenters used the 

example of a home health patient 

admitted with an unobservable pressure 

ulcer or surgical wound. The ulcer or 

wound cannot be staged if it is 

unobservable, leaving the HHA with a 

minimum HHRG and large supply 

expenses; the care needs greatly 

increase when stageable. One 

commenter asked for a simplified 

supply SCIC to cover unanticipated 

supply costs that occur when a patient’s 

condition changes. 

Response: As noted in a response to 

a comment in section III.B.8, currently, 

the OASIS guidelines for M0460 do not 

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allow a pressure ulcer with any eschar 

to be staged. We are aware of recent 

revisions issued by the National 

Pressure Ulcer Advisory Panel, 

(NPUAP). Essentially, the NPUAP 

guidance permits the assessment of a 

wound for staging when the wound bed 

is not completely covered with eschar or 

slough. If the bed of the ulcer is 

completely covered with eschar/slough, 

NPUAP guidance stipulates that the 

wound cannot be staged until some of 

the necrotic tissue is removed. After 

reviewing the NPUAP guidance, we 

have revised the instructions 

accompanying this OASIS item to allow 

a wound to be staged if the bed of the 

wound is partially covered by necrotic 

tissue and if the presence of eschar does 

not obscure the depth of the tissue loss. 

We hope this encourages HHAs to 

properly treat pressure ulcers and 

promote their healing. We believe this 

will allow for accurate payment for 

home health patients with wounds that 

are partially covered with eschar/ 

slough. 

Comment: A majority of commenters 

appreciated the concept behind the 

SCIC, but supported our decision to 

eliminate the SCIC, citing complexity 

and administrative burden. 

Response: We appreciate the support 

for our proposal to eliminate the SCIC 

adjustment. 

Comment: Several commenters noted 

that if the SCIC is eliminated, 

completion of an ‘‘Other Follow-up’’

OASIS will not be necessary for 

payment purposes. However, the 

Medicare home health CoPs requires 

completion of the ‘‘Other Follow-up’’

OASIS when there is a SCIC. The 

commenters stated that completion of 

these assessments has been problematic, 

inconsistent, and burdensome for 

HHAs, partly because of limited 

guidance from CMS regarding the kinds 

of clinical changes that require a new 

comprehensive assessment. Specifically, 

when a patient does have a change in 

condition, the plan of care is updated by 

contacting the physician and recording 

verbal/phone orders. This action by 

HHAs is not dependent on completion 

of the OASIS. Additionally, collection 

and submission of OASIS data at this 

time point often masks improvement 

made in the patient’s condition before 

the SCIC. Outcomes measures based on 

the follow-up comprehensive 

assessment are likely to show less 

improvement than a comparison of the 

patient at start of care and discharge. 

The commenters recommended that this 

Condition of Participation be 

eliminated. 

Response: We appreciate the 

comments regarding the significant 

change in condition (SCIC) assessment. 

We note our proposal was limited to 

eliminating the SCIC payment 

adjustment from the HH PPS. Currently, 

the assessment used in SCIC situations 

is used in the quality monitoring aspect 

of the OASIS. This assessment is a 

requirement integrated into the CoPs, 

found at § 484.18(b), and therefore any 

change to the CoP requirement is 

beyond the scope of this payment rule. 

Comment: A commenter suggested 

that the adjustment to the national 

standardized 60-day episode payment of 

$15.71 for the elimination of the SCIC 

was incorrect. The commenter suggested 

that since SCICs have little impact on 

outlays (0.5 percent of total payments 

regardless of urban/rural status, 

ownership, or size) the calculation 

should have been $2,521.17 × 0.5 

percent = $12.64 rather than the $15.71 

quoted in the proposed rule and asked 

that the national standardized 60-day 

episode payment be adjusted. 

Response: The adjustments to the 

national standardized amount reflect 

our best estimates of the amount of the 

budget-neutral target that is allocated in 

order to account for elimination of the 

SCIC, the LUPA add-on, and other 

refinements that are taken as offsets to 

the national standardized amount. The 

estimates of the cost of these 

adjustments also reflect the interaction 

of the outlier payments with other 

payment elements during the 

simulation. 

Comment: A commenter suggested 

that the SCIC adjustment not be 

eliminated. Another asked that we 

withdraw our proposal to remove the 

SCIC until there had been time to 

review the other changes resulting from 

the refinement. 

Response: The SCIC policy was 

designed and implemented primarily to 

protect HHAs from receiving a lower, 

inadequate payment for a beneficiary 

that unexpectedly got worse and became 

more expensive to the agency during the 

course of a 60-day episode. Our 

examination of the SCIC adjustment 

confirmed industry comments that 

HHAs have had difficulty applying the 

SCIC policy, and that margin analysis, 

on average, shows that SCIC episodes 

have negative margins. We believe that 

it is now appropriate to remove the 

SCIC payment adjustment from HH PPS 

and that the proposed refinement 

changes would not have had a 

significant impact on the SCIC payment 

policy. 

In summary, based in part, upon 

comments received, as well as our 

continued analysis of this issue, we are 

finalizing our proposal to eliminate the 

SCIC adjustment policy. To account for 

the elimination of the SCIC adjustment, 

and to maintain budget neutrality, we 

reduce the national standardized 60-day 

episode payment rate. As such, we are 

revising 42 CFR 484.205, 484.237, and 

484.240 to remove all references to the 

SCIC adjustment. 

4. Non-Routine Medical Supplies (NRS) 

To ensure that the variation in nonroutine supplies is more appropriately 

reflected in HH PPS, we proposed to 

replace the original portion ($43.54) of 

the HH PPS base rate that accounted for 

NRS, with a system that pays for nonroutine supplies based on 5 severity 

groups. The classification algorithm is 

based on selected OASIS assessment 

items, similar to the way the clinical 

model was developed. We noted we 

believed the original amount of $43.54 

(updated through 2008) per episode that 

accounts for NRS does not accurately 

reflect the large variation in non-routine 

medical supplies use across patient 

type. In general, use of non-routine 

medical supplies is unevenly 

distributed across episodes of care in 

home health. Specifically, we found that 

patients with certain conditions, many 

of them related to skin conditions, were 

more likely to require high non-routine 

medical supply utilization. For a 

complete description of our analysis 

and research, we refer readers to the CY 

2008 HH PPS proposed rule (72 FR 

25426–25434). 

Comment: Several commenters noted 

that conditions that generate high NRS 

costs are not accounted for in the NRS 

weights. They asked that NRS diagnoses 

include catheters, enteral nutrition, 

chest drains, gastrointestinal tubes, and 

an expanded list of ostomy supplies. 

Some commenters noted that wound 

supply payments are still inadequate. 

Commenters asked that the proposed 

case-mix model be changed to allow 

scoring for these items, and that 

payment for these items be increased 

beyond what is proposed in the rule. 

Response: Section 1861(m)(5) of the 

Act defines home health services and 

specifically lists catheters, catheter 

supplies, ostomy bags and ostomy 

supplies as medical supplies. 

Accordingly, catheters and catheter 

supplies and bowel ostomy supplies are 

already included as covered NRS in the 

proposed rule. We also expanded the 

NRS listing of ostomy supplies to 

include those for cystostomy, 

tracheostomy, and urostomy. 

The proposed rule notes that enteral 

and parenteral nutrition are Part B 

services not covered by the home health 

benefit and not defined as non-routine 

supplies. The Medicare coverage 

guidelines for enteral nutrition are 

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included in the proposed rule, along 

with a table of ‘‘Enteral Items and 

Services’’ which includes the HCPCS 

codes needed for billing. The table 

includes codes for tubing and other 

supplies needed for administering 

enteral nutrition. If a home health 

patient needs enteral nutrition and 

meets the criteria for coverage, 

providers may claim reimbursement by 

using the UB–92 claim form. Payment is 

then made by the RHHI under the Part 

B Medicare Fee Schedule, rather than 

through the home health benefit. 

Comment: Most commenters believed 

that NRS supplies are underreported; 

the industry is grappling with an 

efficient mechanism to consistently 

capture the supplies used. While most 

commenters appreciated our proposed 

increase in our approach to better 

account for NRS payments, many noted 

that the analysis was based on 

incomplete information that 

inadequately reflects the providers’ true 

costs. One commenter suggested that 

CMS consider requiring agencies to 

report supply costs if they wish to 

receive reimbursement above the first 

severity level. Without such a 

requirement, agencies that fail to make 

the effort to identify and report these 

costs will receive the same advantages 

as those that do, and would have an 

unfair result. 

CMS was also encouraged to continue 

studying the NRS issue as the 

compensation can fall far short of what 

agencies expend for their most supplyintensive patients. 

Response: We appreciate the 

commenter’s concern that without a 

requirement for HHAs to report NRS on 

the claim, those agencies that fail to 

make the effort to identify and report 

NRS costs will receive the same 

considerations for payment as those that 

do report NRS. We believe that it is 

imperative that HHAs report these 

supplies on their claims so that we can 

improve the accuracy of our system and 

better reflect costs when paying for 

NRS. 

We have consistently encouraged 

home health agencies to develop inhouse mechanisms to improve their 

supply tracking, and to report supplies 

used on their claims. Our data for 2003 

indicate that the percentages of agencies 

not reporting supplies on claims to be 

similar to percentages that existed 

during the HH IPS baseline. We are 

concerned with the commenter’s 

assertion that NRS supplies are 

underreported, and the limitations this 

underreporting puts on any future work 

towards refining payment to HHAs for 

providing NRS. To adequately account 

for and pay for NRS costs, we expect 

that HHAs will report NRS costs on 

their claims. To ensure that NRS costs 

are being reported, claims that do not 

report NRS costs, unless explicitly 

noted by the HHA that NRS was not 

provided, will be returned to the 

provider (RTP). For episodes in which 

NRS was provided, the provider will 

need to resubmit the claim with NRS 

reported. For episodes in which NRS 

was not provided, the HHA will need to 

explicitly note that fact on the claim. 

We will allow a grace period, which 

will be determined and communicated 

in instructions from CMS. This will 

provide stronger incentives to HHAs to 

report NRS, resulting in more accurate 

NRS data for possible future refinements 

to this aspect of the HH PPS. We will 

continue to study supply use, and will 

make improvements to how we account 

for and pay for NRS as the data warrant. 

Comment: A commenter is concerned 

that the bundling of NRS in a budgetneutral system will continue to create a 

growing payment disparity as new and 

more expensive technologies are 

applied to home care. Each year, new 

supplies are added to the HH PPS 

bundle that did not exist when the 

baseline was established for HH PPS. 

The commenter urged CMS to freeze 

NRS codes that are currently bundled 

and unbundle new NRS technology 

from HH PPS as it emerges. Another 

commenter asked that NRS be 

reimbursed through the DME fee 

schedule. 

Response: We appreciate the concern 

about supply costs and particularly 

about the cost of new technologies. If 

agencies will report these supplies on 

their claims, the costs of supplies, 

including new technologies, will be 

captured in future data analyses. 

Section 1895 of the Act, as added by 

section 4603(a) of the Balanced Budget 

Act of 1997, provided the authority for 

the development of a HH PPS for all 

Medicare-covered home health services 

paid on a reasonable cost basis. Section 

1895(b)(1) of the Act requires the 

Secretary to establish a HH PPS for all 

costs of home health services, including 

medical supplies. Therefore, medical 

supplies are bundled into the HH PPS 

payment, as required by the statute, and 

are subject to consolidated billing. DME, 

on the other hand, was explicitly 

statutorily excluded from consolidated 

billing. 

Comment: Several commenters were 

concerned that the proposed model for 

reimbursing NRS has poor performance 

and a low R-squared of 13.7 percent. 

The commenter cited industry 

difficulties in reporting supply costs, 

and high supply costs for particular 

diagnoses. One commenter noted that 

their RHHI could not process supply 

lines on claims for an unspecified 

period of time. Several commenters 

mentioned high supply costs for 

particular items, such as chest drains, 

which can cost $500 to $600 per month. 

Commenters asked that CMS abandon 

the NRS supply model as proposed as 

it would underpay HHAs for supplies 

used. 

Response: In general, we acknowledge 

NRS use is unevenly distributed across 

episodes of care in home health. While 

most patients do not use NRS, many use 

a small amount, and a small number of 

patients use a large amount. It is 

important to note that while Durable 

Medical Equipment (DME) is covered 

under the home health benefit, such 

items are not included in the HH PPS 

payment and thus can be billed for 

separately either by the HHA or a DME 

supplier and are not subject to home 

health consolidated billing. In 

developing the proposed approach for 

NRS payment, we sought to more 

accurately match Medicare payments for 

NRS to agency costs. The proposed and 

final regression models were developed 

after creating additional variables from 

OASIS items and targeting certain 

conditions expected to be predictors of 

NRS use based on clinical 

considerations. The sample only 

included HHAs whose total charges on 

claims matched their total charges on 

their cost reports for that same year, and 

thus, any issues with RHHI processing 

did not impede the analysis. 

Since the proposed rule, we updated 

our data base for the NRS analysis to be 

representative of episodes from 2004 

and 2005. This analysis relies on cost 

reports to derive cost-to-charge ratios for 

estimating NRS costs on claims, and the 

latest data available incorporated 2004 

cost reports. The results of modeling the 

NRS costs are shown in the scoring 

table, Table 10A. Since updating the 

data base, we have added several new 

variables, such as diabetic ulcers, and 

re-specified the treatment of certain 

wound variables (for example, counts 

and stages of pressure ulcers) in the 

final model. 

We explored the concern that the 

proposed 5th severity group level did 

not provide adequate reimbursement for 

episodes with a high-utilization of NRS. 

In response to those comments, and as 

a result of further analysis, we are 

implementing a system that pays for 

non-routine supplies based on 6 severity 

groups. The 6th group is a subset of the 

previously proposed 5th group. Our 

analysis revealed that a small 

percentage of cases in the proposed 5th 

severity group may not have adequately 

reflected the resources required for 

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providing care in this group. 

Consequently, in recognizing that a 

small percentage of episodes incur 

higher costs than the majority of 

episodes in the 5th severity group, we 

split the small percentage of high cost 

NRS cases from the 5th severity group 

to form a 6th severity group. Under the 

final 6 severity NRS approach, the 6th 

severity level is associated with a higher 

score and higher payment than any of 

the severity levels in the proposed rule. 

The R-squared for this final model is 

16.6 percent. The sample was trimmed 

to eliminate outliers, where outliers 

were defined to be episodes with NRS 

costs estimated to be $3,500 or higher. 

The trimming procedure resulted in a 

small loss from the total sample size. A 

total of 2,653 episodes were excluded 

(less than 0.09 percent) out of a total 

sample of 2,974,678 episodes. Our 

sample for the NRS analysis consisted of 

all agencies whose total charges 

reported on claims matched their total 

charges reported in the cost reports, but 

as these trimming requirements show, 

the resulting sample included a relative 

few questionable sample data points. 

We believe the final regression model 

represents the relationships between 

case-mix and NRS cost among a highly 

representative sample of episodes and 

agencies nationally. 

While we have not yet developed a 

statistical model that has performed 

with a high degree of predictive 

accuracy, we believe this may due to the 

limited data available to model NRS 

costs, and the likelihood that OASIS 

does not have any measures available 

for some kinds of NRS. Notwithstanding 

these concerns, we are changing the 

payment system because the majority of 

episodes do not incur any NRS costs, 

and the current payment system 

overcompensates these episodes. The 

final NRS approach better matches NRS 

payments with NRS costs incurred in 

the episode. We will continue to look 

for ways to improve our approach to 

account for NRS. 

Comment: Several commenters noted 

that the NRS analysis was based on 

1997 costs rather than more recent data; 

one suggested using 2005 data. Another 

suggested that we tie annual increases 

in supply costs to a medical supply 

inflation index. 

Response: The analysis file used to 

develop the proposed NRS case-mix 

model for the proposed rule was based 

on 2001 cost reports. The cost reports 

were then linked to claims to determine 

the cost-to-charge ratios, which were 

used to estimate NRS costs for the 

episodes in the sample. For this final 

rule, we updated the database upon 

which our payment proposal for NRS 

was based to use 2004 and 2005 data. 

Again, to refine payments for NRS will 

depend on the quality of the data 

available in claims and costs reports for 

succeeding years. We note we are 

revising our NRS policy to require 

HHAs to specifically note on submitted 

claims NRS in any episode in which a 

NRS is provided. 

Comment: A commenter asked that 

HHAs only be responsible for providing 

NRS for those conditions that are 

included in the plan of care. 

Response: The plan of care is to be 

established and periodically reviewed 

by the patient’s physician. The CoPs for 

HHAs in 42 CFR 484.18 state that ‘‘the 

plan of care developed in consultation 

with the agency staff covers all pertinent 

diagnoses, including mental status, 

types of services and equipment 

required, frequency of visits, prognosis, 

rehabilitation potential, functional 

limitations, activities permitted, 

nutritional requirements, medications 

and treatments, any safety measures to 

protect against injury, instructions for 

timely discharge or referral, and any 

other appropriate items.’’ Accordingly, 

because the CoPs require that all 

pertinent diagnoses are included on the 

plan of care, the plan of care should 

include any conditions for which NRS 

is necessary for the treatment of those 

diagnoses, and NRS should be provided 

and reported being supplied. 

Comment: Several commenters asked 

for additional diagnoses codes to be 

included in the NRS supply list. A few 

asked for V44.0–V.44.9 specifically. 

While they appreciate the attempt to 

improve NRS payment, several 

commenters noted that the payments are 

still inadequate. 

Response: We tested selected stoma 

V-codes mentioned by the commenter. 

We selected codes for testing that were 

not already represented by other 

variables in the model. The final NRS 

model reflects additional conditions for 

scoring, when reported using the 

selected V-codes. We also believe under 

our final 6 severity group methodology, 

HH PPS will better reflect the NRS costs 

and usage. 

In summary, we are implementing a 6 

severity group methodology for the 

paying of NRS in the HH PPS, as shown 

in Table 9 below. We believe that 

adding a 6th severity group better 

recognizes episodes with higher NRS 

costs. To account for paying of NRS 

through the implementation of a 6- 

severity group methodology, and to 

maintain budget neutrality, we reduce 

the national standardized 60-day 

episode payment rate. 

TABLE 9. RELATIVE WEIGHTS FOR NON-ROUTINE MEDICAL SUPPLIES—SIX-GROUP APPROACH

Severity 

level 

Percentage 

of 

episodes 

Points 

(scoring) 

Relative 

weight 

Payment 

amount 

1 ....................................................................... 63.7 0 .................................................................... 0.2698 $14.12 

2 ....................................................................... 20.6 1 to 14 ........................................................... 0.9742 51.00 

3 ....................................................................... 6.7 15 to 27 ......................................................... 2.6712 139.84 

4 ....................................................................... 5.4 28 to 48 ......................................................... 3.9686 207.76 

5 ....................................................................... 3.2 49 to 98 ......................................................... 6.1198 320.37 

6 ....................................................................... 0.3 99+ ................................................................ 10.5254 551.00 

Note: NRS conversion factor = $52.35. The 

NRS conversion factor is the market-basketupdated amount CMS originally included in 

the HH PPS episode base rate ($49.62), after 

adjustment for nominal change in case-mix. 

We have also included the final 

versions of Table 10A and Table 10B 

below. 

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TABLE 10A.—NRS CASE-MIX ADJUSTMENT VARIABLES AND SCORES

Item Description Score 

SELECTED SKIN CONDITIONS 

1 ....................................... Primary diagnosis = Anal fissure, fistula and abscess ................................................................................. 15 

2 ....................................... Other diagnosis = Anal fissure, fistula and abscess ..................................................................................... 13 

3 ....................................... Primary diagnosis = Cellulitis and abscess ................................................................................................... 14 

4 ....................................... Other diagnosis = Cellulitis and abscess ...................................................................................................... 8 

5 ....................................... Primary or other diagnosis = Diabetic ulcers ................................................................................................ 20 

6 ....................................... Primary diagnosis = Gangrene ...................................................................................................................... 11 

7 ....................................... Other diagnosis = Gangrene ......................................................................................................................... 8 

8 ....................................... Primary diagnosis = Malignant neoplasms of skin ........................................................................................ 15 

9 ....................................... Other diagnosis = Malignant neoplasms of skin ........................................................................................... 4 

10 ..................................... Primary or Other diagnosis = Non-pressure and non-stasis ulcers .............................................................. 13 

11 ..................................... Primary diagnosis = Other infections of skin and subcutaneous tissue ....................................................... 16 

12 ..................................... Other diagnosis = Other infections of skin and subcutaneous tissue .......................................................... 7 

13 ..................................... Primary diagnosis = Post-operative Complications ....................................................................................... 23 

14 ..................................... Other diagnosis = Post-operative Complications .......................................................................................... 15 

15 ..................................... Primary diagnosis = Traumatic Wounds and Burns ..................................................................................... 19 

16 ..................................... Other diagnosis = Traumatic Wounds and Burns ......................................................................................... 8 

17 ..................................... Primary or other diagnosis = V code, Cystostomy care ............................................................................... 16 

18 ..................................... Primary or other diagnosis = V code, Tracheostomy care ........................................................................... 23 

19 ..................................... Primary or other diagnosis = V code, Urostomy care ................................................................................... 24 

20 ..................................... OASIS M0450 = 1 or 2 pressure ulcers, stage 1 ......................................................................................... 4 

21 ..................................... OASIS M0450 = 3+ pressure ulcers, stage 1 ............................................................................................... 6 

22 ..................................... OASIS M0450 = 1 pressure ulcer, stage 2 ................................................................................................... 14 

23 ..................................... OASIS M0450 = 2 pressure ulcers, stage 2 ................................................................................................. 22 

24 ..................................... OASIS M0450 = 3 pressure ulcers, stage 2 ................................................................................................. 29 

25 ..................................... OASIS M0450 = 4+ pressure ulcers, stage 2 ............................................................................................... 35 

26 ..................................... OASIS M0450 = 1 pressure ulcer, stage 3 ................................................................................................... 29 

27 ..................................... OASIS M0450 = 2 pressure ulcers, stage 3 ................................................................................................. 41 

28 ..................................... OASIS M0450 = 3 pressure ulcers, stage 3 ................................................................................................. 46 

29 ..................................... OASIS M0450 = 4+ pressure ulcers, stage 3 ............................................................................................... 58 

30 ..................................... OASIS M0450 = 1 pressure ulcer, stage 4 ................................................................................................... 48 

31 ..................................... OASIS M0450 = 2 pressure ulcers, stage 4 ................................................................................................. 67 

32 ..................................... OASIS M0450 = 3+ pressure ulcers, stage 4 ............................................................................................... 75 

33 ..................................... OASIS M0450e = 1 (unobserved pressure ulcer(s)) .................................................................................... 17 

34 ..................................... OASIS M0470 = 2 (2 stasis ulcers) .............................................................................................................. 6 

35 ..................................... OASIS M0470 = 3 (3 stasis ulcers) .............................................................................................................. 12 

36 ..................................... OASIS M0470 = 4 (4+ stasis ulcers) ............................................................................................................ 21 

37 ..................................... OASIS M0474 = 1 (unobservable stasis ulcers) ........................................................................................... 9 

38 ..................................... OASIS M0476 = 1 (status of most problematic stasis ulcer: fully granulating) ............................................ 6 

39 ..................................... OASIS M0476 = 2 (status of most problematic stasis ulcer: early/partial granulation) ................................ 25 

40 ..................................... OASIS M0476 = 3 (status of most problematic stasis ulcer: not healing) .................................................... 36 

41 ..................................... OASIS M0488 = 2 (status of most problematic surgical wound: early/partial granulation) .......................... 4 

42 ..................................... OASIS M0488 = 3 (status of most problematic surgical wound: not healing) .............................................. 14 

OTHER CLINICAL FACTORS 

43 ..................................... OASIS M0550 = 1 (ostomy not related to inpt stay/no regimen change) .................................................... 27 

44 ..................................... OASIS M0550 = 2 (ostomy related to inpt stay/regimen change) ................................................................ 45 

45 ..................................... Any ‘Selected Skin Conditions’ (rows 1–42 above) AND M0550 = 1 (ostomy not related to inpt stay/no 

regimen change).

14 

46 ..................................... Any ‘Selected Skin Conditions’ (rows 1–42 above) AND M0550 = 2 (ostomy related to inpt stay/ regimen 

change).

11 

47 ..................................... OASIS M0250 (Therapy at home) =1 (IV/Infusion) ....................................................................................... 5 

48 ..................................... OASIS M0520 = 2 (patient requires urinary catheter) .................................................................................. 9 

49 ..................................... OASIS M0540 = 4 or 5 (bowel incontinence, daily or >daily) ....................................................................... 10 

Note: Points are additive, however points 

may not be given for the same line item in 

the table more than once. Points are not 

assigned for a secondary diagnosis if points 

are already assigned for a primary diagnosis 

from the same diagnosis/condition group. 

See Table 12b for definitions of diagnosis/ 

condition groups. 

Please see Medicare Home Health 

Diagnosis Coding guidance at http:// 

www.cms.hhs.gov/HomeHealthPPS/ 

03_coding&billing.asp for definitions of 

primary and secondary diagnoses. 

TABLE 10B.—ICD–9–CM DIAGNOSES INCLUDED IN THE DIAGNOSTIC CATEGORIES FOR THE NONROUTINE SUPPLIES

(NRS) CASE-MIX ADJUSTMENT MODEL

Diagnostic Category ICD–9–CM 

Code* Manifestation Short Description of ICD–9–CM Code 

Anal fissure, fistula and abscess .. 565 .................... ........................... ANAL FISSURE AND FISTULA. 

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TABLE 10B.—ICD–9–CM DIAGNOSES INCLUDED IN THE DIAGNOSTIC CATEGORIES FOR THE NONROUTINE SUPPLIES

(NRS) CASE-MIX ADJUSTMENT MODEL—Continued 

Diagnostic Category ICD–9–CM 

Code* Manifestation Short Description of ICD–9–CM Code 

566 .................... ........................... ABSCESS OF ANAL AND RECTAL REGIONS. 

Cellulitis and abscess .................... 681.00 ............... ........................... FINGER—CELLULITIS AND ABSCESS, UNSPECIFIED. 

681.01 ............... ........................... FELON. 

681.10 ............... ........................... TOE—CELLULITIS AND ABSCESS, UNSPECIFIED. 

681.9 ................. ........................... CELLULITIS AND ABSCESS OF UNSPECIFIED DIGIT. 

682 .................... ........................... OTHER CELLULITIS AND ABSCESS. 

Diabetic Ulcers .............................. 250.8x & 

707.10–707.9.

........................... (PRIMARY OR FIRST OTHER DIAGNOSIS = 250.8x AND PRIMARY OR FIRST OTHER DIAGNOSIS = 707.10- 707.9). 

Gangrene ....................................... 440.24 ............... ........................... ATHERSCLER-ART EXTREM W/GANGRENE. 

785.4 ................. M ...................... GANGRENE. 

Malignant neoplasms of skin ......... 172 .................... ........................... MALIGNANT MELANOMA OF SKIN. 

173 .................... ........................... OTHER MALIGNANT NEOPLASM OF SKIN. 

Non-pressure and non-stasis ulcers (other than diabetic).440.23 ............... ........................... ATHEROSCLER-ART EXTREM W/ULCERATION. 

447.2 ................. ........................... RUPTURE OF ARTERY. 

447.8 ................. ........................... OTHER SPECIFIED DISORDERS OF ARTERIES AND 

ARTERIOLES. 

707.10 ............... ........................... ULCER OF LOWER LIMB, UNSPECIFIED. 

707.11 ............... ........................... ULCER OF THIGH. 

707.12 ............... ........................... ULCER OF CALF. 

707.13 ............... ........................... ULCER OF ANKLE. 

707.14 ............... ........................... ULCER OF HEEL AND MIDFOOT. 

707.15 ............... ........................... ULCER OF OTHER PART OF FOOT. 

707.19 ............... ........................... ULCER OF OTHER PART OF LOWER LIMB. 

707.8 ................. ........................... CHRONIC ULCER OTHER SPECIFIED SITE. 

707.9 ................. ........................... CHRONIC ULCER OF UNSPECIFIED SITE. 

Other infections of skin and subcutaneous tissue.680 .................... ........................... CARBUNCLE AND FURUNCLE. 

683 .................... ........................... ACUTE LYMPHADENITIS. 

685 .................... ........................... PILONIDAL CYST. 

686 .................... ........................... OTH LOCAL INF SKIN&SUBCUT TISSUE. 

Post-operative Complications ........ 998.11 ............... ........................... HEMORRHAGE COMPLICATING A PROCEDURE. 

998.12 ............... ........................... HEMATOMA COMPLICATING A PROCEDURE. 

998.13 ............... ........................... SEROMA COMPLICATING A PROCEDURE. 

998.2 ................. ........................... ACC PUNCT/LACERATION DURING PROC NEC. 

998.4 ................. ........................... FB ACC LEFT DURING PROC NEC. 

998.6 ................. ........................... PERSISTENT POSTOPERATIVE FIST NEC. 

998.83 ............... ........................... NON-HEALING SURGICAL WOUND NEC. 

Traumatic wounds, burns and 

post-operative complications.

870 .................... ........................... OPEN WOUND OF OCULAR ADNEXA. 

872 .................... ........................... OPEN WOUND OF EAR. 

873 .................... ........................... OTHER OPEN WOUND OF HEAD. 

874 .................... ........................... OPEN WOUND OF NECK. 

875 .................... ........................... OPEN WOUND OF CHEST. 

876 .................... ........................... OPEN WOUND OF BACK. 

877 .................... ........................... OPEN WOUND OF BUTTOCK. 

878 .................... ........................... OPEN WND GNT ORGN INCL TRAUMAT AMP. 

879 .................... ........................... OPEN WOUND OTH&UNSPEC SITE NO LIMBS. 

880 .................... ........................... OPEN WOUND OF SHOULDER&UPPER ARM. 

881 .................... ........................... OPEN WOUND OF ELBOW, FOREARM&WRIST. 

882 .................... ........................... OPEN WOUND HAND EXCEPT FINGER ALONE. 

883 .................... ........................... OPEN WOUND OF FINGER. 

884 .................... ........................... MX&UNSPEC OPEN WOUND UPPER LIMB. 

885 .................... ........................... TRAUMATIC AMPUTATION OF THUMB. 

886 .................... ........................... TRAUMATIC AMPUTATION OTHER FINGER. 

887 .................... ........................... TRAUMATIC AMPUTATION OF ARM&HAND. 

890 .................... ........................... OPEN WOUND OF HIP AND THIGH. 

891 .................... ........................... OPEN WOUND OF KNEE, LEG, AND ANKLE. 

892 .................... ........................... OPEN WOUND OF FOOT EXCEPT TOE ALONE. 

893 .................... ........................... OPEN WOUND OF TOE. 

894 .................... ........................... MX&UNSPEC OPEN WOUND LOWER LIMB. 

895 .................... ........................... TRAUMATIC AMPUTATION OF TOE. 

896 .................... ........................... TRAUMATIC AMPUTATION OF FOOT. 

897 .................... ........................... TRAUMATIC AMPUTATION OF LEG. 

941 except 

941.0x and 

941.1x.

........................... BURN OF FACE, HEAD, AND NECK. 

942 except 

942.0x and 

942.1x.

........................... BURN OF TRUNK. 

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TABLE 10B.—ICD–9–CM DIAGNOSES INCLUDED IN THE DIAGNOSTIC CATEGORIES FOR THE NONROUTINE SUPPLIES

(NRS) CASE-MIX ADJUSTMENT MODEL—Continued 

Diagnostic Category ICD–9–CM 

Code* Manifestation Short Description of ICD–9–CM Code 

943 except 

943.0x and 

943.1x.

........................... BURN OF UPPER LIMB, EXCEPT WRIST AND HAND. 

944 except 

944.0x and 

944.1x.

........................... BURN OF WRIST(S) AND HAND(S). 

945 except 

945.0x and 

945.1x.

........................... BURN OF LOWER LIMB(S). 

946.2 ................. ........................... BURNS OF MULTIPLE SPECIFIED SITES, BLISTERS, EPIDERMAL LOSS [SECOND DEGREE]. 

946.3 ................. ........................... BURNS OF MULTIPLE SPECIFIED SITES, FULL-THICKNESS SKIN 

LOSS [THIRD DEGREE NOS]. 

946.4 ................. ........................... BURNS OF MULTIPLE SPECIFIED SITES, DEEP NECROSIS OF 

UNDERLYING TISSUES [DEEP THIRD DEGREE] WITHOUT 

MENTION OF LOSS OF A BODY PART. 

946.5 ................. ........................... BURNS OF MULTIPLE SPECIFIED SITES, DEEP NECROSIS OF 

UNDERLYING TISSUES [DEEP THIRD DEGREE] WITH LOSS 

OF A BODY PART. 

998.31 ............... ........................... DISRUPTION OF INTERNAL OPERATION WOUND. 

998.32 ............... ........................... DISRUPTION OF EXTERNAL OPERATION WOUND. 

998.51 ............... ........................... INFECTED POSTOPERATIVE SEROMA. 

998.59 ............... ........................... OTHER POSTOPERATIVE INFECTION. 

V-code, Cystostomy Care ............. V55.5 ................. ........................... CYSTOSTOMY—CARE. 

V-code, Tracheostomy Care ......... V55.0 ................. ........................... TRACHEOSTOMY—CARE. 

V-code, Urostomy Care ................. V55.6 ................. ........................... OTHER ARTIFICIAL OPENING OF URINARY TRACTNEPHROSTOMY, URETEROSTOMY, URETHROSTOMY. 

To ensure that NRS costs are being 

reported, claims that do not report NRS 

costs, unless explicitly noted by the 

HHA that NRS was not provided, will 

be returned to the provider (RTP). For 

episodes in which NRS was provided, 

the provider will need to resubmit the 

claim with NRS reported. For episodes 

in which NRS was not provided, the 

HHA will need to explicitly note that 

fact on the claim. We will allow a grace 

period, which will be determined and 

communicated in instructions from 

CMS. This will improve data on NRS, in 

the home health setting, providing us 

with better data with which to analyze 

and evaluate payment to HHAs for NRS 

in the future. We will monitor the 

accuracy of the 6-severity group 

methodology for payment of NRS. We 

will continue to monitor the accuracy 

and completeness of the reporting of 

NRS costs. Finally, we will explore 

alternative methods for accounting for 

NRS costs and payments in the future. 

D. The Outlier Policy 

As noted in section II, of this final 

rule with comment period, outlier 

payments are made for episodes for 

which the estimated cost exceeds a 

threshold amount and are intended to 

address home health episodes that incur 

unusually high costs due to patient 

health care needs. Section 1895(b)(5) of 

the Act requires that the estimated total 

outlier payments are no more than 5 

percent of total estimated HH PPS 

payments. For a full description of our 

outlier policy, we refer to the CY 2008 

HH PPS proposed rule (72 FR 25434–

25435). 

The wage adjusted fixed dollar loss 

(FDL) amount represents the amount of 

loss that an agency must bear before an 

episode becomes eligible for outlier 

payments. The loss sharing ratio is 0.80. 

As noted in the proposed rule, when the 

HH PPS system was implemented, we 

chose a value of 0.80 for the loss-sharing 

ratio and an FDL ratio of 1.13. In the 

October 2004 final rule, we revised the 

FDL ratio to 0.70, based on analysis of 

CY 2003 HH PPS data. We believed this 

updated FDL ratio of 0.70 preserved a 

reasonable degree of cost sharing, 

allowed a greater number of episodes to 

qualify for outlier payments, and yet did 

not result in a projected target 

percentage of estimated outlier 

payments of more than 5 percent. 

Our CY 2006 update to the HH PPS 

rates, which was based upon CY 2004 

HH claims data, again revised the FDL 

ratio from 0.70 to 0.65 to allow even 

more home health episodes to qualify 

for outlier payments and to better meet 

the estimated 5 percent target of outlier 

payments as a percentage of total HH 

PPS payments. In our CY 2007 update, 

we again changed the FDL ratio from 

0.65 to 0.67 to better meet the 5 percent 

target of outlier payments to total HH 

PPS payments, and based the change on 

analysis of CY 2005 HH claims. 

In the proposed rule (72 FR 25434), 

we stated that preliminary analysis 

showed that outlier payments, as a 

percentage of total HH PPS payments, 

have increased on a yearly basis. With 

outlier payments having increased in 

recent years, and given the unknown 

effects that the proposed refinements 

may have on outliers, we proposed to 

maintain the FDL ratio at 0.67. We 

believed that this would continue to 

meet the statutory requirement of 

having an outlier payment outlay that 

does not exceed 5 percent of total HH 

PPS payments, while still providing for 

an adequate number of episodes to 

qualify for outlier payments. We stated 

in the proposed rule that we would rely 

on the latest data and best analysis 

available at the time to estimate outlier 

payments and update the FDL ratio in 

the final rule if appropriate. 

Comment: A commenter supported 

our proposed outlier policy but does not 

understand why it needs to be capped 

at 5 percent. 

Response: The statute, at section 

1895(b)(5) of the Act, limits estimated 

outlier payments to no more than 5 

percent of the total estimated HH PPS 

payments during a given year. 

Comment: Commenters stated that the 

fixed dollar loss (FDL) ratio should be 

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reduced since the 0.67 FDL ratio will 

not result in CMS spending the targeted 

5 percent for outlier payments as a 

percentage of total estimated HH PPS 

payments. CMS should adjust its 

technique for calculating the FDL ratio 

by using its historical data on actual 

outlays. 

Response: Given that outlier 

payments as a percentage of total HH 

PPS payments have increased in recent 

years and given the unknown effects of 

the proposed refinements, we proposed 

to maintain the FDL ratio at 0.67. At the 

time of the proposed rule, data 

indicated that by maintaining the FDL 

ratio at 0.67 we would continue to meet 

the statutory requirement that estimated 

outlier payments be no more than 5 

percent of total estimated HH PPS 

payments, yet an adequate number of 

episodes would qualify for outlier 

payments. In the proposed rule, we 

indicated that preliminary analysis, 

which was based on 2003 data, showed 

the FDL ratio could be as low as 0.42. 

The 2003 data used in Abt’s modeling 

of the refined HH PPS for the proposed 

rule was somewhat limited in that it 

was not able to take into account more 

recent trends in actual outlier 

expenditures. Similarly, Abt’s modeling 

of the refined HH PPS for this final rule 

is still somewhat limited in that it is not 

able to take into account the latest 

available data on actual outlier 

expenditures. Consequently, as we 

stated in the proposed rule, in the 

interest of using the latest data and best 

analysis available, we have performed 

supplemental analysis on more recent 

data in order to best estimate the FDL 

ratio. 

When we revised the FDL from 1.13 

to .70 in CY 2005, we expected to 

observe an increase in outlier payments 

as a percent of total payments to better 

meet our projected target percentage of 

not more than 5 percent. In addition, for 

CY 2006 and CY 2007 (with relatively 

stable FDLs of .65 and .67), we would 

have anticipated that outlier payments 

would have remained relatively stable 

and not exceed 5 percent of estimated 

HH PPS payments for each given year. 

Instead, experience has shown that 

outlier payments have been increasing 

as a percent of total payments from 4.1 

percent in CY 2005 to 4.97 percent in 

CY 2006 and, we estimate, 5.33 percent 

in CY 2007. These increasing percents 

imply that the cost distribution of 

episodes is changing and that our 

estimates of the FDL need to account for 

these changes in order to better match 

experience and to not exceed the 

statutory limit of not more than 5 

percent as a percentage of total 

estimated HH PPS payments. 

The current model’s estimate of the 

FDL ratio, using CY 2005 data, is 0.47. 

This is higher than the estimate from the 

FY 2003 data, which was 0.42, reflecting 

growth in the outlier percentage, as 

noted earlier. Given current trends, we 

estimate that we would exceed the 5 

percent statutory limit on outlier 

payments using either the model’s FDL 

ratio of 0.47, or the proposed FDL ratio 

of 0.67. In order to capture the most 

recent trends in the increase of outlier 

payments, and to appropriately account 

for seasonal differences that may exist 

in outlier episodes, we compared the 

percentage of outlier payments as a 

percentage of total HH PPS payments 

from the first quarter of CY 2006 (4.52 

percent) and the first quarter of CY 2007 

(4.85 percent). That estimated annual 

percentage increase in outlier payments 

is calculated to be 7.3 percent. We 

estimate the percentage of outlier 

payments for CY 2007 by multiplying 

4.97 percent (the percentage of outlier 

payments for CY 2006) by 1.073 (the 

estimated annual percentage increase in 

outlier payments noted above) for an 

estimated percentage of outlier 

payments as a percent of total estimated 

HH PPS payments for CY 2007 of 5.33 

percent. We multiply the 5.33 percent 

by 1.073, to estimate the percentage of 

outlier payments as a percent of total 

estimated HH PPS payments for CY 

2008. That calculation results in an 

estimated percentage of outlier 

payments as a percent of total estimated 

HH PPS payments for CY 2008 of 5.7 

percent. 

We then analyzed the sensitivity of 

the percent of outlier payments to total 

payments to variations in the FDL ratio. 

Using simulations of the values of FDLs 

consistent with alternative outlier 

payment percents based on CY 2005 

data (the latest data available for such 

an analysis), we used linear regression 

to estimate the change in the FDL ratio 

associated with a 1 percentage point 

change in the percent of outlier 

payments. That linear regression 

analysis shows that a one percentage 

point change in the outlier payment 

percentage is associated with a negative 

0.31 change in the FDL ratio. That is, to 

reduce the percent of outlier payments 

by one percentage point, it would be 

necessary to increase the FDL ratio by 

0.31. 

Using this analysis we looked to see 

what adjustment, to the FDL ratio, 

would be appropriate in estimating 

outlier payments of up to but not more 

than 5 percent of total estimated HH 

PPS payments in CY 2008. As also 

mentioned above, we have estimated 

that with an FDL ratio of 0.67, outlier 

payments as a percentage of total 

estimated HH PPS payments are 

estimated to be approximately 5.7 

percent. We take the 0.7 percent (the 

percentage amount in excess of the 5 

percent target) and multiply it by 0.31 

(the estimated amount of change in the 

FDL ratio for every one percentage point 

change in the outlier payment 

percentage), (0.7 * 0.31), resulting in a 

change in the FDL ratio of 0.22. We add 

that 0.22 change in the FDL ratio to the 

FDL ratio in effect in 2007 (0.67), 

arriving at a final FDL ratio of 0.89. 

Based on this analysis, we believe that 

setting the FDL ratio at 0.89 would be 

the most prudent course given these 

trends and the unknown effects of the 

refinements on outliers. As previously 

stated, we further believe that a FDL 

ratio of 0.89 will continue to meet the 

statutory requirement of having an 

estimated outlier payment outlay that 

does not exceed the 5 percent of total 

estimated HH PPS payments, while still 

providing for an adequate number of 

episodes to qualify for outlier payments. 

As our best estimate is that an FDL of 

0.89 is consistent with outlier payments 

of no more than 5.0 percent of total 

estimated HH PPS payments, we will 

account for the estimated 5 percent 

outlier payments in our updating of the 

HH PPS rates. We will continue to 

monitor the trends in outlier payments 

and the effects of the refinements, and 

will adjust the FDL ratio as needed. 

Comment: Several commenters 

supported eliminating the outlier policy 

and redistributing the 5 percent outlier 

allocation, which has never been fully 

distributed anyway, in order to increase 

the standardized payment rates. The 

commenters believed that the outlier 

policy is disadvantageous to efficient 

and effective HHAs. Despite caring for 

very sick, resource intensive patients, 

some HHAs have never received any 

benefit from the outlier policy. The 

commenters suggested that 

redistributing the outlier allocation to 

the standardized payment rates would 

ensure a more effective use of the 

budgeted Medicare home health funds. 

Another commenter suggested we 

reduce the maximum outlier payments 

as a percentage of total HH PPS payment 

from 5 percent to 1 percent. 

Response: We appreciate the 

comment. However, we continue to 

believe that maintaining an outlier 

policy is beneficial to the home health 

community. We have set the loss 

sharing ratio and the fixed dollar loss 

amount in such a way to preserve a 

reasonable degree of cost sharing while 

allowing an appropriate number of 

episodes to qualify for outlier payments. 

We disagree with the suggestion that 

we reduce the maximum outlier 

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percentage from 5 percent of total HH 

PPS payments to 1 percent. We believe 

that the current policy is more 

equitable, and that reducing the 

percentage could result in reducing 

access to home health care by high 

needs patients. 

Comment: A commenter stated that 

the outlier policy is fiscally punitive to 

the HH industry and that it appears to 

be a back door mechanism to reduce 

payments to the industry. The 

commenter suggested eliminating the 

outlier policy and revising the 

standardized rates to include the 5 

percent outlier allocation. 

Response: Section 1895(b)(5) of the 

Act allows the Secretary to provide an 

adjustment to the case-mix and wage 

adjusted national 60-day episode 

payment amount when episodes incur 

unusually large costs due to patient 

home care needs. Section 1895(b)(5) of 

the Act further stipulates that the total 

outlier payments in a given year may 

not exceed 5 percent of total projected 

estimated HH PPS payments. Again, as 

stated above, we continue to believe that 

the benefit to the home health 

community of maintaining an outlier 

policy is consistent with the statute and 

outweighs not having an outlier policy. 

Comment: One commenter asked that 

standards for the outlier provision be 

changed to allow agencies to recover 

their costs for those most expensive, 

high needs patients. This would 

encourage agencies to accept these cases 

and provide appropriate care. 

Response: We appreciate the 

comment. Again, we believe we have set 

the loss sharing ratio and the fixed 

dollar loss amount in such a way as to 

preserve a reasonable degree of cost 

sharing while allowing an appropriate 

number of episodes to qualify for outlier 

payments. We also believe the FDL ratio 

will allow us to better meet the statutory 

percentage imposed on outlier 

payments. 

Comment: A commenter wrote that it 

was unwise to dismiss the need to 

adjust the outlier threshold at the same 

time that an increase in HH PPS 

predictive power was being 

implemented via the refinements. 

Response: Our proposal to keep the 

FDL at 0.67 for CY 2007 was based upon 

the most recent data analysis at that 

time, and the unknown effects of the HH 

PPS refinements on outlier payments. 

As noted above, further analysis and use 

of more recent and updated data has led 

us to revise the outlier FDL ratio. 

In summary, since the publication of 

the CY 2008 HH PPS proposed rule, we 

have updated our analysis file, on 

which the Abt model is based, to 

include 2005 data. Using the best 

analysis and data available, including 

trend analysis and linear regression 

analysis described above, we have 

adjusted the current FDL ratio of 0.67 to 

0.89. We believe that we have accounted 

for the latest observed trends in outlier 

payments, and incorporated the best 

analysis available to determine that an 

increase in the FDL ratio is necessary in 

order to continue to meet the statutory 

requirement of having an outlier 

payment outlay that does not exceed 5 

percent of total HH PPS payments, 

while still providing for an adequate 

number of episodes to qualify for outlier 

payments. 

Therefore, in this final rule we are 

implementing a FDL ratio of 0.89 for FY 

2008. To account for an outlier policy 

that estimates outlier payments to be no 

more than 5 percent of total HH PPS 

payments, and to maintain budget 

neutrality, we reduce the national 

standardized 60-day episode payment 

rate. We are revising 42 CFR 484.240(b) 

(‘‘Methodology used for the calculation 

of the outlier payment’’) to remove 

references to the SCIC adjustment. We 

will continue to monitor trends in the 

data, along with the effects of the 

refinements, on outlier payments, and 

will update the FDL as needed. We will 

also continue to review the outlier 

payments using the administrative data 

we monitor yearly. Future reviews will 

consider the appropriateness of outlier 

payments in the entire context of the 

refinements being finalized in this 

regulation. 

E. The Update of the HH PPS Rates 

1. The Home Health Market Basket 

Update 

Section 1895(b)(3)(B) of the Act, as 

amended by section 5201 of the DRA, 

requires for CY 2008 that the standard 

prospective payment amounts be 

increased by a factor equal to the 

applicable home health market basket 

percentage increase. The proposed rule 

contained a home health market basket 

percentage increase of 2.9 percent. 

Using revised updated data, we now 

estimate a home health market basket 

percentage increase of 3.0 percent for 

CY 2008. 

2. The Rebasing and Revising of the 

Home Health Market Basket 

In the proposed rule, we proposed to 

rebase and revise the home health 

market basket to ensure it continues to 

adequately reflect the price changes of 

efficiently providing home health 

services. Specifically, we proposed to 

update the home health market basket 

base year from 2000 to 2003. We also 

proposed to revise the home health 

market basket. For full description of 

our proposal to revise and rebase the 

home health market basket, we refer to 

the CY 2008 HH PPS proposed rule (72 

FR 25435–25442). In the proposed 

revised and rebased home health market 

basket, the labor-related share would be 

77.082 percent. The labor-related share 

includes wages and salaries and 

employee benefits. The proposed non 

labor-related share would be 22.918 

percent. The increase in the laborrelated share using the 2003-based home 

health market basket is primarily due to 

the increase in the benefit cost weight. 

Comment: Several commenters 

objected to our proposal to change the 

labor-related share to 77.082 percent 

and requested that CMS maintain a 

labor-related share of 76.775 percent. 

One commenter noted that the higher 

labor-related share would have an 

adverse impact on reimbursement 

particularly for rural home health care 

providers who have wage indices of less 

than 1.0. The commenter proposed that 

CMS should withdraw its proposal to 

increase the labor-related share of the 

HH PPS rate. 

Response: Since the inception of HH 

PPS, the home health labor-related share 

has been based on the sum of the 

weights for wages and salaries and 

fringe benefits of the home health 

market basket index. We also note the 

wage index is estimated independently 

from the labor-related share. The laborrelated share is calculated based on data 

submitted on the home health Medicare 

cost reports for both rural and urban 

freestanding home health care facilities. 

The proposed change in the laborrelated share is primarily attributable to 

the rebasing of the market basket from 

base year 2000 to 2003. The 2003 data, 

the most recent and comprehensive data 

available at the time of this rebasing, 

reflect that labor-related costs are 

increasing faster than aggregate non 

labor-related costs. Based on the 

submitted cost report data from 2001 to 

2003, the weight for wages and salaries 

has been declining while the weight for 

fringe benefits has been increasing, thus 

driving the labor-related share higher 

overall. We believe the proposed 77.082 

percent to be the most technically 

accurate measure of labor-related costs. 

We will continue to analyze HH cost 

report data on a regular basis to ensure 

it accurately reflects the cost structures 

facing HH providers serving Medicare 

beneficiaries. 

Comment: Several commenters 

disagreed with the proposed market 

basket update for home health providers 

of 2.9 percent for CY 2008, which is 

lower than the proposed FY inpatient 

hospital and skilled nursing facility 

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(SNF) market basket updates. One 

commenter noted that the lower market 

basket update relative to other providers 

will have an adverse impact on the 

industry’s ability to attract health care 

workers. 

Response: The final HH market basket 

update for CY 2008 is 3.0 percent, 

which is based on Global Insight Inc.’s 

(GII) 2007 2nd quarter forecast, the most 

current forecast available at the time of 

publication of the final rule. The update 

in the proposed rule was based on GII’s 

2006 3rd quarter forecast. GII is a 

nationally recognized economic and 

financial forecasting firm that contracts 

with CMS to forecast the components of 

the market baskets. CMS calculates each 

market basket (both weight composition 

and price proxy selection) specific to 

the respective industry and independent 

of the other market baskets. 

The HH PPS market basket measures 

the change in prices for an exhaustive 

list of categories that represent the 

inputs required to provide services to 

Medicare beneficiaries. The HH index 

weights are based on data reported on 

the Medicare cost report forms which 

provide actual cost share data specific to 

home health agencies. Likewise, the 

hospital and SNF market baskets are 

based on actual cost shares reported on 

their respective cost reports. Each cost 

category in all market baskets is 

matched to a price proxy that is 

determined to be the most technically 

appropriate price proxy for that 

category. For example, the HH wage 

price proxy measures price pressures 

specific to the occupational skill mix 

within the HH industry while the SNF 

wage price proxy measures price 

pressures specific to the skilled nursing 

facility industry. 

We believe that HH compensation 

costs are accurately captured within the 

HH market basket. The associated 

weight is derived directly from the 

Medicare cost report data, which 

indicates that compensation in the HH 

industry is higher relative to that of 

other market industries. We believe this 

reflects the labor-intensive nature of the 

home health industry. Moreover, the 

indices used to proxy changes in the 

price of labor reflect the occupational 

mix of the laborers in the HH industry 

and are thus also technically 

appropriate. 

Comment: Several commenters stated 

that HH providers face higher 

transportation costs than other types of 

providers which should be reflected in 

a higher market basket update. 

Response: We believe HH 

transportation costs are accurately 

captured within the HH market basket. 

The transportation base year cost weight 

is derived from the data reported on the 

2003 HHA Medicare cost reports. In 

determining the market basket 

percentage increase, these costs are 

proxied using the CPI for private 

transportation. Forecasts of this price 

proxy reflect the price changes of fuel, 

as well as other transportation costs 

such as vehicle purchase/lease, 

maintenance, repair, and insurance. We 

believe this is the most appropriate 

price proxy to use for transportation as 

home health providers face all aspects 

of vehicle expenses and as such, these 

costs are appropriately captured in the 

rebased and revised home health market 

basket. 

Comment: Several commenters stated 

that the present wage structure does not 

provide adequate reimbursement for 

increased nursing and therapist wages. 

Additionally, one commenter suggested 

CMS should use data from the Bureau 

of Labor Statistics (BLS) for clinician 

costs. 

Response: The current price proxy 

used for the compensation portion of 

the home health market basket was 

designed based on the occupational skill 

mix specific to the home health 

industry. The proxy accounts for all 

related compensation expenditures for 

an exhaustive list of occupations within 

the home health industry, including but 

not limited to, nurses, therapists, and 

clinicians. These three occupations fall 

into the cost category for skilled 

nursing, therapists, and other 

professional/technical workers, a cost 

category accounting for 50.506 percent 

of the total home health wage proxy (72 

FR 25440). These wages are proxied by 

a 50/50 blend of the employment cost 

index (ECI) for professional & technical 

(P&T) workers and the ECI for hospital 

workers. Accordingly, we believe that 

the home health occupational wage and 

salary index is the most representative 

measure of home health wage pressures. 

We are implementing the revised and 

rebased HH market basket as proposed. 

3. Wage Index 

The statute at sections 

1895(b)(4)(A)(ii) and 1895(b)(4) of the 

Act requires the Secretary to establish 

wage adjustment factors that reflect the 

relevant level of wages and wage-related 

costs applicable to the furnishing of 

home health services and to provide 

appropriate adjustment to the episode 

payment amount under the HH PPS to 

account for area wage differences. 

Section 1895(b)(4)(C) of the Act further 

provides that the wage adjustment 

factors may be the factors used by the 

Secretary for purposes of section 

1886(d)(3)(E) of the Act for hospital 

wage adjustment factors. We apply the 

appropriate wage index value to the 

proposed labor portion (77.082 percent; 

see Table 22 of the proposed rule) of the 

HH PPS rates based on the geographic 

area where the beneficiary received the 

home health services. As implemented 

under the HH PPS in the July 3, 2000 

HH PPS final rule, each HHA’s labor 

market area is based on definitions of 

Metropolitan Statistical Areas (MSAs) 

issued by the OMB. We have 

consistently used and proposed again in 

the CY 2008 HH PPS proposed rule to 

use the pre-floor and pre-reclassified 

hospital wage index data to adjust the 

labor portion of the HH PPS rates based 

on the geographic area where the 

beneficiary receives home health 

services (72 FR 25448). We believe the 

use of the pre-floor and pre-reclassified 

hospital wage index data results in the 

appropriate adjustment to the labor 

portion of the costs as required by 

statute. 

In the August 11, 2004 IPPS final rule 

[69 FR 49206], revised labor market area 

definitions were adopted at § 412.64(b), 

which were effective October 1, 2004 for 

acute care hospitals. The new standards, 

Core Based Statistical Areas (CBSAs), 

were announced by OMB in late 2000 

and were also discussed in greater detail 

in the July 14, 2005 HH PPS proposed 

rule. For the purposes of the HH PPS, 

the term ‘‘MSA-based’’ refers to wage 

index values and designations based on 

the previous MSA designations. 

Conversely, the term ‘‘CBSA-based’’

refers to wage index values and 

designations based on the new OMB 

revised MSA designations which now 

include CBSAs. In the November 9, 

2005 HH PPS final rule (70 FR 68132), 

we implemented a 1-year transition 

policy using a 50/50 blend of the CBSAbased wage index values and the 

Metropolitan Statistical Area (MSA)- 

based wage index values for CY 2006. 

The 1-year transition policy ended in 

CY 2006. Currently, wage index values 

for CY 2007 are based on CBSA 

designations. For CY 2008, we will 

continue to use a wage index based on 

the CBSA designations. 

As implemented under the HH PPS in 

the July 3, 2000 HH PPS final rule, each 

HHA’s labor market is determined based 

on definitions of MSAs issued by OMB. 

In general, an urban area is defined as 

an MSA or New England County 

Metropolitan Area (NECMA) as defined 

by OMB. Under § 412.64(b)(1)(ii)(C), a 

rural area is defined as any area outside 

of the urban area. The urban and rural 

area geographic classifications are 

defined in § 412.64(b)(1)(ii)(A) and 

§ 412.64(b)(1)(II)(C) respectively, and 

have been used under the HH PPS since 

implementation. 

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Under the HH PPS, the wage index 

value used is based upon the location of 

the beneficiary’s home. As has been our 

longstanding practice, any area not 

included in an MSA (urban area) is 

considered to be non-urban 

§ 412.64(b)(1)(ii)(C) and receives the 

statewide rural wage index value (see, 

for example, 65 FR 41173). 

As discussed previously and set forth 

in the July 3, 2000 final rule, the statute 

provides that the wage adjustment 

factors may be the factors used by the 

Secretary for purposes of section 

1886(d)(3)(E) of the Act for hospital 

wage adjustment factors. As discussed 

in the July 3, 2000 final rule, we 

proposed to again use the pre-floor and 

pre-reclassified hospital wage index 

data to adjust the labor portion of the 

HH PPS rates based on the geographic 

area where the beneficiary receives 

home health services. We believe the 

use of the pre-floor and pre-reclassified 

hospital wage index data results in the 

appropriate adjustment to the labor 

portion of the costs as required by 

statute. For the CY 2008 update to home 

health payment rates, we would 

continue to use the most recent pre-floor 

and pre-reclassified hospital wage index 

available at the time of publication. 

In adopting the CBSA designations, 

we identified some geographic areas 

where there are no hospitals, and thus 

no hospital wage data on which to base 

the calculation of the home health wage 

index. Beginning in CY 2006, we 

adopted a policy that, for urban labor 

markets without an urban hospital from 

which a hospital wage index can be 

derived, all of the urban CBSA-wage 

index values within the State would be 

used to calculate a statewide urban 

average wage index to use as a 

reasonable proxy for these areas. 

Currently, the only CBSA that would be 

affected by this policy is CBSA 25980, 

Hinesville, Georgia. We proposed to 

continue this policy for CY 2008. 

Currently, the only rural areas where 

there are no hospitals from which to 

calculate a hospital wage index are 

Massachusetts and Puerto Rico. For CY 

2006, we adopted a policy in the HH 

PPS November 9, 2005 final rule (70 FR 

68138) of using the CY 2005 pre-floor, 

pre-reclassified hospital wage index 

value. In the August 3, 2006 proposed 

rule, we again proposed to apply the CY 

2005 pre-floor/pre-reclassified hospital 

wage index to rural areas where no 

hospital wage data is available. In 

response to commenters’ concerns and 

in recognition that, in the future, there 

may be additional rural areas impacted 

by a lack of hospital wage data from 

which to derive a wage index, we 

adopted, in the November 9, 2006 final 

rule (71 FR 65905), the following 

methodology for imputing a rural wage 

index for areas where no hospital wage 

data are available as an acceptable 

proxy. The methodology that we 

implemented for CY 2007 imputed an 

average wage index value by averaging 

the wage index values from contiguous 

CBSAs as a reasonable proxy for rural 

areas with no hospital wage data from 

which to calculate a wage index. We 

believe this methodology best met our 

criteria for imputing a rural wage index 

as well as representing an appropriate 

wage index proxy for rural areas 

without hospital wage data. 

Specifically, such a methodology uses 

pre-floor, pre-reclassified hospital wage 

data, is easy to evaluate, is updateable 

from year to year, and uses the most 

local data available. In determining an 

imputed rural wage index, we define 

‘‘contiguous’’ as sharing a border. For 

Massachusetts, rural Massachusetts 

currently consists of Dukes and 

Nantucket Counties. We determined 

that the borders of Dukes and Nantucket 

counties are ‘‘contiguous’’ with 

Barnstable and Bristol counties. We 

again proposed to apply this 

methodology for imputing a rural wage 

index for those rural areas without rural 

hospital wage data. 

However, as we noted in the HH PPS 

final rule for CY 2007, we did not 

believe that this policy was appropriate 

for Puerto Rico. As noted in the August 

3, 2006 proposed rule, there are 

sufficient economic differences between 

the hospitals in the United States and 

those in Puerto Rico, including the fact 

that hospitals in Puerto Rico are paid on 

blended Federal/Commonwealthspecific rates, that a separate, distinct 

policy for Puerto Rico is necessary. 

Consequently, any alternative 

methodology for imputing a wage index 

for rural Puerto Rico would need to take 

into account those differences. Our 

policy of imputing a rural wage index 

by using an averaged wage index of 

CBSAs contiguous to that rural area 

does not recognize the unique 

circumstances of Puerto Rico. For CY 

2008, we again proposed to continue to 

use the most recent wage index 

previously available for Puerto Rico 

which is 0.4047. 

Comment: A commenter supported 

ensuring that the hospital cost reports 

that are used to calculate the wage index 

are accurate. The commenter stated that 

CMS should not accept or utilize faulty 

cost report data. 

Response: We appreciate the 

comment and note CMS utilizes 

efficient means to ensure and review the 

accuracy of the cost report data and 

resulting wage index. The home health 

wage index is derived from the prefloor, pre-reclassified hospital wage 

index which is calculated based on cost 

report data from hospitals paid under 

the hospital inpatient prospective 

payment system (IPPS). All IPPS 

hospitals must complete the wage index 

survey (Worksheet S–3, Parts II and III) 

as part of their Medicare cost reports. 

Cost reports will be rejected if 

Worksheet S–3 is not completed. In 

addition, our intermediaries perform 

desk reviews on all hospitals’

Worksheet S–3 wage data, and we run 

edits on the wage data to further ensure 

the accuracy and validity of the wage 

data. Furthermore, HHAs have the 

opportunity to submit comments on the 

hospital wage index data during the 

annual IPPS rulemaking period. 

Therefore, we believe our review 

processes result in an accurate reflection 

of the applicable wages for the areas 

given. 

Comment: Several commenters 

expressed concerns about using the prefloor, pre-reclassified hospital wage 

index for the home health wage index. 

These commenters believe that CMS has 

the regulatory authority to replace the 

current wage index with one that 

achieves parity with hospitals in order 

to compete in the same geographic labor 

markets. Further, these commenters 

support stabilizing the wage index 

through limits on year-to-year changes. 

Specific recommendations include 

applying a rural floor in addition to 

allowing HHAs to apply for the type of 

geographic reclassification that IPPS 

hospitals are provided. 

Response: The commenters are 

referring to rural floor and geographic 

reclassification provisions in the IPPS 

which are only applicable to hospital 

payments. The rural floor provision is 

provided at section 4410 of Public Law 

105–33 and is specific to hospitals. The 

reclassification provision provided at 

section 1886(d)(10) of the Act is also 

specific to hospitals. Because these 

floors and reclassifications apply only to 

hospitals, and not to HHAs, we believe 

the use of the most recent available prefloor and pre-reclassified hospital wage 

index data results in the most 

appropriate adjustment to the labor 

portion of home health costs as required 

at 1895(b)(4)(C). We also note that the 

HH PPS wage adjustment is based on 

the geographic area where the 

beneficiary is located, not where the 

HHA is located. 

Comment: One commenter 

recommended that CMS adopt a ‘‘rural 

floor’’ policy for the home health wage 

index, comparable to the policy that 

exists for hospitals. The commenter 

believed that CMS has the authority to 

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make the change in the regulation. The 

commenter expressed that its proposal 

would be the simplest, fairest, and most 

cost effective solution to the ‘‘wage 

index problems’’ and would serve as an 

important bridge to any legislative 

revision to the wage index provisions, 

which is likely to take years to enact. 

Response: Sections 1895(b)(4)(A)(ii) 

and (b)(4)(C) of the Act require the 

Secretary to establish area wage 

adjustment factors that reflect the 

relative level of wages and wage-related 

costs applicable to the furnishing of 

home health services and to provide 

appropriate adjustments to the episode 

payment amounts under the HH PPS to 

account for area wage differences. The 

wage adjustment factors may be the 

factors used by the Secretary for 

purposes of section 1886(d)(3)(E) of the 

Act. We believe the use of the hospital 

wage data, without application of a rural 

floor, results in appropriate adjustment 

to the labor portion of costs based on an 

appropriate wage index as required 

under section 1895(b)(3)(A)(i), 

(b)(4)(A)(ii), and (b)(4)(C) of the Act. 

Additionally, as stated above, the rural 

floor provision provided at section 4410 

of Pub. L. 105–33 is specific to hospital 

payments. 

Comment: Several commenters 

expressed concern that in FY 2004, we 

dropped Critical Access Hospitals 

(CAHs) from our calculation of the 

hospital wage index. Commenters stated 

that wage cost data from over 1,000 

CAHs are no longer included in the 

calculation of the hospital wage index. 

These hospitals are located in rural 

areas and therefore impact the 

calculation of the rural wage indexes. 

The commenters believed not including 

CAH cost report data in the wage index 

calculation has had a significant impact 

on HHAs that serve beneficiaries in 

rural areas. 

Response: As noted previously, we 

adopted the pre-floor, pre-classified 

hospital wage index data as we believe 

they most appropriately reflect the 

relative level of wages and wage-related 

costs applicable to the furnishing of 

home health services and provide 

appropriate adjustments to the episode 

payment amounts under the HH PPS to 

account for area wage differences. 

Therefore, for this final rule, we are 

adopting the pre-floor, pre-reclassified 

hospital wage index. Comments as to 

how the IPPS should construct that 

wage index are beyond the scope of this 

rule. 

Comment: One commenter stated that 

we should use the HHA wage data that 

we collected and analyzed to rebase the 

labor share of the home health market 

basket in order to develop a home 

health specific wage index. Similarly, 

other commenters recommended that 

CMS develop a home health specific 

wage index to reflect the true costs of 

HHAs. 

Response: While we appreciate the 

commenters’ desire to use a home 

health specific wage index, we note that 

our previous attempts at either 

proposing or developing a home health 

specific wage index were not well 

received by commenters or the industry. 

Generally, the volatility of the home 

health wage data and the resources 

needed to audit and verify that data, 

make it difficult to ensure that such a 

wage index accurately reflects the wages 

and wage-related costs applicable to the 

furnishing of services. Thus, we are not 

adopting a home health specific wage 

index at this time. We believe it is 

important that a home health specific 

wage index be more reflective of the 

wages and salaries paid in a specific 

area, be based upon a stable data source, 

and significantly improve our ability to 

determine home health payments 

without being overly burdensome. We 

continue to believe that using the most 

recent available pre-floor, prereclassified hospital wage index results 

in the appropriate adjustment to the 

labor portion of the costs as required by 

the statute. 

Comment: Several commenters 

proposed that CMS adopt MedPAC’s 

proposed method for calculating the 

hospital wage index and apply it to the 

HH PPS. Chapter 6 of MedPAC’s June 

2007 Report to Congress, entitled 

‘‘Promoting Greater Efficiency in 

Medicare’’ discusses MedPAC’s 

proposed methodology. Under 

MedPAC’s system, HHAs and hospitals 

in the same market would have the 

same wage index. The new methodology 

would be available for all labor areas, 

eliminating the need for imputing an 

index for agencies in areas with no 

hospital wage data. One commenter 

urged CMS to begin implementing 

MedPAC’s proposed wage index 

methodology for home health in CY 

2009. 

Response: Section 106(b)(1) of the 

MIEA–TRHCA (Pub. L. 109–432) 

requires MedPAC to submit to Congress, 

not later than June 30, 2007, a report on 

the Medicare wage index classification 

system applied under the Medicare 

Prospective Payment System. Section 

106(b) of MIEA–TRHCA requires the 

report to include any alternatives that 

MedPAC recommends to the method 

used to compute the wage index under 

section 1886(d)(3)(E) of the Act. 

We thank the commenters for their 

ideas and suggestions on the wage index 

in response to the statutory 

requirements under Pub. L. 109–432. 

We are reviewing MedPAC’s Report to 

Congress and the wage index 

methodology recommended therein. We 

will carefully consider MedPAC’s 

recommendations as they apply to the 

HH PPS. Finally, we note that MedPAC 

released its June 2007 report to Congress 

on June 15, 2007. As the statute 

requires, the report includes MedPAC’s 

analysis and recommendations on 

alternatives to the method to compute 

the wage index. The full report can be 

downloaded from MedPAC’s Web Site 

at http://www.medpac.gov/documents/ 

Jun07_EntireReport.pdf. 

Comment: A commenter expressed 

concern because the wage index for 

CBSA 25180, Berkeley County, WV is 

lower than other nearby CBSAs in the 

Washington, DC area. In addition, the 

commenter stated that CBSA 25180 is 

one of the fastest growing areas in the 

nation, thereby increasing property 

values and hence labor costs. 

Response: CBSA 25180 ‘‘Hagerstown–

Martinsburg, MD–WV’’ includes not 

only Berkeley County, WV but also 

Morgan County, WV and Washington 

County, MD. Prior to our adoption of 

OMB’s revised geographic area 

designations in CY 2006, Morgan 

County was classified as rural. Prior to 

CY 2006, Berkeley County was grouped 

with 24 other geographic areas (23 

counties and the District of Columbia) 

in order to calculate a wage index for 

this area, which was classified as MSA 

8840 ‘‘Washington, DC–MD–VA–WV.’’

After adopting OMB’s revised 

geographic area designations, Morgan, 

Berkeley, and Washington counties’

hospital wage data are now added 

together to calculate the wage index for 

CBSA 25180. We were aware that 

changes to wage index values might 

result from adopting the revised OMB 

designations. Therefore, we provided a 

one-year transition period in CY 2006 as 

a means to phase in the changes and to 

mitigate the resulting adverse impact of 

a CBSA-based wage index on certain 

HHAs. As to the appropriateness of 

what CBSA a particular area has been 

designated into, CBSA designations are 

determined by the Office of 

Management and Budget (OMB). This 

information is available at the following 

Web site address: http:// 

www.whitehouse.gov/omb/bulletins/ 

b03–04.html. We continue to believe 

that OMB’s CBSA designations reflect 

the most recent available geographic 

classifications and are a reasonable and 

appropriate way to define geographic 

areas for purposes of determining wage 

index values. 

Comment: A commenter pointed out 

that the CY 2007 wage index for rural 

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Massachusetts is listed as 1.0661 in the 

proposed rule but that it should be 

1.1661. 

Response: This was an inadvertent 

typographical error in the proposed 

rule. The HH PPS Pricer for CY 2007 

contains the correct value of 1.1661. 

Accordingly, payments made to HHAs 

who serve patients residing in rural 

areas of Massachusetts are being paid 

based upon the correct wage index 

value of 1.1661. 

For the CY 2008 update to home 

health payment rates, we are finalizing 

the wage index and associated policies 

in that we will continue to use the most 

recent pre-floor and pre-reclassified 

hospital wage index. In addition, we 

note that we plan to evaluate any 

policies adopted in the FY 2008 IPPS 

final rule that affect the wage index, 

including how we treat certain New 

England hospitals under § 601(g) of the 

Social Security Amendments of 1983 

(Pub. L. 98–21). We continue to believe 

that the use of the pre-floor and prereclassified hospital wage index data for 

HH PPS results in the appropriate 

adjustment to the labor portion of the 

costs as required by statute. 

4. Home Health Care Quality 

Improvement 

Section 5201(c)(2) of the DRA added 

section 1895(b)(3)(B)(v)(II) to the Act, 

requiring that ‘‘each home health agency 

shall submit to the Secretary such data 

that the Secretary determines are 

appropriate for the measurement of 

health care quality. Such data shall be 

submitted in a form and manner, and at 

a time, specified by the Secretary for 

purposes of this clause.’’ In addition, 

section 1895(b)(3)(B)(v)(I) of the Act, as 

also added by section 5201(c)(2) of the 

DRA, dictates that ‘‘for 2007 and each 

subsequent year, in the case of a home 

health agency that does not submit data 

to the Secretary in accordance with 

subclause (II) with respect to such a 

year, the home health market basket 

percentage increase applicable under 

such clause for such year shall be 

reduced by 2 percentage points.’’

The OASIS data currently provide 

consumers and HHAs with 10 publiclyreported home health quality measures 

which have been endorsed by the 

National Quality Forum (NQF). 

Reporting these quality data has also 

required the development of several 

supporting mechanisms such as the 

HAVEN software used to encode and 

transmit data using a CMS standard 

electronic record layout, edit 

specifications, and data dictionary. The 

HAVEN software includes the required 

OASIS data set that has become a 

standard part of HHA operations. These 

early investments in data infrastructure 

and supporting software that CMS and 

HHAs have made over the past several 

years in order to create this quality 

reporting structure have been successful 

in making quality reporting and 

measurement an integral component of 

the HHA industry. For CY 2007, we 

specified 10 OASIS quality measures as 

appropriate for measurements of health 

care quality. These measures were to be 

submitted by HHAs to meet their 

statutory requirement to submit quality 

data for a full increase in their market 

basket percentage increase amount. The 

10 measures are: 

(1) Improvement in ambulation/ 

locomotion 

(2) Improvement in bathing 

(3) Improvement in transferring 

(4) Improvement in management of oral 

medications 

(5) Improvement in pain interfering 

with activity 

(6) Acute care hospitalization 

(7) Emergent care 

(8) Improvement in dyspnea 

(9) Improvement in urinary 

incontinence 

(10) Discharge to community 

For CY 2007, we specified 10 OASIS 

quality measures as appropriate for 

measurements of health care quality. 

These measures were to be submitted by 

HHAs to meet their statutory 

requirement to submit quality data for a 

full increase in their market basket 

percentage increase amount. For CY 

2008, we proposed to expand the 

existing set of 10 quality measures by 

adding up to 2 NQF-endorsed measures. 

The proposed additional measures for 

2008 were: 

• Emergent Care for Wound 

Infections, Deteriorating Wound Status 

• Improvement in the Status of 

Surgical Wounds (For a complete list 

and description of the quality measure 

requirements see the proposed rule (72 

FR 25449–25452)). 

Comment: Several commenters 

suggested that CMS continue to refine 

and enhance the OASIS assessment 

instrument and associated Quality 

Measures, and suggested item-specific 

or quality measure-specific items in use 

in the home health quality reporting 

requirement. 

Response: CMS is constantly working 

to improve the OASIS instrument and 

the quality measures that are built upon 

it. We will continue to pursue 

improving the assessment instrument’s 

accuracy in reflecting both the health 

status and improvements in condition of 

our beneficiaries. On July 27, 2007, a 

notice was published in the Federal 

Register (CMS–10238) which seeks 

public comment on a version of the 

OASIS that we plan to begin testing in 

early 2008 (72 FR 41328). 

Comment: A number of commenters 

requested that we eliminate OASIS item 

M0175. Commenters also requested 

numerous item-specific revisions to the 

OASIS. 

Response: We are presently unable to 

accommodate the request to delete 

OASIS item M0175. OASIS item M0175 

has a critical role in risk adjusting many 

quality measures as it is used to 

determine the type of facility the patient 

was discharged from in the previous 14 

days before HH admission. However, we 

will continue to look for ways to reduce 

the overall burden to providers and 

determine if this information can be 

obtained in a more simplified or 

automated manner as we re-examine the 

OASIS instrument. 

The remainder of the item-specific 

comments received relate to data items 

that will be addressed in an upcoming 

notice concerning revisions of the 

OASIS mentioned above. These 

revisions are currently planned for an 

OASIS update in calendar year 2009. 

These changes are responsive to the 

comments we have received, and reflect 

months of development and analysis, as 

well as industry input and concerns. 

On July 27, 2007, a notice was 

published in the Federal Register 

(CMS–10238) which seeks public 

comment on a version of the OASIS that 

we plan to begin testing in early 2008. 

Based on the finding from the testing, 

we may pursue adopting the 

commenter’s suggested changes in 

future payment rule notices. 

Comment: Some commenters were 

concerned about the proposed quality 

measure regarding emergent care for 

wound infections. 

Response: We note that the title and 

description of the quality measure do 

not fully reflect the breadth of the issue 

being measured. Specifically, the 

quality measure entitled ‘‘Emergent Care 

for Wound Infections, Deteriorating 

Wound Status’’ is calculated using a 

data item that includes new pressure 

ulcers and lesions, and therefore the 

title of the measure may cause some 

confusion. Nonetheless, we feel that the 

quality measure is an important 

indicator and we intend to conform the 

title of the measure to more accurately 

reflect the concepts being measured. 

Comment: Several commenters 

suggested that we delete two quality 

items to compensate for the two new 

quality items added. Some also 

suggested that we reduce the total 

number of OASIS items. Another 

suggested we develop quality measures 

for fall prevention. 

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49862 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

Response: CMS is not adding new 

OASIS quality items to be reported in 

this rule. CMS is adding two quality 

measures to expand the number of 

measures currently being reported for 

quality reporting purposes by using 

existing OASIS data. The data elements 

used to calculate these measures are 

already captured by the OASIS 

instrument and do not require 

additional reporting or burden to HHAs. 

We believe that through this expansion 

of measures for the HH PPS quality 

reporting segment, we are providing the 

public with a wider array of comparable 

and consensus-based (endorsed by the 

National Quality Forum in 2005) 

information on health care quality. 

CMS will continue to review the 

OASIS items collected for the purposes 

of quality to determine if any changes, 

additions, or deletions are appropriate, 

and the public will have the 

opportunity to comment on proposed 

changes to the OASIS items. 

CMS agrees with the commenter that 

the domain of falls prevention is a 

critical aspect of health care quality. On 

July 27, 2007, a notice was published in 

the Federal Register (CMS–10238) 

which seeks public comment on a 

version of the OASIS that we plan to 

begin testing in early 2008. This version 

of OASIS incorporates several process 

measures, one of which is geared 

specifically toward fall prevention 

outcome measures in future updates of 

the OASIS instrument for the purpose of 

pay for reporting. 

Comment: A commenter was in favor 

of adding Improvement of Status of 

Surgical Wound to the home health 

compare quality measures, but he felt 

adding an adverse event (Emergent Care 

for Wound Status) was not appropriate. 

Outcome Based Quality Management 

(OBQM) instructs the agency to audit 

the record to determine if an adverse 

event occurred. With the definition of 

emergent care being an unplanned 

physician visit within 24 hours, this 

reporting could be detrimental. In the 

commenter’s area there is physician 

office availability that encourages 

appointments to be made within 24 

hours. It is seen as good practice rather 

than an adverse event. The commenter 

recommended removing ‘‘Emergent Care 

for Wound Infections, Deteriorating 

Wound Status’’ from the home health 

quality measures. Another commenter 

suggested we revise the instructions so 

only visits to an emergency room or 

outpatient emergency clinic constitute 

emergent care. Two commenters noted 

that it is not appropriate to present 

outcomes that are not risk adjusted or 

Adverse Event Outcomes. One 

commenter asked that we clarify the 

intent of M0830, Emergent Care for 

Wound Infections, before publicly 

reporting data. If the focus is only on 

infections or deteriorating status, then 

the commenter suggested we revise the 

wording of the data element. 

Response: This measure addresses 

high-risk, high-volume, high-cost 

conditions. These conditions are 

identifiable, preventable and serious in 

their consequences and they can cause 

serious harm to beneficiaries. Public 

reporting of the measure will continue 

to enable providers to investigate and 

take corrective actions to improve safety 

and quality of care delivered. In 

addition, it is responsive to the NQF 

proposed priority for measures 

associated with the frail elderly 

population. CMS continues to believe 

that the additional measures selected for 

the reporting of quality are appropriate. 

On July 27, 2007, a notice was 

published in the Federal Register (72 

FR 41328) which seeks public comment 

on a version of the OASIS that we plan 

to begin testing in early 2008. This new 

version of the OASIS addresses many of 

the item-specific and quality measure 

specific comments that we have 

received, including those of the 

commenters. A critical element of this 

testing will be the gathering of data 

necessary to make a more accurate 

estimate of the provider burden that the 

OASIS and the anticipated revisions 

would require. 

Comment: Numerous commenters 

noted that data submitted for Home 

Health Compare reporting include both 

Medicare and Medicaid patients. They 

noted that inclusion of Medicaid data 

can skew the data as Medicaid and 

Medicare admission criteria are not the 

same. One commenter stated that many 

Medicaid patients are seen in lieu of 

more costly nursing home placement; 

therefore at discharge, their outcomes 

(especially those related to activities of 

daily living) have deteriorated. 

Several commenters felt that HHAs 

with high Medicaid caseloads will most 

likely be damaged in the public 

reporting process because these patients 

are less likely to show marked 

improvement due to their chronic 

conditions. The public reporting does 

not give an accurate picture of the 

agency’s performance or outcomes. 

When pay for performance begins, this 

negative impact could create issues of 

access to care for Medicaid patients. 

These commenters suggested only 

including Medicare patients in the 

publicly reported data and Home Health 

Compare. 

Another commenter suggested that we 

stratify CMS Compare information into 

at least three categories: traditional 

Medicare, Medicare Advantage, and 

Medicaid. This commenter suggested 

we use the information to monitor 

outcomes from Medicare Advantage 

plans compared to traditional Medicare, 

or require Medicare Advantage plans to 

pay agencies according to the HH PPS 

rule, thereby putting the physician and 

agency back in control of managing the 

patient. This commenter also suggested 

removing ‘‘private duty’’ Medicaid 

patients, such as ventilator dependent 

patients, from the CMS Compare data. 

Response: We appreciate the 

comment and we will consider this with 

regard to future changes to the Home 

Health Compare site. However, it is 

beyond the scope of this rule to address 

specific issues concerning Home Health 

Compare. 

Comment: Numerous commenters 

wrote that many of the Medicaid waiver 

programs authorize ‘‘skilled nursing 

services’’ based on their payment 

terminology, when in reality, the 

services are not ‘‘skilled’’ by Medicare’s 

definition. Clients on waiver programs 

tend to be chronically ill and show no 

improvement in outcomes, but rather 

show stabilization in their condition. 

Under current regulations, these waiver 

clients are required to have OASIS 

collection performed. With the 

inclusion of these waiver clients, the 

data skews provider outcomes as well as 

aggregate state outcomes. The 

commenters suggested eliminating the 

requirement to complete OASIS 

assessments on non-Medicare clients. 

OASIS should be for traditional 

Medicare only. 

Response: The request to change the 

regulation in § 484.55 concerning 

OASIS collection requirements is 

beyond the scope of this rule and will 

not be addressed here. 

Comment: One commenter wrote that 

in New York, there is a 1915 waiver 

program called the Long Term Home 

Health Care Program (LTHHCP), which 

provides an intensive array of Medicaid 

home and community-based services to 

nursing home eligible patients. The 

majority of patients in LTHHCP are 

dually eligible, but Medicaid is the 

appropriate payer of services 

approximately 90 percent of the time. 

Patients must also meet the 

requirements of a mandatory state 

assessment every 120 days, which is 

separate from the federal OASIS 

requirements. The commenter is 

concerned that CMS does not 

differentiate between LTHHP and 

traditional Medicare providers regarding 

submitted OASIS data. The commenter 

urges CMS to exclude LTHHCPs and 

any Special Needs Certified Home 

Health Agencies from the OASIS 

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Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 49863 

Quality Reporting and Pay for Reporting 

Initiative. 

Response: For the purposes of the 

Home Health quality reporting 

requirements, HHAs are required to 

submit quality measures to CMS 

through the OASIS instrument. CMS has 

also specified the circumstances under 

which home health agencies would be 

excluded from the HH PPS quality 

reporting requirement (72 FR 25449). 

The existing LTHHCP does not fall 

under any of those exclusions. 

Comment: A commenter is concerned 

that the OASIS was designed to measure 

outcomes by asking nurses to assess the 

ability of the patient to perform a task, 

rather than by using performance based 

measures. The commenter gave the 

example of activities of daily living 

(ADL) measures. 

Response: The instrument was 

designed to collect the information 

needed to measure changes in health 

status over several designated time 

points. The OASIS data set was 

designed for the purpose of enabling 

rigorous and systematic measurement of 

patient home health outcomes. We 

believe that the quality measures 

selected from the OASIS accurately 

reflect measures of quality, and that 

those measures meet the statutory 

requirement to report quality data. 

Comment: A commenter wrote that 

pay for performance would have a 

negative effect on whether high acuity 

patients would be able to find agencies 

willing to help them. 

Response: Currently, CMS only 

requires reporting of the specified 

quality measures for the HH PPS quality 

report for reporting. At this time, there 

is no ‘‘Pay for Performance’’

requirement in HH PPS. However, we 

believe the current reporting 

requirements and any future work on 

‘‘Pay for Performance’’ initiatives will 

help ensure that Medicare beneficiaries 

continue to have access to the highest 

quality care possible. 

Comment: A few commenters were 

concerned that the estimates of burden 

on reporting the reporting burden have 

been underestimated. 

Response: We believe our 

determination of the collection burden 

is based upon our best estimates given 

the information and data available to us 

at this time. CMS published a notice in 

the Federal Register that begins the 

process of testing a new version of the 

OASIS instrument which addresses 

many of the item-specific and quality 

measure specific comments that we 

have received. A critical element of this 

testing will be the gathering of data 

necessary to make a more accurate 

estimate of the provider burden that the 

OASIS and the anticipated revisions 

would require. 

We are adopting, as final, the two 

quality measures and note that a total of 

12 quality measures are necessary to 

meet the statutory submission of quality 

data to maintain the full home health 

market basket percentage increase. 

Additionally, section 

1895(b)(3)(B)(v)(II) of the Act provides 

the Secretary with the discretion to 

submit the required data in a form, 

manner, and time specified by him/her. 

We proposed, for CY 2008, to consider 

OASIS data submitted by HHAs to CMS 

for episodes beginning on or after July 

1, 2006 and before July 1, 2007 as 

meeting the reporting requirement for 

calendar year 2008. This reporting time 

period will allow 12 full months of data 

and will provide CMS the time 

necessary to analyze and make any 

necessary payment adjustments to the 

CY 2008 payment rates. HHAs that meet 

the reporting requirement shall be 

eligible for the full home health market 

basket percentage increase. We received 

no comments and are adopting this 

proposal as final. 

As noted in the proposed rule (72 FR 

25449), the home health CoPs (part 484) 

that require OASIS submission also 

provide for exclusions from this 

requirement. Generally, agencies 

excluded from the OASIS submission 

requirement do not receive Medicare 

payments as they either do not provide 

services to Medicare beneficiaries or the 

patients are not receiving Medicarecovered home health services. Under 

the CoP, agencies are excluded from the 

OASIS reporting requirement on 

individual patients if: 

• Those patients are receiving only 

non-skilled services, 

• Neither Medicare nor Medicaid is 

paying for home health care (patients 

receiving care under a Medicare or 

Medicaid Managed Care Plan are not 

excluded from the OASIS reporting 

requirement), 

• Those patients are receiving pre-or 

post-partum services, and 

• Those patients are under the age of 

18 years. 

We believe that the rationale behind 

the exclusion of these agencies from 

submission of OASIS on patients which 

are excluded from OASIS submission as 

a CoP is equally applicable to HHAs for 

quality purposes. Therefore, we again 

proposed for CY 2008 that if an agency 

is not submitting OASIS for patients 

excluded from OASIS submission for 

purposes of a CoP, that the submission 

of OASIS for quality measures for 

Medicare purposes is likewise not 

necessary. 

We received no comments on this 

proposal. Accordingly, we are adopting, 

as final, that those agencies do not need 

to submit quality measures for reporting 

purposes for those patients who are 

excluded from OASIS submission as a 

CoP. 

We also proposed that agencies newly 

certified (on or after May 31, 2007 for 

payments to be made in CY 2008) be 

excluded from the quality reporting 

requirement as data submission and 

analysis will not be possible for an 

agency certified this late in the reporting 

time period. In future years, agencies 

that certify on or after May 31 of the 

preceding year involved would be 

excluded from any payment penalty for 

quality reporting purposes for the 

following CY. We note, these exclusions 

only affect quality reporting 

requirements and do not affect the 

agency’s OASIS reporting 

responsibilities under the CoP (72 FR 

25449). We received no comments on 

this proposal, and are adopting it as 

final. 

We note that all HHAs, unless 

covered by these specific exclusions, 

must meet the reporting requirement, or 

be subject to a 2 percent reduction in 

the home health market basket 

percentage increase in accordance with 

section 1895(b)(3)(B)(v)(I) of the Act. 

Section 1895(b)(3)(B)(v)(III) of the Act 

further requires that the ‘‘Secretary shall 

establish procedures for making data 

submitted under subclause (II) available 

to the public.’’ Additionally, the statute 

requires that ‘‘such procedures shall 

ensure that a home health agency has 

the opportunity to review the data that 

is to be made public with respect to the 

agency prior to such data being made 

public.’’ To meet the requirement for 

making such data public, we proposed, 

to continue for CY 2008 to use the Home 

Health Compare Web site whereby 

HHAs are listed geographically. 

Currently the 10 quality measures are 

posted on the Home Health Compare 

Web site, and this site would be 

updated to reflect the performance level 

of the proposed 2 additional quality 

measures. Consumers can search for all 

Medicare-approved home health 

providers that serve their city or zip 

code and then find the agencies offering 

the types of services they need as well 

as the proposed quality measures. See 

http://www.medicare.gov/HHCompare/ 

Home.asp. HHAs currently have access 

(through the Home Health Compare 

contractor) to their own agency’s quality 

data (updated periodically), thus 

enabling each agency to know how it is 

performing before public posting of data 

on Home Health Compare (72 FR 

25452). We received no comments on 

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49864 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

the proposed process and are adopting 

it in the final rule with comment period 

for CY 2008. 

5. CY 2008 Payment Updates 

The Medicare HH PPS has been 

effective since October 1, 2000. As set 

forth in the final rule published July 3, 

2000 in the Federal Register (65 FR 

41128), the unit of payment under the 

Medicare HH PPS is a national 

standardized 60-day episode payment 

rate. As set forth in § 484.220, we adjust 

the national standardized 60-day 

episode payment rate by a case-mix 

grouping and a wage index value based 

on the site of service for the beneficiary. 

The CY 2008 HH PPS rates use the casemix methodology discussed in the 

proposed rule (72 FR 25395), 

incorporating the changes discussed in 

III.B of this rule and application of the 

wage index adjustment to the labor 

portion of the HH PPS rates as set forth 

in the July 3, 2000 final rule. As stated 

in section III.E.2. of this rule, we are 

rebasing and revising the home health 

market basket, resulting in a revised and 

rebased labor related share of 77.082 

percent and a non-labor portion of 

22.918 percent. We multiply the 

national standardized 60-day episode 

payment rate by the patient’s applicable 

case-mix weight. We divide the casemix adjusted amount into a labor and 

non-labor portion. We multiply the 

labor portion by the applicable wage 

index based on the site of service of the 

beneficiary. For CY 2008, we are basing 

the wage index adjustment to the labor 

portion of the HH PPS rates on the most 

recent pre-floor and pre-reclassified 

hospital wage index as discussed in 

section III.E.3. of this rule (not including 

any reclassifications under section 

1886(d)(8)(B) of the Act). 

As discussed in the July 3, 2000 HH 

PPS final rule, for episodes with four or 

fewer visits, Medicare pays the national 

per-visit amount by discipline, referred 

to as a LUPA. We update the national 

per-visit amounts by discipline annually 

by the applicable home health market 

basket percentage. We adjust the 

national per-visit amount by the 

appropriate wage index based on the 

site of service for the beneficiary as set 

forth in § 484.230. We adjust the labor 

portion of the updated national per-visit 

amounts by discipline used to calculate 

the LUPA by the most recent pre-floor 

and pre-reclassified hospital wage 

index, as discussed in section III.E.3. of 

this rule. 

Medicare pays the 60-day case-mix 

and wage-adjusted episode payment on 

a split percentage payment approach. 

The split percentage payment approach 

includes an initial percentage payment 

and a final percentage payment as set 

forth in § 484.205(b)(1) and (b)(2). We 

may base the initial percentage payment 

on the submission of a request for 

anticipated payment and the final 

percentage payment on the submission 

of the claim for the episode, as 

discussed in § 409.43. The claim for the 

episode that the HHA submits for the 

final percentage payment determines 

the total payment amount for the 

episode and whether we make an 

applicable adjustment to the 60-day 

case-mix and wage-adjusted episode 

payment. The end date of the 60-day 

episode as reported on the claim 

determines which CY rates Medicare 

will use to pay the claim. 

We may also adjust the 60-day casemix and wage-adjusted episode 

payment based on the information 

submitted on the claim to reflect the 

following: 

• A LUPA provided on a per-visit 

basis as set forth in § 484.205(c) and 

§ 484.230. 

• A PEP adjustment as set forth in 

§ 484.205(d) and § 484.235. 

• An outlier payment as set forth in 

§ 484.205(f) and § 484.240. 

As discussed in section III.C.3 of this 

final rule with comment period, we are 

implementing the removal of the SCIC 

adjustment from the HH PPS. 

This rule reflects the updated CY 

2008 rates that will become effective 

January 1, 2008. 

Section 1895(b)(3)(B) of the Act, as 

amended by section 5201 of the DRA, 

requires for CY 2008 that the standard 

prospective payment amounts be 

increased by a factor equal to the 

applicable home health market basket 

update for those HHAs that submit 

quality data as required by the 

Secretary. The applicable home health 

market basket update will be reduced by 

2 percentage points for those HHAs that 

fail to submit the required quality data. 

• CY 2008 Adjustments. 

In calculating the annual update for 

the CY 2008 national standardized 60- 

day episode payment rates, we first look 

at the CY 2007 rates as a starting point. 

The CY 2007 national standardized 60- 

day episode payment rate is $2,339.00. 

In order to calculate the CY 2008 

national standardized 60-day episode 

payment rate, we first increase the CY 

2007 national standardized 60-day 

episode payment rate ($2,339.00) by the 

rebased and revised home health market 

basket update of 3.0 percent for CY 

2008. 

Given this updated rate, we would 

then take a reduction of 2.75 percent to 

account for change in case-mix not 

related to actual change in case-mix. We 

would multiply the resulting value by 

1.05 and 0.95 to account for the 

estimated percentage of outlier 

payments for CY 2008 (that is, $2,339.00 

* 1.030 * 0.9725 * 1.05 * 0.95), to yield 

a CY 2008 national standardized 60-day 

episode payment rate of $2,337.06 for 

episodes that begin in CY 2007 and end 

in CY 2008 (see Table 11A below). For 

episodes that begin in CY 2007 and end 

in CY 2008, the new 153 HHRG casemix model (and associated Grouper) 

would not yet be in effect. For that 

reason, episodes that begin in CY 2007 

and end in CY 2008 will be paid at the 

rate of $2,337.06, and be further 

adjusted for wage differences and for 

case-mix, based on the current 80 HHRG 

case-mix model. We recognize that the 

annual update for CY 2008 is for all 

episodes that end on or after January 1, 

2008 and before January 1, 2009. By 

paying this rate ($2,337.06) for episodes 

that begin in CY 2007 and end in CY 

2008, we will have appropriately 

recognized that these episodes are 

entitled to receive the CY 2008 home 

health market, even though the new 

case-mix model will not yet be in effect. 

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Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 49865 

TABLE 11A.—NATIONAL 60-DAY EPISODE AMOUNTS UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE FOR CY 

2008, BEFORE CASE-MIX ADJUSTMENT, WAGE INDEX ADJUSTMENT BASED ON THE SITE OF SERVICE FOR THE BENEFICIARY OR APPLICABLE PAYMENT ADJUSTMENT FOR EPISODES BEGINNING IN CY 2007 AND ENDING IN CY 2008 

Total CY 2007 national standardized 60-day episode 

payment rate 

Multiply by the 

home health market basket update 

(3.0 percent) 1

Reduce by 2.75 

percent for nominal 

change in case-mix 

Adjusted to account for the 5 percent outlier policy 

National standardized 60-day episode payment rate 

for episodes beginning in CY 2007 

and ending in CY 

2008 

$2,339.00 ........................................................................... × 1.030 .................. × 0.9725 ................ × 1.05 × 0.95 $2,337.06 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007. 

Next, in order to establish new rates 

based on a new case-mix system, we 

again start with the CY 2007 national 

standardized 60-day episode payment 

rate and increase that rate by the 

rebased and revised home health market 

basket update (3.0 percent) ($2,339.00 * 

1.030 = $2,409.17). We next have to put 

dollars associated with the outlier 

targeted estimates back into the base 

rate. In the 2000 HH PPS final rule (65 

FR 41184), we divided the base rate by 

1.05 to account for the outlier target 

policy. Therefore, we proposed to 

multiply the $2,409.17 by 1.05, resulting 

in $2,529.63. Next, we need to reduce 

this amount to pay for each of our final 

policies. As noted previously, based 

upon our change to the LUPA payment, 

the NRS redistribution, and the 

elimination of the SCIC policy, the 

amounts needed to account for outlier 

payments, and the reduction to account 

for the 2.75 percent case-mix change 

adjustment, we reduce the national 

standardized 60-day episode payment 

rate by $5.70, $45.87, $10.96, $127.22, 

and $69.56, respectively. This results in 

a CY 2008 updated national 

standardized 60-day episode payment 

rate, for episodes beginning and ending 

in CY 2008, of $2,270.32 (see Table 

11B). These episodes would be further 

adjusted for case-mix based on the 153 

HHRG case-mix model for episodes 

beginning and ending in CY 2008. As 

we noted in section II.A.2.d. of the 

proposed rule, we increased the casemix weights by a budget neutrality 

factor of 1.194227193. In this final rule, 

the case-mix weights were increased by 

a budget neutrality factor of 

1.238848031. 

TABLE 11B.—NATIONAL 60-DAY EPISODE AMOUNTS UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE

FOR CY 2008, BEFORE CASE-MIX ADJUSTMENT, WAGE INDEX ADJUSTMENT BASED ON THE SITE OF SERVICE

FOR THE BENEFICIARY OR APPLICABLE PAYMENT ADJUSTMENT FOR EPISODES BEGINNING AND ENDING IN CY 

2008 

Total CY 2007 

national standardized 60-day 

episode payment rate 

Multiply by the home 

health market basket 

update (3.00 percent) 1

Adjusted to return the 

outlier funds to the 

national standardized 

60-day episode payment rate 

Updated and outlier 

adjusted national 

standardized 60-day 

episode payment 

Changes to account 

for LUPA adjustment 

($5.70), NRS payment ($45.87), elimination of SCIC policy 

($10.96), outlier policy ($127.22), and 

2.75 percent reduction for nominal 

change in case-mix 

(69.56) for episodes 

beginning and ending 

in CY 2008 

CY 2008 national 

standardized 60-day 

episode payment rate 

for episodes beginning and ending in 

CY 2008 

$2,339.00 ......... X 1.030 ..................... X 1.05 ....................... $2,529.63 .................. ¥$259.31 ................. $2,270.32 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast 

with historical data through 1st Qtr, 2007. 

Under the HH PPS, NRS payment, 

which was $49.62 at the onset of the HH 

PPS, has been updated yearly as part of 

the national standardized 60-day 

episode payment rate. As discussed 

previously in section III.C.4., we are 

removing the current NRS payment 

amount portion from the national 

standardized 60-day episode payment 

rate and adding a severity-adjusted NRS 

payment amount subject to case-mix 

and wage adjustment to the national 

standardized 60-day episode payment 

rate. To calculate an episode’s 

prospective payment amount, take the 

non-adjusted national standardized 60- 

day episode payment rate and multiply 

it by the appropriate case-mix weight 

from Table 5 of this rule. Next, multiply 

the case-mix adjusted national 

standardized 60-day episode payment 

by the labor portion (77.082 percent); 

multiply this result by the appropriate 

wage index factor listed in Addendum 

A or B to wage-adjust the 60-day 

episode payment. Next multiply the 

case-mix adjusted national standardized 

60-day episode payment by 22.918 

percent to compute the non-labor 

portion. Add this result to the wageadjusted labor portion to get the casemix and wage adjusted national 60-day 

episode payment without NRS. 

To calculate the NRS amount, 

multiply the episode’s NRS weight 

(taken from Table 9 of this rule) by the 

NRS conversion factor ($52.35). This 

adjusted NRS payment is added to the 

case-mix and wage-adjusted national 

standardized 60-day episode payment. 

The resulting amount is the case-mix 

and wage-adjusted national 

standardized 60-day episode payment 

rate including NRS for that particular 

episode. 

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49866 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

The following example illustrates the 

computation described above: 

Example 1. An HHA is providing services 

to a Medicare beneficiary in Grand Forks, 

ND; the episode begins and ends in 2008. 

The national standardized payment rate is 

$2,270.32 (see Table 11B). The HHA 

determines that the beneficiary is in his or 

her 3rd episode and thus falls under the 

C1F3S3 HHRG for 3rd+ episodes with 0 to 13 

therapy visits (Case-Mix Weight = 1.4674). It 

is also determined that the beneficiary falls 

under NRS severity level #4. The NRS 

Severity Level #4 weight = 3.9686 and the 

NRS Conversion Factor = $52.35 (see Table 

9). 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 


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49868 Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / Rules and Regulations 

National Per-Visit Amounts Used To 

Pay LUPAs and Compute Imputed Costs 

Used in Outlier Calculations 

As discussed previously in the CY 

2008 HH PPS proposed rule, the 

policies governing LUPAs and the 

outlier calculations set forth in the July 

3, 2000 HH PPS final rule will continue 

(65 FR 41128) with an increase of 

$87.93 for initial and only episode 

LUPAs during CY 2008. In calculating 

the CY 2008 national per-visit amounts 

used to calculate payments for LUPA 

episodes and to compute the imputed 

costs in outlier calculations, we start 

with the CY 2007 per-visit amounts. We 

increase the CY 2007 per-visit amounts 

for each home health discipline for CY 

2008 by the rebased and revised home 

health market basket update (3.0 

percent), then multiply by 1.05 and 0.95 

to account for the estimated percentage 

of outlier payments (see Table 12 

below). LUPA rates are not being 

reduced due to the increase in case-mix 

since they are per-visit rates and hence 

are not subject to changes in case-mix. 

TABLE 12.—NATIONAL PER-VISIT AMOUNTS FOR LUPAS (NOT INCLUDING THE INCREASE IN PAYMENT FOR A BENEFICIARY’S ONLY EPISODE OR THE INITIAL EPISODE IN A SEQUENCE OF ADJACENT EPISODES) AND OUTLIER CALCULATIONS UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE FOR CY 2008, BEFORE WAGE INDEX ADJUSTMENT

BASED ON THE SITE OF SERVICE FOR THE BENEFICIARY

Home health discipline type 

Final CY 2007 

per-visit 

amounts per 

60-day episode for 

LUPAs 

Multiply by 

the home 

health market basket 

(3.0 percent) 1

Adjusted to 

account for 

the 5 percent 

outlier policy 

CY 2008 pervisit payment 

amount per 

discipline 

Home Health Aide ................................................................................................ $46.24 × 1.030 ........ × 1.05 ..........

× 0.95 

$47.51 

Medical Social Services ........................................................................................ 163.68 × 1.030 ........ × 1.05 ..........

× 0.95 

168.17 

Occupational Therapy ........................................................................................... 112.40 × 1.030 ........ × 1.05 ..........

× 0.95 

115.48 

Physical Therapy .................................................................................................. 111.65 × 1.030 ........ × 1.05 ..........

× 0.95 

114.71 

Skilled Nursing ...................................................................................................... 102.11 × 1.030 ........ × 1.05 ..........

× 0.95 

104.91 

Speech-Language Pathology ............................................................................... 121.22 × 1.030 ........ × 1.05 ..........

× 0.95 

124.54 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 2nd Qtr, 2007. 

Payment for LUPA episodes is 

changed in that for LUPAs that occur as 

initial episodes in a sequence of 

adjacent episodes or as the only 

episode, a revised payment amount (see 

our proposal in section II.A.5. of the CY 

2008 HH PPS proposed rule and final 

amount in section III.C.2. of this rule) is 

to be added to the LUPA payment. Table 

12 rates below are before that 

adjustment and are the rates paid to all 

other LUPA episodes. LUPA episodes 

that occur as the only episode or initial 

episode in a sequence of adjacent 

episodes are adjusted by adding $87.93 

to the LUPA payment before adjusting 

for wage index. 

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BILLING CODE 4120–01–C 

Outlier payments are determined and 

calculated using the same methodology 

that has been used since the 

implementation of the HH PPS. 

Example 3 details the calculation of an 

outlier payment. 

Example 3. Calculation of an Outlier 

Payment 

The outlier payment amount is the product 

of the imputed amount in excess of the 

outlier threshold absorbed by the HHA and 

the loss sharing ratio. The outlier payment is 

added to the sum of the wage and case-mix 

adjusted 60-day episode amount. The steps to 

calculate the total episode payment, 

including an outlier payment, are given 

below. 

For this example, assume that a beneficiary 

lives in Greenville, SC and that the episode 

in question began and ended in CY 2008. The 

episode has a case-mix severity = C3F3S5, 

and is a second episode with 63 visits (30 

skilled nursing, 20 home health aide visits, 

and 13 physical therapy visits). The 

beneficiary had 105 NRS points, for an NRS 

severity level = 6. Therefore, 

from Table 9, the NRS payment amount = 

$551.00 

from Table 5, the case-mix weight = 1.9413 

from Addendum B, the wage index = 0.9860 

1. Calculate case-mix and wage-adjusted 

60-day episode payment, including NRS. 

National standardized 60-day episode 

payment amount for episodes beginning and 

ending in CY 2008: 

= $2,270.32 

Calculate the case-mix adjusted episode 

payment: 


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Multiply the national standardized 60-day 

episode payment by the applicable case-mix 

weight: 

$2,270.32 × 1.9413 = $4,407.37 

Divide the case-mix adjusted episode 

payment into the labor and non-labor 

portions: 

Labor portion: 0.77082 × $4,407.37 = 

$3,397.29 

Non-labor portion: 0.22918 × $4,407.37 = 

$1,010.08 

Wage-adjust the labor portion by 

multiplying it by the wage index factor for 

Greenville, SC: 

0.9860 × $3,397.29 = $3,349.73 

Add wage-adjusted labor portion to the 

non-labor portion to calculate the total casemix and wage-adjusted 60-day episode 

payment before NRS added: 

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

Add NRS amount to get the total case-mix 

and wage-adjusted 60-day episode payment, 

including NRS: 

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

2. Calculate wage-adjusted outlier 

threshold. 

Fixed dollar loss amount = national 

standardized 60-day episode payment 

multiplied by 0.89 FDL: 

$2,270.32 × 0.89 = $2,020.58 

Divide fixed dollar loss amount into labor 

and non-labor portions: 

Labor portion: 0.77082 × $2,020.58 = 

$1,557.50 

Non-labor portion: 0.22918 × $2,020.58 = 

$463.08 

Wage-adjust the labor portion by 

multiplying the labor portion of the fixed 

dollar loss amount by the wage index: 

$1,557.50 × 0.9860 = $1,535.70 

Calculate the wage-adjusted fixed dollar 

loss amount without NRS by adding the 

wage-adjusted portion of the fixed dollar loss 

amount to the non-labor portion of the fixed 

dollar loss amount: 

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

Calculate the fixed dollar loss amount of 

NRS by multiplying the NRS payment 

amount by the FDL ratio: 

$551.00 × 0.89 = $490.39 

Divide NRS fixed dollar loss amount into 

labor and non-labor portions: 

Labor portion: 0.77082 × $490.39 = $378.00 

Non-labor portion: 0.22918 × $490.39 = 

$112.39 

Wage-adjust the labor portion by 

multiplying the labor portion of the NRS 

fixed dollar loss amount by the wage index: 

$378.00 × 0.9860 = $372.71 

Add the wage-adjusted labor portion to the 

non-labor portion for the total NRS amount: 

$372.71 + $112.39 = $485.10 

Calculate the total wage-adjusted fixed 

dollar loss amount including NRS by adding 

the wage-adjusted fixed dollar loss amount of 

NRS to the wage-adjusted fixed dollar loss 

amount without NRS: 

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

Add the case-mix and wage-adjusted 60- 

day episode amount including NRS and the 

wage-adjusted fixed dollar loss amount 

including NRS to get the wage-adjusted 

outlier threshold: 

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

3. Calculate the wage-adjusted imputed 

cost of the episode. 

Multiply the total number of visits by the 

national average per-visit amounts listed in 

Table 12: 

30 skilled nursing visits × $104.91 = 

$3,147.30 

20 home health aide visits × $47.51 = $950.20 

13 physical therapy visits × $114.71 = 

$1,491.23 

Calculate the wage-adjusted labor and nonlabor portions for the imputed skilled 

nursing visit costs: 

Labor portion: 0.77082 × $3,147.30 = 

$2,426.00 

Non-labor portion: 0.22918 × $3,147.30 = 

$721.30 

Adjust the labor portion of the skilled 

nursing visits by the wage index: 

0.9860 × $2,426.00 = $2,392.04 

Add the wage-adjusted labor portion of the 

skilled nursing visits to the non-labor portion 

for the total wage-adjusted imputed costs for 

skilled nursing visits: 

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

Calculate the wage-adjusted labor and nonlabor portions for the imputed home health 

aide visits: 

Labor portion: 0.77082 × $950.20 = $732.43 

Non-labor portion: 0.22918 × $950.20 = 

$217.77 

Adjust the labor portion of the home health 

aide visits by the wage index: 

0.9860 × $732.43 = $722.18 

Add the wage-adjusted labor portion of the 

home health aide visits to the non-labor 

portion for the total wage-adjusted imputed 

costs for home health aide visits: 

$722.18 + $217.77 = $939.95 

Calculate the wage-adjusted labor and nonlabor portions for the imputed physical 

therapy visits: 

Labor portion: 0.77082 × $1,491.23 = 

$1,149.47 

Non-labor portion: 0.22918 × $1,491.23 = 

$341.76 

Adjust the labor portion of the home health 

aide visits by the wage index: 

0.9860 × $1,149.47 = $1,133.38 

Add the wage-adjusted labor portion of the 

home health aide visits to the non-labor 

portion for the total wage-adjusted imputed 

costs for home health aide visits: 

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

Total wage adjusted imputed per-visit costs 

for skilled nursing, home health aide, and 

physical therapy visits during the 60-day 

episode: 

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

4. Calculate the amount absorbed by the 

HHA in excess of the outlier threshold. 

Subtract the outlier threshold from (2) from 

the total wage-adjusted imputed per-visit 

costs for the episode from (3). 

$5,528.43 ¥ $4,910.81 = $617.62 

5. Calculate the outlier payment and total 

episode payment. 

Multiply the imputed amount in excess of 

the outlier threshold absorbed by the HHA 

from (4) by the loss sharing ratio of 0.80: 

$617.62 × 0.80 = $494.10 = outlier payment 

Add the outlier payment to the case-mix 

and wage-adjusted 60-day episode payment, 

including NRS, calculated in (1): 

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

$5,404.91 equals the total payment for the 

episode, including the outlier payment. 

For episodes that begin in CY 2007 

and end in CY 2008, the new 153 HHRG 

case-mix model (and associated 

Grouper) would not yet be in effect. For 

that reason, for HHAs that do not submit 

required quality data (for episodes that 

begin in CY 2007 and end in CY 2008), 

HH PPS rates are calculated as follows 

(see section III.E.4., of this rule, for an 

explanation of the DRA requirement for 

submission of quality data and the 

minus 2 percentage points for failure to 

submit that quality data): First, we 

update the CY 2007 rate of $2,339.00 by 

the home health market basket 

percentage update (3.0 percent) minus 2 

percent, reduced by 2.75 percent to 

account for the case-mix change 

adjustment, and multiplied by 1.05 and 

0.95 to account for the estimated 

percentage of outlier payments 

($2,339.00 * 1.010 * 0.9725 * 1.05 * 

0.95), to yield an updated CY 2008 

national standardized 60-day episode 

payment rate of $2,291.68 for episodes 

that begin in CY 2007 and end in CY 

2008 for HHAs that do not submit 

required quality data (see Table 13A). 

As stated in the CY 2008 HH PPS 

proposed rule, these episodes would be 

further adjusted for case-mix based on 

the 80 HHRG case-mix model for 

episodes beginning in CY 2007 and 

ending in CY 2008 (72 FR 25450). 

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TABLE 13A.—FOR HHAS THAT DO NOT SUBMIT THE REQUIRED QUALITY DATA—NATIONAL 60-DAY EPISODE AMOUNTS

UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE FOR CY 2008, MINUS 2 PERCENTAGE POINTS, FOR EPISODES THAT BEGIN IN CY 2007 AND END IN CY 2008 BEFORE CASE-MIX ADJUSTMENT, WAGE INDEX ADJUSTMENT

BASED ON THE SITE OF SERVICE FOR THE BENEFICIARY OR APPLICABLE PAYMENT ADJUSTMENT

Total CY 2007 national standardized 60-day episode payment rate 

Multiply by 

the home 

health market basket 

update (3.0 

percent) 1

minus 2 percent 

Reduce by 

2.75 percent 

for nominal 

change in 

case-mix 

Adjusted to account 

for the 5 percent 

outlier policy 

National 

standardized 

60-day episode payment 

rate for episodes beginning in CY 

2007 and ending in CY 2008 

for HHAs that 

do not submit 

required quality data 

$2,339.00 .................................................................................................... × 1.010 ........ × 0.9725 ...... × 1.05 × 0.95 $2,291.68 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007. 

Next, in order to establish new rates 

based on a new case-mix system, we 

again start with the CY 2007 national 

standardized 60-day episode payment 

rate and increase that rate by the 

rebased and revised home health market 

basket update (3.0 percent) minus 2 

percent ($2,339.00 * 1.010 = $2,362.39). 

We next have to put dollars associated 

with the outlier target estimate back into 

the base rate. In the 2000 HH PPS final 

rule (65 FR 41184), we divided the base 

rate by 1.05 to account for outlier 

payments. Therefore, we proposed to 

multiply the $2,362.39 by 1.05, resulting 

in $2,480.51. Next, we need to reduce 

this amount to pay for each of our final 

policy changes. To do this, we take the 

payment adjustment amount to pay for 

our policy changes of this rule, 

determined in Table 11A of $259.31, 

multiply it by (1/1.030) to take away the 

3.0 percent increase, and multiply that 

number by 1.010 to impose the 1.0 

percent update for episodes where 

HHAs have not submitted the required 

quality data. This results in a payment 

adjustment amount of $254.27. Finally, 

subtract the payment adjustment 

amount of $254.27 from $2,480.51, for a 

final rate of $2,226.24 for HHAs that do 

not submit quality data, for episodes 

that begin and end in CY 2008 (see 

Table 13B). 

These episodes would be further 

adjusted for case-mix based on the 153 

HHRG case-mix model for episodes 

beginning and ending in CY 2008. We 

increase the case-mix weights by a 

budget neutrality factor of 1.238848031. 

TABLE 13B.—FOR HHAS THAT DO NOT SUBMIT THE REQUIRED QUALITY DATA—NATIONAL 60-DAY EPISODE AMOUNTS

UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE FOR CY 2008, MINUS 2 PERCENTAGE POINTS, FOR EPISODES THAT BEGIN AND END IN CY 2008, BEFORE CASE-MIX ADJUSTMENT, WAGE INDEX ADJUSTMENT BASED ON

THE SITE OF SERVICE FOR THE BENEFICIARY OR APPLICABLE PAYMENT ADJUSTMENT

Total CY 2007 national standardized 60-day episode payment rate 

Multiply by 

the home 

health market basket 

update (3.0 

percent) 1

minus 2.0 

percent 

Adjusted to 

return the 

outlier funds 

to the national standardized 60- 

day episode 

payment rate 

Updated and 

outlier adjusted 

national standardized 60-day episode payment 

Changes to account for LUPA adjustment ($5.70), NRS payment 

($45.87), elimination of SCIC policy 

($10.96), outlier policy ($127.22), 

and 2.75 percent reduction for nominal change in case-mix ($69.56) = 

$259.31; minus 2 percentage points 

off of the home health market basket 

update (3.0 percent) 1 for episodes 

beginning and ending in CY 2008 

CY 2008 national 

standardized 60- 

day for episode 

payment rate for 

episodes beginning and ending in 

CY 2008 that do 

not submit required quality data 

$2,339.00 .................................. × 1.010 ........ × 1.05 .......... $2,480.51 ¥$254.27 $2,226.24 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007. 

In calculating the CY 2008 national 

per-visit amounts used to calculate 

payments for LUPA episodes for HHAs 

that do not submit required quality data 

and to compute the imputed costs in 

outlier calculations for those episodes, 

we start with the CY 2007 per-visit 

rates. We multiply those amounts by the 

home health market basket update (3.0 

percent) minus 2 percentage points, 

then multiply by 1.05 and 0.95 to 

account for the estimated percentage of 

outlier payments, to yield the updated 

per-visit amounts for each home health 

discipline for CY 2008 for HHAs that do 

not submit required quality data (see 

Table 14). 

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TABLE 14.—FOR HHAS THAT DO NOT SUBMIT THE REQUIRED QUALITY DATA—NATIONAL PER-VISIT AMOUNTS FOR

LUPAS (NOT INCLUDING THE INCREASE IN PAYMENT FOR A BENEFICIARY’S ONLY EPISODE OR THE INITIAL EPISODE IN

A SEQUENCE OF ADJACENT EPISODES) AND OUTLIER CALCULATIONS UPDATED BY THE HOME HEALTH MARKET BASKET UPDATE FOR CY 2008, MINUS 2 PERCENTAGE POINTS, BEFORE WAGE INDEX ADJUSTMENT BASED ON THE SITE

OF SERVICE FOR THE BENEFICIARY

Home health discipline type 

Final CY 2007 

per-visit 

amounts per 

60-day episode for 

LUPAs 

Multiply by 

the home 

health market basket 

(3.0 percent) 1 minus 

2.0 percent 

Adjusted to 

account for 

the 5 percent 

outlier policy 

CY 2008 pervisit payment 

amount per 

discipline for a 

beneficiary 

who resides in 

a non-MSA for 

HHAs that do 

not submit required quality 

data 

Home Health Aide ................................................................................................ $46.24 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

$46.59 

Medical Social Services ........................................................................................ 163.68 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

164.90 

Occupational Therapy ........................................................................................... 112.40 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

113.24 

Physical Therapy .................................................................................................. 111.65 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

112.48 

Skilled Nursing ...................................................................................................... 102.11 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

102.87 

Speech-Language Pathology ............................................................................... 121.22 × 1.010 ........ × 1.05 ..........

× 0.95 ..........

122.13 

1The estimated home health market basket update of 3.0 percent for CY 2008 is based on Global Insight, Inc, 2nd Qtr, 2007 forecast with historical data through 1st Qtr, 2007. 

IV. Provisions of the Final Rule With 

Comment Period 

In this final rule with comment 

period, we are adopting the provisions 

as set forth in the CY 2008 HH PPS 

proposed rule, except as noted in the 

specific response to comments in the 

applicable sections of this rule (for 

example, case-mix refinements; 

payment adjustments to include the 

LUPA, SCIC, and NRS; outlier policy; 

and the update of the HH PPS rates to 

include the home health market basket 

and the wage index). We are specifically 

soliciting comments on the 2.71 percent 

reduction to the HH PPS payment rates 

schedule in 2011, to account for changes 

in coding that were not related to an 

underlying change in patient health 

status (see Section III.B.6.) 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

(PRA) of 1995, we are required to 

provide 30-day notice in the Federal 

Register and solicit public comment 

before a collection of information 

requirement is submitted to the Office of 

Management and Budget (OMB) for 

review and approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the PRA of 1995 

requires that we solicit comment on the 

following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comments on 

each of aforementioned issues for the 

information collection requirements 

discussed below. In this final rule with 

comment period, we are restating the 

discussion of the information collection 

requirements as it appeared in the HH 

PPS proposed rule that published on 

May 4, 2007 (72 FR 25356). 

To implement the OASIS changes 

discussed in sections II.A.(2)(a), 

II.A.(2)(b), and II.A.(2)(c) of the 

proposed rule, and further discussed 

and clarified in sections III.B.2, III.B.3, 

and III.B.4 of this rule in the analysis of 

and public response to public comments 

on the proposed rule, which are 

currently approved in § 484.55, 

§ 484.205, and § 484.250, a few items in 

the OASIS will need to be modified, 

deleted, or added. The requirements and 

burden associated with the OASIS are 

currently approved under OMB control 

number 0938–0760 with an expiration 

date of August 31, 2007. We solicited 

public comment on each of the 

proposed changes for the information 

collection requirements (ICRs) as 

summarized and discussed below. For 

the purposes of soliciting public review 

and comment, we also placed a draft of 

the proposed changes to the OASIS on 

the CMS Web site at: 

http://www.cms.hhs.gov/

PaperworkReductionActof1995/PRAL/ 

list.asp#TopOfPage. 

As discussed in section II.A.(2)(a) of 

the proposed rule, and further clarified 

in section III.B.2 of this rule, in order for 

the OASIS to have the information 

necessary to allow the grouper to priceout the claim, we proposed to make the 

following changes to the OASIS to 

capture whether an episode is an early 

or later episode. 

The creation of a new OASIS item to 

capture whether a particular assessment 

is for an episode considered to be an 

early episode or a later episode in the 

patient’s current sequence of adjacent 

Medicare home health payment 

episodes. As defined in section II.A.1. of 

the proposed rule, and further clarified 

in section III.B.2 of this rule, we define 

a sequence of adjacent episodes for a 

beneficiary as a series of claims with no 

more than 60 days without home care 

between the end of one episode, which 

is the 60th day (except for episode that 

have been PEP-adjusted), and the 

beginning of the next episode. This 

definition holds true regardless of 

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whether or not the same HHA provided 

care for the entire sequence of adjacent 

episodes. The HHA will chose from the 

options: ‘‘Early’’ for single episodes or 

the first or second episode in a sequence 

of adjacent episodes, ‘‘Later’’ for third or 

later episodes, ‘‘UK’’ for unknown if the 

HHA is uncertain as to whether the 

episode is an early or later episode (the 

payment grouper software will default 

to the definition of an ‘‘early’’ episode), 

and ‘‘NA’’ for not applicable (no 

Medicare case-mix group to be defined 

by this assessment). 

As discussed in section II.A.(2)(b) of 

the proposed rule, we proposed to make 

changes to the OASIS in order to enable 

agencies to report secondary case-mix 

diagnosis codes. The proposed changes 

clarify how to appropriately fill out 

OASIS items M0230 and M0240, using 

ICD–9–CM sequencing requirements if 

multiple coding is indicated for any 

diagnosis. Additionally, if a V-code is 

reported in place of a case-mix 

diagnosis for OASIS item M0230 or 

M0240, then the new optional OASIS 

item (which is replacing existing OASIS 

item M0245) may then be completed. A 

case-mix diagnosis is a diagnosis that 

determines the HH PPS case-mix group. 

Further discussion or clarification of 

these proposed changes can be found in 

section III.B.3 of this rule. 

As discussed in section II.A.(2)(c) of 

the proposed rule, we proposed to make 

changes to the OASIS to capture the 

projected total number of therapy visits 

for a given episode. With the projected 

total number of therapy visits, the 

payment grouper would be able to group 

that episode into the appropriate casemix group for payment. The existing 

OASIS item M0825 asks an HHA if the 

projected number of therapy visits 

would meet the therapy threshold or 

not. As noted previously, we proposed 

to delete OASIS item M0825 and 

replace it with a new OASIS item. The 

OASIS item would ask the following: 

‘‘In the plan of care for the Medicare 

payment episode for which this 

assessment will define a case-mix 

group, what is the indicated need for 

therapy visits (total of reasonable and 

necessary physical, occupational, and 

speech-pathology visits combined)?’’

The HHA would provide the total 

number of projected therapy visits for 

that Medicare payment episode, unless 

not applicable (that is, no case-mix 

group defined by this assessment). The 

HHA would enter ‘‘000’’ if no therapy 

visits were projected for that particular 

episode. Further discussion and 

clarification of these proposed changes 

can be found in section III.B.4 of this 

rule. 

The burden associated with the 

proposed changes discussed in sections 

II.A.(2)(a), II.A.(2)(b), and II.A.(2)(c) of 

the proposed rule, and further discussed 

and clarified in section III.B.2, III.B.3, 

and III.B.4 of this rule, includes possible 

training of staff, the time and effort 

associated with downloading a new 

form and replacing previously preprinted versions of the OASIS, and 

utilizing updated vendor software. 

However, as stated above, CMS is 

removing or modifying existing 

questions in the OASIS data set to 

accommodate the proposed 

requirements referenced above. In 

addition, as a result of the proposed 

changes, we expect that the claims 

processing system will automatically 

adjust the therapy visits both upward 

and downward on the final claim, 

according to the information on the final 

claim. Consequently, the HHA would no 

longer have to withdraw and resubmit a 

revised claim when the number of 

therapy visits delivered to the patient is 

higher than the level report on the RAP. 

Therefore, CMS believes the burden 

increase associated with these changes 

is negated by the removal or 

modification of several current data 

items. 

We have submitted a copy of this final 

rule to OMB for its review of the 

information collection requirements 

described above. These requirements are 

not effective until OMB has approved 

them. 

If you comment on any of these 

information collection and record 

keeping requirements, please mail 

copies directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn.: Melissa Musotto, CMS–1541–

FC, Room C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Carolyn Lovett, CMS 

Desk Officer, (CMS–1541–FC), 

carolyn_lovett@omb.eop.gov. Fax 

(202) 395–6974. 

VI. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely reassigns responsibility of 

duties) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

This final rule will be a major rule, as 

defined in Title 5, United States Code, 

section 804(2), because we estimate the 

impact to the Medicare program, and 

the annual effects to the overall 

economy, will be more than $100 

million. The update set forth in this 

proposed rule would apply to Medicare 

payments under the HH PPS in CY 

2008. 

Accordingly, the following analysis 

describes the impact in CY 2008 only. 

We estimate that the net impact in this 

rule, including a 2.75 percent reduction 

to the payment rate to account for the 

case-mix change adjustment in casemix, is estimated to be approximately 

$20 million in CY 2008 expenditures. 

That estimate incorporates the 3.0 

percent home health market basket 

increase (an estimated additional $430 

million in CY 2008 expenditures 

attributable only to the CY 2008 home 

health market basket update), and the 

2.75 percent decrease (¥$410 million 

for the first year of a 4-year phase-in) to 

the HH PPS national standardized 60- 

day episode rate to account for the casemix change adjustment under the HH 

PPS. The $20 million is reflected in 

column 7 of Table 15 as a 0.2 percent 

increase in expenditures when 

comparing the current CY 2007 system 

to the revised CY 2008 system. In the 

proposed rule, the difference between 

the proposed 2.9 percent update ($410 

million) and the 2.75 percent decrease 

($400 million) was $10 million. The 

additional $130 million difference, in 

the proposed rule, between estimated 

CY 2007 and CY 2008 total payments 

resulted from the differential treatment 

of the outlier offsets to the payment 

rates and the percent of outlier 

payments between the two simulations. 

Specifically, the $130 million difference 

reflected the lower payments estimated 

for CY 2007 resulting from the estimated 

outlier payments of only 4.14 percent 

rather than 5 percent. Our analysis of 

more recent data than the CY 2005 data 

available for both the CY 2007 and CY 

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2008 impact analysis simulations 

strongly suggests that outlier payments 

in CY 2007 and CY 2008 are or will be 

greater than 5 percent of total payments. 

Since the CY 2005 data show outlier 

payments of only about 4.1 percent, the 

CY 2005 data are not informative about 

actual outlier experience in CY 2007 

and CY 2008. For the final rule impact 

analysis, we have set the FDLs in the CY 

2007 and CY 2008 simulations to be 

consistent with outlier payments of 5 

percent so that outlier payments have 

similar effects in all of the impact 

simulations. We believe that this 

approach comes as close as possible to 

estimating the desired impacts in a 

comparable manner, given the recent 

changes in outlier payments. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6 million to $29 million in any 1 

year. For purposes of the RFA, 

approximately 75 percent of HHAs are 

considered small businesses according 

to the Small Business Administration’s 

size standards with total revenues of 

$11.5 million or less in any 1 year. 

Individuals and States are not included 

in the definition of a small entity. As 

stated above, this final rule will have an 

estimated positive effect upon small 

entities that are HHAs. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We have 

determined that this final rule will not 

have a significant economic impact on 

the operations of a substantial number 

of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule that may result in expenditure in 

any 1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $110 million. We 

believe this final rule will not mandate 

expenditures in that amount. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

We have determined that this final rule 

will not have substantial direct effects 

on the rights, roles, and responsibilities 

of States. 

B. Anticipated Effects 

This final rule with comment period 

updates the HH PPS rates contained in 

the CY 2007 final rule (71 FR 65884, 

November 9, 2006). The impact analysis 

of this final rule presents the refinement 

related policy changes in this rule. We 

use the latest data and best analysis 

available, but we do not attempt to 

predict behavioral responses to these 

changes, and we do not make 

adjustments for future changes in such 

variables as days or case-mix. 

This analysis incorporates the latest 

estimates of growth in service use and 

payments under the Medicare home 

health benefit, based on the latest 

available Medicare claims from 2005. 

We note that certain events may 

combine to limit the scope or accuracy 

of our impact analysis, because such an 

analysis is future-oriented and, thus, 

susceptible to forecasting errors due to 

other changes in the forecasted impact 

time period. Some examples of such 

possible events are newly-legislated 

general Medicare program funding 

changes made by the Congress, or 

changes specifically related to HHAs. In 

addition, changes to the Medicare 

program may continue to be made as a 

result of the BBA, the BBRA, the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000, the MMA, the DRA, or new 

statutory provisions. Although these 

changes may not be specific to the HH 

PPS, the nature of the Medicare program 

is such that the changes may interact, 

and the complexity of the interaction of 

these changes could make it difficult to 

predict accurately the full scope of the 

impact upon HHAs. 

Table 15 represents how home health 

agencies are likely to be affected by the 

policy changes described in this rule. 

For each agency type listed below, Table 

15 displays the average case-mix index, 

both under the current HH PPS case-mix 

system and the CY 2008 HH PPS casemix system. For this analysis, we used 

the most recent data available that 

linked home health claims and OASIS 

assessments, a 20-percent sample of 

episodes occurring in CY 2005. In Table 

15, the average case-mix is the same, in 

the aggregate, between the current HH 

PPS system and the proposed revised 

HH PPS system, due to our application 

of a budget neutrality factor for the casemix weights. Column one of this table 

classifies HHAs according to a number 

of characteristics including provider 

type, geographic region, and urban 

versus rural location. Column two 

displays the average case-mix weight for 

each type of agency under the current 

payment system. Column three displays 

the average case-mix weight for each 

type of agency incorporating all of the 

changes/refinements discussed above. 

The average case-mix weight for 

proprietary (for profit) agencies is 

estimated to decrease from 1.2821 to 

1.2620. Comparatively, the average casemix weight for voluntary non-profit 

agencies is estimated to increase from 

1.1875 to 1.2334. Rural agencies are 

estimated to experience a decrease in 

their average case-mix from 1.2047 to 

1.1798. It is estimated that urban 

agencies would see a slight increase in 

their average case-mix weight from 

1.2520 to 1.2616. In particular, the New 

England, Mid-Atlantic, South Atlantic, 

East North Central, West North Central, 

and Mountain areas of the country are 

estimated to see their average case-mix 

increase under the proposed 

refinements of this rule. Conversely, the 

East South Central, West South Central, 

and Pacific areas of the country are 

estimated to see their average case-mix 

decrease as a result of refinements of 

this rule. Both small and large agencies 

are estimated to see decreases in their 

average case-mix under the new 

proposed case-mix system, the only 

exception being much larger agencies 

(200+ first episodes), which are 

estimated to see an increase of their 

average case-mix from 1.2376 to 1.2398. 

For the purposes of analyzing impacts 

on payments, we performed five 

simulations and compared them to each 

other. 

Based on our estimate that outliers, as 

a percentage of total HH PPS payments, 

will be at least 5 percent in CY 2007, the 

2007 baseline, for the purposes of these 

simulations, we assumed that the full 5 

percent outlay for outliers will be paid. 

The first simulation estimates 2008 

payments under the current system (to 

include the 2007 wage index and labor 

share). The second simulation estimates 

2008 payments under the current 

system, but with the 2008 wage index 

and the new 2008 labor share. The 

second simulation produces an estimate 

of what total payments using the sample 

data will be in 2008 without making any 

of the refinement-related changes 

described in this final rule. The third 

simulation estimates 2008 payment with 

the old, 2007 labor share and a 2008 

wage index. The fourth simulation 

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estimates 2008 payments with a new 

2008 labor share and a 2007 wage index. 

These first four simulations allow us 

to demonstrate the effects of a new 2008 

wage index and a new 2008 labor share 

as a percentage change in estimated 

expenditures. Specifically, the fourth 

column of Table 15 shows the percent 

change due to the combined effects of 

the new 2008 labor share and the 2008 

wage index. Column five shows the 

percent change due to the effects of the 

new labor share. And finally, column 6 

shows us the percent change due to the 

effects of updated wage data (2008 wage 

index). 

The fifth, and final, simulation 

estimates what total payments would be 

in 2008, using the final case-mix model, 

the additional payment for initial and 

only episode LUPA episodes, the 

removal of SCIC adjustments, and the 

revised approach to making NRS 

payments. The fifth simulation also 

assumes payments will incorporate the 

rebased and revised home health market 

basket increase of 3.0 percent, the new 

outlier threshold determined by an 

updated FDL ratio of 0.89, and the 2.75 

percent reduction in the national 

standardized 60-day episode payment 

rate to account for the case-mix change 

adjustment. All five simulations use a 

CBSA-based wage index (we used a 

crosswalk from the MSA reported on the 

2005 claims to the CBSA to determine 

the appropriate wage index). 

Column seven shows the percentage 

change in estimated total payments in 

moving from the current CY 2007 to the 

revised CY 2008 system outlined in this 

final rule. As a result of changes in our 

approach to the impact analysis 

simulations between the proposed rule 

and this rule, our estimate of the change 

in total payments between CY 2007 and 

CY 2008 is substantially less than what 

we presented in the proposed rule. The 

percentage change in estimated total 

payments from CY 2007 to the revised 

CY 2008 system is now the difference 

between the 3.0 percent update and the 

2.75 percent reduction in the rates for 

an increase of $20 million, or 

approximately 0.2 percent). 

In the proposed rule, we stated that 

the estimated additional $130 million 

yielding the $140 million in estimated 

spending for CY 2008 is due to the fixed 

dollar loss ratio at 0.67 (72 FR 25454). 

What that means is that the CY 2008 

simulation compensated for fixing the 

FDL at 0.67 by raising all the payment 

rates to meet the target expenditure 

total. In the CY 2008 simulation, this 

compensatory adjustment raised total 

payments by an amount that would 

have been equivalent to spending the 

entire outlier target of 5% of total 

expenditures. However, the CY 2007 

payment simulation in our proposed 

rule predicted outlier payments of only 

4.14 percent with the CY 2007 FDL of 

0.67. Since in the CY 2007 simulation 

we made no upward adjustment to the 

rates similar to the offsetting adjustment 

we made in the CY 2008 simulation, 

estimated CY 2007 total payments with 

the .67 FDL were lower than they would 

have been had outlier payments been 5 

percent of total payments. This 

asymmetrical approach to the 

comparative simulations for CY 2007 

and CY 2008 yielded an estimated $130 

million in additional payments from 

moving to the new system. 

We have revised the final rule’s 

impact analysis by simulating CY 2007 

and CY 2008 payments in a consistent 

manner with respect to outlier policy. 

We made no adjustment to the rates in 

either simulation of the kind we made 

to the proposed regulation’s CY 2008 

simulation. In other words, both sets of 

rates and the FDL ratios assume outlier 

payments reach the 5 percent target. The 

basis for taking this approach is that our 

supplementary analysis of more recent 

data than the CY 2005 data available for 

both the CY 2007 and CY 2008 

simulations strongly suggests that 

outlier payments in CY 2007 and CY 

2008 are or will be greater than 5 

percent of total payments. Since the CY 

2005 data show outlier payments of 

only about 4.1 percent, the CY 2005 data 

are not informative about actual outlier 

experience in CY 2007 and CY 2008. For 

the final rule impact analysis, we have 

set the FDLs in the CY 2007 and CY 

2008 simulations to be consistent with 

outlier payments of 5 percent so that 

outlier payments have similar effects in 

all of the impact simulations. We 

believe that this approach comes as 

close as possible to estimating the 

desired impacts in a comparable 

manner, given the recent changes in 

outlier payments. As a result of these 

changes in approach, our estimate of the 

change in total payments between CY 

2007 and CY 2008 is an increase of $20 

million or approximately 0.1 to 0.2 

percent. 

In general, voluntary non-profit HHAs 

(3.60 percent), facility-based HHAs (3.66 

percent), and government owned HHAs 

(3.04 percent) are estimated to see an 

increase in the percentage change in 

estimated total payments from CY 2007 

to the revised CY 2008 system. 

Proprietary and freestanding HHAs, on 

the other hand, are estimated to see 

decreases of 2.37 percent and 0.64 

percent, respectively, in estimated total 

payments from CY 2007 to the proposed 

revised CY 2008 system. As it was in the 

proposed rule, the major contributor to 

the decrease 2.37 percent for proprietary 

HHAs is the free-standing proprietary 

HHAs, which are estimated to see a 

decrease of 2.49 percent in the 

percentage change in estimated total 

payment from CY 2007 to the revised 

CY 2008 system. 

We note that some of these impacts 

are partly explained by practice patterns 

associated with certain types of 

agencies. For example, LUPA episodes 

are relatively common among nonprofit 

agencies and freestanding governmentowned agencies. Our implementing an 

additional payment for certain LUPA 

episodes would tend to increase 

payments for such classes of agencies 

with higher-than-average LUPA rates, 

while tending to decrease payments for 

agencies with comparatively low LUPA 

rates. Similarly, the elimination of the 

SCIC policy would tend to favorably 

affect total payments for agencies with 

relatively high rates of SCIC episodes, 

such as facility-based proprietary 

agencies and facility-based government 

agencies. 

The percentage change in estimated 

total payments from CY 2007 to a CY 

2008 system that incorporates all of the 

refinements to the HH PPS for rural 

HHAs is a decrease of 1.77 percent, 

while for urban HHAs an increase of 

0.80 percent is expected. Urban agencies 

have somewhat higher LUPA rates than 

rural agencies, so urban agencies would 

be expected to benefit, relative to rural 

agencies, from the proposal to make an 

additional payment for certain LUPA 

episodes. Urban agencies are also more 

likely to benefit from elimination of the 

SCIC policy. Urban agencies are less 

likely to bill a SCIC episode than rural 

agencies. However, when urban 

agencies do bill a SCIC episode the 

payment is reduced more, on average, 

than when rural agencies bill a SCIC. 

The net effect of these two components 

(relative frequency and payment impact 

per SCIC episode) is a larger expected 

reduction for urban agencies under the 

SCIC adjustment policy. Therefore, 

while both urban and rural agencies 

benefit from eliminating the SCIC 

policy, urban agencies benefit more. 

HHAs in the North are expected to 

experience a percentage change increase 

of 4.57 percent in estimated total 

payments from CY 2007 to the revised 

CY 2008 system. One region, the South, 

is estimated to experience a decrease in 

the percentage change in estimated total 

payments from CY 2007 to the revised 

CY 2008 system. That percentage 

change is an estimated decrease of 2.91 

percent. 

It is estimated that New England and 

Mid Atlantic area HHAs will experience 

percentage change increases 

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approaching 4 or 5 percent, respectively 

(New England, 3.83 percent and the 

Mid-Atlantic, 4.96 percent) in estimated 

total payments from CY 2007 to the 

revised CY 2008 system. Conversely, 

West South Central HHAs are expected 

to experience a decrease (¥6.32 

percent) in the percentage change in 

estimated total payments from CY 2007 

to the revised CY 2008 system. In 

general, HHAs with less than 200 

Medicare home health initial episodes 

per year are expected to experience a 

decrease (ranging from ¥0.78 percent to 

1.93 percent) for their percentage 

change in estimated total payments from 

CY 2007 to the revised CY 2008 system. 

Conversely, the largest HHAs (those 

with 200 or more Medicare home health 

initial episodes per year) are estimated 

to experience a slight increase of 0.36 

percent change in estimated total 

payments from CY 2007 to the CY 2008 

system. 

TABLE 15.—IMPACT BY AGENCY TYPE

Group 

Case-Mix Comparisons 

Case-Mix 

Index Current 

80 HHRGs 

Case-Mix 

Index, Revised 

153 HHRGs 

Percent 

Change Due 

to the Combined Effects 

of the New 

Labor Share 

(0.77082) and 

the Updated 

Wage Data 

(2008 Wage 

Index) 

Percent 

Change Due 

to the Effects 

of the New 

Labor Share 

(0.77082) 

Percent 

Change Due 

to the Effects 

of the Updated 

Wage Data 

(2008 Wage 

Index) 

Percent 

Change from 

the Current 

CY 2007 System to the Revised CY 2008 

System 

Type of Facility 

Unknown .................................................. 1.5011 1.4848 0.10 0.02 0.07 ¥1.64 

Free-Standing/Other Vol/NP .................... 1.1982 1.2467 0.09 0.00 0.08 3.47 

Free-Standing/Other Proprietary .............. 1.2841 1.2625 ¥0.06 ¥0.02 ¥0.04 ¥2.49 

Free-Standing/Other Government ........... 1.2038 1.2576 0.04 ¥0.05 0.09 2.84 

Facility-Based Vol/NP .............................. 1.1736 1.2162 0.04 ¥0.02 0.05 3.78 

Facility-Based Proprietary ........................ 1.2145 1.2439 ¥0.03 ¥0.05 0.01 2.79 

Facility-Based Government ...................... 1.1513 1.1857 ¥0.10 ¥0.05 ¥0.05 3.28 

Subtotal: Freestanding ...................... 1.2551 1.2576 ¥0.02 ¥0.02 0.00 ¥0.64 

Subtotal: Facility-based .................... 1.1737 1.2146 0.02 ¥0.02 0.04 3.66 

Subtotal: Vol/PNP ............................. 1.1875 1.2334 0.07 ¥0.01 0.07 3.60 

Subtotal: Proprietary ......................... 1.2821 1.2620 ¥0.06 ¥0.02 ¥0.04 ¥2.37 

Subtotal: Government ....................... 1.1796 1.2244 ¥0.02 ¥0.05 0.03 3.04 

TOTAL ....................................... 1.2388 1.2388 ¥0.01 ¥0.02 0.00 0.20 

Type of Facility (Rural* Only) 

Unknown .................................................. 0.8205 0.8221 0.05 0.05 0.00 ¥0.15 

Free-Standing/Other Vol/NP .................... 1.1746 1.1895 0.09 ¥0.05 0.14 1.14 

Free-Standing/Other Proprietary .............. 1.2429 1.1936 ¥0.14 ¥0.08 ¥0.06 ¥5.57 

Free-Standing/Other Government ........... 1.1883 1.2490 0.08 ¥0.07 0.14 2.74 

Facility-Based Vol/NP .............................. 1.1588 1.1790 ¥0.04 ¥0.06 0.02 2.12 

Facility-Based Proprietary ........................ 1.2073 1.2242 ¥0.09 ¥0.08 ¥0.01 1.98 

Facility-Based Government ...................... 1.1440 1.1701 ¥0.10 ¥0.07 ¥0.04 2.67 

Type of Facility (Urban* Only) 

Unknown .................................................. 1.5025 1.4861 0.10 0.02 0.07 ¥1.64 

Free-Standing/Other Vol/NP .................... 1.2037 1.2598 0.09 0.01 0.07 3.92 

Free-Standing/Other Proprietary .............. 1.2983 1.2836 ¥0.04 ¥0.01 ¥0.04 ¥1.67 

Free-Standing/Other Government ........... 1.2312 1.2749 ¥0.01 ¥0.02 0.00 2.99 

Facility-Based Vol/NP .............................. 1.1803 1.2332 0.07 0.00 0.06 4.41 

Facility-Based Proprietary ........................ 1.2225 1.2655 0.02 ¥0.02 0.03 3.54 

Facility-Based Government ...................... 1.1737 1.2336 ¥0.09 ¥0.02 ¥0.08 4.86 

Type of Facility: Urban* or Rural* 

Rural* ....................................................... 1.2047 1.1798 ¥0.06 ¥0.07 0.00 ¥1.77 

Urban* ...................................................... 1.2520 1.2616 0.01 0.00 0.01 0.80 

TOTAL .............................................. 1.2388 1.2388 ¥0.01 ¥0.02 0.00 0.20 

Type of Facility: Region 

North ........................................................ 1.1499 1.2090 0.12 0.02 0.10 4.57 

South ........................................................ 1.2761 1.2351 ¥0.19 ¥0.04 ¥0.15 ¥2.91 

Midwest .................................................... 1.2249 1.2645 0.16 ¥0.02 0.18 3.12 

West ......................................................... 1.2423 1.2382 0.18 0.02 0.15 0.03 

Other ........................................................ 1.2716 1.2933 ¥0.04 ¥0.06 0.02 2.13 

TOTAL .............................................. 1.2388 1.2388 ¥0.01 ¥0.02 0.00 0.20 

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TABLE 15.—IMPACT BY AGENCY TYPE—Continued 

Group 

Case-Mix Comparisons 

Case-Mix 

Index Current 

80 HHRGs 

Case-Mix 

Index, Revised 

153 HHRGs 

Percent 

Change Due 

to the Combined Effects 

of the New 

Labor Share 

(0.77082) and 

the Updated 

Wage Data 

(2008 Wage 

Index) 

Percent 

Change Due 

to the Effects 

of the New 

Labor Share 

(0.77082) 

Percent 

Change Due 

to the Effects 

of the Updated 

Wage Data 

(2008 Wage 

Index) 

Percent 

Change from 

the Current 

CY 2007 System to the Revised CY 2008 

System 

Type of Facility: Area of the Country 

New England ............................................ 1.1106 1.1611 0.10 0.02 0.07 3.83 

Mid Atlantic .............................................. 1.1706 1.2343 0.14 0.01 0.12 4.96 

South Atlantic ........................................... 1.2862 1.2877 ¥0.09 ¥0.03 ¥0.07 0.44 

East South Central ................................... 1.2897 1.2667 ¥0.22 ¥0.07 ¥0.16 ¥1.99 

West South Central .................................. 1.2618 1.1781 ¥0.27 ¥0.05 ¥0.23 ¥6.32 

East North Central ................................... 1.2409 1.2818 0.22 ¥0.01 0.23 3.14 

West North Central .................................. 1.1705 1.2055 ¥0.04 ¥0.04 ¥0.01 3.04 

Mountain .................................................. 1.2660 1.3161 ¥0.06 ¥0.04 ¥0.03 3.22 

Pacific ....................................................... 1.2305 1.1992 0.28 0.05 0.22 ¥1.21 

Other ........................................................ 1.2716 1.2933 ¥0.04 ¥0.06 0.02 2.13 

TOTAL .............................................. 1.2388 1.2388 ¥0.01 ¥0.02 0.00 0.20 

Type of Facility: Size (Number of First Episodes/Year) 

Unknown .................................................. 1.0130 0.8895 ¥0.27 ¥0.03 ¥0.24 ¥7.85 

1 to 5 ........................................................ 1.2056 1.1866 ¥0.02 ¥0.02 0.00 ¥1.05 

6 to 9 ........................................................ 1.2145 1.1806 0.00 ¥0.03 0.02 ¥1.83 

10 to 14 .................................................... 1.2297 1.2128 ¥0.07 ¥0.02 ¥0.05 ¥0.78 

15 to 19 .................................................... 1.2335 1.2186 ¥0.05 ¥0.02 ¥0.03 ¥1.10 

20 to 29 .................................................... 1.2412 1.2065 ¥0.05 ¥0.02 ¥0.03 ¥1.93 

30 to 49 .................................................... 1.2463 1.2335 ¥0.05 ¥0.02 ¥0.03 ¥0.86 

50 to 99 .................................................... 1.2505 1.2360 ¥0.04 ¥0.02 ¥0.02 ¥0.84 

100 to 199 ................................................ 1.2489 1.2334 ¥0.03 ¥0.02 ¥0.01 ¥0.92 

200 or More ............................................. 1.2376 1.2398 ¥0.01 ¥0.02 0.01 0.36 

TOTAL .............................................. 1.2388 1.2388 ¥0.01 ¥0.02 0.00 0.20 

Note: Based on a 20 percent sample of CY 2005 claims linked to OASIS assessment. Due to sample differences, national average case-mix

weight in this table differs slightly from national average for CY 2005 reported in the text (1.2361). 

*Urban/rural status, for the purposes of these simulations, is based on the wage index on which episode payment is based. The wage index is 

based on the site of service of the beneficiary. 

C. Accounting Statement 

As Required by OMB Circular A-4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 16 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this final rule. This table 

provides our best estimate of the 

increase in Medicare payments under 

the HH PPS as a result of the changes 

presented in this final rule with 

comment period based on the data for 

8,164 HHAs in our database. All 

expenditures are classified as transfers 

to Medicare providers (that is, HHAs). 

TABLE 16.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2008 

[In millions] 

Category Transfers 

Annualized Monetized Transfers .............................................................. $20. 

From Whom to Whom .............................................................................. Federal Government to HHAs. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects in 42 CFR Part 484 

Health facilities, Health professions, 

Medicare, and Reporting and 

recordkeeping requirements. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 484—HOME HEALTH SERVICES 

■ 1. The authority citation for part 484 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

Subpart E—Prospective Payment 

System for Home Health Agencies 

§ 484.205 [Amended] 

■ 2. Amend § 484.205 by—

■ A. Removing paragraph (a)(3). 

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■ B. Redesignating paragraph (a)(4) as 

paragraph (a)(3). 

■ C. Revising paragraph (b) introductory 

text. 

■ D. Removing paragraph (e). 

■ E. Redesignating paragraph (f) as 

paragraph (e). 

The revisions read as follows: 

§ 484.205 Basis of payment. 

* * * * * 

(b) Episode payment. The national 

prospective 60-day episode payment 

represents payment in full for all costs 

associated with furnishing home health 

services previously paid on a reasonable 

cost basis (except the osteoporosis drug 

listed in section 1861(m) of the Act as 

defined in section 1861(kk) of the Act) 

as of August 5, 1997 unless the national 

60-day episode payment is subject to a 

low-utilization payment adjustment set 

forth in § 484.230, a partial episode 

payment adjustment set forth at 

§ 484.235, or an additional outlier 

payment set forth in § 484.240. All 

payments under this system may be 

subject to a medical review adjustment 

reflecting beneficiary eligibility, medical 

necessity determinations, and HHRG 

assignment. DME provided as a home 

health service as defined in section 

1861(m) of the Act continues to be paid 

the fee schedule amount. 

* * * * * 

■ 3. Revise § 484.220 to read as follows: 

§ 484.220 Calculation of the adjusted 

national prospective 60-day episode 

payment rate for case-mix and area wage 

levels. 

CMS adjusts the national prospective 

60-day episode payment rate to account 

for the following: 

(a) HHA case-mix using a case-mix 

index to explain the relative resource 

utilization of different patients. To 

address changes to the case-mix that are 

a result of changes in the coding or 

classification of different units of 

service that do not reflect real changes 

in case-mix, the national prospective 60- 

day episode payment rate will be 

adjusted downward as follows: 

(1) For CY 2008, the adjustment is 

2.75 percent. 

(2) For CY 2009 and CY 2010, the 

adjustment is 2.75 percent in each year. 

(3) For CY 2011, the adjustment is 

2.71 percent. 

(b) Geographic differences in wage 

levels using an appropriate wage index 

based on the site of service of the 

beneficiary. 

■ 4. Amend § 484.230 by adding a third, 

fourth, and fifth sentence after the 

second sentence to read as follows: 

§ 484.230 Methodology used for the 

calculation of the low-utilization payment 

adjustment. 

* * * For 2008 and subsequent 

calendar years, an amount will be added 

to low-utilization payment adjustments 

for low-utilization episodes that occur 

as the beneficiary’s only episode or 

initial episode in a sequence of adjacent 

episodes. For purposes of the home 

health PPS, a sequence of adjacent 

episodes for a beneficiary is a series of 

claims with no more than 60 days 

without home care between the end of 

one episode, which is the 60th day 

(except for episodes that have been PEPadjusted), and the beginning of the next 

episode. This additional amount will be 

updated annually after 2008 by a factor 

equal to the applicable home health 

market basket percentage. 

§ 484.237 [Removed] 

■ 5. Remove § 484.237. 

■ 6. Amend § 484.240 by revising 

paragraph (b) to read as follows: 

§ 484.240 Methodology used for the 

calculation of the outlier payment. 

* * * * * 

(b) The outlier threshold for each 

case-mix group is the episode payment 

amount for that group, the PEP 

adjustment amount for the episode plus 

a fixed dollar loss amount that is the 

same for all case-mix groups. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: August 17, 2007. 

Herb. B. Kuhn, 

Acting Deputy Administrator, Centers for 

Medicare & Medicaid Services. 

Approved: August 20, 2007. 

Michael O. Leavitt, 

Secretary. 

Note: The following addenda will not be 

published in the Code of Federal Regulations. 

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[FR Doc. 07–4184 Filed 8–22–07; 4:00 pm] 

BILLING CODE 4120–01–C 


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