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[Federal Register Volume 77, Number 145 (Friday, July 27, 2012)]
[Notices]
[Pages 44242-44255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18336]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1434-N]
RIN 0938-AR17

Medicare Program; Hospice Wage Index for Fiscal Year 2013

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

ACTION: Notice.

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SUMMARY: This notice sets forth the hospice wage index for fiscal year 
(FY) 2013 and will continue the phase-out of the wage index budget 
neutrality adjustment factor (BNAF), with an additional 15 percent BNAF 
reduction, for a total BNAF reduction through FY 2013 of 55 percent. 
The BNAF phase-out will continue with successive 15 percent reductions 
from FY 2014 through FY 2016. This notice clarifies that providers 
should report additional diagnoses on hospice claims. This notice also 
updates the public on the status of hospice payment reform and the 
quality reporting program.

DATES: This notice is effective on October 1, 2012.

FOR FURTHER INFORMATION CONTACT:

Anjana Patel, (410) 786-2120 for questions regarding hospice wage 
index.
Katie Lucas, (410) 786-7723 for questions regarding diagnosis reporting 
on claims.
Zinnia Harrison, (410) 786-4587 for questions regarding payment reform.
Robin Dowell, (410) 786-0060 for questions regarding quality reporting 
for hospices.
Hillary Loeffler, (410) 786-0456 for questions regarding this notice.

SUPPLEMENTARY INFORMATION:

Addenda Are Only Available Through the Internet on the CMS Web Site

    In the past, the Addenda referred to throughout the preamble of our 
proposed and final rules or notices were available in the Federal 
Register. However, the Addenda of the annual proposed and final rules, 
or annual notices, will no longer be available in the Federal Register. 
Instead, these Addenda to the annual proposed and final rules or annual 
notices will be available only through the Internet on the CMS Web 
site. The Addenda to the FY 2013 Hospice Wage Index Notice are 
available at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Hospice/index.html. Readers who experience any problems 
accessing any of the Addenda to the proposed and final rules or notices 
related to the hospice wage index that are posted on the CMS Web site 
identified above should contact Anjana Patel at 410-786-2120.

Table of Contents

I. Background
    A. General
    1. Hospice Care
    2. Medicare Payment for Hospice Care
    B. Hospice Wage Index
    1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital 
Wage Index)
    2. Definition of Rural and Urban Areas
    3. Areas Without Hospital Wage Data
    4. CBSA Nomenclature Changes
    5. Wage Data for Multi-Campus Hospitals
    6. Hospice Payment Rates
II. Provisions of the Notice
    A. FY 2013 Hospice Wage Index
    1. Background
    2. Areas Without Hospital Wage Data
    3. FY 2013 Wage Index With an Additional 15 Percent Reduced 
Budget Neutrality Adjustment Factor (BNAF)
    4. Effects of Phasing Out the BNAF
    B. Clarification Regarding Diagnosis Reporting on Hospice Claims
    C. Update on Hospice Payment Reform
    D. Update on the Hospice Quality Reporting Program
III. Waiver of Proposed Rulemaking
IV. Collection of Information Requirements
V. Economic Analyses
    A. Regulatory Impact Analysis
    1. Introduction
    2. Statement of Need
    3. Overall Impacts
    4. Detailed Economic Analysis
    a. Effects on Hospices
    b. Hospice Size
    c. Geographic Location
    d. Type of Ownership
    e. Hospice Base
    f. Effects on Other Providers
    g. Effects on the Medicare and Medicaid Programs
    h. Accounting Statement
    i. Conclusion
    B. Regulatory Flexibility Act Analysis
    C. Unfunded Mandates Reform Act Analysis

[[Page 44243]]

VI. Federalism Analysis
VII. Files Available to the Public via the Internet

I. Background

A. General

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

B. Hospice Wage Index

    The hospice wage index is used to adjust payment rates for hospice 
agencies under the Medicare program to reflect local differences in 
area wage levels. Our regulations at Sec.  418.306(c) require each 
hospice's labor market to be established using the most current 
hospital wage data available, including any changes by the Office of 
Management and Budget (OMB) to the Metropolitan Statistical Areas 
(MSAs) definitions. OMB revised the MSA definitions beginning in 2003 
with new designations called the Core Based Statistical Areas (CBSAs). 
For the purposes of the hospice benefit, the term ``MSA-based'' refers 
to wage index values and designations based on the previous MSA 
designations before 2003. Conversely, the term ``CBSA-based'' refers to 
wage index values and designations based on the OMB revised MSA 
designations in 2003, which now include CBSAs. In the August 11, 2004 
Inpatient Prospective Payment System (IPPS) final rule (69 FR 48916, 
49026), labor market area definitions were revised and adopted at Sec.  
412.64(b), which were effective October 1, 2004, for acute care 
hospitals. We also revised the labor market areas for hospices using 
the new OMB standards that included CBSAs. In the Fiscal Year (FY) 2006 
hospice wage index final rule (70 FR 45130), we implemented a 1-year 
transition policy using a 50/50 blend of the CBSA-based wage index 
values and the MSA-based wage index values for FY 2006. The one-year 
transition policy ended on September 30, 2006. For fiscal years 2007 
and beyond, we have used CBSAs exclusively to calculate wage index 
values.
    The original hospice wage index was based on the 1981 Bureau of 
Labor Statistics hospital data and had not been updated since 1983. In 
1994, because of disparity in wages from one geographical location to 
another, a committee was formed to negotiate a wage index methodology 
that could be accepted by the industry and the government. This 
committee, functioning under a process established by the Negotiated 
Rulemaking Act of 1990, comprised representatives from national hospice 
associations; rural, urban, large and small hospices, and multi-site 
hospices; consumer groups; and a government representative. On April 
13, 1995, the Hospice Wage Index Negotiated Rulemaking Committee (the 
Committee) signed an agreement for the methodology to be used for 
updating the hospice wage index.
    In the August 8, 1997 Federal Register (62 FR 42860), we published 
a final rule implementing a new methodology for calculating the hospice 
wage index based on the recommendations of the negotiated rulemaking 
committee. The Committee's statement was included in the appendix of 
that final rule (62 FR 42883).
    The reduction in overall Medicare payments if a new wage index were 
adopted was noted in the November 29, 1995 notice transmitting the 
recommendations of the Committee (60 FR 61264). The Committee also 
decided that for each year in updating the hospice wage index, 
aggregate Medicare payments to hospices would remain budget neutral to 
payments as if the 1983 wage index had been used.
    As suggested by the Committee, ``budget neutrality'' would mean 
that, in a given year, estimated aggregate payments for Medicare 
hospice services using the updated hospice values would equal estimated 
payments that would have been made for these services if the 1983 
hospice wage index values had remained in effect. Although payments to 
individual hospice programs would change each year, the total payments 
each year to hospices would not be affected by using the updated 
hospice wage index because total payments would be budget neutral as if 
the 1983 wage index had been used. To implement this policy, a Budget 
Neutrality Adjustment Factor (BNAF) would be computed and applied 
annually to the pre-floor, pre-reclassified hospital wage index when 
deriving the hospice wage index.
    The BNAF is calculated by computing estimated payments using the 
most recent, completed year of hospice claims data. The units (days or 
hours) from those claims are multiplied by the updated hospice payment 
rates to calculate estimated payments. For the FY 2012 Hospice Wage 
Index final rule, that meant estimating payments for FY 2012 using 
units (days or hours) from the FY 2010 hospice claims data, and 
applying the FY 2012 hospice payment rates. The FY 2012 hospice wage 
index values are then applied to the labor portion of the payments 
only. The procedure is repeated using the same units from the claims 
data and the same payment rates, but using the 1983 Bureau of Labor 
Statistics (BLS)-based wage index instead of the updated raw pre-floor, 
pre-reclassified hospital wage index (note that both wage indices 
include their respective floor adjustments). The total payments are 
then compared, and the adjustment required to make total payments equal 
is computed; that adjustment factor is the BNAF.
    The FY 2010 Hospice Wage Index final rule (74 FR 39384) finalized a 
provision for a 7-year phase-out of the BNAF, which is applied to the 
wage index values. The BNAF was reduced by 10 percent in FY 2010, an 
additional 15 percent in FY 2011 and by an additional 15 percent again 
in FY 2012, for a total reduction of 40 percent to date, and will be 
reduced by an additional 15 percent in each of the next 4 years, for 
complete phase out in 2016.

[[Page 44244]]

1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital Wage 
Index)
    As described in the August 8, 1997 hospice wage index final rule 
(62 FR 42860), the pre-floor and pre-reclassified hospital wage index 
is used as the raw wage index for the hospice benefit. These raw wage 
index values are then subject to either a budget neutrality adjustment 
or application of the hospice floor to compute the hospice wage index 
used to determine payments to hospices.
    Pre-floor, pre-reclassified hospital wage index values of 0.8 or 
greater are currently adjusted by a reduced BNAF; however, adjusting a 
wage index value by a reduced BNAF still results in an increase in the 
wage index value. Pre-floor, pre-reclassified hospital wage index 
values below 0.8 are adjusted by either: (1) The hospice BNAF, reduced 
by a total of 40 percent for FY 2012; or (2) the hospice floor (which 
is a 15 percent increase) subject to a maximum wage index value of 0.8; 
whichever results in the greater value. Once the BNAF is completely 
phased out, the hospice floor adjustment will simply consist of 
increasing any wage index value less than 0.8 by 15 percent, subject to 
a maximum wage index value of 0.8.
    For example, if in FY 2012, County A had a pre-floor, pre-
reclassified hospital wage index (raw wage index) value of 0.3994, we 
would perform the following calculations using the budget-neutrality 
factor (which for this example is an unreduced BNAF of 0.058593, less 
40 percent, or 0.035156) and the hospice floor to determine County A's 
hospice wage index:
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the 40 percent reduced BNAF: (0.3994 x 1.035156 = 0.4134)
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the hospice floor: (0.3994 x 1.15 = 0.4593)
    Based on these calculations, County A's hospice wage index would be 
0.4593.
    The BNAF has been computed and applied annually, in full or in 
reduced form, to the labor portion of the hospice payment. Currently, 
the labor portion of the payment rates is as follows: For Routine Home 
Care, 68.71 percent; for Continuous Home Care, 68.71 percent; for 
General Inpatient Care, 64.01 percent; and for Respite Care, 54.13 
percent. The non-labor portion is equal to 100 percent minus the labor 
portion for each level of care. Therefore the non-labor portion of the 
payment rates is as follows: For Routine Home Care, 31.29 percent; for 
Continuous Home Care, 31.29 percent; for General Inpatient Care, 35.99 
percent; and for Respite Care, 45.87 percent.
2. Definition of Rural and Urban Areas
    Each hospice's labor market is determined based on definitions of 
MSAs issued by OMB. In general, an urban area is defined as an MSA or 
New England County Metropolitan Area (NECMA), as defined by OMB. Under 
Sec.  412.64(b)(1)(ii)(C), a rural area is defined as any area outside 
of the urban area. The urban and rural area geographic classifications 
are defined in Sec.  412.64(b)(1)(ii)(A) through (C), and have been 
used for the Medicare hospice benefit since implementation.
    When the raw pre-floor, pre-reclassified hospital wage index was 
adopted for use in deriving the hospice wage index, it was decided not 
to take into account Inpatient Prospective Payment System (IPPS) 
geographic reclassifications. This policy of following OMB designations 
of rural or urban, rather than considering some Counties to be 
``deemed'' urban, is consistent with our policy of not taking into 
account IPPS geographic reclassifications in determining payments under 
the hospice wage index.
3. Areas Without Hospital Wage Data
    When adopting OMB's new labor market designations in FY 2006, we 
identified some geographic areas where there were no hospitals, and 
thus, no hospital wage index data on which to base the calculation of 
the hospice wage index. Beginning in FY 2006, we adopted a policy to 
use the FY 2005 pre-floor, pre-reclassified hospital wage index value 
for rural areas when no hospital wage data were available. We also 
adopted the policy that for urban labor markets without a hospital from 
which a hospital wage index data could be derived, all of the CBSAs 
within the State would be used to calculate a statewide urban average 
pre-floor, pre-reclassified hospital wage index value to use as a 
reasonable proxy for these areas. Consequently, in subsequent fiscal 
years, we applied the average pre-floor, pre-reclassified hospital wage 
index data from all urban areas in that State, to urban areas without a 
hospital. In FY 2012, the only CBSA was 25980, Hinesville-Fort Stewart, 
Georgia.
    In the FY 2008 final rule (72 FR 50214, 50217), we considered 
alternatives to our methodology to update the pre-floor, pre-
reclassified hospital wage index for rural areas without hospital wage 
data. We indicated that we believed that the best imputed proxy for 
rural areas, would: (1) Use pre-floor, pre-reclassified hospital data; 
(2) use the most local data available to impute a rural pre-floor, pre-
reclassified hospital wage index; (3) be easy to evaluate; and, 4) be 
easy to update from year to year.
    Therefore, in FY 2008 through FY 2012, in cases where there was a 
rural area without rural hospital wage data, we used the average pre-
floor, pre-reclassified hospital wage index data from all contiguous 
CBSAs to represent a reasonable proxy for the rural area. This approach 
does not use rural data; however, the approach, which uses pre-floor, 
pre-reclassified hospital wage data, is easy to evaluate, is easy to 
update from year to year, and uses the most local data available. In 
the FY 2008 rule (72 FR at 50217), we noted that in determining an 
imputed rural pre-floor, pre-reclassified hospital wage index, we 
interpret the term ``contiguous'' to mean sharing a border. For 
example, in the case of Massachusetts, the entire rural area consists 
of Dukes and Nantucket counties. We determined that the borders of 
Dukes and Nantucket counties are contiguous with Barnstable and Bristol 
counties. Under the adopted methodology, the pre-floor, pre-
reclassified hospital wage index values for the counties of Barnstable 
(CBSA 12700, Barnstable Town, MA) and Bristol (CBSA 39300, Providence-
New Bedford-Fall River, RI-MA) would be averaged resulting in an 
imputed pre-floor, pre-reclassified rural hospital wage index for FY 
2008. We noted in the FY 2008 final hospice wage index rule that while 
we believe that this policy could be readily applied to other rural 
areas that lack hospital wage data (possibly due to hospitals 
converting to a different provider type, such as a Critical Access 
Hospital, that does not submit the appropriate wage data), if a similar 
situation arose in the future, we would re-examine this policy.
    We also noted that we do not believe that this policy would be 
appropriate for Puerto Rico, as there are sufficient economic 
differences between hospitals in the United States and those in Puerto 
Rico, including the payment of hospitals in Puerto Rico using blended 
Federal/Commonwealth-specific rates. Therefore, we believe that a 
separate and distinct policy is necessary for Puerto Rico. Any 
alternative methodology for imputing a pre-floor, pre-reclassified 
hospital wage index for rural Puerto Rico would need to take into 
account the economic differences between hospitals in the United States 
and those in Puerto Rico. Our policy of imputing a rural pre-floor, 
pre-reclassified hospital wage index based

[[Page 44245]]

on the pre-floor, pre-reclassified hospital wage index (or indices) of 
CBSAs contiguous to the rural area in question does not recognize the 
unique circumstances of Puerto Rico. While we have not yet identified 
an alternative methodology for imputing a pre-floor, pre-reclassified 
hospital wage index for rural Puerto Rico, we will continue to evaluate 
the feasibility of using existing hospital wage data and, possibly, 
wage data from other sources. For FY 2008 through FY 2012, we have used 
the most recent pre-floor, pre-reclassified hospital wage index 
available for Puerto Rico, which is 0.4047.
4. CBSA Nomenclature Changes
    The OMB regularly publishes a bulletin that updates the titles of 
certain CBSAs. In the FY 2008 final rule (72 FR 50218), we noted that 
the FY 2008 rule and all subsequent hospice wage index rules and 
notices would incorporate CBSA changes from the most recent OMB 
bulletins. The OMB bulletins may be accessed at http://www.whitehouse.gov/omb/bulletins/index.html.
5. Wage Data From Multi-Campus Hospitals
    Historically, under the Medicare hospice benefit, we have 
established hospice wage index values calculated from the raw pre-
floor, pre-reclassified hospital wage data (also called the IPPS wage 
index) without taking into account geographic reclassification under 
sections 1886(d)(8) and (d)(10) of the Act. The wage adjustment 
established under the Medicare hospice benefit is based on the location 
where services are furnished without any reclassification. For more 
information regarding this section, please refer to 76 FR 47305 
(``Hospice Wage Index for FY 2012'', August 4, 2011).
    For FY 2012, the data collected from cost reports submitted by 
hospitals for cost reporting periods beginning during FY 2007 were used 
to compute the 2011 raw pre-floor, pre-reclassified hospital wage index 
data, without taking into account geographic reclassification under 
sections 1886(d)(8) and (d)(10) of the Act. This 2011 raw pre-floor, 
pre-reclassified hospital wage index was used to derive the applicable 
wage index values for the hospice wage index because these data (FY 
2007) were the most recent complete cost data.
    Beginning in FY 2008, the IPPS apportioned the wage data for multi-
campus hospitals located in different labor market areas (CBSAs) to 
each CBSA where the campuses were located (see the FY 2008 IPPS final 
rule with comment period (72 FR 47317 through 47320)). We are 
continuing to use the raw pre-floor, pre-reclassified hospital wage 
data as a basis to determine the hospice wage index values because 
hospitals and hospices both compete in the same labor markets, and 
therefore, experience similar wage-related costs. We note that the use 
of raw pre-floor, pre-reclassified hospital (IPPS) wage data used to 
derive the FY 2012 hospice wage index values reflects the application 
of our policy to use those data to establish the hospice wage index. 
The FY 2013 hospice wage index values presented in this Notice were 
computed consistent with our raw pre-floor, pre-reclassified hospital 
(IPPS) wage index policy (that is, our historical policy of not taking 
into account IPPS geographic reclassifications in determining payments 
for hospice). As implemented in the August 8, 2008 FY 2009 Hospice Wage 
Index final rule, for the FY 2009 Medicare hospice benefit, the hospice 
wage index was computed from IPPS wage data (submitted by hospitals for 
cost reporting periods beginning in FY 2004 (as was the FY 2008 IPPS 
wage index)), which allocated salaries and hours to the campuses of two 
multi-campus hospitals with campuses that are located in different 
labor areas, one in Massachusetts and another in Illinois. Thus, in FY 
2009 and subsequent fiscal years, hospice wage index values for the 
following CBSAs have been affected by this policy: Boston-Quincy, MA 
(CBSA 14484), Providence-New Bedford-Falls River, RI-MA (CBSA 39300), 
Chicago-Naperville-Joliet, IL (CBSA 16974), and Lake County-Kenosha 
County, IL-WI (CBSA 29404).
6. Hospice Payment Rates
    Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended 
section 1814(i)(1)(C)(ii)(VI) of the Act to establish updates to 
hospice rates for FYs 1998 through 2002. Hospice rates were to be 
updated by a factor equal to the market basket index, minus 1 
percentage point. Payment rates for FYs since 2002 have been updated 
according to section 1814(i)(1)(C)(ii)(VII) of the Act, which states 
that the update to the payment rates for subsequent fiscal years will 
be the market basket percentage for the fiscal year. It has been 
longstanding practice to use the inpatient hospital market basket as a 
proxy for a hospice market basket.
    Historically, the rate update has been published through a separate 
administrative instruction issued annually in the summer to provide 
adequate time to implement system change requirements. Hospices 
determine their payments by applying the hospice wage index set forth 
in this Notice to the labor portion of the published hospice rates. 
Starting with FY 2013 (and in subsequent fiscal years), the market 
basket percentage update under the hospice payment system referenced in 
sections 1814(i)(1)(C)(ii)(VII) and 1814(i)(1)(C)(iii) of the Act will 
be annually reduced by changes in economy-wide productivity, as set out 
at section 1886(b)(3)(B)(xi)(II) of the Act. In FY 2013 through FY 
2019, the market basket percentage update under the hospice payment 
system will be reduced by an additional 0.3 percentage point (although 
for FY 2014 to FY 2019, the potential 0.3 percentage point reduction is 
subject to suspension under conditions set out under section 
1814(i)(1)(C)(v) of the Act). Congress also required in section 
1814(i)(5)(A) through (C) of the Act that hospices begin submitting 
quality data, based on measures to be specified by the Secretary, for 
FY 2014 and subsequent fiscal years. Beginning in FY 2014, hospices 
which fail to report quality data will have their market basket update 
reduced by 2 percentage points.

II. Provisions of Notice

A. FY 2013 Hospice Wage Index

1. Background
    As previously noted, the hospice final rule published in the 
Federal Register on December 16, 1983 (48 FR 56008) provided for 
adjustment to hospice payment rates to reflect differences in area wage 
levels. We apply the appropriate hospice wage index value to the labor 
portion of the hospice payment rates based on the geographic area where 
hospice care was furnished. Each hospice's labor market area is based 
on definitions of MSAs issued by the OMB. In this notice, we are using 
the pre-floor, pre-reclassified hospital wage index, based solely on 
the CBSA designations, as the basis for determining wage index values 
for the FY 2013 hospice wage index. The updated hospice wage index was 
previously published in the Federal Register; for FY 2013 and 
subsequent years, the updated hospice wage index is posted to the CMS 
Web site shortly after the associated rule or notice is published. The 
hospice wage index is based on the most currently available hospital 
wage data.
    As noted above, our hospice payment rules utilize the wage 
adjustment factors used by the Secretary for purposes of section 
1886(d)(3)(E) of the Act for hospital wage adjustments. In this notice, 
we are again using the pre-floor and pre-reclassified hospital wage 
index

[[Page 44246]]

data as the basis to determine the hospice wage index, which is then 
used to adjust the labor portion of the hospice payment rates based on 
the geographic area where the beneficiary receives hospice care. We 
believe the use of the pre-floor, pre-reclassified hospital wage index 
data, as a basis for the hospice wage index, results in the appropriate 
adjustment to the labor portion of the costs. For the FY 2013 update to 
the hospice wage index, we are continuing to use the most recent pre-
floor, pre-reclassified hospital wage index available at the time of 
publication.
2. Areas Without Hospital Wage Data
    In adopting the CBSA designations, we identified some geographic 
areas where there are no hospitals, and no hospital wage data on which 
to base the calculation of the hospice wage index. These areas are 
described in section I.B.4 of this notice. Currently, the only CBSA 
that is affected by this policy is CBSA 25980, Hinesville-Fort Stewart, 
Georgia. We continue to apply this policy for FY 2013 notice.
    Currently, the only rural areas where there are no hospitals from 
which to calculate a pre-floor, pre-reclassified hospital wage index 
are in Puerto Rico. In previous years, Massachusetts had a rural area 
where there were no hospitals from which to calculate a pre-floor, pre-
reclassified hospital wage index. This area of Massachusetts now has an 
IPPS hospital with wage data for computing the FY 2012 rural 
Massachusetts hospital wage index. The hospital was formerly a Critical 
Access Hospital, but converted to an IPPS hospital in FY 2008, the base 
year for the FY 2012 hospital wage index.
    As described in section I.B.4 of this notice, for FY 2013, we 
continue to use the most recent pre-floor, pre-reclassified hospital 
wage index value available for Puerto Rico, which is 0.4047. This pre-
floor, pre-reclassified hospital wage index value is then adjusted 
upward by the hospice 15 percent floor adjustment in the computing of 
the FY 2013 hospice wage index.
3. FY 2013 Wage Index With an Additional 15 Percent Reduced Budget 
Neutrality Adjustment Factor (BNAF)
    The hospice wage index set forth in this notice will be effective 
October 1, 2012 through September 30, 2013. We are not finalizing any 
modifications to the hospice wage index methodology. For this notice, 
the FY 2012 hospital wage index was the most current hospital wage data 
available for calculating the FY 2013 hospice wage index values. We 
used the FY 2012 pre-floor, pre-reclassified hospital wage index data 
for this calculation.
    As noted above, for this FY 2013 wage index notice, the hospice 
wage index values are based solely on the adoption of the CBSA-based 
labor market definitions and the hospital wage index. We continue to 
use the most recent pre-floor and pre-reclassified hospital wage index 
data available (based on FY 2008 hospital cost report wage data). A 
detailed description of the methodology used to compute the hospice 
wage index is contained in the September 4, 1996 hospice wage index 
proposed rule (61 FR 46579), the August 8, 1997 hospice wage index 
final rule (62 FR 42860), and the August 6, 2009 FY 2010 Hospice Wage 
Index final rule (74 FR 39384).
    The August 6, 2009 FY 2010 Hospice Wage Index final rule finalized 
a provision to phase out the BNAF over seven years, with a 10 percent 
reduction in the BNAF in FY 2010, and an additional 15 percent 
reduction in each of the next six years, with complete phase out in FY 
2016. Therefore, in accordance with the August 6, 2009 FY 2010 Hospice 
Wage Index final rule, the BNAF for FY 2013 was reduced by an 
additional 15 percent for a total BNAF reduction of 55 percent (10 
percent from FY 2010, an additional 15 percent from FY 2011, an 
additional 15 percent for FY 2012, and an additional 15 percent in FY 
2013).
    The unreduced BNAF for FY 2013 is 0.060438 (or 6.0438 percent). A 
55 percent reduced BNAF, which is subsequently applied to the pre-
floor, pre-reclassified hospital wage index values greater than or 
equal to 0.8, is computed to be 0.027197 (or 2.7197 percent). Pre-
floor, pre-reclassified hospital wage index values which are less than 
0.8 are subject to the hospice floor calculation; that calculation is 
described in section I.B.1. The BNAF is updated based on availability 
of more complete data.
    The addenda with the wage index values for rural and urban areas 
will not be published in the Federal Register. The wage index values 
for rural areas and urban areas are available via the Internet at: 
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Hospice/index.html.
    The final hospice wage index for FY 2013 includes the BNAF 
reduction.
4. Effects of Phasing Out the BNAF
    The full (unreduced) BNAF calculated for the FY 2013 notice is 
6.0438 percent. As implemented in the August 6, 2009 FY 2010 Hospice 
Wage Index final rule (74 FR 39384), for FY 2013, we are reducing the 
BNAF by an additional 15 percent, for a total BNAF reduction of 55 
percent (a 10 percent reduction in FY 2010, plus a 15 percent reduction 
in FY 2011, plus a 15 percent reduction in FY 2012, plus a 15 percent 
reduction in FY 2013), with additional reductions of 15 percent per 
year in each of the next 3 years until the BNAF is phased out in FY 
2016.
    For FY 2013, this is mathematically equivalent to taking 45 percent 
of the full BNAF value, or multiplying 0.060438 by 0.45, which equals 
0.027197 (2.7197 percent). The BNAF of 2.7197 percent reflects a 55 
percent reduction in the BNAF. The 55 percent reduced BNAF (2.7197 
percent) was applied to the pre-floor, pre-reclassified hospital wage 
index values of 0.8 or greater in the final FY 2013 hospice wage index.
    The hospice floor calculation still applies to any pre-floor, pre-
reclassified hospital wage index values less than 0.8. The hospice 
floor calculation is described in section I.B.1 of this notice. We 
examined the effects of an additional 15 percent reduction in the BNAF, 
for a total BNAF reduction of 55 percent, on the final FY 2013 hospice 
wage index compared to the total 40 percent reduced BNAF which was used 
for the FY 2012 hospice wage index. The additional 15 percent BNAF 
reduction applied to the final FY 2013 wage index resulted in a 
(rounded) 0.9 percent reduction in wage index values in 92.8 percent of 
CBSAs, and no reduction in wage index values in 7.2 percent of CBSAs. 
We note that these are reductions in wage index values, not in 
payments. See Table 1 in section V of this notice for the effects on 
payments. The wage index values are located at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Hospice/index.html, and they 
already reflect the additional 15 percent BNAF reduction.
    Those CBSAs whose pre-floor, pre-reclassified hospital wage index 
values had the hospice 15 percent floor adjustment applied before the 
BNAF reduction will not be affected by this ongoing phase out of the 
BNAF. These CBSAs, which typically include rural areas, are protected 
by the hospice 15 percent floor adjustment. We estimate that 32 CBSAs 
are already protected by the hospice 15 percent floor adjustment, and 
are therefore completely unaffected by the BNAF reduction. There are 
332 hospices in these 32 CBSAs.
    Additionally, for some CBSAs with pre-floor, pre-reclassified wage 
index values less than 0.8, it will now be more advantageous to apply 
the hospice 15 percent floor adjustment rather than the BNAF 
adjustment, as a result of the additional 15 percent reduction in the

[[Page 44247]]

BNAF applied in FY 2013. Areas where the hospice floor calculation 
would have yielded a wage index value greater than 0.8 if the 40 
percent reduction in BNAF were maintained, but which will have a final 
wage index value less than 0.8 after the additional 15 percent 
reduction in the BNAF (for a total BNAF reduction of 55 percent) is 
applied, will now be eligible for the hospice floor adjustment. These 
CBSAs may see a smaller reduction in their hospice wage index values if 
the hospice 15 percent floor adjustment is applied. We estimate that 4 
CBSAs will have their pre-floor, pre-reclassified hospital wage index 
value become newly protected by the hospice 15 percent floor adjustment 
due to the additional 15 percent reduction in the BNAF applied in the 
final FY 2013 hospice wage index. Because of the protection given by 
the hospice 15 percent floor adjustment, these CBSAs will usually see 
smaller percentage decreases in their hospice wage index values than 
those CBSAs that are not eligible for the hospice 15 percent floor 
adjustment. This will affect those hospices with lower hospice wage 
index values, which are typically in rural areas. There are 57 hospices 
located in these 4 CBSAs.
    Finally, the hospice wage index values only apply to the labor 
portion of the payment rates; the labor portion is described in section 
I.B.1 of this notice. Therefore, the projected reduction in payments 
due solely to the additional 15 percent reduction of the BNAF applied 
in FY 2013 is estimated to be 0.60 percent, as calculated from the 
difference in column 3 and column 4 of Table 1 in section V of this 
notice. In addition, the estimated effects of the phase-out of the BNAF 
will be mitigated by any inpatient hospital market basket updates in 
payments. The final market basket update applicable to hospice payments 
for FY 2013 is 1.6 percent. Starting with FY 2013 (and in subsequent 
fiscal years), the market basket percentage update under the hospice 
payment system as described in section 1814(i)(1)(C)(ii)(VII) or 
section 1814(i)(1)(C)(iii) of the Act will be annually reduced by 
changes in economy-wide productivity as specified in section 
1886(b)(3)(B)(xi)(II) of the Act. In FY 2013 through FY 2019, the 
market basket percentage update under the hospice payment system will 
be reduced by an additional 0.3 percentage point (although for FY 2014 
to FY 2019, the potential 0.3 percentage point reduction is subject to 
suspension under conditions set out under section 1814(i)(1)(C)(v) of 
the Act). This final 1.6 percent market basket update for FY 2013 is 
based on a 2.6 percent inpatient hospital market basket percentage 
increase (based on IHS Global Insight, Inc's second quarter 2012 
forecast with historical data through the first quarter of 2012), less 
a 0.7 percentage point productivity adjustment and a 0.3 percentage 
point reduction. The final FY 2013 hospice market basket update is 
communicated through an administrative instruction.
    The combined estimated effects of the updated wage data, an 
additional 15 percent reduction of the BNAF, and the market basket 
update are shown in Table 1 in section V of this notice. The updated 
wage data are estimated to decrease payments by 0.1 percent (column 3 
of Table 1). The additional 15 percent reduction in the BNAF, which has 
already been applied to the wage index values in this notice, is 
estimated to reduce payments by 0.6 percent. Therefore, the changes in 
the wage data and the additional 15 percent BNAF reduction reduce 
estimated hospice payments by 0.7 percent, when compared to FY 2012 
payments (column 4 of Table 1). However, so that hospices can fully 
understand the total estimated effects on their revenue, we have also 
accounted for the 1.6 percent market basket update for FY 2013. The net 
effect of that 1.6 percent increase and the 0.7 percent reduction due 
to the updated wage data and the additional 15 percent BNAF reduction, 
is an estimated increase in payments to hospices in FY 2013 of 0.9 
percent (column 5 of Table 1).

B. Clarification Regarding Diagnosis Reporting on Hospice Claims

    Recent analyses by Abt Associates, our hospice contractor, showed 
that 77.2 percent of hospice claims from 2010 only report a principal 
diagnosis. However, by definition, hospice patients are at the end-of-
life; most are elderly and likely have multiple co-morbidities. 
Therefore, we believe that hospice claims which only report a principal 
diagnosis are not providing an accurate description of the patients' 
conditions. Providers should code and report coexisting or additional 
diagnoses to more fully describe the Medicare patients they are 
treating.
    The ICD-9-CM Official Guidelines for Coding and Reporting (ICD-9-CM 
Coding Guidelines) require reporting of all additional or co-existing 
diagnoses. These ICD-9-CM Coding Guidelines are provided by CMS and the 
Centers for Disease Control's (CDC's) National Center for Health 
Statistics (NCHS) to health care providers. The current ICD-9-CM Coding 
Guidelines use the International Classification of Diseases, 9th 
Revision, Clinical Modification (ICD-9-CM) and are available through 
the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/or 
on the CDC's Web site at http://www.cdc.gov/nchs/data/icd9/icd9cm_guidelines_2011.pdf. As noted in the ICD-9-CM Coding Guidelines, 
``These coding and reporting guidelines are a set of rules that have 
been developed to accompany and complement the official conventions and 
instructions provided within the ICD-9-CM itself. * * * Adherence to 
these guidelines when assigning ICD-9-CM diagnosis and procedure codes 
is required under the Health Insurance Portability and Accountability 
Act (HIPAA).''
    In addition, at 45 CFR 162.1002, the Secretary adopted the ICD-9-CM 
code set, including The Official ICD-9-CM Guidelines for Coding and 
Reporting and CMS' Hospice Claims Processing manual requires that 
hospice claims include other diagnoses ``as required by ICD-9-CM Coding 
Guidelines'' (IOM 100-04, chapter 11, section 30.1, available at http://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c11.pdf). As such, HIPAA, federal regulations, and the Medicare 
hospice claims processing manual all require that these ICD-9-CM Coding 
Guidelines be applied to the coding and reporting of diagnoses on 
hospice claims.
    Finally, CMS is in the early stages of hospice payment reform; as 
noted in the Payment Reform Update in section II.C of this notice, we 
are considering multiple approaches to reform, including case-mix 
adjustment. To adequately account for any clinical complexities a given 
patient might have as a result of related co-morbidities, those co-
morbidities must be included on the Medicare hospice claim. While some 
hospice providers are reporting additional or co-existing diagnoses on 
claims, a majority are not. As such, the current claims data do not 
allow us to appropriately analyze whether a case-mix adjustment would 
or would not be a reasonable approach to, or part of, payment reform.
    ICD-9-CM Coding Clinic is the official publication for the ICD-9-CM 
Coding Guidelines. The Coding Clinic recognizes there can be 
discrepancies between the ICD-9-CM Coding Guidelines or Coding Clinic 
advice, and payer coding policies. The Coding Clinic's goal is to 
provide advice according to the most accurate and correct coding 
consistent with ICD-9-CM principles. However, payers have additional 
goals, including those related to responsible fiscal management. The 
Coding Clinic noted that it is not

[[Page 44248]]

possible to write coding guidelines that are consistent with all payer 
guidelines. The Coding Clinics wrote that ``there are a variety of 
payment policies that may impact on coding. Many of those payment 
policies * * * may be inconsistent with ICD-9-CM rules/conventions.'' 
(``Coding Clinic for ICD-9-CM'', Volume 17, Number 3, Third Quarter 
2000, pp 13-14). In the Medicare hospice benefit, coexisting or 
additional diagnoses could be related or unrelated to the hospice 
patient's terminal illness. The Medicare hospice benefit only covers 
and pays for hospices to provide palliation and management of the 
patient's terminal illness and related conditions. Therefore, to meet 
payment policy goals, we are clarifying for hospices that they should 
report on hospice claims all coexisting or additional diagnoses that 
are related to the terminal illness; they should not report coexisting 
or additional diagnoses that are unrelated to the terminal illness. 
Hospice patients receive care in both outpatient and non-outpatient 
settings.
    The ICD-9-CM Coding Guidelines use different terminology to refer 
to coexisting or additional diagnoses, depending on whether a patient 
is in an outpatient or non-outpatient setting. In a non-outpatient 
setting, these co-morbidities are referred to as other or additional 
diagnoses. In an outpatient setting, they are referred to as coexisting 
diagnoses. These terms are explained more fully in sections III and IV 
of the ICD-9-CM Coding Guidelines.
    Section III of the ICD-9-CM Coding Guidelines addresses non-
outpatient settings, and states that ``For reporting purposes the 
definition for ``other diagnoses'' is interpreted as additional 
conditions that affect patient care in terms of requiring: Clinical 
evaluation; or therapeutic treatment; or diagnostic procedures; or 
extended length of hospital stay; or increased nursing care and/or 
monitoring.'' Using the Uniform Hospital Discharge Data Set (UHDDS) 
definitions, ``Other Diagnoses'' are defined as ``all conditions that 
coexist at the time of admission, that develop subsequently, or that 
affect the treatment received and/or the length of stay. Diagnoses that 
relate to an earlier episode which have no bearing on the current 
hospital stay are to be excluded.'' While UHDDS definitions initially 
applied to hospitals, the ICD-9-CM Coding Guidelines note that their 
application has been extended to all non-outpatient settings, which 
includes hospice inpatient units and nursing facilities.
    Section IV.K of the ICD-9-CM Coding Guidelines addresses outpatient 
settings, and instructs providers to ``Code all documented conditions 
that coexist at the time of the encounter/visit, and require or affect 
patient care treatment or management. Do not code conditions that were 
previously treated and no longer exist.''
    We do not believe that requiring reporting of coexisting or 
additional diagnoses that are related to the terminal illness would 
create a burden for hospices; some providers already report these 
diagnoses on their claims. Information about related and unrelated 
diagnoses should already be included as part of the plan of care, and 
determined by the hospice interdisciplinary group (IDG). The hospice 
conditions of participation (CoPs) at Sec.  418.54(c)(2) require that 
the comprehensive assessment include ``complications and risk factors 
that affect care planning''. The CoPs at Sec.  418.56(e)(4) require 
that the hospice IDG ``provide for an ongoing sharing of information 
with other non-hospice healthcare providers furnishing services 
unrelated to the terminal illness and related conditions.'' The 
existing standard practice for hospices is to include the related and 
unrelated diagnoses on the patient's plan of care in order to assure 
coordinated, holistic patient care and to monitor the effectiveness of 
the care that is delivered.
    We are clarifying that all of a patient's coexisting or additional 
diagnoses s should be reported on the hospice claim. We note that doing 
so will bring hospices into compliance with existing, longstanding 
policy, and will provide data needed for hospice payment reform. 
Hospices should not report diagnoses which are unrelated to the 
terminal illness on their claims. Hospice claims currently include a 
field for the patient's principal diagnosis, but allow for up to 17 
additional diagnoses to be included on a paper UB-04 claim, or up to 24 
additional diagnoses on the 837I 5010 electronic claim.

C. Update on Hospice Payment Reform

    Section 1814(i)(6) of the Act was amended by section 3132(a) of the 
Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148) as 
amended by the Health Care Education Reconciliation Act of 2010 (Pub. 
L. 111-152) (collectively known as the Affordable Care Act). The 
amendment authorized the Secretary to collect additional data and 
information determined appropriate to revise payments for hospice care 
and for other purposes. The types of data and information described in 
the Act would capture resource utilization, which can be collected on 
claims, cost reports, and possibly other mechanisms as we determine to 
be appropriate. The data collected may be used to revise the 
methodology for determining the payment rates for routine home care and 
other services included in hospice care, no earlier than October 1, 
2013, as described in section 1814(i)(6)(D) of the Act. In addition, we 
are required to consult with hospice programs and the Medicare Payment 
Advisory Commission (MedPAC) regarding additional data collection and 
payment revision options.
    According to the MedPAC March 2012 ``Report to Congress: Medicare 
Payment Policy'' (available at http://medpac.gov/chapters/Mar12_Ch11.pdf), Medicare expenditures for hospice services exceeded $13 
billion in 2010, and the aggregate Medicare margin in 2009 was 7.1 
percent. In addition, MedPAC found 53 percent growth in the number of 
hospices from 2000 to 2010, of which a majority were for-profit 
hospices. MedPAC also noted a change in patient case-mix from 
predominantly cancer diagnoses to non-cancer diagnoses. The growth in 
Medicare expenditures, margins, number of new hospices, and the change 
in patient case-mix has brought attention to changes in the hospice 
industry.
    Over the past several years, MedPAC, the Government Accountability 
Office, and the HHS Office of Inspector General (OIG) all recommended 
that we collect more comprehensive data in order to better understand 
the utilization of the Medicare hospice benefit. MedPAC has also 
suggested an alternative payment model that it believes will address 
the vulnerabilities in the current payment system. As part of our 
research, we will investigate the MedPAC, OIG, and GAO recommendations 
as well as other payment options.
    We are moving forward with the hospice payment reform research. Our 
contractor, Abt Associates, completed an environmental scan; a draft 
analytic plan; and convened technical advisory panel meetings under the 
initial contract. They will continue, under a contract awarded in 
September 2011, to review the most current peer-reviewed literature; to 
convene additional stakeholder meetings; to conduct further research 
and analyses based on the analytic plan; to identify potential data 
collection needs; and to research and develop hospice payment model 
options. In order to determine how to best revise the hospice payment 
methodology, we will consult with hospice programs and MedPAC. We will 
continue to collaborate with the HHS Office of the Assistant Secretary 
of Planning and Evaluation (ASPE) along

[[Page 44249]]

with other federal experts regarding hospice payment reform research 
efforts and update stakeholders on our progress.

D. Update on the Hospice Quality Reporting Program

    In last year's Hospice Wage Index final rule (76 FR 47302, 47318, 
August 4, 2011), we finalized a hospice Quality Reporting Program (QRP) 
as required by section 3004 of the Affordable Care Act. The quality 
measures adopted for the hospice program for FY 2014 include a measure 
related to pain management and a measure that assesses whether a 
hospice participates in a Quality Assessment and Performance 
Improvement (QAPI) program that includes at least three indicators 
related to patient care. Hospices are required to begin collecting 
quality data in October 2012, and will submit that quality data in 
2013. Hospices failing to report quality data in 2013 will have their 
market basket update reduced by 2 percentage points in FY 2014. We note 
that these requirements are not changing.
    We have proposed quality data reporting requirements for FY 2015 
and thereafter. However, we did not publish the proposal in this 
notice. Please see the Home Health Prospective Payment System Rate 
Update for Calendar Year 2013 proposed rule for a detailed discussion 
on our proposal for the hospice quality data reporting requirements 
affecting payments in FY 2015 and each subsequent year.
    Please follow the instructions in the Home Health Prospective 
Payment System Rate Update for Calendar Year 2013 proposed rule (CMS-
1358-P) to comment on the hospice proposals described in that proposed 
rule. We will respond to those comments in the Home Health Prospective 
Payment System Rate Update for Calendar Year 2013 final rule.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect. We can waive this procedure, however, 
if we find good cause that notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest, and we 
incorporate a statement of finding and its reasons in the notice. We 
find it is unnecessary to undertake notice and comment rulemaking for 
the update in this notice because the update does not make any 
substantive changes in policy, but merely reflects the application of 
previously established methodologies which permit no discretion on the 
part of the Secretary. Therefore, under 5 U.S.C. 553(b)(3)(B), for good 
cause, we waive notice and comment procedures.

IV. Collection of Information Requirements

    This document does not impose information collection requirements 
as defined by the Paperwork Reduction Act of 1995.

V. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction
    We have examined the impacts of this notice as required by EO 12866 
(September 30, 1993, Regulatory Planning and Review), EO 13563 on 
Improving Regulation and Regulatory Review (January 18, 2011), the 
Regulatory Flexibility Act (September 19, 1980; Pub. L. 96-354) (RFA), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), EO 13132 
on Federalism (August 4, 1999), and the Congressional Review Act (5 
U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This notice has been designated an ``economically'' 
significant notice, under section 3(f)(1) of EO 12866. We have prepared 
a regulatory impact analysis that to the best of our ability presents 
the costs and benefits of this notice.
2. Statement of Need
    This notice follows 42 CFR 418.306(c) which requires annual 
issuance, in the Federal Register, of the hospice wage index based on 
the most currently available CMS hospital wage data, including any 
changes to the definitions of MSAs or CBSAs. In addition, this notice 
clarifies for hospice providers that they must include all related 
diagnoses on hospice claims. Finally, this notice updates the public on 
the status of hospice payment reform and the hospice quality reporting 
program.
3. Overall Impacts
    The overall impact of this notice is an estimated net decrease in 
Federal payments to hospices of $100 million for FY 2013. We estimated 
the impact on hospices, as a result of the changes to the FY 2013 
hospice wage index and of reducing the BNAF by an additional 15 
percent, for a total BNAF reduction of 55 percent (10 percent in FY 
2010, 15 percent in FY 2011, 15 percent in FY 2012, and 15 percent in 
FY 2013). The BNAF reduction is part of a 7-year BNAF phase-out that 
was finalized in previous rulemaking (74 FR 39384 (August 6, 2009)), 
and is not a policy change.
    As discussed previously, the methodology for computing the hospice 
wage index was determined through a negotiated rulemaking committee and 
promulgated in the August 8, 1997 hospice wage index final rule (62 FR 
42860). The BNAF, which was promulgated in the August 8, 1997 rule, is 
being phased out. This notice updates the hospice wage index in 
accordance with the 2010 Hospice Wage Index final rule, which finalized 
a 10 percent reduced BNAF for FY 2010 as the first year of a 7-year 
phase-out of the BNAF, to be followed by an additional 15 percent per 
year reduction in the BNAF in each of the next 6 years. The total 
phase-out will be complete by FY 2016.
4. Detailed Economic Analysis
    Column 4 of Table 1 shows the combined effects of the updated wage 
data (the 2012 pre-floor, pre-reclassified hospital wage index) and of 
the additional 15 percent reduction in the BNAF (for a total BNAF 
reduction of 55 percent), comparing estimated payments for FY 2012 to 
estimated payments for FY 2013. The FY 2012 payments used for 
comparison have a 40 percent reduced BNAF applied. We estimate that the 
total hospice payments for FY 2013 will decrease by $100 million as a 
result of the application of the updated wage data ($-10 million) and 
the additional 15 percent reduction in the BNAF ($-90 million). This 
estimate does not take into account the market basket update 
communicated separately through an administrative instruction, which 
after adjustments is 1.6 percent for FY 2013. Starting with FY 2013 
(and in subsequent fiscal years), the market basket percentage update 
under the hospice payment system as described in section 
1814(i)(1)(C)(ii)(VII) or section 1814(i)(1)(C)(iii) of the Act will be 
annually reduced by changes in economy-wide productivity as mandated by 
the Affordable Care Act and set out at section

[[Page 44250]]

1886(b)(3)(B)(xi)(II) of the Act. In addition, in FY 2013 through FY 
2019, the market basket percentage update under the hospice payment 
system will be reduced by an additional 0.3 percentage point as 
mandated by the Affordable Care Act (although for FY 2014 to FY 2019, 
the potential 0.3 percentage point reduction is subject to suspension 
under conditions set out under section 1814(i)(1)(C)(v) of the Act). 
This 1.6 percent market basket update is based on a 2.6 percent 
inpatient hospital market basket percentage increase for FY 2013 
reduced by 0.7 percentage point for the productivity adjustment and by 
0.3 percentage point as mandated by the Affordable Care Act. The final 
FY 2013 hospice update and associated payment rates are communicated 
through an administrative instruction in the summer. The estimated 
effect of the 1.6 percent market basket update on payments to hospices 
is approximately $240 million. Taking into account the 1.6 percent 
market basket update (+$240 million), in addition to the updated wage 
data ($- 10 million), and the additional 15 percent reduction in the 
BNAF ($- 90 million), it is estimated that hospice payments would 
increase by $140 million in FY 2013 ($240 million - $10 million - $90 
million = $140 million). The percent change in estimated payments to 
hospices due to the combined effects of the updated wage data, the 
additional 15 percent reduction in the BNAF (for a total BNAF reduction 
of 55 percent), and the market basket update of 1.6 percent is 
reflected in column 5 of the impact table (Table 1).
a. Effects on Hospices
    This section discusses the impact of the projected effects of the 
hospice wage index, including the effects of a 1.6 percent market 
basket update for FY 2013 that is communicated separately through an 
administrative instruction. This notice continues to use the CBSA-based 
pre-floor, pre-reclassified hospital wage index as a basis for the 
hospice wage index and continues to use the same policies for treatment 
of areas (rural and urban) without hospital wage data. The final FY 
2013 hospice wage index is based upon the 2012 pre-floor, pre-
reclassified hospital wage index and the most complete claims data 
available (FY 2011) with an additional 15 percent reduction in the BNAF 
(combined with the 10 percent reduction in the BNAF taken in FY 2010, 
an additional 15 percent taken in 2011, an additional 15 percent in 
2012, and an additional 15 percent taken in 2013 for a total BNAF 
reduction of 55 percent in FY 2013). The BNAF reduction is part of a 7-
year BNAF phase-out that was finalized in previous rulemaking, and is 
not a policy change.
    For the purposes of our impacts, our baseline is estimated FY 2012 
payments with a 40 percent BNAF reduction, using the 2010 pre-floor, 
pre-reclassified hospital wage index. Our first comparison (column 3 of 
Table 1) compares our baseline to estimated FY 2013 payments (holding 
payment rates constant) using the updated wage data (2012 pre-floor, 
pre-reclassified hospital wage index). Consequently, the estimated 
effects illustrated in column 3 of Table 1 show the distributional 
effects of the updated wage data only. The effects of using the updated 
wage data combined with the additional 15 percent reduction in the BNAF 
are illustrated in column 4 of Table 1.
    We have included a comparison of the combined effects of the 
additional 15 percent BNAF reduction, the updated wage data, and a 1.6 
percent market basket update for FY 2013 (Table 1, column 5). 
Presenting these data gives the hospice industry a more complete 
picture of the effects on their total revenue based on changes to the 
hospice wage index and the BNAF phase-out as discussed in this Notice, 
and the FY 2013 market basket update which will be communicated 
separately through an administrative instruction. Certain events may 
limit the scope or accuracy of our impact analysis, because such an 
analysis is susceptible to forecasting errors due to other changes in 
the forecasted impact time period. The nature of the Medicare program 
is such that the changes may interact, and the complexity of the 
interaction of these changes could make it difficult to predict 
accurately the full scope of the impact upon hospices.

   Table 1--Anticipated Impact on Medicare Hospice Payments of Updating the Pre-Floor, Pre-Reclassified Hospital Wage Index Data, Reducing the Budget
  Neutrality Adjustment Factor (BNAF) by an Additional 15 Percent (for a Total BNAF Reduction of 55 Percent) and Applying a 1.6 Percent[dagger] Market
              Basket Update to the FY 2013 Hospice Wage Index, Compared to the FY 2012 Hospice Wage Index With a 40 Percent BNAF Reduction
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                        Percent  change
                                                                                                                                          in  hospice
                                                                                                                   Percent  change in   payments due  to
                                                                                                                    hospice  payments      wage index
                                                                                Number of      Percent  change in  due to wage  index       change,
                                                             Number of         routine home     hospice  payments        change,         additional 15%
                                                              hospices         care days in      due  to FY2013      additional 15%       reduction in
                                                                                thousands      wage index  change     reduction in           budget
                                                                                                                    budget neutrality      neutrality
                                                                                                                       adjustment        adjustment and
                                                                                                                                         market basket
                                                                                                                                             update
                                                                       (1)                (2)              (3)                 (4)                   (5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL HOSPICES...........................................              3,659             83,400               (0.1)               (0.7)                0.9
URBAN HOSPICES.........................................              2,598             72,885               (0.1)               (0.7)                0.9
RURAL HOSPICES.........................................              1,061             10,515               (0.0)               (0.4)                1.2
BY REGION--URBAN:
    NEW ENGLAND........................................                138              2,750                0.2                (0.4)                1.2
    MIDDLE ATLANTIC....................................                256              7,872                0.2                (0.4)                1.2
    SOUTH ATLANTIC.....................................                378             16,417               (0.4)               (1.0)                0.6
    EAST NORTH CENTRAL.................................                346             10,946               (0.5)               (1.1)                0.5
    EAST SOUTH CENTRAL.................................                178              4,614               (0.5)               (1.0)                0.5
    WEST NORTH CENTRAL.................................                192              4,592                0.3                (0.3)                1.3

[[Page 44251]]

 
    WEST SOUTH CENTRAL.................................                506              9,530                0.4                (0.2)                1.4
    MOUNTAIN...........................................                251              6,081               (0.1)               (0.7)                0.9
    PACIFIC............................................                316              8,667                0.2                (0.4)                1.2
    OUTLYING...........................................                 37              1,415                0.2                 0.2                 1.8
BY REGION--RURAL:
    NEW ENGLAND........................................                 27                219                0.8                 0.2                 1.8
    MIDDLE ATLANTIC....................................                 45                534               (0.2)               (0.7)                0.8
    SOUTH ATLANTIC.....................................                140              2,327               (0.2)               (0.6)                1.0
    EAST NORTH CENTRAL.................................                147              1,732               (0.6)               (1.2)                0.4
    EAST SOUTH CENTRAL.................................                154              1,812               (0.1)               (0.2)                1.4
    WEST NORTH CENTRAL.................................                196              1,131                0.3                (0.1)                1.5
    WEST SOUTH CENTRAL.................................                190              1,576                0.4                (0.1)                1.5
    MOUNTAIN...........................................                109                681                0.1                (0.4)                1.2
    PACIFIC............................................                 52                490                1.4                 0.7                 2.3
    OUTLYING...........................................                  1                 14                0.0                 0.0                 1.6
BY SIZE/DAYS:
    0-3499 DAYS (small)................................                681              1,185                0.1                (0.4)                1.2
    3500-19,999 DAYS (medium)..........................               1784             18,086                0.1                (0.5)                1.1
    20,000+ DAYS (large)...............................               1194             64,129               (0.1)               (0.7)                0.9
TYPE OF OWNERSHIP:
    VOLUNTARY..........................................               1141             31,433               (0.1)               (0.7)                0.9
    PROPRIETARY........................................               1999             43,637               (0.1)               (0.6)                1.0
    GOVERNMENT.........................................                519              8,330               (0.0)               (0.6)                1.0
HOSPICE BASE:
    FREESTANDING.......................................               2586             67,320               (0.1)               (0.7)                0.9
    HOME HEALTH AGENCY.................................                557              9,935               (0.1)               (0.7)                0.9
    HOSPITAL...........................................                498              5,970                0.0                (0.5)                1.0
SKILLED NURSING FACILITY...............................                 18                176               (0.2)               (0.9)                0.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
BNAF = Budget Neutrality Adjustment Factor.
Comparison is to FY 2012 data with a 40 percent BNAF reduction.
* Provider data as of December 31, 2011 for hospices with claims filed in FY 2011.
[dagger] The 1.6 percent final market basket update for FY 2013 is based on a 2.6 percent inpatient hospital market basket percentage increase, reduced
  by a 0.7 percentage point productivity adjustment and by 0.3 percentage point. Starting with FY 2013 (and in subsequent fiscal years), the market
  basket percentage update under the hospice payment system as described in section 1814(i)(1)(C)(ii)(VII) or section 1814(i)(1)(C)(iii) of the Act will
  be annually reduced by changes in economy-wide productivity as set out at section 1886(b)(3)(B)(xi)(II) of the Act. In FY 2013 through FY 2019, the
  market basket percentage update under the hospice payment system will be reduced by an additional 0.3 percentage point (although for FY 2014 to FY
  2019, the potential 0.3 percentage point reduction is subject to suspension under conditions set out under section 1814(i)(1)(C)(v) of the Act).
REGION KEY: New England=Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont; Middle Atlantic=Pennsylvania, New Jersey, New York;
  South Atlantic=Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia; East North
  Central=Illinois, Indiana, Michigan, Ohio, Wisconsin; East South Central=Alabama, Kentucky, Mississippi, Tennessee; West North Central=Iowa, Kansas,
  Minnesota, Missouri, Nebraska, North Dakota, South Dakota; West South Central=Arkansas, Louisiana, Oklahoma, Texas; Mountain=Arizona, Colorado, Idaho,
  Montana, Nevada, New Mexico, Utah, Wyoming; Pacific=Alaska, California, Hawaii, Oregon, Washington; Outlying=Guam, Puerto Rico, Virgin Islands.

    Table 1 shows the results of our analysis. In column 1, we indicate 
the number of hospices included in our analysis as of December 31, 2011 
which had also filed claims in FY 2011. In column 2, we indicate the 
number of routine home care days that were included in our analysis, 
although the analysis was performed on all types of hospice care. 
Columns 3, 4, and 5 compare FY 2012 estimated payments with those 
estimated for FY 2013. The estimated FY 2012 payments incorporate a 
BNAF which has been reduced by 40 percent. Column 3 shows the 
percentage change in estimated Medicare payments for FY 2013 due to the 
effects of the updated wage data only, compared with estimated FY 2012 
payments. The effect of the updated wage data can vary from region to 
region depending on the fluctuations in the wage index values of the 
pre-floor, pre-reclassified hospital wage index.

[[Page 44252]]

Column 4 shows the percentage change in estimated hospice payments from 
FY 2012 to FY 2013 due to the combined effects of using the updated 
wage data and reducing the BNAF by an additional 15 percent. Column 5 
shows the percentage change in estimated hospice payments from FY 2012 
to FY 2013 due to the combined effects of using updated wage data, an 
additional 15 percent BNAF reduction, and the final 1.6 percent market 
basket update.
    Table 1 also categorizes hospices by various geographic and hospice 
characteristics. The first row of data displays the aggregate result of 
the impact for all Medicare-certified hospices. The second and third 
rows of the table categorize hospices according to their geographic 
location (urban and rural). Our analysis indicated that there are 2,598 
hospices located in urban areas and 1,061 hospices located in rural 
areas. The next two row groupings in the table indicate the number of 
hospices by census region, also broken down by urban and rural 
hospices. The next grouping shows the impact on hospices based on the 
size of the hospice's program. We determined that the majority of 
hospice payments are made at the routine home care rate. Therefore, we 
based the size of each individual hospice's program on the number of 
routine home care days provided in FY 2011. The next grouping shows the 
impact on hospices by type of ownership. The final grouping shows the 
impact on hospices defined by whether they are provider-based or 
freestanding.
    As indicated in Table 1, there are 3,659 hospices. Approximately 
45.4 percent of Medicare-certified hospices are identified as voluntary 
(non-profit) or government agencies. Because the National Hospice and 
Palliative Care Organization estimates that approximately 84 percent of 
hospice patients in 2010 were Medicare beneficiaries, we have not 
considered other sources of revenue in this analysis.
    As stated previously, the following discussions are limited to 
demonstrating trends rather than projected dollars. We used the pre-
floor, pre-reclassified hospital wage index as well as the most 
complete claims data available (FY 2011) in developing the impact 
analysis. The FY 2013 payment rates will be adjusted to reflect the 
inpatient hospital market basket percentage increase, less a 
productivity adjustment of 0.7 percentage point and a reduction of 0.3 
percentage point, both mandated by the Affordable Care Act. Starting 
with FY 2013 (and in subsequent fiscal years), the market basket 
percentage update under the hospice payment system as described in 
section 1814(i)(1)(C)(ii)(VII) or section 1814(i)(1)(C)(iii) of the Act 
will be annually reduced by changes in economy-wide productivity in 
accordance with section 1886(b)(3)(B)(xi)(II) of the Act. In FY 2013 
through FY 2019, the market basket percentage update under the hospice 
payment system will be reduced by an additional 0.3 percentage point 
(although for FY 2014 to FY 2019, the potential 0.3 percentage point 
reduction is subject to suspension under conditions set out under 
section 1814(i)(1)(C)(v) of the Act). As previously noted, we publish 
these rates through administrative instructions rather than in a 
notice. The final FY 2013 market basket update is 1.6 percent which is 
based on an inpatient hospital market basket percentage increase of 2.6 
percent less the FY 2013 productivity adjustment of 0.7 percentage 
point and less 0.3 percentage point. Since the inclusion of the effect 
of a market basket update provides a more complete picture of projected 
total hospice payments for FY 2013, the last column of Table 1 shows 
the combined impacts of the updated wage data, the additional 15 
percent BNAF reduction, and the 1.6 percent market basket update. As 
discussed in the FY 2006 hospice wage index final rule (70 FR 45130, 
45133, August 5, 2005), hospice agencies may use multiple hospice wage 
index values to compute their payments based on potentially different 
geographic locations.
    Before January 1, 2008, the location of the beneficiary was used to 
determine the CBSA for routine and continuous home care, and the 
location of the hospice agency was used to determine the CBSA for 
respite and general inpatient care. Beginning January 1, 2008, the 
hospice wage index CBSA utilized is based on the location of the site 
of service. As the location of the beneficiary's home and the location 
of the hospice may vary, there will still be variability in geographic 
location for an individual hospice. We anticipate that the CBSA of the 
various sites of service will usually correspond with the CBSA of the 
geographic location of the hospice, and thus we will continue to use 
the location of the hospice for our analyses of the impact of the 
changes to the hospice wage index in this Notice. For this analysis, we 
use payments to the hospice in the aggregate based on the location of 
the hospice.
    The impact of hospice wage index changes has been analyzed 
according to the type of hospice, geographic location, type of 
ownership, hospice base, and size. Our analysis shows that most 
hospices are in urban areas and provide the vast majority of routine 
home care days. Most hospices are medium-sized followed by large 
hospices. When considering hospice ownership, a majority are 
proprietary (for-profit), with 1,660 designated as non-profit or 
government hospices and 1,999 as proprietary. The vast majority of 
hospices are freestanding.
b. Hospice Size
    Under the Medicare hospice benefit, hospices can provide four 
different levels of care. The majority of the days provided by a 
hospice are routine home care (RHC) days, representing about 97 percent 
of the services provided by a hospice. Therefore, the number of RHC 
days can be used as a proxy for the size of the hospice, that is, the 
more days of care provided, the larger the hospice. As discussed in the 
August 4, 2005 final rule, we currently use three size designations to 
present the impact analyses. The three categories are--(1) small 
agencies having 0 to 3,499 RHC days; (2) medium agencies having 3,500 
to 19,999 RHC days; and (3) large agencies having 20,000 or more RHC 
days. The FY 2013 updated wage data without any BNAF reduction are 
anticipated to decrease payments to large hospices by 0.1 percent and 
increase payments to small and medium hospices by 0.1 percent (column 
3). The updated wage data and the additional 15 percent BNAF reduction 
(for a total BNAF reduction of 55 percent) are anticipated to decrease 
estimated payments to small hospices by 0.4 percent, to medium hospices 
by 0.5 percent, and to large hospices by 0.7 percent (column 4). 
Finally, the updated wage data, the additional 15 percent BNAF 
reduction (for a total BNAF reduction of 55 percent), and the final 1.6 
percent market basket update are projected to increase estimated 
payments by 1.2 percent for small hospices, by 1.1 percent for medium 
hospices, and by 0.9 percent for large hospices (column 5).
c. Geographic Location
    Column 3 of Table 1 shows updated wage data without the BNAF 
reduction. Urban hospices are anticipated to experience a decrease of 
0.1 percent but there is no effect on rural hospices. Urban hospices 
can anticipate an increase in payments in New England, Middle Atlantic, 
Pacific and Outlying regions by 0.2 percent; in the West North Central 
region by 0.3 percent; and in the West South Central region by 0.4 
percent. Urban hospices can anticipate a decrease in payments ranging 
from 0.5 percent in the East North Central and

[[Page 44253]]

East South Central regions, to 0.1 percent in the Mountain region.
    Column 3 shows estimated percentages for rural hospices. Rural 
hospices are estimated to see a decrease in payments in four regions, 
ranging from 0.6 percent in the East North Central region to 0.1 
percent in the East South Central region. Rural hospices can anticipate 
an increase in payments in five regions ranging from 0.1 percent in the 
Mountain region to 1.4 percent in the Pacific region. There is no 
anticipated change in payments for Outlying regions due to the FY 2013 
Wage Index update.
    Column 4 shows the combined effect of the updated wage data and the 
additional 15 percent BNAF reduction on estimated payments, as compared 
to the FY 2012 estimated payments using a BNAF with a 40 percent 
reduction. Overall, hospices are anticipated to experience a 0.7 
percent decrease in payments, with urban hospices experiencing an 
estimated decrease of 0.7 percent and rural hospices experiencing an 
estimated decrease of 0.4 percent.
    All urban areas other than Outlying regions are estimated to see 
decreases in payments, ranging from 1.1 percent in the East North 
Central region to 0.2 percent in the West South Central region. In the 
Outlying regions, payments are anticipated to increase by 0.2 percent.
    Rural hospices are estimated to experience a decrease in payments 
in all regions except Pacific (0.7 percent) and New England (0.2 
percent) regions. The decrease in payments ranges from 1.2 percent in 
East North Central region to 0.1 percent in the West North Central and 
West South Central regions. Payments in the Outlying region are 
anticipated to stay relatively stable.
    Column 5 shows the combined effects of the updated wage data, the 
additional 15 percent BNAF reduction, and the 1.6 percent market basket 
update on estimated FY 2013 payments as compared to the estimated FY 
2012 payments. We note that the FY 2012 payments had a 40 percent BNAF 
reduction applied to them. Overall, hospices are anticipated to 
experience a 0.9 percent increase in payments, with urban hospices 
anticipated to experience a 0.9 percent increase in payments, and rural 
hospices anticipated to experience a 1.2 percent increase in payments.
    Urban hospices are anticipated to experience an increase in 
estimated payments in every region, ranging from 0.5 percent in the 
East North Central and East South Central regions to 1.8 percent in 
Outlying regions. Rural hospices in every region are estimated to see 
an increase in payments ranging from 0.4 percent in the East North 
Central region to 2.3 percent in the Pacific region.
d. Type of Ownership
    Column 3 demonstrates the effect of the updated wage data on FY 
2013 estimated payments, versus FY 2012 estimated payments. We 
anticipate that using the updated wage data would decrease estimated 
payments to voluntary (non-profit) hospices and to proprietary (for-
profit) hospices by 0.1 percent. Government hospices are expected to 
have no change in payments.
    Column 4 demonstrates the combined effects of the updated wage data 
and of the additional 15 percent BNAF reduction. Estimated payments to 
voluntary (non-profit), proprietary (for-profit) and government 
hospices are anticipated to decrease by 0.7 percent, 0.6 percent, and 
0.6 percent, respectively.
    Column 5 shows the combined effects of the updated wage data, the 
additional 15 percent BNAF reduction (for a total BNAF reduction of 55 
percent), and a 1.6 percent market basket update on estimated payments, 
comparing FY 2013 to FY 2012 (using a BNAF with a 40 percent 
reduction). Estimated FY 2013 payments are anticipated to increase by 
0.9 percent for voluntary (non-profit) hospices, and by 1.0 percent for 
government hospices and proprietary (for-profit) hospices.
e. Hospice Base
    Column 3 demonstrates the effect of using the updated wage data, 
comparing estimated payments for FY 2013 to FY 2012. Estimated payments 
are anticipated to decrease for freestanding, home health agency and 
skilled nursing facility based hospices by 0.1 percent, 0.1 percent and 
0.2 percent, respectively. There is no anticipated change in payments 
for hospital based facilities.
    Column 4 shows the combined effects of the updated wage data and 
reducing the BNAF by an additional 15 percent, comparing estimated 
payments for FY 2013 to FY 2012. All hospice facilities are anticipated 
to experience decrease in payments ranging from 0.9 percent for skilled 
nursing facility based hospices to 0.5 percent for hospital based 
hospices.
    Column 5 shows the combined effects of the updated wage data, the 
additional 15 percent BNAF reduction, and a 1.6 percent market basket 
update on estimated payments, comparing FY 2013 to FY 2012. Estimated 
payments are anticipated to increase for all hospices, ranging from 0.7 
percent for skilled nursing facility based hospices to 1.0 percent for 
hospital based hospices.
f. Effects on Other Providers
    This notice only affects Medicare hospices, and therefore has no 
effect on other provider types.
g. Effects on the Medicare and Medicaid Programs
    This notice only affects Medicare hospices, and therefore has no 
effect on Medicaid programs. As described previously, estimated 
Medicare payments to hospices in FY 2013 are anticipated to decrease by 
$10 million due to the update in the wage index data, and to decrease 
by $90 million due to the additional 15 percent reduction in the BNAF 
(for a of total 55 percent reduction in the BNAF). However, the final 
market basket update of 1.6 percent is anticipated to increase Medicare 
payments by $240 million. Therefore, the total effect on Medicare 
hospice payments is estimated to be a $140 million increase. We note 
that the final market basket update and associated FY 2013 payment 
rates are officially communicated in the summer through an 
administrative instruction.
h. Accounting Statement
    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 2 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with this notice. Table 2 provides our best 
estimate of the decrease in Medicare payments under the hospice benefit 
as a result of the changes presented in this notice using data for 
3,659 hospices in our database.

Table 2--Accounting Statement: Classification of Estimated Expenditures,
                         From FY 2012 to FY 2013
                             [In $millions]
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $-100.*

[[Page 44254]]

 
From Whom to Whom.........................  Federal Government to
                                             Hospices.
------------------------------------------------------------------------
* The $100 million estimated reduction in transfers includes the
  additional 15 percent reduction in the BNAF and the updated wage data.
  It does not include the market basket update, which is 1.6 percent for
  FY 2013. Starting with FY 2013 (and in subsequent fiscal years), the
  market basket percentage update under the hospice payment system as
  described in section 1814(i)(1)(C)(ii)(VII) or section
  1814(i)(1)(C)(iii) of the Act will be annually reduced by changes in
  economy-wide productivity as set out at section 1886(b)(3)(B)(xi)(II)
  of the Act. In FY 2013 through FY 2019, the market basket percentage
  update under the hospice payment system will be reduced by an
  additional 0.3 percentage point (although for FY 2014 to FY 2019, the
  potential 0.3 percentage point reduction is subject to suspension
  under conditions set out under section 1814(i)(1)(C)(v) of the Act).
  This 1.6 percent is based on an inpatient hospital market basket
  percentage increase of 2.6 percent reduced by a 0.7 percentage point
  productivity adjustment and by 0.3 percentage point.

i. Conclusion
    In conclusion, the overall effect of this notice is estimated to be 
the $100 million reduction in Federal payments due to the wage index 
changes (including the additional 15 percent reduction in the BNAF). 
Furthermore, the Secretary has determined that this will not have a 
significant impact on a substantial number of small entities, or have a 
significant effect relative to section 1102(b) of the Act.

B. Regulatory Flexibility Act Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
almost all hospices are small entities as that term is used in the RFA. 
The great majority of hospitals and most other health care providers 
and suppliers are small entities by meeting the Small Business 
Administration (SBA) definition of a small business (in the service 
sector, having revenues of less than $7.0 million to $34.5 million in 
any 1 year), or being nonprofit organizations that are not dominant in 
their markets. While the SBA does not define a size threshold in terms 
of annual revenues for hospices, it does define one for home health 
agencies ($13.5 million; see http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf). For the purposes of this notice, 
because the hospice benefit is a home-based benefit, we are applying 
the SBA definition of ``small'' for home health agencies to hospices; 
we will use this definition of ``small'' in determining if this notice 
has a significant impact on a substantial number of small entities (for 
example, hospices). Using CY 2010 Medicare hospice data from the Health 
Care Information System (HCIS), we estimate that 95 percent of hospices 
have Medicare revenues below $13.5 million or are nonprofit 
organizations and therefore are considered small entities.
    The effects of this notice on hospices are shown in Table 1. 
Overall, Medicare payments to all hospices would decrease by an 
estimated 0.7 percent over last year's payments in response to the wage 
index we are setting forth in this notice, reflecting the combined 
effects of the updated wage data and the additional 15 percent 
reduction in the BNAF. The combined effects of the updated wage data 
and additional 15 percent reduction in the BNAF on small and large 
sized hospices (as defined by routine home care days rather than by the 
SBA definition), is an estimated reduction of 0.4 percent and 0.7 
percent, respectively. Medium sized hospices are anticipated to 
experience an estimated reduction in payments of 0.5 percent as a 
result of the updated wage data and the additional 15 percent reduction 
in the BNAF. Furthermore, when examining the distributional effects of 
the updated wage data combined with the additional 15 percent BNAF 
reduction, the highest estimated reductions in payments are experienced 
by the urban East North Central and East South Central regions, and by 
the rural East North Central region.
    HHS's practice in interpreting the RFA is to consider effects 
economically ``significant'' only if they reach a threshold of 3 to 5 
percent or more of total revenue or total costs. As noted above, the 
combined effect of only the updated wage data and the additional 15 
percent reduced BNAF (for a total BNAF reduction of 55 percent) for all 
hospices is an estimated reduction of 0.7 percent. Furthermore, since 
HHS's practice in determining ``significant economic impact'' considers 
either total revenue or total costs, it is necessary for total hospice 
revenues to include the effect of the market basket update of 1.6 
percent. As a result, we consider the combined effect of the updated 
wage data, the additional 15 percent BNAF reduction, and the 1.6 
percent FY 2013 market basket update inclusive of the overall impact, 
thereby reflecting an aggregate increase in estimated hospice payments 
of 0.9 percent for FY 2013. For small and medium hospices (as defined 
by routine home care days), the estimated effects on revenue when 
accounting for the updated wage data, the additional 15 percent BNAF 
reduction, and the market basket update reflect increases in payments 
of 1.2 percent and 1.1 percent, respectively. Overall average hospice 
revenue effects will be slightly less than these estimates since 
according to the National Hospice and Palliative Care Organization, 
about 16 percent of hospice patients are non-Medicare. Therefore, the 
Secretary has determined that this notice will not create a significant 
economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This Notice only affects 
hospices. Therefore, the Secretary has determined that this notice 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.

C. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2012, that 
threshold is approximately $139 million. This notice is not anticipated 
to have an effect on State, local, or tribal governments, in the 
aggregate, or on the private sector of $139 million or more.

VI. Federalism Analysis

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a notice that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. We have reviewed this 
notice under the threshold criteria of EO 13132, Federalism, and have 
determined that it will not have an impact on the rights, roles, and 
responsibilities of State, local, or tribal governments.

[[Page 44255]]

VII. Files Available to the Public via the Internet

    This section lists the Addenda referred to in the preamble of this 
notice. Beginning in CY 2012, the Addenda for the annual hospice wage 
index proposed and final rulemakings or notices will no longer appear 
in the Federal Register. Instead, the Addenda will be available only 
through the Internet. We will continue to post the Addenda through the 
Internet.
    The following addenda are posted to the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Hospice/index.html:

Addendum A: The FY 2013 Hospice Wage Index for Urban Areas
Addendum B: The FY 2013 Hospice Wage Index for Rural Areas

    Readers who experience any problems accessing the Addenda that are 
posted on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/Hospice/index.html should contact Anjana Patel at 
(410) 786-2120.

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

    Dated: June 5, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: July 16, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-18336 Filed 7-24-12; 4:15 pm]
BILLING CODE 4120-01-P
```