```

[Federal Register Volume 76, Number 133 (Tuesday, July 12, 2011)]
[Proposed Rules]
[Pages 40988-41031]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16938]

[[Page 40987]]

Vol. 76

Tuesday,

No. 133

July 12, 2011

Part II

Department of Health and Human Services

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

Centers for Medicare & Medicaid Services

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

42 CFR Parts 409, 424, 440, et al.

Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2012; Face-to-Face Requirements for Home Health 
Services; Policy Changes and Clarifications Related to Home Health; 
Proposed Rules

Federal Register / Vol. 76 , No. 133 / Tuesday, July 12, 2011 / 
Proposed Rules

[[Page 40988]]

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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 424, and 484

[CMS-1353-P]
RIN 0938-AQ30

Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2012

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

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would update the Home Health Prospective 
Payment System (HH PPS) rates, including: The national standardized 60-
day episode rates, the national per-visit rates, the low utilization 
payment amount (LUPA), and outlier payments under the Medicare 
prospective payment system for home health agencies effective January 
1, 2012.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 6, 
2011.

ADDRESSES: In commenting, please refer to file code CMS-1353-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1353-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1353-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.

    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.).
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.

    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 in advance to schedule your arrival with one 
of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Elizabeth Goldstein, (410) 786-6665, for CAHPS issues.
Mary Pratt, (410) 786-6867, for quality issues.
Randy Throndset, (410)786-0131 (overall HH PPS).

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Statutory Background
    B. System for Payment of Home Health Services
    C. Updates to the HH PPS
II. Provisions of the Proposed Rule
    A. Case-Mix Measurement
    1. Independent Review of the Models To Assess Nominal Case-Mix 
Growth
    2. Revised Version of Our Models To Assess Nominal Case-Mix 
Growth
    B. Case-Mix Revision to the Case-Mix Weights
    1. Hypertension Diagnosis Coding Under the HH PPS
    2. Proposal for Revision of Case-Mix Weights
    C. Outlier Policy
    1. Background
    2. Regulatory Update
    3. Statutory Update
    4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    5. Outlier Relationship to the HH Payment Study
    D. CY 2012 Rate Update
    1. Home Health Market Basket Update
    2. Home Health Care Quality Improvement
    a. Background and Quality Reporting Requirements
    b. OASIS Data
    c. Claims Data, Proposed Requirements and Outcome Measure Change
    d. Home Health Care CAHPS Survey (HHCAHPS)
    3. Home Health Wage Index
    4. Proposed CY 2012 Annual Payment Update
    a. National Standardized 60-Day Episode Rate
    b. Proposed Updated CY 2012 National Standardized 60-Day Episode 
Payment Rate
    c. National Per-Visit Rates Used To Pay LUPAs and Compute 
Imputed Costs Used in Outlier Calculations
    d. LUPA Add-on Payment Amount Update
    e. Nonroutine Medical Supply Conversion Factor Update
    5. Rural Add-On
    E. Therapy Corrections and Clarification
    F. Home Health Face-to-Face Encounter
    G. Payment Reform: Home Health Study and Report
    H. International Classification of Diseases 10th Edition (ICD-
10) Coding
    I. Clarification to Benefit Policy Manual Language on ``Confined 
to the Home'' Definition
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
VI. Federalism Analysis
Regulations Text

Acronyms

    In addition, because of the many terms to which we refer by 
abbreviation in this proposed rule, we are listing these abbreviations 
and their

[[Page 40989]]

corresponding terms in alphabetical order below:

ACH LOS Acute Care Hospital Length of Stay
ADL Activities of Daily Living
APU Annual Payment Update
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
CAD Coronary Artery Disease
CAH Critical Access Hospital
CBSA Core-Based Statistical Area
CHF Congestive Heart Failure
CMI Case-Mix Index
CMS Centers for Medicare and Medicaid Services
CoPs Conditions of Participation
COPD Chronic Obstructive Pulmonary Disease
CVD Cardiovascular Disease
DM Diabetes Mellitus
DRA Deficit Reduction Act of 2005, Public Law 109-171, enacted 
February 8, 2006
FDL Fixed Dollar Loss
FI Fiscal Intermediaries
FR Federal Register
FY Fiscal Year
HCC Hierarchical Condition Categories
HCIS Health Care Information System
HHCAHPS Home Health Care Consumer Assessment of Healthcare Providers 
and Systems Survey
HH PPS Home Health Prospective Payment System
HHAs Home Health Agencies
HHRG Home Health Resource Group
HIPPS Health Insurance Prospective Payment System
IH Inpatient Hospitalization
IRF Inpatient Rehabilitation Facility
LTCH Long-Term Care Hospital
LUPA Low Utilization Payment Amount
MEPS Medical Expenditures Panel Survey
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173, enacted December 8, 2003
MSA Metropolitan Statistical Areas
MSS Medical Social Services
NRS Non-Routine Supplies
OBRA Omnibus Reconciliation Act of 1981, Public Law 97-35, enacted 
August 13, 1981
OCESAA Omnibus Consolidated and Emergency Supplemental 
Appropriations Act, Public Law 105-277, enacted October 21, 1998
OES Occupational Employment Statistics
OIG Office of Inspector General
OT Occupational Therapy
OMB Office of Management and Budget
PAC-PRD Post-Acute Care Payment Reform Demonstration
PEP Partial Episode Payment Adjustment
PT Physical Therapy
QAP Quality Assurance Plan
PRRB Provider Reimbursement Review Board
RAP Request for Anticipated Payment
RF Renal Failure
RFA Regulatory Flexibility Act, Public Law 96-354
RHHIs Regional Home Health Intermediaries
RIA Regulatory Impact Analysis
SLP Speech Language Pathology Therapy
SNF Skilled Nursing Facility
UMRA Unfunded Mandates Reform Act of 1995

I. Background

A. Statutory Background

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted 
August 5, 1997), significantly changed the way Medicare pays for 
Medicare home health (HH) services. Section 4603 of the BBA mandated 
the development of the home health prospective payment system (HH PPS). 
Until the implementation of a HH PPS on October 1, 2000, home health 
agencies (HHAs) received payment under a retrospective reimbursement 
system.
    Section 4603(a) of the BBA mandated the development of a HH PPS for 
all Medicare-covered HH services provided under a plan of care (POC) 
that were paid on a reasonable cost basis by adding section 1895 of the 
Social Security Act (the Act), entitled ``Prospective Payment For Home 
Health Services''. Section 1895(b)(1) of the Act requires the Secretary 
to establish a HH PPS for all costs of HH services paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires the following: (1) The 
computation of a standard prospective payment amount include all costs 
for HH services covered and paid for on a reasonable cost basis and 
that such amounts be initially based on the most recent audited cost 
report data available to the Secretary; and (2) the standardized 
prospective payment amount be adjusted to account for the effects of 
case-mix and wage levels among HHAs.
    Section 1895(b)(3)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the HH applicable percentage 
increase. Section 1895(b)(4) of the Act governs the payment 
computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act 
require the standard prospective payment amount to be adjusted for 
case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of an appropriate 
case-mix change adjustment factor for significant variation in costs 
among different units of services.
    Similarly, section 1895(b)(4)(C) of the Act requires the 
establishment of wage adjustment factors that reflect the relative 
level of wages, and wage-related costs applicable to HH services 
furnished in a geographic area compared to the applicable national 
average level. Under section 1895(b)(4)(c) of the Act, the wage-
adjustment factors used by the Secretary may be the factors used under 
section 1886(d)(3)(E) of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make additions or adjustments to the payment amount otherwise paid in 
the case of outliers because of unusual variations in the type or 
amount of medically necessary care. Section 3131(b) of the Patient 
Protection and Affordable Care Act of 2010 (the Affordable Care Act) 
(Pub. L. 111-148, enacted March 23, 2010) revised section 1895(b)(5) of 
the Act so that total outlier payments in a given fiscal year (FY) or 
year may not exceed 2.5 percent of total payments projected or 
estimated. The provision also makes permanent a 10 percent agency level 
outlier payment cap.
    In accordance with the statute, as amended by the BBA, we published 
a final rule in the July 3, 2000 Federal Register (65 FR 41128) to 
implement the HH PPS legislation. The July 2000 final rule established 
requirements for the new HH PPS for HH services as required by section 
4603 of the BBA, as subsequently amended by section 5101 of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act (OCESAA) for 
Fiscal Year 1999, (Pub. L. 105-277, enacted October 21, 1998); and by 
sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999, (Pub. L. 106-113, 
enacted November 29, 1999). The requirements include the implementation 
of a HH PPS for HH services, consolidated billing requirements, and a 
number of other related changes. The HH PPS described in that rule 
replaced the retrospective reasonable cost-based system that was used 
by Medicare for the payment of HH services under Part A and Part B. For 
a complete and full description of the HH PPS as required by the BBA, 
see the July 2000 HH PPS final rule (65 FR 41128 through 41214).
    Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 
109-171, enacted February 8, 2006) added new section 1895(b)(3)(B)(v) 
to the Act, requiring HHAs to submit data for purposes of measuring 
health care quality, and links the quality data submission to the 
annual applicable percentage increase. This data submission requirement 
is applicable for CY 2007 and each subsequent year. If an HHA does not 
submit quality data, the HH market basket percentage increase is 
reduced 2 percentage points. In the November 9, 2006 Federal Register 
(71 FR 65884, 65935), we published a final rule to implement the

[[Page 40990]]

pay-for-reporting requirement of the DRA, which was codified at Sec.  
484.225(h) and (i) in accordance with the statute.
    Section 421(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted December 8, 
2003) provides an increase of 3 percent of the payment amount otherwise 
made under section 1886(d)(2)(D) of the Act for HH services furnished 
in a rural area with respect to episodes and visits ending on or after 
April 1, 2010, and before January 1, 2016.

B. System for Payment of Home Health Services

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

C. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in the Federal Register. 
The August 29, 2007 final rule with comment period set forth an update 
to the 60-day national episode rates and the national per-visit rates 
under the Medicare prospective payment system for HHAs for CY 2008. The 
CY 2008 rule included an analysis performed on CY 2005 HH claims data, 
which indicated a 12.78 percent increase in the observed case-mix since 
2000. The case-mix represented the variations in conditions of the 
patient population served by the HHAs. Subsequently, a more detailed 
analysis was performed on the 12.78 percent increase in case-mix to 
evaluate if any portion of the increase was associated with a change in 
the actual clinical condition of HH patients. We examined data on 
demographics, family severity, and non-HH Part A Medicare expenditures 
to predict the average case-mix weight for 2005. We identified 8.03 
percent of the total case-mix change as real and decreased the 12.78 
percent of total case-mix change by 8.03 percent to get a final nominal 
case-mix increase measure of 11.75 percent (0.1278 * (1-0.0803) = 
0.1175).
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, we implemented a reduction 
over 4 years in the national standardized 60-day episode payment rates 
and the NRS conversion factor. That reduction was to be 2.75 percent 
per year for 3 years beginning in CY 2008 and 2.71 percent for the 
fourth year in CY 2011.
    For CY 2011, we published the November 17, 2010 final rule (75 FR 
70372) (hereinafter referred to as the CY 2011 HH PPS final rule) that 
set forth the update to the 60-day national episode rates and the 
national per-visit rates under the Medicare prospective payment system 
for HH services.
    As discussed in the CY 2011 rule, our analysis indicated that there 
was a 19.40 percent increase in overall case-mix from 2000 to 2008 and 
that only 10.07 percent of that overall observed case-mix percentage 
increase was due to real case-mix change. As a result of our analysis, 
we identified a 17.45 percent nominal increase in case-mix. To fully 
account for the 17.45 percent nominal case-mix growth which was 
identified from 2000 to 2008, we proposed 3.79 percent payment 
reductions in both CY 2011 and CY 2012. However, we deferred finalizing 
a payment reduction for CY 2012 until a further study of the case-mix 
data was completed. Independent review of the case-mix model has been 
conducted and the results are discussed in section II.A. of this 
proposed rule.

II. Provisions of the Proposed Rule

A. Case-Mix Measurement

    Every year, since the HH PPS CY 2008 proposed rule, we have stated 
in HH PPS rulemaking that we would continue to monitor case-mix changes 
in the HH PPS and to update our analysis to measure change in case-mix, 
both real changes in case-mix and changes which are unrelated to 
changes in patient acuity (nominal). We have continued to monitor case-
mix changes, and our latest analysis continues to support the need to 
make payment adjustments to account for nominal case-mix growth.
    Before measuring nominal case-mix growth, we examined the total 
case-mix growth every year from 2000 to 2009. Our latest analysis 
indicates that there was a large 1-year increase, 2.6 percent, in the 
average case-mix weight from 2008 to 2009. Specifically, the 2008 
average case-mix was 1.3095 and the 2009 average case-mix was 1.3435. 
It should be noted that the average case-mix for 2008 is slightly 
different than the average case-mix for 2008 that was reported in the 
CY 2011 HH PPS final rule. The difference in case-mix is due to the 
increased availability of data and inclusion of more episodes in the 
2008 sample. As we did last year, we sought to describe how much of the 
1-year change was due to a change in the distribution of episodes 
according to the number of therapy visits and how much was due to a 
change in the average case-mix weight at each level of therapy visits.
    The method we used first holds the average case-mix weight constant 
(at the 2008 values) at each level of therapy visits, and measures the 
effect of the shift to the new distribution of therapy visits. The 
method then holds the distribution of therapy visits constant (at the 
2008 distribution) and measures the effect of the change in average 
case-mix weight at each level of therapy visits. The results were that 
0.0254 or about 75 percent (0.0254/0.0340 = 0.75) of the total change 
in average case-mix weights from 2008 to 2009 was due to the shift in 
the distribution of therapy visits per episode. The remaining 0.0086 or 
about 25 percent (0.0086/0.0340 = 0.25) in overall average case-mix 
weight from 2008 to 2009 was due to an increase in the average case-mix 
weight at each level of therapy visits per episode.

[[Page 40991]]

    The decomposition suggests that agencies in 2009 were still 
responding to the 2008 refinements in terms of both coding practices 
and the definition of therapy treatment plans for patients. This 
analysis by itself, however, does not isolate real case-mix change 
within total case-mix change. We discuss our latest analysis of real 
and nominal case-mix change in the remainder of this section.
    Section 1895(b)(3)(B)(iv) of the Act gives CMS the authority to 
implement payment reductions for nominal case-mix growth, changes in 
case-mix that are not related to actual changes in patient 
characteristics over time. Nominal case-mix growth was assessed and 
reported in CY 2008 and CY 2011 rulemaking, and payment reductions to 
the base rate were implemented to account for the nominal case-mix 
growth observed.
    In CY 2008 rulemaking, to assess nominal case-mix growth, we first 
estimated real case-mix growth, changes in case-mix which are related 
to changes in patient characteristics, using a regression-based, 
predictive model of individual case-mix weights. The predictive model 
contained measures of patients' demographic characteristics, clinical 
status, inpatient history, and Part A Medicare costs in the time period 
leading up to their home health episodes. The regression coefficients 
for the predictive model were developed using 2000 as a base year and 
were applied to episodes from 2005, allowing estimation of the change 
in real case-mix. We then determined the nominal case-mix growth from 
2000 to 2005 using the regression model-predicted real case-mix change 
and the total case-mix change for the time period of interest.
    In 2000, the average case-mix was 1.0960 and in 2005, the average 
case-mix was 1.2361. As such, the total measure of case-mix change from 
2000 to 2005 was 12.78 percent ((1.2361 - 1.0960)/1.0960 = 0.1278). 
Using the regression-based predictive model, we identified 8.03 percent 
of the total case-mix change as real case-mix change from 2000 to 2005, 
and we adjusted the 12.78 percent of total change in case-mix, 
downward, by 8.03 percent to get a final nominal case-mix change 
measure of 11.75 percent (0.1278 * (1 - 0.0803) = 0.1175). To account 
for the 11.75 percent increase in nominal case-mix, we implemented a 
payment reduction of 2.75 percent each year for 3 years, beginning in 
2008, and we planned to implement a payment reduction of 2.71 in CY 
2011.
    Since the HH PPS CY 2008 proposed rule, we have continued to 
monitor case-mix changes in the HH PPS, and in CY 2011 rulemaking we 
updated our analysis to measure change in real and nominal case-mix. In 
CY 2011 rulemaking, we developed two regression-based models to assess 
nominal case-mix growth from 2000 to 2008. One model was developed 
using 2000 as a base year and the 80 grouper case-mix system. The 
regression coefficients in the model were applied to 2007 data to 
determine the change in real case-mix from 2000 to 2007. The second 
model was developed using 2008 as a base year and the 153 grouper case-
mix system. The regression coefficients in the model were applied to 
2007 data to determine the change in real case-mix from 2007 to 2008. 
The data from both of the models were then used to calculate the 
overall real and nominal case-mix change from 2000 to 2008. Our 
analysis indicated that there was a 19.40 percent increase in overall 
case-mix from 2000 to 2008 and 10.07 percent of that overall observed 
case-mix change was identified as real case-mix change. Consequently, 
as a result of our analysis, we identified a 17.45 percent nominal 
increase in case-mix (0.1940 * (1 - 0.1007) = 0.1745) from 2000 to 
2008. In other words, there was a growth in case-mix of 17.45 percent 
that was unrelated to differences in patient characteristics and 
reflects changes in coding procedures and documentation rather than the 
treatment of more resource-intensive patients. This 17.45 percent 
increase was larger than expected. Previously, there was about 1 
percent annual case-mix growth from 2000 to 2007. Between 2007 and 
2008, we observed a 4 percent overall case-mix growth. As a result of 
our analysis, in CY 2011, we proposed an increase to the planned 2.71 
percent payment reduction in 2011 to a 3.79 percent payment reduction 
and we proposed another 3.79 percent payment reduction in 2012 to fully 
account for the 17.45 percent nominal case-mix growth which was 
identified from 2000 to 2008.
    We received many comments on our CY 2011 HH PPS proposed rule that 
criticized our methodology for assessing real case-mix change. The 
criticisms from commenters centered on the idea that we underestimated 
the percentage of case-mix growth that was real. Multiple commenters 
stated that our model for assessing real case-mix change relies too 
heavily on hospital discharge data. Commenters stated that we should 
include more variables which capture the severity of patients entering 
home health from the community since more than half of Medicare home 
health patients are admitted to home health from a setting other than a 
hospital. Also, commenters suggested that the acute care hospital APR-
DRG and other prior use variables in our models may not be relevant for 
patients with more than one home health episode. Another criticism was 
that our model should consider that there are shorter hospital stays, 
and therefore, the patients who are discharged from the hospital into 
home health may have a higher level of severity of illness than the 
model recognizes. Moreover, commenters stated that all of the HHAs were 
being penalized for the actions of a few HHAs and that the nominal 
case-mix change reductions should be limited to certain types of 
agencies (such as by region or for-profit/non-profit status or by case-
mix index [CMI]). Furthermore, one commenter stated that a recent study 
by Dr. Partha Deb of Hunter College used data from a nationally 
representative survey (the Medical Expenditures Panel Survey--MEPS) and 
found that the health status of Medicare beneficiaries worsened, 
suggesting a possible increase in real case-mix in the Medicare 
population from 2000 through 2007 (the study by Partha Deb can be found 
at http://www.aha.org/aha/content/2010/pdf/100715-CMItrends.pdf). 
Commenters inferred that the change in real case-mix was larger than 
the change we measured for the home health population, and therefore, 
commenters doubted whether our model accounted for the entire real 
case-mix change in the home health population. The study by Dr. Deb 
constructed a case-mix measure from medical expenditures and diagnosis-
related data and compared results for 2000 and 2007.
    In the CY 2011 HH PPS final rule, we implemented the proposed 
payment reduction of 3.79 percent to the national standardized episode 
rate in CY 2011. However, due to the extensive comments we received, we 
deferred finalizing a payment reduction for CY 2012 until further study 
of the case-mix data and methodology was completed.
1. Independent Review of the Models To Assess Nominal Case-Mix Growth
    To assess the validity of the criticisms we received about our 
models to measure real and nominal case-mix change, we procured an 
independent review of our methodology by a team at Harvard University 
led by Dr. David Grabowski. The review included an examination of the 
predictive regression models and data used in CY 2011 rulemaking, and 
further analysis consisting of extensions of the model to allow a 
closer look at nominal case-mix

[[Page 40992]]

growth by categorizing the growth according to provider types and 
subgroups of patients. The extensions showed a similar rate of nominal 
case-mix growth from 2000 to 2008 (Table 1A) for the various categories 
and subgroups. Below, we discuss these results in terms of the 
criticisms we received.

           Table 1A--Models for Assessing Real Case-Mix Change
------------------------------------------------------------------------
                                                       Nominal case-mix
                       Model                           percent increase
                                                      from 2000 to 2008
------------------------------------------------------------------------
(ALL) Total Nominal growth using Full Data Set                     17.45
 (Replication).....................................
(ALL) Full Data Set using MEDIAN ACH LOS                           17.38
 (Replication).....................................
(ALL) Full Data Set using Q3 ACH LOS (Replication).                17.47
(1a) Pre-HHA: With IH in prior 14 days.............                21.16
(1b) Pre-HHA: With IH in prior 15-120 days.........                16.81
(2a) Pre-HHA: Without IH in prior 14 days..........                15.85
(2b) Pre-HHA: Without IH in prior 15-120 days......                18.19
(3a) Pre-HHA: With IRF/SNF/LTCH in prior 14 days...                13.90
(3b) Pre-HHA: With IRF/SNF/LTCH in prior 15-120                    14.11
 days..............................................
(4a) Pre-HHA: Without IRF/SNF/LTCH in prior 14 days                18.51
(4b) Pre-HHA: Without IRF/SNF/LTCH in prior 15-120                 18.33
 days..............................................
(5a) Pre-HHA: With IH/IRF/SNF/LTCH in prior 14 days                18.97
(5b) Pre-HHA: With IH/IRF/SNF/LTCH in prior 15-120                 16.74
 days..............................................
(6a) Pre-HHA: Without IH/IRF/SNF/LTCH in prior 14                  16.95
 days..............................................
(6b) Pre-HHA: Without IH/IRF/SNF/LTCH in prior 15-                 18.29
 120 days..........................................
(7a) AGENCY-LEVEL: Owner: Non-Profit...............                14.49
(7b) AGENCY-LEVEL: Owner: For-Profit...............                18.63
(7c) AGENCY-LEVEL: Owner: Government...............                15.22
(8a) AGENCY-LEVEL: Facility-Based HHA..............                14.17
(8b) AGENCY-LEVEL: Free-Standing HHA...............                17.86
(9a) AGENCY-LEVEL: West Region.....................                17.51
(9b) AGENCY-LEVEL: Midwest Region..................                16.76
(9c) AGENCY-LEVEL: South Region....................                18.01
(9d) AGENCY-LEVEL: Northeast Region................                14.81
(10a) AGENCY-LEVEL: Large Agency...................                17.21
(10b) AGENCY-LEVEL: Small Agency...................                17.53
(11a) AGENCY-LEVEL: Urban HHA......................                17.75
(11b) AGENCY-LEVEL: Rural HHA......................                15.36
(12a) AGENCY-LEVEL: Treats predominantly post-acute                16.67
 patients..........................................
(12b) AGENCY-LEVEL: Treats predominantly community                 18.87
 patients..........................................
(13) First Episode Only............................                19.06
------------------------------------------------------------------------
HHA = home health agency; IH = Inpatient hospitalization; IRF =
  inpatient rehabilitation facility; SNF = skilled nursing facility;
  LTCH = long-term care hospital, ACH LOS = acute care hospital length
  of stay.

    To address the concern about our current models' robustness when 
there is no prior inpatient or post-acute care setting (when patients 
are admitted from the community), the Harvard team re-ran our models 
for separate subgroups; in most cases, subgroups were defined by the 
prior hospital and post-acute care use measures present on the data 
file. Specifically, they defined prior inpatient/post-acute care use in 
six different ways (shown in lines 1a through 6b of Table 1A): Any 
hospital use over the past 14 days (yes/no); any post-acute use over 
the prior 14 days (yes/no); any hospital use over the past 15-120 days 
(yes/no); any post-acute care use over the past 15-120 days (yes/no); 
any hospital or post-acute care use in the preceding 14 days (yes/no); 
and any hospital or post-acute care use in the preceding 15-120 days 
(yes/no). As another test, the team separated agencies according to 
whether they treated predominantly post-acute patients or not. To 
calculate this measure, the Harvard team split agencies above/below the 
median based on their percentage of home health episodes in 2007 with 
an inpatient hospital stay in the preceding 14 days.
    Across all models, there was evidence of significant and similar 
nominal case-mix growth, suggesting that high rates of nominal case-mix 
growth exist regardless of whether there was a preceding inpatient or 
post-acute stay. Agencies classified as serving predominantly community 
patients had a slightly higher nominal case-mix percentage increase 
compared to agencies classified as serving predominately post-acute 
patients (as shown in lines 12a and 12b in Table 1A). (For a full 
description of the Harvard team's analysis and results, please see the 
L&M final report located at http://www.cms.gov/center/hha.asp).
    Also, to evaluate the validity of the comment that the acute care 
hospital APR-DRG and other prior use variables in our model may not be 
relevant for patients with more than one home health episode, the 
Harvard team re-ran our current predictive models using only the first 
home health episode for each patient (shown in line 13 of Table 1A). 
Once again, results based on this first episode were similar to the 
overall results of our current model, suggesting that the model is 
relatively stable across home health episodes. The results show that 
the inclusion of the later episodes does not dramatically alter the 
primary finding of significant nominal case-mix growth.
    To evaluate the comment that our models should take into account 
the fact that there are shorter hospital stays and therefore, the 
patients who are discharged from the hospital into home health may have 
a higher level of severity of illness than the model recognizes, our 
predictions were calculated assuming there was a different average 
length of stay than the actual average length of stay found for the LOS 
predictor variables in the 2007 and 2008 follow-up years. Harvard 
developed predictions of real and nominal case-mix growth using the

[[Page 40993]]

median acute care hospitalization length of stay, instead of the mean 
length of stay which is used in our current model. The median is lower 
than the mean acute care hospitalization length of stay. Harvard also 
developed predictions of real and nominal case-mix growth using the 
third quartile acute care hospitalization length of stay, which is 
longer than the mean. The results were very similar to the overall 
nominal case-mix percentage increase and therefore, the analysis 
suggests that our methodology is not particularly limited in capturing 
length of stay effects, because acute care hospitalization length of 
stay does not play a big role in determining average patient severity.
    To evaluate the suggestion that we should limit nominal case-mix 
change reductions to certain types of agencies (such as by region or 
for-profit/non-profit status or by CMI), the Harvard team re-ran our 
model based on ownership type (non-profit, government, for-profit), 
agency type (facility-based, freestanding), region of the country 
(Northeast, South, Midwest, West), urban vs. rural status, and agency 
size (large vs. small; based on the number of initial episodes), shown 
in lines 7a through 11b in Table 1A. As noted earlier, the team also 
examined case-mix growth by whether the agency had a particular focus 
on post-acute vs. community patients. Across all these different 
categories (ownership, agency type, region, urban vs. rural status, 
agency size, agency focus), nominal case-mix growth was present. As 
expected, nominal case-mix growth was larger for some sub-groups. For 
example, nominal case-mix growth was higher for for-profit agencies 
(18.63 percent) than non-profit (14.49 percent) and government agencies 
(15.22 percent); however, these latter ownership types still exhibited 
high rates of nominal case-mix growth. As such, the Harvard team 
asserted that similar high rates of nominal case-mix growth exist for 
all types of HHAs.
    To address the comment that a study which used MEPS data showed a 
higher rate of real case-mix growth in the entire Medicare population 
than our model estimated for Medicare home health patients, a more 
detailed analysis of the MEPS data was performed. The trends in health 
status of four different populations from 2000 to 2008 were analyzed. 
The data for the analysis were obtained from the MEPS 2000 and 2008 
Full Year Consolidated Data files. The four populations that were 
analyzed were: (1) The full MEPS sample; (2) all Medicare 
beneficiaries, defined as all respondents ever having Medicare in a 
given year; (3) all home health patients, defined as having at least 
one home health provider day in a given year; and (4) all home health 
Medicare beneficiaries, defined as all respondents with any Medicare 
home health charges. Two measures of self-reported health status and 
one measure derived from patient information that screened for 
activities of daily living (ADL) limitations were used to determine the 
trends in health status. These types of measures have been shown to be 
highly correlated with actual health (Ware and Sherbourne, 1992; 
McHorney, Ware, and Raczek, 1993). The three measures which were 
analyzed for each of the populations were: (1) Whether the respondent 
indicated perceived health status of ``poor'' or ``fair'' as opposed to 
those indicating health status as ``good'', ``very good'', or 
``excellent''; (2) whether the respondent indicated if pain limited 
normal work (including work in the home) in the past 4 weeks 
``extremely'' or ``quite a bit'' as opposed to those indicating pain 
limited work ``moderately'', ``a little bit'', or ``not at all''; and 
(3) whether respondents had a positive screen for needing assistance 
with ADL. In all cases, responses such as ``refused'', ``don't know'', 
or ``not ascertained'' were omitted from the analysis. The Medicare 
analysis samples consisted of 3,371 and 4,144 beneficiaries in 2000 and 
2008, respectively. The Medicare home health subsamples consisted of 
174 and 289 beneficiaries in 2000 and 2008, respectively. The survey 
responses were then weighted using pre-constructed MEPS survey weights 
to estimate nationally representative changes in the three health 
status variables.
    All three measures indicated a slight increase in the overall 
health status of the Medicare home health population. Two of these 
results were not statistically significant, but the percent of home 
health Medicare beneficiaries experiencing ``extreme'' or ``quite a 
bit'' of work-limiting pain decreased substantially, from 56.6 percent 
in 2000 to 45.4 percent in 2008 (p = 0.039). Unlike Dr. Deb's original 
study, the new MEPS analysis focuses specifically on Medicare home 
health users (as opposed to the entire Medicare population), and it is 
not reliant on expenditure data. A limitation of the Debs case-mix 
measure, which relies on expenditure data, is that it could reflect 
large increases in expenditures, such as drug expenditures, but any 
relationship to actual increases in impairments and other reasons for 
using home health resources is unclear. A possible limitation of the 
new MEPS analysis is that the sample of Medicare home health 
respondents is relatively small, notwithstanding that the result of one 
of the three measures was statistically significant. Also, the ADL 
screening item may not capture a change in the frequency of very severe 
ADL limitations since the measure may be insensitive to changes at high 
levels of disability. However, the Harvard team asserted that the 
methods of the new MEPS analysis are more appropriate for assessing 
whether there are increases in the severity of illness burden that 
would specifically indicate a need for more resources in the Medicare 
home health population. Based on the two kinds of evidence, and a 
recognition of the limitations of both, we conclude that the MEPS data 
provide no evidence of an increase in patient severity from 2000 to 
2008.
    Based on the findings from the extensions of the current model that 
were tested, including the finding that the two nominal case-mix 
percentage increases for the post-acute and community patients are 
similar (Table 1A), and the results of the MEPS analysis which do not 
provide evidence to suggest that the Medicare home health population 
has experienced a decrease in their health status over time, the 
Harvard team concluded that the current model adequately measures real 
case-mix growth for home health patients, including patients admitted 
to home health from the community.
    When reviewing the model, the Harvard team found that overall, our 
models are robust. However, one area of potential refinement to our 
models that the Harvard team suggested was to incorporate variables 
derived from Hierarchical Condition Categories (HCC) data, which is 
used by CMS to risk-adjust payments to managed care organizations in 
the Medicare program. Currently, the HCC model includes 70 HCCs, each 
of which is defined based on the presence of particular ICD-9-CM codes 
identified from Medicare claims data (inpatient and outpatient hospital 
claims and Part B Physician Claims). Some of the HCCs reflect 
hierarchies among related conditions, but, for unrelated diseases, each 
HCC is separately defined. The HCC model also includes demographic 
items related to gender, age, Medicaid enrollment, and whether Medicare 
eligibility was originally based on disabled status. We have augmented 
our modeling data with HCC information, as described in the next 
section.
2. Revised Version of Our Models To Assess Nominal Case-Mix Growth
    In the past, we have considered using HCC data to assess real and 
nominal

[[Page 40994]]

case-mix change; however, we have yet to implement a change to our 
models which would incorporate the HCC data. Based on Dr. Grabowski and 
his team's recommendation and our previous consideration to incorporate 
HCC data in our models to assess real case-mix change, we explored the 
effects of adding the managed care data to our models. To incorporate 
HCC data into our models, we augmented our analytic files used to 
measure real case-mix change. We obtained HCC data on all home health 
users for 2004-2009. There were several different types of HCC 
variables that could be added to our models to assess real case-mix. 
Some of the variables we considered are the HCC risk score, binary 
variables for each of the HCCs, demographic variables, and disease 
indicators.
    In the HCC model used for managed care risk adjustment, each HCC 
has an associated regression coefficient. Regression coefficients for 
each beneficiary's HCCs, along with the regression coefficients for 
their demographic and enrollment characteristics, are summed to 
calculate predicted expenditures. A risk score for each record can then 
be calculated based on expected expenditures for the patient divided by 
the mean expenditures for all patients. The HCC data include several 
risk score measures, including the HCC community risk score, the 
institutional risk score, and the risk score for new Medicare 
enrollees. Because home health patients live in the community, the 
community risk score seemed more appropriate than the institutional 
risk score. An alternative to using the HCC risk score was to include 
binary variables for each of the 70 HCCs, which may better capture a 
patient's severity. Along with the HCC risk score and the individual 
HCCs, we considered other elements of the HCC data such as the 
demographic variables, whether disability was the original reason for 
Medicare entitlement, and an indicator for whether the individual is a 
Medicaid beneficiary. Furthermore, we examined interactions involving a 
number of disease conditions that are included with the HCC data, such 
as congestive heart failure (CHF), diabetes mellitus (DM), chronic 
obstructive pulmonary disease (COPD), cardiovascular disease (CVD), 
renal failure (RF), and coronary artery disease (CAD).
    To test the usefulness of these different HCC variables, we 
developed several models to examine real case-mix and which contained 
different types of HCC data. We examined models in which we added the 
HCC community score to our CY 2005 data so that the HCC score was 
included with the APR-DRG variables in an equation explaining 2005 
case-mix weights. We also examined models which incorporated individual 
HCCs, instead of the HCC risk score. Furthermore, we examined models in 
which either the HCC risk score or individual HCCs were added to our 
model along with demographic and disease indicator variables. Moreover, 
we examined models which did not include APR-DRGs, but rather the HCC 
risk score or individual HCCs replaced the APR-DRGs in the model. When 
we replaced the APR-DRGs in the models with the HCC risk score, there 
was a low R-squared value, lower than any of the other models we 
examined. When we replaced the APR-DRG variables in our models with the 
individual HCC indicators, we observed a negative change in real case-
mix. This negative change in real case-mix would indicate that the 
health status of the Medicare home health population has improved over 
time and that all of the change in case-mix from 2000-2009 would be 
nominal case-mix change. As a result of the findings from the various 
models, we decided to augment our current model with the HCC variables 
rather than replace our APR-DRG variables with HCC variables.
    It should be noted that in addition to examining which HCC 
variables we should include in our models, we also examined which year 
of HCC data we should use in our models. There is a 1 year look-back 
period with HCC data in that the HCC data are based on the previous 
calendar year's claims history for an individual. Therefore, when 
developing our models, we assessed whether we should use HCC data from 
the previous year or HCC data in the same year as when the home health 
episode occurred (the home health episode is the unit of observation in 
our models). Our concern was that if we used HCC data in the same year 
as the episode, the HCC data may partially reflect diseases and 
conditions identified after a home health episode. However, we decided 
to use HCC data in the same year as the episode since we thought it 
best reflected the health status of the patients in that year.
    For this year's analysis, we used a similar approach to our 
previous methods. The basic method is to estimate a prediction model 
and use coefficients from that model along with predictor variables 
from a different year to predict the average case-mix for that year. It 
should be noted that we chose to enhance our models with HCC data 
starting in 2005 due to the availability of HCC data in our analytic 
files. Therefore, we analyzed real case-mix change for three different 
periods, from 2000 to 2005, from 2005 to 2007, and from 2007 to 2009. 
The real case-mix change in the period from 2005 to 2007 and the period 
from 2007 to 2009 were assessed using enhanced models, which included 
HCC data. The real case-mix change from 2000 to 2005 was assessed using 
the same variables used in the model described in last year's 
regulation (75 FR 43238), a variable list consisting of measures of 
patients' demographic characteristics, clinical status, inpatient 
history, and Part A Medicare costs in the time period leading up to 
their home health episodes. The regression coefficients from the model 
without HCC variables were applied to episodes from 2005, allowing us 
to estimate how much of the change in observed case-mix was 
attributable to changes in patient characteristics between the IPS 
period and 2005.
    We added HCC variables for the 2005 to 2007 period, estimating the 
model using data from 2005. The enhanced model includes HCC community 
scores, HCC demographic variables, and disease indicator variables for 
2005 and later. We chose this version of the HCC-enhanced case-mix 
change model largely based on its ability to predict higher real case-
mix change relative to the other HCC enhanced models. We applied the 
regression coefficients to means from 2007, allowing estimation of real 
case-mix change between 2005 and 2007.
    For the 2007 to 2009 period, we used the 153 HHRG case-mix weights 
and data from 2009 to estimate the same set of models as we did for 
2005. Using the backwards prediction method that we used in CY 2011 
rulemaking, the coefficients from this model were developed using 2009 
data and were applied to episodes from 2007. This procedure allows us 
to estimate how much of the 2007 through 2009 change (based on the 
HHRG153 case-mix for both periods) was associated with changes in 
patient characteristics between 2007 and 2009.
    From 2000 to 2009, we identified a total change in case-mix of 
0.2476 (1.3435-1.0959 = 0.2476), which results in a case-mix growth of 
22.59 percent ((1.3435-1.0959)/1.0959 = 0.2259). We then estimated the 
real and nominal change in case-mix for each of the three periods. The 
change in real case-mix from 2000 to 2005 was 0.0207 case-mix units. 
The change in real case-mix from 2005 to 2007 was 0.0061 case-mix 
units. The change in real case-mix from 2007 to 2009 was 0.0122 case-
mix units. After adding together the estimated real case-mix change in 
case-mix units for the three periods, the total

[[Page 40995]]

estimated change in real case-mix from 2000 to 2009 was 0.0390 (0.0207 
+ 0.0061 + 0.0122 = 0.0390). Therefore, we estimate that 15.76 percent 
of the total percentage change in the national average case-mix weight 
since the IPS baseline through 2009 is due to change in real case-mix 
(0.0390/0.2476 = ~0.1576). It should be noted that due to rounding, 
there is a 0.01 percentage point difference between the calculated and 
actual value. When taking into account the total measure of case-mix 
change (22.59 percent) and the 15.76 percent of total case-mix change 
estimated as real from 2000 to 2009, we obtained a final nominal case-
mix change measure of 19.03 percent from 2000 to 2009 (0.2259 * (1-
0.1576) = 0.1903). Please see Table 1B for additional information about 
the calculations used to make the real and nominal case-mix change 
estimates from 2000 to 2009.
    Our estimates of real and nominal case-mix change are consistent 
with past results. Most of the case-mix change has been due to improved 
coding, coding practice changes, and other behavioral responses to the 
prospective payment system, such as increased use of high therapy 
treatment plans.

 Table 1B--Summary of Real and Nominal Case-Mix Change Estimates: 2000-
                                  2009
------------------------------------------------------------------------
                           Measure                               Model
------------------------------------------------------------------------
Actual case-mix: 2000........................................     1.0959
Actual case-mix: 2009........................................     1.3435
Total change in case-mix.....................................     0.2476
Total percentage change......................................     22.59%
Estimated real change in case-mix............................     0.0390
Percent of total change estimated as real....................     15.76%
Percent of total change estimated as nominal (creep).........     84.24%
Real case-mix percent increase...............................      3.56%
Nominal case-mix percent increase............................     19.03%
------------------------------------------------------------------------

    As we described earlier in this proposed rule, our CY 2008 HH PPS 
final rule finalized a reduction over 4 years in the national 
standardized 60-day episode payment rates to account for a large 
increase in case-mix from 2000 to 2005 which we determined was not 
related to treatment of more intense patients. We implemented a 2.75 
percent reduction each year for 2008, 2009, and 2010 and planned to 
reduce payments by 2.71 percent in 2011. In CY 2011 rulemaking, we 
updated our analysis of nominal case-mix growth through 2008 and 
determined that there was 17.45 percent nominal case-mix growth from 
2000 to 2008. Therefore, we proposed and finalized an increase in the 
planned 2.71 percent reduction to 3.79 percent for CY 2011. Also, in 
the CY 2011 proposed rule, we stated that if we were to identify 
further increases in nominal case-mix as more current data becomes 
available, it would be our intent to account fully for those increases 
when they are identified, rather than continuing to phase in the 
reductions over more than 1 year. For the CY 2012 proposed rule, after 
updating our models to incorporate HCC data, we have determined that 
there was a 19.03 percent nominal case-mix change from 2000 to 2009. To 
account for the remainder of the 19.03 percent residual increase in 
nominal case-mix beyond that which has been accounted for in previous 
payment reductions, we estimate that the percentage reduction to the 
national standardized 60-day episode rates for nominal case-mix change 
for CY 2012 will be 5.06 percent. Therefore, for CY 2012, we propose to 
implement a 5.06 percent payment reduction to the national standardized 
60-day episode rates to fully account for growth in nominal case-mix 
from the inception of HH PPS through 2009.

B. Case-Mix Revision to the Case-Mix Weights

1. Hypertension Diagnosis Coding Under the HH PPS
    In CY 2011 rulemaking, we proposed to remove ICD-9-CM code 401.1, 
Benign Essential Hypertension, and ICD-9-CM code 401.9, Unspecified 
Essential Hypertension, from the HH PPS case-mix model's hypertension 
group. Beginning with the HH PPS refinements in 2008, hypertension was 
included in the HH PPS system because data suggested it was associated 
with elevated resource use. As a result, the diagnoses Unspecified 
Essential Hypertension and Benign Essential Hypertension were 
associated with additional points from the four-equation model and 
subsequently, potentially higher case-mix weights in the HH PPS case-
mix system. When examining the trends in reporting of hypertension 
codes from 2000 to 2008, our analysis showed a large increase in the 
reporting of codes 401.1 and 401.9 in 2008. However, when looking at 
2008 claims data, the average number of visits for claims with code 
401.9 was slightly lower than the average for claims not reporting 
these hypertension codes. In last year's proposed rule, we proposed to 
remove codes 401.1 and 401.9 from our case-mix model based on 
preliminary analysis of the trends in coding and resource use of 
patients with these codes. We suspected that the 2008 refinements, 
which newly awarded points for the diagnosis codes 401.1 and 401.9, led 
to an increase in reporting of these codes and that this reporting was 
a key driver of the high 2008 growth in nominal case-mix. In response 
to this proposed policy change, we received numerous comments, many of 
which stated that additional analysis was needed to substantiate the 
rationale for removing hypertension codes 401.1 and 401.9. In the CY 
2011 HH PPS final rule, we withdrew our proposal to eliminate 401.1 and 
401.9 from our model and described our plans to do a more comprehensive 
analysis of the resource use of patients with these two hypertension 
codes. We have since completed a more thorough analysis. Based on the 
results of our latest analyses, we propose to remove codes 401.1 and 
401.9 from the HH PPS case-mix system.
    We performed several analyses of the resource use and prevalence of 
patients with Benign Essential Hypertension and Unspecified Essential 
Hypertension (codes 401.1 and 401.9) to assess the appropriateness of 
these codes in our case-mix model. We looked at the HH PPS episode data 
using two samples to more accurately assess the trends in hypertension 
prevalence over time. In one sample, we excluded episodes from 
providers in areas exhibiting suspect billing practices. For the other 
sample, we excluded outlier episodes. In all of the analyses that 
follow, we report the results from the sample that excludes outliers 
because results from the alternate analysis were highly similar. Also, 
the sample that excludes outliers is more appropriate than one that 
includes outliers because our case-mix research has been conducted on 
samples without outliers.
    One of our analyses looked at the prevalence of various 
hypertension codes over time. We compared the change in prevalence of 
401.1 and 401.9 diagnoses to the prevalence of other diagnoses in the 
hypertension group--401.0 (malignant essential hypertension), 402 
(hypertensive heart disease), 403 (hypertensive chronic kidney 
disease), 404 (hypertensive heart and chronic kidney disease), and 405 
(secondary hypertension)--from 2005 to 2009 (Table 2). Our analysis 
shows that the prevalence of episodes with a 401.9 diagnosis continued 
to increase in 2009, from 50.58 percent of episodes in 2008 to 55.52 
percent in 2009, and more than doubled between 2005 and 2009. The 
prevalence of episodes with a 401.1 diagnosis decreased from 2008 to 
2009 but the prevalence remained slightly higher than the prevalence in 
2005.

[[Page 40996]]

                                 Table 2--Prevalence of Hypertension--2005-2009
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                           Diagnosis                              2005      2006      2007      2008      2009
----------------------------------------------------------------------------------------------------------------
Any hypertension..............................................     33.32     40.22     46.26     60.37     65.65
401.0 Malignant essential hypertension........................      0.56      0.54      0.53      0.56      0.47
401.1 Benign essential hypertension...........................      2.89      3.36      3.44      3.79      2.95
401.9 Essential hypertension, unspecified.....................     27.23     33.22     38.74     50.58     55.52
402 Hypertensive heart disease................................      2.19      2.38      2.49      2.99      2.76
403 Hypertensive renal disease................................      0.31      0.56      0.92      2.24      3.66
404 Hypertensive heart and renal disease......................      0.14      0.17      0.20      0.31      0.39
405 Secondary hypertension....................................      0.04      0.04      0.03      0.03      0.04
----------------------------------------------------------------------------------------------------------------
Outlier episodes are excluded.
Source: Abt Associates analysis of 20 percent sample of Home Health Datalink file for 2005-2009.

    We also examined the prevalence of hypertension coding by various 
agency characteristics, such as agency type, region, and provider size, 
in 2005 versus 2009 (Tables 3 and 4). We compared the 2005 data (Table 
3) to more current data (Table 4) because the 2005 data were used to 
simulate the 2008 refinements for the CY 2008 HH PPS final rule 
implementing the 153-group case-mix system (72 FR 49762 through 49945). 
Based on our analysis, except for government-owned agencies and 
agencies in a few regions, agencies (regardless of type) had a similar 
prevalence of episodes with a 401.9 diagnosis across the board in 2009 
(Table 4). Also, agencies had a relatively similar prevalence of 
episodes with a 401.1 diagnosis across the board in 2009, except for 
West South Central, which had a high prevalence of 6.68 percent (Table 
4)--about 9 times the region's prevalence in 2005. In addition, small 
facilities with less than 19 home health episodes in a year in the 20 
percent sample of the Home Health Datalink file had a high prevalence 
of diagnosis 401.1; 8.30 percent of their episodes had a 401.1 
diagnosis. All categories of agencies appear to have a significant 
increase in the reporting of a 401.9 diagnosis when comparing 2005 HH 
PPS claims and OASIS data to 2009 HH PPS claims and OASIS data. The 
reporting of a 401.9 diagnosis in 2009 was typically 1.8 to 2.1 times 
the reporting of a 401.9 diagnosis in 2005, with the exception of the 
East North and the West North Central regions which had an increase of 
around 1.7 and 1.5 fold respectively. Also, it should be noted that the 
Mid-Atlantic region had around a 2.4 fold increase in the reporting of 
a 401.9 diagnosis between 2005 and 2009 and the West South Central 
region had almost a threefold increase in the reporting of a 401.9 
diagnosis between 2005 and 2009. Furthermore, many categories had an 
increase in the reporting of a 401.1 diagnosis when comparing 2005 data 
to 2009.

                   Table 3--Prevalence of Hypertension by Various Agency Characteristics--2005
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                     Any      401.0     401.1     401.9      402       403       404       405
----------------------------------------------------------------------------------------------------------------
All Agencies....................     33.59      0.56      2.96     27.34      2.26      0.32      0.15      0.04
----------------------------------------------------------------------------------------------------------------
                                                Type of Facility
----------------------------------------------------------------------------------------------------------------
Free-Standing/Other Vol/NP......     27.50      0.21      0.63     25.49      0.83      0.30      0.06      0.01
Free-Standing/Other Prop........     39.35      0.86      4.86     29.63      3.48      0.30      0.19      0.06
Free-Standing/Other Govt........     29.01      0.41      1.35     25.36      1.51      0.22      0.17      0.04
Hospital-Based Vol/NP...........     25.11      0.17      0.68     23.33      0.51      0.35      0.09      0.01
Hospital-Based Prop.............     29.79      0.30      0.68     27.50      0.83      0.37      0.16      0.01
Agency-Based Govt...............     30.94      0.80      3.04     24.46      1.92      0.53      0.23      0.02
----------------------------------------------------------------------------------------------------------------
                                                Facility Location
----------------------------------------------------------------------------------------------------------------
New England.....................     39.36      1.06      5.25     27.83      4.63      0.37      0.30      0.01
Mid Atlantic....................     26.09      0.22      0.81     23.79      0.65      0.24      0.09      0.01
South Atlantic..................     36.87      0.81      5.93     27.41      2.21      0.30      0.14      0.09
East South Central..............     31.97      0.42      0.90     29.15      1.26      0.24      0.07      0.01
West South Central..............     21.15      0.25      0.74     19.57      0.32      0.19      0.09      0.01
East North Central..............     36.54      0.20      0.62     34.59      0.47      0.62      0.06      0.02
West North Central..............     37.81      0.56      1.46     32.10      3.17      0.35      0.21      0.01
Mountain........................     29.95      0.45      1.58     24.74      2.70      0.35      0.16      0.03
Pacific.........................     25.33      0.32      1.81     22.17      0.76      0.21      0.07      0.02
Other...........................     36.33      0.46      2.46     28.89      4.30      0.16      0.12      0.01
----------------------------------------------------------------------------------------------------------------
                                                  Facility Size
----------------------------------------------------------------------------------------------------------------
Other Vol/NP......     60.11      0.17      0.94     53.06      0.71      5.05      0.24      0.01
Free-Standing/Other Prop........     69.42      0.62      3.86     57.81      3.74      3.07      0.44      0.05
Free-Standing/Other Govt........     54.60      0.45      3.13     44.98      2.00      3.41      0.72      0.02
Hospital-Based Vol/NP...........     56.82      0.16      1.22     49.49      0.78      4.93      0.32      0.02
Hospital-Based Prop.............     61.41      0.21      1.45     54.61      1.83      3.31      0.16      0.01
Agency-Based Govt...............     54.89      0.48      2.29     46.53      1.68      3.57      0.48      0.03
----------------------------------------------------------------------------------------------------------------
                                                Facility Location
----------------------------------------------------------------------------------------------------------------
New England.....................     58.71      0.10      0.54     53.96      0.43      3.50      0.23      0.02
Mid Atlantic....................     62.45      0.12      0.65     56.04      0.58      4.98      0.16      0.01
South Atlantic..................     64.09      0.28      1.74     56.80      1.49      3.46      0.31      0.08
East South Central..............     69.52      0.22      2.13     59.69      3.27      3.73      0.61      0.01
West South Central..............     73.22      0.92      6.68     57.28      4.47      3.53      0.50      0.05
East North Central..............     67.01      0.52      2.16     57.42      3.04      3.68      0.34      0.02
West North Central..............     55.97      0.46      1.84     48.00      1.12      4.15      0.46      0.06
Mountain........................     56.02      0.52      2.21     49.13      1.29      2.51      0.32      0.10
Pacific.........................     57.42      0.52      3.00     45.06      5.50      3.02      0.51      0.03
Other...........................     63.20      0.33      1.58     55.53      1.52      4.00      0.35      0.00
----------------------------------------------------------------------------------------------------------------
                                                  Facility Size
----------------------------------------------------------------------------------------------------------------

                      Variable                           estimate        error         T value     [bond]t[bond]
----------------------------------------------------------------------------------------------------------------
Intercept...........................................      171.1183         0.74992         228.18       
                      Variable                           estimate        error         T value     [bond]t[bond]
----------------------------------------------------------------------------------------------------------------
Intercept...........................................      -35.5089         0.68637         -51.73        low vision when a 401.9 diagnosis was present, the results 
were not statistically significant. There are few patients with a 
primary diagnosis of blindness/low vision. The two diagnoses which 
resulted in a significant increase in resource cost when a 401.9 
diagnosis was present were stroke and gait abnormality (Table 9).
    When further examining the data, we questioned the hypertension 
coding for the episodes with stroke as a primary diagnosis. For the 
28,923 episodes with a primary diagnosis of stroke, only 18,063 
episodes had a 401.9 diagnosis present. Furthermore, of those 28,923 
episodes, only 71 percent of the episodes had a hypertension diagnosis. 
Because stroke is so strongly associated with hypertension, we would 
expect more episodes with a primary diagnosis of stroke to also have a 
hypertension diagnosis. Therefore, we believe that the data in the 
table corresponding to the episodes with stroke as a primary diagnosis 
is affected by incomplete coding. Also, if stroke almost always should 
be listed followed by hypertension, there would be no reason for an 
interaction term in the model involving stroke and hypertension. An 
interaction in the model--identifying a subset of patients with a 
condition who have another condition that changes the patient's 
resource cost utilization--cannot apply in this case.

                                 Table 9--Total Resource Costs by Primary Diagnosis and Whether 401.9 Is Present (2008)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           N with 401.9      401.9 not
                    Primary diagnosis                            N            present         present      401.9 present    Difference     % Difference
--------------------------------------------------------------------------------------------------------------------------------------------------------
Blindness/low vision....................................             392             213         $392.95         $415.11          $22.16            5.64
Stroke..................................................          28,923          18,063          742.54          768.66           26.12            3.52
Gait Abnormality........................................          22,946          11,567          641.28          656.97           15.69            2.45
Hypertension............................................          13,446             202          406.91          414.20            7.29            1.79
Neurological............................................          14,869           6,583          622.88          628.27            5.39            0.86
Blood disorders.........................................          14,985           7,264          367.44          369.81            2.37            0.65
Orthopedic..............................................          33,468          17,757          529.46          529.46            0.00            0.00
Cystostomy Care.........................................           2,469             915          436.92          433.80          (3.12)           -0.71
Cancer..................................................          20,885           9,298          459.59          452.73          (6.86)           -1.49
Diabetes................................................          96,018          54,461          462.55          450.32         (12.23)           -2.64
Gastrointestinal........................................          14,496           7,170          457.55          445.29         (12.26)           -2.68
Traumatic wounds........................................          27,855          13,849          554.73          539.44         (15.29)           -2.76
Heart disease...........................................          68,297          36,040          484.49          469.11         (15.37)           -3.17
MS......................................................           4,206           1,329          651.37          620.30         (31.07)           -4.77
Dysphagia...............................................           1,430             595          651.95          598.26         (53.69)           -8.24
Tracheostomy............................................             414             176          598.77          508.91         (89.86)          -15.01
--------------------------------------------------------------------------------------------------------------------------------------------------------
Outlier episodes are excluded.
Source: Abt Associates analysis of 20% sample of Home Health Datalink file for 2008.

    To further investigate the increase in average resource cost when 
401.9 was present in patients with gait abnormality, we looked at 
average resources and average visits for joint replacement patients, 
which are patient groups strongly associated with a diagnosis of gait 
abnormality. We chose to look at patients with joint, hip, and knee 
replacements since they would be the sorts of patients in home health 
that would have a skilled need as a result of gait abnormality and they 
would typically have high therapy and resource costs. We also examined 
the subgroups of these patients who were reported on the OASIS to have 
a diagnosis of gait abnormality (Table 10). For patients with joint, 
hip, and knee replacements that had a 401.9 diagnosis, resource costs 
and visits differed little compared to such patients who did not have 
the 401.9 diagnosis. None of the differences were statistically 
significant. In addition, we saw that for the episodes with gait 
abnormality as a primary diagnosis, there were no statistically 
significant differences between the resource costs or number of visits 
for joint, hip, and knee replacement patients when a 401.9 diagnosis 
was present. These results indicate that there is no significant 
difference in resource

[[Page 41000]]

cost for patients with joint replacements when a 401.9 diagnosis is 
present.
    It should also be noted that when examining the increase in average 
resources for episodes with patients with a primary diagnosis of stroke 
or gait abnormality when a 401.9 diagnosis is present, we could not 
determine whether the increase in resource cost was due to the 401.9 
diagnosis or due to a third confounding variable. As described earlier, 
we estimated a set of multivariate regression models to determine the 
relationship between a 401.9 diagnosis and resource cost, when 
controlling for other variables in the case-mix model.

  Table 10--Total Resource Costs and Visits by Type of Joint Replacement and Whether 401.9 Is Present for All Patients With Joint Replacements and the
                                                     Subset of Patients With Gait Abnormality (2008)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Costs                                               Visits
                                                --------------------------------------------------------------------------------------------------------
             Diagnosis                   N        401.9 not      401.9                       %         401.9 not      401.9                       %
                                                   present      present     Difference   Difference     present      present     Difference   Difference
--------------------------------------------------------------------------------------------------------------------------------------------------------
Joint replacement.................       45,689      $566.41      $559.88      ($6.53)       -1.15%         15.71        15.86         0.15         0.95
Hip replacement...................       13,658       563.95       564.50         0.55         0.10         16.37        16.43         0.06         0.37
Knee replacement..................       21,580       542.12       539.63       (2.49)        -0.46         14.9         15.04         0.14         0.94
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Episodes with gait abnormality as primary diagnosis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Joint replacement.................          632       553.68       562.41         8.73         1.58         15.58        16.23         0.65         4.17
Hip replacement...................          315       587.44       609.34        21.90         3.73         16.83        17.99         1.16         6.89
Knee replacement..................          382       554.78       529.23      (25.55)        -4.61         14.98        14.57       (0.41)        -2.74
--------------------------------------------------------------------------------------------------------------------------------------------------------
Outlier episodes are excluded.
Source: Abt Associates' analysis of 20 percent sample of Home Health Datalink file for 2008.

    Some of our analysis was performed to further investigate issues 
raised in comments we received on last year's proposed rule. In 
response to last year's rule, one commenter stated that we should keep 
the diagnosis code 401.9 in the case-mix system, stating that very 
often clinically complex patients, such as hypertensive heart disease 
patients, will be diagnosed with this code while waiting for proper 
documentation that is required by ICD-9-CM to report a more specific 
diagnosis code. To investigate the extent to which a 401.9 diagnosis 
might be coded on an initial assessment while waiting for necessary 
documentation for other hypertension codes, we looked at the 
hypertension prevalence for start-of-care episodes (defined as those 
with segment number equal to one) and recertification episodes (defined 
as those with segment number greater than one) for various subgroups of 
related episodes (Table 11). Related episodes are episodes without a 
gap of more than 60 days in between them. In past rulemaking, we have 
referred to these as episodes as part of a sequence of adjacent 
episodes. In those rules, we defined episodes as adjacent if they were 
separated by no more than a 60-day period between episodes. Some of the 
subgroups we examined in our analysis were ones in which: (1) The 
initial episode had a 401.9 code; (2) the 2nd episode in a sequence of 
adjacent episodes had a 402, 403, 404, or 405 code; (3) codes 402, 403, 
404, and 405 were not present on the initial episode, but were present 
on the second episode in the sequence of adjacent episodes. Table 11 
shows that, of the sequence of adjacent episodes where a 401.9 code is 
reported on the initial episode, very few subsequent episodes had a 
diagnosis of 402, 403, 404, or 405, and most subsequent episodes 
continued to have a 401.9 diagnosis. Also, for those sequences of 
adjacent episodes where a 402, 403, 404, or 405 code exists on the 
second episode, many (over 60 percent) had the same code reported for 
the initial episode. For patients that had a 402, 403, 404, or 405 
diagnosis on their second episode but not their initial episode, many 
had a 401.9 diagnosis on their initial episode. However, there were 
only a small number of episodes with this pattern and it is not clear 
if this pattern is related to the comment about coding 401.9 while 
waiting for documentation or if this occurs due to the random 
fluctuation in hypertension coding patterns. In summary, the results of 
this analysis do not provide support for keeping 401.9 as a diagnosis 
in the case-mix model based on the reason that it is used as a 
placeholder while waiting for documentation to support another ICD-9-CM 
hypertension code.

 Table 11--Hypertension Prevalence by Segment and Type of Hypertension Reported on Segment 1 or Segment 2 (2009)
----------------------------------------------------------------------------------------------------------------
             Diagnosis                   N      401.9 (%)  401.1 (%)   402 (%)    403 (%)    404 (%)    405 (%)
----------------------------------------------------------------------------------------------------------------
                          401.1 Benign Essential hypertension, unspecified (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................     10,859       0.04     100.00       0.19       0.12       0.06       0.00
Segment 2..........................      3,463      12.21      75.69       1.70       0.78       0.20       0.03
Segment 3..........................      1,734      17.42      68.86       2.42       0.69       0.23       0.06
Segment 4..........................        997      19.76      64.79       3.21       0.80       0.30       0.10
----------------------------------------------------------------------------------------------------------------
                              401.9 Essential hypertension, unspecified (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................    305,530     100.00       0.00       0.08       0.06       0.01       0.00
Segment 2..........................     70,493      87.63       0.44       0.74       1.41       0.11       0.00
Segment 3..........................     29,235      84.76       0.73       1.14       1.82       0.15       0.01
Segment 4..........................     14,255      82.94       0.98       1.35       2.13       0.18       0.01
----------------------------------------------------------------------------------------------------------------

[[Page 41001]]

 
                                   402 Hypertensive heart disease (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      8,777       2.83       0.24     100.00       0.24       0.09       0.01
Segment 2..........................      3,165      14.00       1.07      79.05       1.23       0.73       0.00
Segment 3..........................      1,563      20.47       1.66      70.12       1.15       1.02       0.06
Segment 4..........................        859      23.40       1.40      65.19       0.70       1.28       0.00
----------------------------------------------------------------------------------------------------------------
                                   403 Hypertensive renal disease (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................     18,740       1.02       0.07       0.11     100.00       0.03       0.01
Segment 2..........................      4,497       9.12       0.18       0.51      79.25       0.78       0.04
Segment 3..........................      1,806      11.46       0.39       0.44      73.75       1.33       0.06
Segment 4..........................        843      12.81       0.47       0.59      72.00       1.66       0.00
----------------------------------------------------------------------------------------------------------------
                              404 Hypertensive heart and renal disease (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      1,331       2.93       0.45       0.60       0.38     100.00       0.00
Segment 2..........................        404       8.66       1.98       2.23       6.44      73.51       0.00
Segment 3..........................        191      12.57       1.57       2.62       7.33      67.54       0.00
Segment 4..........................        101      12.87       1.98       0.99      10.89      67.33       0.00
----------------------------------------------------------------------------------------------------------------
                                     405 Secondary hypertension (segment 1)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................        192       1.04       0.00       0.52       0.52       0.00     100.00
Segment 2..........................         56       8.93       0.00       0.00       1.79       1.79      75.00
Segment 3..........................         29       6.90       0.00       0.00       6.90       0.00      58.62
Segment 4..........................         13      23.08       0.00       0.00       0.00       0.00      61.54
----------------------------------------------------------------------------------------------------------------
                                    401.1 Secondary hypertension (segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      3,269       9.51      80.18       1.04       0.24       0.24       0.00
Segment 2..........................      3,269       0.06     100.00       0.28       0.12       0.15       0.00
Segment 3..........................      1,548       9.95      80.68       1.68       0.32       0.06       0.00
Segment 4..........................        987      15.40      72.10       3.00       0.20       0.20       0.00
----------------------------------------------------------------------------------------------------------------
                              401.9 Essential hypertension, unspecified (segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................     70,616      87.48       0.60       0.63       0.58       0.05       0.01
Segment 2..........................     70,616     100.00       0.00       0.12       0.08       0.02       0.00
Segment 3..........................     27,347      89.83       0.41       0.74       1.02       0.10       0.01
Segment 4..........................     13,622      86.46       0.70       0.99       1.50       0.10       0.01
----------------------------------------------------------------------------------------------------------------
                                   402 Hypertensive heart disease (segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      3,298      15.92       1.79      75.86       0.70       0.27       0.00
Segment 2..........................      3,298       2.67       0.27     100.00       0.27       0.06       0.00
Segment 3..........................      1,478      13.94       0.88      81.33       0.68       0.74       0.00
Segment 4..........................        788      17.51       1.02      74.62       0.51       1.27       0.00
----------------------------------------------------------------------------------------------------------------
                                   403 Hypertensive renal disease (segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      5,192      19.11       0.52       0.75      68.64       0.50       0.00
Segment 2..........................      5,192       1.02       0.08       0.17     100.00       0.00       0.00
Segment 3..........................      1,861       6.45       0.27       0.21      84.09       0.59       0.00
Segment 4..........................        837       7.89       0.36       0.36      81.84       0.96       0.00
----------------------------------------------------------------------------------------------------------------
                              404 Hypertensive heart and renal disease (segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................        478      15.69       1.46       4.81       7.32      62.13       0.21
Segment 2..........................        478       3.14       1.05       0.42       0.00     100.00       0.00
Segment 3..........................        201       7.46       1.99       1.49       5.47      78.61       0.00
Segment 4..........................        106       8.49       0.94       0.94      10.38      72.64       0.00
----------------------------------------------------------------------------------------------------------------
                                    405 Secondary hypertension (on segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................         51       5.88       1.96       0.00       3.92       0.00      82.35
Segment 2..........................         51       0.00       0.00       0.00       0.00       0.00     100.00
Segment 3..........................         21       0.00       0.00       0.00       4.76       0.00      95.24
Segment 4..........................         11      18.18       0.00       0.00       0.00       0.00      81.82
----------------------------------------------------------------------------------------------------------------

[[Page 41002]]

 
               402 Hypertensive heart disease (not present on segment 1 but present on segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................        796      58.67       6.53       0.00      72.01       0.88       0.00
Segment 2..........................        796       3.27       0.25     100.00      64.58       0.00       0.00
Segment 3..........................        318      18.55       1.89      72.01       2.14       0.94       0.00
Segment 4..........................        144      22.22       1.39      64.58       0.38       2.08       0.00
----------------------------------------------------------------------------------------------------------------
               403 Hypertensive renal disease (not present on segment 1 but present on segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................      1,628      59.28       1.41       1.97       0.00       1.54       0.06
Segment 2..........................      1,628       1.47       0.00       0.12     100.00       0.00       0.00
Segment 3..........................        552       9.42       0.18       0.36      76.27       0.72       0.00
Segment 4..........................        231      11.69       0.43       0.43      72.73       1.30       0.00
----------------------------------------------------------------------------------------------------------------
               404 Hypertensive heart disease (not present on segment 1 but present on segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................        181      39.23       2.21      10.50      19.34       0.00       0.55
Segment 2..........................        181       4.97       0.55       0.55       0.00     100.00       0.00
Segment 3..........................         66      10.61       3.03       1.52       9.09      68.18       0.00
Segment 4..........................         36      13.89       0.00       0.00       8.33      63.89       0.00
----------------------------------------------------------------------------------------------------------------
                 405 Secondary Hypertension (not present on segment 1 but present on segment 2)
----------------------------------------------------------------------------------------------------------------
Segment 1..........................          9      33.33      11.11       0.00      22.22       0.00       0.00
Segment 2..........................          9       0.00       0.00       0.00       0.00       0.00     100.00
Segment 3..........................          4       0.00       0.00       0.00       0.00       0.00     100.00
Segment 4..........................          2       0.00       0.00       0.00       0.00       0.00     100.00
----------------------------------------------------------------------------------------------------------------
Outlier episodes are excluded.
Source: Abt Associates' analysis of 20 percent sample of Home Health Datalink file for 2009.

    To further investigate the issue whether 401.9 is used as a 
placeholder while waiting for documentation to support coding of other 
more complex hypertension codes, we looked at the average resource cost 
for the initial episode, categorized by hypertension diagnosis, for all 
of the episodes with a hypertension diagnosis of 402, 403, or 404 in 
their second episode (Table 12). We compared the average cost of an 
initial episode when there was a 401.9 diagnosis to the average cost of 
an initial episode when both the initial and second episode had the 
same diagnosis (both the initial and second episode had either a 402, 
403, or 404 code). For example, for all 2nd episodes, in a sequence of 
adjacent episodes, with a 402 diagnosis, we compared the average cost 
of an initial episode when there was a 401.9 diagnosis to the average 
cost of an initial episode when there was a 402 diagnosis. Considering 
the comment that a 401.9 is coded while waiting for documentation for a 
more complex diagnosis like 402 (hypertensive heart disease), one would 
expect the average resource cost for an initial episode with a 401.9 
code to be the same as an initial episode with a 402 code when looking 
at all of the sequences which have a 402 diagnosis in the second 
episode. Based on our analysis, the average resource cost for initial 
episodes with a 401.9 diagnosis is lower than the average resource cost 
for initial episodes with a 402, 403, and 404 diagnosis, given that a 
402, 403, or 404 diagnosis exists on the second episode respectively. 
It should be noted that the average resource cost for initial episodes 
with a 401.9 diagnosis is only slightly lower than the average resource 
cost for initial episodes with a 404 diagnosis, given a 404 diagnosis 
on the second episode. However, the samples for this comparison are 
small (N=69 and N=293). In general, the overall pattern of results of 
this analysis does not support keeping 401.9 as a diagnosis in the 
case-mix model based on the reason that 401.9 is coded while waiting 
for documentation for another ICD-9 code.

  Table 12--Resource Costs for Segment 1 by Hypertension Diagnoses on Segment 1 Given a Hypertension Diagnosis
                                          Reported on Segment 2 (2009)
----------------------------------------------------------------------------------------------------------------
                                                            Hypertension diagnosis (segment 2)
                                         -----------------------------------------------------------------------
                                                    402                     403                     404
                                         -----------------------------------------------------------------------
   Hypertension diagnosis  (segment 1)                   Mean                    Mean                    Mean
                                                       resource                resource                resource
                                               N       cost for        N       cost for        N       cost for
                                                        initial                 initial                 initial
                                                        episode                 episode                 episode
----------------------------------------------------------------------------------------------------------------
None....................................         254     $765.28         585     $725.84          54     $798.17
401.9...................................         467      651.24         962      660.99          69      683.99
402.....................................        2502      692.79          39      565.74          23      624.20
403.....................................          17      769.40        3557      741.52          34      650.24

[[Page 41003]]

 
404.....................................           7      756.36          25      619.69         293      689.01
----------------------------------------------------------------------------------------------------------------
Outlier episodes are excluded.
Source: Abt Associates' analysis of 20 percent sample of Home Health Datalink file for 2009.

    In summary, we propose to remove ICD-9-CM code 401.1, Benign 
Essential Hypertension, and ICD-9-CM code 401.9, Unspecified Essential 
Hypertension, from the HH PPS case-mix model's hypertension group. 
Based on our analysis, there continues to be an increase in the 
prevalence of ICD-9-CM code 401.9 from 2008 to 2009. In addition, 
agencies (regardless of type) typically had a twofold or higher 
increase in the prevalence of a 401.9 diagnosis from 2005 to 2009, with 
the exception of the East North and the West North Central regions 
which had an increase of about 1.7 and 1.5 fold respectively. 
Furthermore, many categories had an increase in the reporting of a 
401.1 diagnosis when comparing 2005 data to 2009. Most compelling, 
current data indicates that these diagnoses are not predictors of 
higher home health patient resource costs. Rather, current data 
indicates a lower cost associated with home health patients when these 
codes are reported. The results from the two regression models provide 
strong support for removing the 401.1 and 401.9 diagnoses from the 
case-mix system, showing that the presence of these diagnoses is 
associated with lower costs, when controlling for other case-mix 
related factors. Therefore, we propose to remove codes 401.1 and 401.9 
to more accurately align payment with resource use.
    In the CY 2011 HH PPS final rule, in response to comments, we 
described that if we were to finalize removing these codes from our 
case-mix system, we would do so in such a way that we would revise our 
case-mix weights to ensure that the removal of the codes would result 
in the same projected aggregate expenditures. Therefore, we also 
propose to revise the HH PPS case-mix weights as we describe in detail 
in the following section. The revisions of the case-mix weights would 
redistribute HH PPS payments among the case-mix groups such that 
removal of these hypertension codes would not result in lower aggregate 
payments. Rather, the change would be effectuated in a budget neutral 
way.
2. Proposal for Revision of Case-Mix Weights
    As we described in section II.B.1 of this preamble, we propose to 
revise our HH PPS case-mix weights to remove two hypertension codes 
from our case-mix system while maintaining budget neutrality. We also 
believe that additional revisions to the case-mix weights are needed.
    Our review of HH PPS utilization data shows a shift to an increased 
share of episodes with very high numbers of therapy visits. This shift 
was first observed in 2008 and it continued in 2009. Table 13 shows the 
percentage distribution of episodes according to number of therapy 
visits for 2001 through 2009.

        Table 13--Distribution of Home Health Episodes According to Number of Therapy Visits (2001-2009)
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
        Number of therapy visits           2001    2002    2003    2004    2005    2006    2007    2008    2009
----------------------------------------------------------------------------------------------------------------
None....................................      54      52      51      50      50      50      50      49      48
1 to 5..................................      14      15      15      15      15      15      14      14      14
6.......................................       3       3       3       3       3       3       3       3       3
7 to 9..................................       6       6       6       6       6       6       6       9       9
10 to 13................................      10      11      13      14      14      15      15      10      10
14+.....................................      12      12      12      12      12      12      12      15      16
----------------------------------------------------------------------------------------------------------------
Note: Based on a 10 percent random beneficiary sample.

    The 2009 distribution of episodes by number of therapy visits 
resembles the 2008 distribution with some important differences. In 
last year's regulation, we described an increase of 25 percent in the 
share of episodes with 14 or more therapy visits. In the 2009 sample, 
the share with 14 or more therapy visits continued to increase while 
the share of episodes with no therapy visits continued to decrease. The 
frequencies also indicate that the share of episodes with 20 or more 
therapy visits was 6 percent in 2009 (data not shown). This is a 50 
percent increase from the share of episodes of 2007, when episodes with 
at least 20 therapy visits accounted for only 4 percent of episodes.
    In their 2010 and 2011 Reports to Congress, MedPAC suggests that 
the HH PPS contains incentives which likely result in agencies 
providing more therapy than is needed to maximize their Medicare 
payments. In their March 2010 Report to the Congress, MedPAC stated 
that ``therapy episodes appear to be overpaid relative to others and 
that the amount of therapy changed significantly in response to the 
2008 revisions to the payment system.'' In support of this statement, 
MedPAC showed that there was a quick episode volume shift to the new 
therapy thresholds, which suggests inappropriate therapy utilization. 
In their March 2011 Report to the

[[Page 41004]]

Congress, MedPAC stated, ``The volume data for 2009 indicate that the 
shifts that occurred in 2008 are continuing * * * Episodes with 14 or 
more therapy visits increased by more than 20 percent, and those with 
20 or more therapy visits increased by 30 percent.''
    Also, in their March 2011 Report to Congress, MedPAC suggested that 
the current HH PPS may ``overvalue therapy services and undervalue 
nontherapy services.'' In this report, MedPAC describes that HHA 
margins average 17.7 percent, with 20 percent of agencies achieving 
margins of 37 percent. MedPAC further states that their analysis of 
high-margin and low-margin agencies suggests that the HH PPS overpays 
for episodes with high case-mix values and underpays for episodes with 
low-case-mix values. Furthermore, MedPAC reports that home health 
agencies with high margins had high case-mix values which were 
attributable to the agencies providing more therapy episodes (MedPAC, 
March 2011 Report to Congress). MedPAC went on to assert that ``unless 
the case-mix system is revised, agencies will continue to have 
significant incentives to favor therapy patients, avoid high-cost 
nontherapy patients, and base the number of therapy visits on payment 
incentives instead of patient characteristics.''
    We concur that the therapy utilization shifts and the correlation 
between high agency margins and high volumes of therapy episodes 
strongly suggest that the costs which the HH PPS assigns to therapy 
services when deriving the relative payment weights are higher than 
actual costs incurred by agencies for therapy services. We believe that 
one factor which contributes to this overpayment for therapy services 
is the growing use of therapy assistants, instead of qualified 
therapists, to provide home health therapy services. Current data 
suggest that the percentage of therapy assistants which is reflected in 
the therapy-wage weighted minutes used in the calculations of HH PPS 
relative resource costs is too low. For our 2008 refinements, to 
construct the relative resource costs for episodes, we used the labor 
mix percentages reported in the Occupational Employment Statistics 
(OES) data by the Bureau of Labor Statistics. In 2005, which is the 
year of data that was used to develop the HH PPS refinements, the OES 
data showed that 15 percent of physical therapy was provided by therapy 
assistants and that 11 percent of occupational therapy was provided by 
therapy assistants. This data was then used to develop the resource 
costs for episodes which were used to develop the current HH PPS 
payment weights. In 2008, the OES data showed that 19 percent of 
physical therapy was provided by therapy assistants and that 13 percent 
of occupational therapy was provided by therapy assistants. In 
addition, by 2010, OES data has shown that the percentage of physical 
therapy provided by therapy assistants was 20 percent and the 
percentage of occupational therapy provided by therapy assistants was 
14 percent. We note that these statistics reflect the mix for all home 
health providers. Also, preliminary analysis of resource use data 
collected during Medicare's Post-Acute Care Demonstration (PAC-PRD) 
shows a somewhat higher prevalence of assistants providing therapy for 
patients receiving Medicare's home health benefit than the OES data. We 
note that in CY 2011, we began collecting data on HH PPS claims which 
will enable us to quantify the percentage of therapy assistants who are 
providing therapy and to assess how the percentages vary relative to 
the quantity of therapy provided and the type of provider.
    We believe that MedPAC has provided strong evidence that our 
reimbursement for episodes with high therapy is too high. Also, based 
on MedPAC's analysis and our own findings, we believe that the resource 
costs reflected in our current case-mix weights for therapy episodes, 
in particular for those episodes with high amounts of therapy, are 
higher than current actual resource costs and that an adjustment to the 
HH PPS therapy case-mix weights is warranted. We note that fully 
addressing MedPAC's concerns with the way the HH PPS factors therapy 
visits into the case-mix system will be a complex process which will 
require more comprehensive structural changes to the HH PPS. While we 
plan to address their concerns in a more comprehensive way in future 
years, for CY 2012 we propose to revise the current case-mix weights by 
lowering the relative weights for episodes with high therapy and 
increasing the weights for episodes with little or no therapy. It 
should be noted that we propose to revise the case-mix weights in a 
budget neutral way. In other words, this proposal would redistribute 
some HH PPS dollars from high therapy payment groups to other HH PPS 
case-mix groups, such as the groups with little or no therapy. We 
believe this proposed revision to the payment weights would result in 
more accurate HH PPS payments for targeted case-mix groups while 
addressing MedPAC concerns that our reimbursement for therapy episodes 
is too high and our reimbursement for non-therapy episodes is too low. 
Also, we believe our proposed revision of the payment weights will 
discourage the provision of unnecessary therapy services and will slow 
the growth of nominal case-mix. Our detailed approach, analysis, and 
case-mix revision methodology which support this proposal are described 
below.
    During the 2008 HH PPS refinements, in addition to implementing a 
change from an 80 group case-mix system to a 153 group case-mix system, 
we developed new payment weights for the HH PPS case-mix system. To 
derive these payment weights, we developed a four-equation model which 
estimated an equation explaining an episode's resource use, as measured 
in units corresponding to wage-weighted minutes (the dependent 
variable), in terms of therapy visits and clinical and functional 
variables (the independent, or explanatory, variables). Each equation 
was created from a different subset of episodes (for example, early 
episodes with 13 or fewer therapy visits). The results from the four-
equation model were then used to develop the severity levels for the 
clinical and functional dimensions. Specifically, the coefficients of 
the four-equation model were divided by 10 and rounded to the nearest 
integer to create points which correspond to the impact of the variable 
on the total resource cost of the episode. These points are reported in 
Table 2a of the CY 2008 HH PPS final rule. For each episode in the 
sample, the sum of clinical variable points and the sum of functional 
variable points were calculated. Within each of the four equations, the 
clinical or functional severity levels were then defined in terms of 
intervals of the total clinical or functional points in such a way as 
to create a relatively even distribution of episodes amongst the 
severity levels. Also, the single 10-therapy visit threshold was 
changed to three therapy thresholds at 6, 14, and 20 visits to promote 
appropriate therapy utilization. Graduated steps between each of the 
three thresholds were also defined to provide an equitable increase in 
payment that would not otherwise occur between the three threshold 
levels. After defining the severity levels and thresholds and graduated 
steps between thresholds, we estimated a payment regression. The 
payment regression quantifies the relationship between an episode's 
resource use as measured in dollars corresponding to wage weighted 
minutes (the dependent variable) and the episode's clinical severity 
indicator variables (low, medium, or high), functional severity

[[Page 41005]]

indicator variables (low, medium, or high), four-equation indicator 
variables (which indicate whether an episode is early/late and has low/
high therapy), and therapy visit indicator variables. The therapy visit 
indicator variables were defined based on the graduated steps between 
the therapy thresholds. The raw payment weights for the 153 case-mix 
groups were then derived from the payment regression model 
coefficients. Note that in the process of developing the weights for 
episodes with therapy, we decelerated the increase in payment within 
each grouping of additional therapy visits (that is, we decelerated the 
increase in payment for each graduated therapy step). Finally, the 
weights were altered to achieve budget neutrality to 2005.
    Initially, for this proposed rule, during the process of revising 
the case-mix weights, we re-estimated the payment regression model on 
2008 data using the same dependent and independent variables we defined 
for the payment regression model which we used for the HH PPS 
refinements. We then compared the results to the current payment 
regression, which was based on 2005 data. We saw that the coefficients 
for the clinical and functional severity indicators were typically 
smaller in 2008 compared to 2005. This finding implies that if we were 
to use 2008 data to revise our payment weights, the clinical and 
functional severity levels would be associated with lower relative 
resource costs compared to our current payment regression model, and 
would result in lower raw payment weights for episodes with little or 
no therapy when compared to our current case-mix weights. These results 
would not achieve our intended goals as we describe in more detail 
below.
    As a result of our re-estimation of the payment regression using 
2008 data, we decided not to use data from 2008 or later to develop the 
revised case-mix weights. Instead, we propose to use pre-2008 data, 
which is before the implementation of the HH PPS refinements and the 
behavioral and coding changes we described in our discussion of the 
2008 therapy utilization and case-mix data in last year's proposed and 
final regulations (75 FR 43238 through 43244 and 75 FR 70384). In last 
year's proposed and final rules we presented several analyses that 
described indications of a large change in coding practices between 
2007 and 2008, the first year of the 153-group, refined system. Our 
initial analysis indicated that if we were to use the 2008 data in our 
payment regression to develop the revised weights, the regression would 
assign a higher relative resource cost to high therapy episodes and 
would assign a lower relative resource cost to episodes with little or 
no therapy than was assigned when deriving the current weights. As we 
described earlier in this section, we believe the data strongly suggest 
that our current weights over-value high therapy episodes and under-
value non-therapy episodes and has strongly influenced the utilization 
shifts to more episodes in the 14 and 20 therapy groups and fewer non-
therapy episodes beginning in 2008. Therefore, we believe that using 
2008 or later data in our payment regression to revise the case-mix 
weights would be inadvisable. The evidence strongly suggests that the 
utilization shifts are influenced by agencies' attempts to maximize 
Medicare payments. As such, we propose to use pre-2008 data in the 
payment regression to revise our case-mix weights. We believe this data 
is more reflective of costs associated with patients' actual clinical 
needs than the 2008 and later data. We note that using pre-2008 data to 
derive relative resource costs and to revise our case-mix weights does 
not hinder our ability to achieve budget neutrality. We will describe 
our approach to ensure budget neutrality later in this section.
    We explored numerous methods for revising our case-mix weights 
which were similar to the method we previously used for the 2008 
refinements. We note that when developing the case-mix weights for the 
2008 refinements, we were concerned that since there was an increase in 
payment weight as additional therapy visits were provided, there may be 
incentives to provide more therapy than clinically needed. To 
discourage this, when developing our current weights, we incrementally 
decreased the marginal payment for each grouping of therapy visits as 
the number of therapy visits grew. When exploring ways to revise our 
current case-mix weights, we initially applied a more aggressive 
deceleration to the weights for each of the incremental therapy visit 
steps similar to the approach we took for the current weights. We saw 
that when we applied more deceleration for each incremental therapy 
visit step, the payment weight for episodes with high numbers of 
therapy visits, when taking into account the clinical and functional 
score, was often the same as or larger than the current weight. Also, 
we saw inversions in the payment weights. For example, we saw that the 
payment weight for an episode with a clinical severity level of 1, 
functional severity level of 1, and 14 therapy visits had a smaller 
weight than for an episode with a clinical severity level of 1, a 
functional severity level of 1, and 13 therapy visits. Because of these 
observations, we decided against using the same type of approach we 
originally used when developing our current case-mix therapy weights. 
Instead, we developed a different approach to revise the case-mix 
payment weights.
    Before we can describe this new approach, we must first explain the 
changes we made to the four-equation model to remove the hypertension 
diagnoses ICD-9-CM code 401.1, Benign Essential Hypertension, and ICD-
9-CM code 401.9, Unspecified Essential Hypertension from our case-mix 
system, as we have proposed to do. As we indicated in the CY 2011 HH 
PPS final rule, our intention would be to revise the system in a manner 
that redistributes all the resources in the system after removing the 
two hypertension codes from our case-mix system. Our method of 
redistributing the resources starts with changes to the four-equation 
model, which is the foundation for the subsequent revised payment 
regression and creation of revised case-mix weights. The changes to the 
four-equation model are described below.
    To examine the effects of removing the two hypertension codes 401.1 
and 401.9 from the case-mix system and determine whether the thresholds 
for the clinical severity indicators need to be changed if 401.1 and 
401.9 are removed from the case-mix system, we estimated the four-
equation model with and without codes 401.1 and 401.9 in the 
hypertension group. We used 2005 data for this estimation. We note that 
the adjusted R-squared value for the four-equation model without codes 
401.1 and 401.9 derived from 2005 data was 0.4621. We also note that we 
used 2005 data to develop an accurate comparison of the current four-
equation model with the revised four-equation model without the two 
hypertension codes because our current four-equation model was built 
using 2005 data. In addition, we estimated the coefficients for the 
variables in the four-equation model using 2005 data to maintain the 
same variables we developed for our current four-equation model and 
minimize changes to our current model. We then used the coefficients 
from the four-equation model without codes 401.1 and 401.9 to determine 
the points which would be associated with all the clinical and 
functional variables found in our current four-equation model, as 
described on Table 2a of the CY 2008 HH PPS final rule (Table 14A).

[[Page 41006]]

    When comparing the four-equation model with the two hypertension 
diagnoses (which is equivalent to our current model) to the four-
equation model without the two hypertension diagnoses, there were some 
differences in the points assigned to variables. Specifically, there 
was a different number of points for 58 of the 224 variables in the 
four-equation model. However, the difference between the two models was 
at most 1 point. Also, of the 58 variables which had a different number 
of points, 33 were clinical and functional variables. (The remaining 
variables were therapy-visit and early/later episode indicator 
variables used in the four-equation model estimation procedure.) For 13 
of the 33 clinical and functional variables, there was an extra point 
assigned when the two hypertension codes are excluded, and for 20 of 
the 33 clinical and functional variables, there was one less point 
assigned compared to the current model (Table 14B).

 Table 14A--Points Associated With the Updated 4-Equation Model Without
                   hypertension Codes 401.1 and 401.9
                Case-Mix Adjustment Variables and Scores
(Note: 4--Equation Model was Estimated on Episodes from 2005 where 401.1
     and 401.9 were not counted in the Hypertension Diagnosis Group)
------------------------------------------------------------------------
    Episode number within sequence of
            adjacent episodes             1 or 2  1 or 2    3+      3+
------------------------------------------------------------------------
             Therapy visits                0-13     14+    0-13     14+
------------------------------------------------------------------------
                EQUATION:                    1       2       3       4
------------------------------------------------------------------------
                           CLINICAL DIMENSION
------------------------------------------------------------------------
 1 Primary or Other Diagnosis =                3       3       3       3
 Blindness/Low Vision...................
 2 Primary or Other Diagnosis = Blood          2       5  ......  ......
 disorders..............................
 3 Primary or Other Diagnosis = Cancer,        3       8       3      10
 selected benign neoplasms..............
 4 Primary Diagnosis = Diabetes.........       5      13       1       8
 5 Other Diagnosis = Diabetes...........       3       5       1       5
 6 Primary or Other Diagnosis =                2       6  ......       6
 Dysphagia and Primary or Other
 Diagnosis = Neuro 3--Stroke............
 7 Primary or Other Diagnosis =           ......       6  ......  ......
 Dysphagia and M0250 (Therapy at home) =
 3 (Enteral)............................
 8 Primary or Other Diagnosis =                2       6       1       5
 Gastrointestinal disorders.............
 9 Primary or Other Diagnosis =                2  ......  ......  ......
 Gastrointestinal disorders and M0550
 (ostomy) = 1 or 2......................
10 Primary or Other Diagnosis =           ......  ......       2  ......
 Gastrointestinal disorders and Primary
 or Other Diagnosis = Neuro 1--
Brain disorders and paralysis, or Neuro
 2--Peripheral neurological disorders,
 or Neuro 3--Stroke, or.................
Neuro 4--Multiple Sclerosis.............
11 Primary or Other Diagnosis = Heart          3       6       1       7
 Disease or Hypertension................
12 Primary Diagnosis = Neuro 1--Brain          3       8       5       8
 disorders and paralysis................
13 Primary or Other Diagnosis = Neuro 1--      3      10       3      10
 Brain disorders and paralysis and M0680
 (Toileting) = 2 or more................
14 Primary or Other Diagnosis = Neuro 1--      1       4       1       2
 Brain disorders and paralysis or Neuro
 2--Peripheral neurological
disorders and M0650 or M0660 (Dressing
 upper or lower body) = 1, 2, or 3......
15 Primary or Other Diagnosis = Neuro 3-- ......       2  ......  ......
 Stroke.................................
16 Primary or Other Diagnosis = Neuro 3--      1       3       2       8
 Stroke and M0650 or M0660 (Dressing
 upper or lower body) =
1, 2, or 3..............................
17 Primary or Other Diagnosis = Neuro 3--      1       5  ......  ......
 Stroke and M0700 (Ambulation) = 3 or
 more...................................
18 Primary or Other Diagnosis = Neuro 4--      3       3      12      18
 Multiple Sclerosis and at least one of
 the following:
M0670 (bathing) = 2 or more or M0680
 (Toileting) = 2 or more or M0690
 (Transferring) = 2 or more or..........
M0700 (Ambulation) = 3 or more..........
19 Primary or Other Diagnosis = Ortho 1--      2  ......  ......  ......
 Leg Disorders or Gait Disorders and
 M0460 (most problematic
pressure ulcer stage) = 1, 2, 3 or 4....
20 Primary or Other Diagnosis = Ortho 1--      5       5  ......  ......
 Leg or Ortho 2--Other orthopedic
 disorders and M0250
(Therapy at home) = 1 (IV/Infusion) or 2
 (Parenteral)...........................
21 Primary or Other Diagnosis = Psych 1--      4       6       2       6
 Affective and other psychoses,
 depression.............................
22 Primary or Other Diagnosis = Psych 2--      1       3  ......       3
 Degenerative and other organic
 psychiatric disorders..................
23 Primary or Other Diagnosis =                1       5       1       5
 Pulmonary disorders....................
24 Primary or Other Diagnosis =                1
 Pulmonary disorders and M0700
 (Ambulation) = 1 or more...............
25 Primary Diagnosis = Skin 1--Traumatic      10      20       8      20
 wounds, burns, and post-operative
 complications..........................
26 Other Diagnosis = Skin 1--Traumatic         6       6       4       4
 wounds, burns, post-operative
 complications..........................
27 Primary or Other Diagnosis = Skin 1--       2  ......       2  ......
 Traumatic wounds, burns, and post-
 operative complications or
Skin 2--Ulcers and other skin conditions
 and M0250 (Therapy at home) = 1 (IV/
 Infusion) or 2 (Parenteral)............
28 Primary or Other Diagnosis = Skin 2--       6      12       5      12
 Ulcers and other skin conditions.......
29 Primary or Other Diagnosis =                4       4       4  ......
 Tracheostomy...........................
30 Primary or Other Diagnosis = Urostomy/      6      22       4      22
 Cystostomy.............................
31 M0250 (Therapy at home) = 1 (IV/            8      15       5      11
 Infusion) or 2 (Parenteral)............
32 M0250 (Therapy at home) = 3 (Enteral)       4      11  ......      11
33 M0390 (Vision) = 1 or more...........       1  ......  ......       2
34 M0420 (Pain) = 2 or 3................       1  ......  ......  ......
35 M0450 = Two or more pressure ulcers         3       3       5       5
 at stage 3 or 4........................
36 M0460 (Most problematic pressure            5      11       5      11
 ulcer stage) = 1 or 2..................
37 M0460 (Most problematic pressure           16      26      12      22
 ulcer stage) = 3 or 4..................
38 M0476 (Stasis ulcer status) = 2......       7       7       7       7
39 M0476 (Stasis ulcer status) = 3......      11      11      11      11
40 M0488 (Surgical wound status) = 2....  ......       2       3  ......
41 M0488 (Surgical wound status) = 3....       4       4       4       4
42 M0490 (Dyspnea) = 2, 3, or 4.........       2       2  ......  ......

[[Page 41007]]

 
43 M0540 (Bowel Incontinence) = 2 to 5..       1       2       1  ......
44 M0550 (Ostomy) = 1 or 2..............       5       9       3       9
45 M0800 (Injectable Drug Use) = 0, 1,         0       1       2       3
 or 2...................................
------------------------------------------------------------------------
                          FUNCTIONAL DIMENSION
------------------------------------------------------------------------
46 M0650 or M0660 (Dressing upper or           2       4       2       2
 lower body) = 1, 2, or 3...............
47 M0670 (Bathing) = 2 or more..........       3       3       6       6
48 M0680 (Toileting) = 2 or more........       2       3       2  ......
49 M0690 (Transferring) = 2 or more.....  ......       1  ......  ......
50 M0700 (Ambulation) = 1 or 2..........       1  ......       1  ......
51 M0700 (Ambulation) = 3 or more.......       3       3       4       5
------------------------------------------------------------------------
Notes: The data for the regression equations come from a 20 percent
  random sample of episodes from CY 2005. The sample excludes LUPA
  episodes, outlier episodes, and episodes with SCIC or PEP adjustments.
Points are additive, however, points may not be given for the same line
  item in the table more than once.
Please see Medicare Home Health Diagnosis Coding guidance at http://www.cms.hhs.gov/HomeHealthPPS/03_coding&billing.asp for definitions
  of primary and secondary diagnoses.

  Table 14B--The Difference in Points Between the Current and Proposed
                       Case-Mix Adjustment Scores
------------------------------------------------------------------------
    Episode number within sequence of
            adjacent episodes             1 or 2  1 or 2    3+      3+
------------------------------------------------------------------------
             Therapy visits                0-13     14+    0-13     14+
------------------------------------------------------------------------
                EQUATION:                    1       2       3       4
------------------------------------------------------------------------
                           CLINICAL DIMENSION
------------------------------------------------------------------------
 1 Primary or Other Diagnosis =                0       0       0       0
 Blindness/Low Vision...................
 2 Primary or Other Diagnosis = Blood          0       0  ......  ......
 disorders..............................
 3 Primary or Other Diagnosis = Cancer,       -1       1       0       0
 selected benign neoplasms..............
 4 Primary Diagnosis = Diabetes.........       0       1       0       0
 5 Other Diagnosis = Diabetes...........       1       1       0       1
 6 Primary or Other Diagnosis =                0       0  ......       0
 Dysphagia and Primary or Other
 Diagnosis = Neuro 3--Stroke............
 7 Primary or Other Diagnosis =           ......       0  ......  ......
 Dysphagia and M0250 (Therapy at home) =
 3 (Enteral)............................
 8 Primary or Other Diagnosis =                0       0       0       1
 Gastrointestinal disorders.............
 9 Primary or Other Diagnosis =               -1  ......  ......  ......
 Gastrointestinal disorders and M0550
 (ostomy) = 1 or 2......................
10 Primary or Other Diagnosis =           ......  ......       0  ......
 Gastrointestinal disorders and Primary
 or Other Diagnosis = Neuro 1--
Brain disorders and paralysis, or Neuro
 2--Peripheral neurological disorders,
 or Neuro 3--Stroke,....................
or Neuro 4--Multiple Sclerosis..........
11 Primary or Other Diagnosis = Heart          0      -1       0      -1
 Disease or Hypertension................
12 Primary Diagnosis = Neuro 1--Brain          0       0       0       0
 disorders and paralysis................
13 Primary or Other Diagnosis = Neuro 1--      0       0       0       0
 Brain disorders and paralysis and M0680
 (Toileting) = 2 or more................
14 Primary or Other Diagnosis = Neuro 1--     -1       0      -1       0
 Brain disorders and paralysis or Neuro
 2--Peripheral
neurological disorders and M0650 or
 M0660 (Dressing upper or lower body) =
 1, 2, or 3.............................
15 Primary or Other Diagnosis = Neuro 3-- ......       1  ......  ......
 Stroke.................................
16 Primary or Other Diagnosis = Neuro 3--      0       0       0       0
 Stroke and M0650 or M0660 (Dressing
 upper or lower body) =
1, 2, or 3..............................
17 Primary or Other Diagnosis = Neuro 3--      0       0  ......  ......
 Stroke and M0700 (Ambulation) = 3 or
 more...................................
18 Primary or Other Diagnosis = Neuro 4--      0       0       0       0
 Multiple Sclerosis and at least one of
 the following:
M0670 (bathing) = 2 or more or M0680
 (Toileting) = 2 or more or M0690
 (Transferring) = 2 or more or..........
M0700 (Ambulation) = 3 or more..........
19 Primary or Other Diagnosis = Ortho 1--      0  ......  ......  ......
 Leg Disorders or Gait Disorders and
 M0460 (most problematic
pressure ulcer stage) = 1, 2, 3 or 4....
20 Primary or Other Diagnosis = Ortho 1--      0       0  ......  ......
 Leg or Ortho 2--Other orthopedic
 disorders and M0250 (Therapy
at home) = 1 (IV/Infusion) or 2
 (Parenteral)...........................
21 Primary or Other Diagnosis = Psych 1--      1       1       0       1
 Affective and other psychoses,
 depression.............................
22 Primary or Other Diagnosis = Psych 2--      0       1  ......       1
 Degenerative and other organic
 psychiatric disorders..................
23 Primary or Other Diagnosis =                0       0       0       0
 Pulmonary disorders....................
24 Primary or Other Diagnosis =                0  ......  ......  ......
 Pulmonary disorders and M0700
 (Ambulation) = 1 or more...............
25 Primary Diagnosis = Skin 1--Traumatic       0       0       0       0
 wounds, burns, and post-operative
 complications..........................
26 Other Diagnosis = Skin 1--Traumatic         0       0       0       0
 wounds, burns, post-operative
 complications..........................
27 Primary or Other Diagnosis = Skin 1--       0  ......       0  ......
 Traumatic wounds, burns, and post-
 operative complications or
Skin 2--Ulcers and other skin conditions
 and M0250 (Therapy at home) = 1 (IV/
 Infusion) or 2 (Parenteral)............
28 Primary or Other Diagnosis = Skin 2--       0       0       0       0
 Ulcers and other skin conditions.......
29 Primary or Other Diagnosis =                0       0       0  ......
 Tracheostomy...........................
30 Primary or Other Diagnosis = Urostomy/      0      -1       0      -1
 Cystostomy.............................

[[Page 41008]]

 
31 M0250 (Therapy at home) = 1 (IV/            0       0       0      -1
 Infusion) or 2 (Parenteral)............
32 M0250 (Therapy at home) = 3 (Enteral)       0      -1  ......      -1
33 M0390 (Vision) = 1 or more...........       0  ......  ......       1
34 M0420 (Pain) = 2 or 3................       0  ......  ......  ......
35 M0450 = Two or more pressure ulcers         0       0       0       0
 at stage 3 or 4........................
36 M0460 (Most problematic pressure            0       0       0       0
 ulcer stage) = 1 or 2..................
37 M0460 (Most problematic pressure            0       0       0      -1
 ulcer stage) = 3 or 4..................
38 M0476 (Stasis ulcer status) = 2......      -1      -1      -1      -1
39 M0476 (Stasis ulcer status) = 3......       0       0       0       0
40 M0488 (Surgical wound status) = 2....  ......       0       0  ......
41 M0488 (Surgical wound status) = 3....       0       0       0       0
42 M0490 (Dyspnea) = 2, 3, or 4.........       0       0  ......  ......
43 M0540 (Bowel Incontinence) = 2 to 5..       0       0       0  ......
44 M0550 (Ostomy) = 1 or 2..............       0       0       0       0
45 M0800 (Injectable Drug Use) = 0, 1,        -1       0       0      -1
 or 2...................................
------------------------------------------------------------------------
                          FUNCTIONAL DIMENSION
------------------------------------------------------------------------
46 M0650 or M0660 (Dressing upper or           0       0       0       0
 lower body) = 1, 2, or 3...............
47 M0670 (Bathing) = 2 or more..........       0       0       0       0
48 M0680 (Toileting) = 2 or more........       0       0       0  ......
49 M0690 (Transferring) = 2 or more.....  ......      -1  ......  ......
50 M0700 (Ambulation) = 1 or 2..........       0  ......       0  ......
51 M0700 (Ambulation) = 3 or more.......       0      -1       0       0
------------------------------------------------------------------------
Notes: The data for the regression equations come from a 20 percent
  random sample of episodes from CY 2005. The sample excludes LUPA
  episodes, outlier episodes, and episodes with SCIC or PEP adjustments.
Points are additive, however points may not be given for the same line
  item in the table more than once.
Please see Medicare Home Health Diagnosis Coding guidance at http://www.cms.hhs.gov/HomeHealthPPS/03_coding&billing.asp for definitions
  of primary and secondary diagnoses.

    We also examined how episodes in the sample changed clinical 
severity groups when going from a four-equation model that includes 
401.1 and 401.9 to a four-equation model that does not include 401.1 
and 401.9. It should be noted that a small number of episodes also 
changed functional groups. In our analysis, we looked at the 
distribution of episodes in each clinical severity level (low, medium, 
high) by the four-equation model indicators (early/late episodes and 
low/high therapy episodes). When comparing the distribution of episodes 
using the four-equation model without the 401.1 and 401.9 hypertension 
codes to the distribution of episodes using the four-equation model 
with the hypertension codes (our current four-equation model), there 
was a similar distribution of episodes between the low, medium and high 
clinical levels, for each of the four-equation model indicators. We 
also looked at the distribution of episodes in each functional severity 
level by the four-equation model indicator. There was also a very 
similar distribution of episodes for the three functional severity 
levels using the four-equation model without the two hypertension codes 
compared to the distribution of episodes using the current four-
equation model, for each of the four-equation model indicators. Since 
the four-equation model without the hypertension codes 401.1 and 401.9 
had similar clinical and functional distributions of episodes as the 
current model, we decided that it was not necessary to change the 
thresholds for the clinical and functional severity levels.
    When developing the new payment regression model, we used scores 
from the four-equation model without hypertension codes 401.1 and 401.9 
to identify the clinical and functional severity levels to be used as 
payment regression variables. In addition, as we described earlier, we 
decided to implement a revision of the weights using a new method of 
decelerating therapy resources with higher numbers of therapy visits. 
The new method involved the removal of the therapy visit step 
indicators from the payment regression model. This approach has the 
advantage of staging the introduction of clinical and functional 
severity levels into the model as a separate step, to avoid influence 
on the clinical and functional scores from numerous therapy step 
variables that would otherwise be simultaneously entered into the 
regression. In other words, we eliminated the therapy visit step 
indicators from the payment regression model to ensure that more of the 
resource use would be captured by clinical and functional variables, 
rather than therapy variables. Later, we implement a method to account 
for the resource use for the therapy step variables. The new payment 
regression model that was developed estimated the relationship between 
an episode's total resource (as measured in dollars corresponding to 
wage weighted minutes) and the clinical score indicators, functional 
score indicators, and four-equation indicators (early/late episodes and 
low/high therapy services).
    It should be noted that for the payment regression model, we used 
data from 2007, which is the most recent data available before the 
implementation of the HH PPS refinements. The coefficients for the 
payment regression model using 2007 data can be found at Table 15. The 
adjusted R-squared value for the payment regression model using 2007 
data is 0.3769.

[[Page 41009]]

               Table 15--Proposed Payment Regression Model
------------------------------------------------------------------------
                                                           New payment
         Variable name            Variable description      regression
                                                           coefficients
------------------------------------------------------------------------
clin--grp2--1..................  Step 1, Clinical Score            $6.55
                                  5 to 8.
clin--grp3--1..................  Step 1, Clinical Score            37.72
                                  9 or More.
func--grp2--1..................  Step 1, Functional                88.99
                                  Score = 6.
func--grp3--1..................  Step 1, Functional               129.81
                                  Score 7 or More.
clin--grp2--21.................  Step 2.1, Clinical                87.49
                                  Score 7 to 14.
clin--grp3--21.................  Step 2.1, Clinical               191.74
                                  Score 15 or More.
func--grp2--21.................  Step 2.1, Functional              43.63
                                  Score = 7.
func--grp3--21.................  Step 2.1, Functional              65.49
                                  Score 8 or More.
clin--grp2--22.................  Step 2.2, Clinical                76.41
                                  Score 9 to 16.
clin--grp3--22.................  Step 2.2, Clinical               177.93
                                  Score 17+.
func--grp2--22.................  Step 2.2, Functional              36.55
                                  Score = 8.
func--grp3--22.................  Step 2.2, Functional             109.94
                                  Score 9 or More.
clin--grp2--3..................  Step 3, Clinical Score            28.53
                                  3 to 5.
clin--grp3--3..................  Step 3, Clinical Score           112.15
                                  6 or More.
func--grp2--3..................  Step 3, Functional                73.68
                                  Score = 9.
func--grp3--3..................  Step 3, Functional               113.33
                                  Score 10 or More.
clin--grp2--4..................  Step 4, Clinical Score            84.62
                                  8 to 14.
clin--grp3--4..................  Step 4, Clinical Score           213.78
                                  15 or More.
func--grp2--4..................  Step 4, Functional                73.13
                                  Score = 7.
func--grp3--4..................  Step 4, Functional               133.71
                                  Score 8 or More.
step2--1.......................  Step 2.1, 1st and 2nd            386.71
                                  Episodes, 14 to 19
                                  Therapy Visits.
step2--2.......................  Step 2.2, 3rd+                   413.85
                                  Episodes, 14 to 19
                                  Therapy Visits.
step3..........................  Step 3, 3rd+ Episodes,           -63.66
                                  0-13 Therapy Visits.
step4..........................  Step 4, All Episodes,            700.20
                                  20+ Therapy Visits.
--cons.........................  Intercept.............           348.74
------------------------------------------------------------------------
Note: The data for the payment regression model come from a 20 percent
  random sample of episodes from CY 2007.

    The raw weights for each of the 153 groups were then calculated 
based on the payment regression model. It should be noted that the raw 
weights do not change across the graduated therapy steps between the 
therapy thresholds. In the next step of weight revision, the weights 
associated with 0 to 5 therapy visits were increased by 7.5 percent. 
Also, the weights associated with 14-15 therapy visits were decreased 
by 5 percent and the weights associated with 20+ therapy visits were 
decreased by 10 percent. These adjustments were made to discourage 
inappropriate use of therapy while addressing concerns that non-therapy 
services are undervalued. The larger reduction factor for 20 or more 
therapy visits (10 percent) compared to the reduction factor for 14 to 
15 therapy visits (5 percent) implements a more aggressive deceleration 
than we used in the current weights. Currently, there is a high payment 
weight associated with the 20 or more therapy visit threshold to 
capture the costs associated with providing 20 therapy visits, as well 
as numbers of therapy visits well beyond 20 therapy visits. As a 
result, there is a large increase in the payment weight between the 18-
19 therapy visit step and the 20 or more therapy visit threshold. This 
large increase in the payment weight may create incentives for agencies 
to provide unnecessary therapy visits up to and including 20 visits, 
and may explain MedPAC's observation that there was a larger increase 
in the number of episodes in the 20 or more therapy visit group than 
the 14 or more therapy visit group. By implementing a larger reduction 
at the 20 or more therapy visits, we will provide a disincentive for 
agencies to pad episodes just to 20 visits or slightly more, to be able 
to realize a large margin from that threshold, which was designed to 
pay for not only episodes involving 20 or just above 20 therapy visits, 
but also episodes involving considerably more than 20 therapy visits.
    After the adjustments were applied to the raw weights, the weights 
were further adjusted to create an increase in the payment weights for 
the therapy visit steps between the therapy thresholds. Weights with 
the same clinical severity level, functional severity level, and early/
later episode status were grouped together. Then within those groups, 
the weights for each therapy step between thresholds were gradually 
increased. We did this by interpolating between the main thresholds on 
the model (from 0-5 to 14-15 therapy visits, and from 14-15 to 20+ 
therapy visits). We used a linear model to implement the interpolation 
so the payment weight increase for each step between the thresholds 
(such as the increase between 0-5 therapy visits and 6 therapy visits 
and the increase between 6 therapy visits and 7-9 therapy visits) was 
constant. The interpolated weights were then adjusted so that the 
average case-mix for the weights was equal to 1.
    When developing our model, we considered a number of different sets 
of adjustments. We further explored two sets of adjustments because the 
adjustments were in line with our goals to address therapy incentives. 
The two sets of adjustments are shown in Table 16. We looked at the 
payment to cost ratios for various subgroups, where the payment was 
defined as the predicted resource use and the cost was defined as the 
wage weighted minutes in dollars. After looking at the payment to cost 
ratios, we decided to propose the less aggressive set of adjustments 
(option 2) to address therapy incentives while maintaining our target 
payment to cost ratios for groups. Specifically, when examining the 
payment to cost ratios by number of therapy visits, it appears that 
currently, episodes with three to five therapy visits are underpaid and 
episodes with 20 or just over 20 therapy visits are overpaid. When 
using our proposed payment weights, the episodes with three to five 
therapy visits have a higher payment to cost ratio and would receive 
higher payments. Also, episodes with around 20 therapy visits have more 
reasonable payment to cost ratios when using the proposed weights 
compared to ratios

[[Page 41010]]

with the current weights. (Please see the Abt technical report located 
at http://www.cms.gov/center/hha.asp for the payment to cost ratio 
tables and more information.)

                Table 16--Adjustments to the Raw Weights
------------------------------------------------------------------------
                                          Option 1: Most  Option 2: Less
                                            aggressive      aggressive
           Therapy step group                 direct          direct
                                            adjustments     adjustments
------------------------------------------------------------------------
0 to 5 Therapy Visits...................            1.15           1.075
14 to 15 Therapy Visits.................             0.9            0.95
20+ Therapy Visits......................             0.8             0.9
------------------------------------------------------------------------

    After applying the adjustments in Table 16 to the raw weights, 
applying the interpolation between the therapy thresholds, and 
adjusting the weights so that the average case-mix for the weights was 
equal to 1, we applied a budget neutrality factor (1.2847) to the 
weights to ensure that the final proposed weights result in aggregate 
expenditures in 2009 approximately equal to expenditures using the 
current payment weights. It is important to note that our authority 
allows us to reduce home health payments only as described in section 
1895(b)(3)(B)(iv) of the Act. As such, we must revise our payment 
weights in a budget neutral manner. Therefore, after deriving revised 
relative case-mix weights, we increased the weights to achieve budget 
neutrality to the most current, complete data available, which is 2009. 
We show the final set of new payment weights for the 153 groups that we 
are proposing in Table 17. The R-squared value when we ran a regression 
of the episode's total resources (dependent variable) using our 
proposed weights (independent variable) is 0.5384. It should be noted 
that we will continue to evaluate and potentially refine the payment 
weights as new data and analysis becomes available.
    It also should be noted that as we described in section A of this 
proposed rule, we also are proposing to reduce payments under our 
authority in section 1895(b)(3)(B)(iv) of the Act to reduce the home 
health base episode payment to account for nominal case-mix growth 
through 2009.

                                 Table 17--Final Proposed Payment Weights (2007)
----------------------------------------------------------------------------------------------------------------
                                                                                   Clinical and
                                                                                    functional
                                              Step (episode and/or therapy visit    levels (1 =    Final weights
               Payment group                               ranges)                   low; 2 =          (2007
                                                                                    medium; 3 =   recalibration)
                                                                                       high)
----------------------------------------------------------------------------------------------------------------
10111......................................  1st and 2nd Episodes, 0 to 5                   C1F1          0.8468
                                              Therapy Visits.
10112......................................  1st and 2nd Episodes, 6 Therapy                C1F1          0.9931
                                              Visits.
10113......................................  1st and 2nd Episodes, 7 to 9                   C1F1          1.1394
                                              Therapy Visits.
10114......................................  1st and 2nd Episodes, 10 Therapy               C1F1          1.2857
                                              Visits.
10115......................................  1st and 2nd Episodes, 11 to 13                 C1F1          1.4320
                                              Therapy Visits.
10121......................................  1st and 2nd Episodes, 0 to 5                   C1F2          1.0630
                                              Therapy Visits.
10122......................................  1st and 2nd Episodes, 6 Therapy                C1F2          1.1847
                                              Visits.
10123......................................  1st and 2nd Episodes, 7 to 9                   C1F2          1.3065
                                              Therapy Visits.
10124......................................  1st and 2nd Episodes, 10 Therapy               C1F2          1.4283
                                              Visits.
10125......................................  1st and 2nd Episodes, 11 to 13                 C1F2          1.5501
                                              Therapy Visits.
10131......................................  1st and 2nd Episodes, 0 to 5                   C1F3          1.1621
                                              Therapy Visits.
10132......................................  1st and 2nd Episodes, 6 Therapy                C1F3          1.2734
                                              Visits.
10133......................................  1st and 2nd Episodes, 7 to 9                   C1F3          1.3847
                                              Therapy Visits.
10134......................................  1st and 2nd Episodes, 10 Therapy               C1F3          1.4961
                                              Visits.
10135......................................  1st and 2nd Episodes, 11 to 13                 C1F3          1.6074
                                              Therapy Visits.
10211......................................  1st and 2nd Episodes, 0 to 5                   C2F1          0.8627
                                              Therapy Visits.
10212......................................  1st and 2nd Episodes, 6 Therapy                C2F1          1.0434
                                              Visits.
10213......................................  1st and 2nd Episodes, 7 to 9                   C2F1          1.2240
                                              Therapy Visits.
10214......................................  1st and 2nd Episodes, 10 Therapy               C2F1          1.4047
                                              Visits.
10215......................................  1st and 2nd Episodes, 11 to 13                 C2F1          1.5853
                                              Therapy Visits.
10221......................................  1st and 2nd Episodes, 0 to 5                   C2F2          1.0788
                                              Therapy Visits.
10222......................................  1st and 2nd Episodes, 6 Therapy                C2F2          1.2350
                                              Visits.
10223......................................  1st and 2nd Episodes, 7 to 9                   C2F2          1.3912
                                              Therapy Visits.
10224......................................  1st and 2nd Episodes, 10 Therapy               C2F2          1.5473
                                              Visits.
10225......................................  1st and 2nd Episodes, 11 to 13                 C2F2          1.7035
                                              Therapy Visits.
10231......................................  1st and 2nd Episodes, 0 to 5                   C2F3          1.1780
                                              Therapy Visits.
10232......................................  1st and 2nd Episodes, 6 Therapy                C2F3          1.3237
                                              Visits.
10233......................................  1st and 2nd Episodes, 7 to 9                   C2F3          1.4694
                                              Therapy Visits.
10234......................................  1st and 2nd Episodes, 10 Therapy               C2F3          1.6151
                                              Visits.
10235......................................  1st and 2nd Episodes, 11 to 13                 C2F3          1.7608
                                              Therapy Visits.
10311......................................  1st and 2nd Episodes, 0 to 5                   C3F1          0.9384
                                              Therapy Visits.
10312......................................  1st and 2nd Episodes, 6 Therapy                C3F1          1.1487
                                              Visits.
10313......................................  1st and 2nd Episodes, 7 to 9                   C3F1          1.3589
                                              Therapy Visits.
10314......................................  1st and 2nd Episodes, 10 Therapy               C3F1          1.5692
                                              Visits.

[[Page 41011]]

 
10315......................................  1st and 2nd Episodes, 11 to 13                 C3F1          1.7794
                                              Therapy Visits.
10321......................................  1st and 2nd Episodes, 0 to 5                   C3F2          1.1545
                                              Therapy Visits.
10322......................................  1st and 2nd Episodes, 6 Therapy                C3F2          1.3403
                                              Visits.
10323......................................  1st and 2nd Episodes, 7 to 9                   C3F2          1.5261
                                              Therapy Visits.
10324......................................  1st and 2nd Episodes, 10 Therapy               C3F2          1.7118
                                              Visits.
10325......................................  1st and 2nd Episodes, 11 to 13                 C3F2          1.8976
                                              Therapy Visits.
10331......................................  1st and 2nd Episodes, 0 to 5                   C3F3          1.2537
                                              Therapy Visits.
10332......................................  1st and 2nd Episodes, 6 Therapy                C3F3          1.4290
                                              Visits.
10333......................................  1st and 2nd Episodes, 7 to 9                   C3F3          1.6043
                                              Therapy Visits.
10334......................................  1st and 2nd Episodes, 10 Therapy               C3F3          1.7796
                                              Visits.
10335......................................  1st and 2nd Episodes, 11 to 13                 C3F3          1.9549
                                              Therapy Visits.
21111......................................  1st and 2nd Episodes, 14 to 15                 C1F1          1.5782
                                              Therapy Visits.
21112......................................  1st and 2nd Episodes, 16 to 17                 C1F1          1.7630
                                              Therapy Visits.
21113......................................  1st and 2nd Episodes, 18 to 19                 C1F1          1.9478
                                              Therapy Visits.
21121......................................  1st and 2nd Episodes, 14 to 15                 C1F2          1.6719
                                              Therapy Visits.
21122......................................  1st and 2nd Episodes, 16 to 17                 C1F2          1.8750
                                              Therapy Visits.
21123......................................  1st and 2nd Episodes, 18 to 19                 C1F2          2.0781
                                              Therapy Visits.
21131......................................  1st and 2nd Episodes, 14 to 15                 C1F3          1.7188
                                              Therapy Visits.
21132......................................  1st and 2nd Episodes, 16 to 17                 C1F3          1.9473
                                              Therapy Visits.
21133......................................  1st and 2nd Episodes, 18 to 19                 C1F3          2.1758
                                              Therapy Visits.
21211......................................  1st and 2nd Episodes, 14 to 15                 C2F1          1.7660
                                              Therapy Visits.
21212......................................  1st and 2nd Episodes, 16 to 17                 C2F1          1.9455
                                              Therapy Visits.
21213......................................  1st and 2nd Episodes, 18 to 19                 C2F1          2.1250
                                              Therapy Visits.
21221......................................  1st and 2nd Episodes, 14 to 15                 C2F2          1.8596
                                              Therapy Visits.
21222......................................  1st and 2nd Episodes, 16 to 17                 C2F2          2.0575
                                              Therapy Visits.
21223......................................  1st and 2nd Episodes, 18 to 19                 C2F2          2.2553
                                              Therapy Visits.
21231......................................  1st and 2nd Episodes, 14 to 15                 C2F3          1.9065
                                              Therapy Visits.
21232......................................  1st and 2nd Episodes, 16 to 17                 C2F3          2.1298
                                              Therapy Visits.
21233......................................  1st and 2nd Episodes, 18 to 19                 C2F3          2.3531
                                              Therapy Visits.
21311......................................  1st and 2nd Episodes, 14 to 15                 C3F1          1.9897
                                              Therapy Visits.
21312......................................  1st and 2nd Episodes, 16 to 17                 C3F1          2.1822
                                              Therapy Visits.
21313......................................  1st and 2nd Episodes, 18 to 19                 C3F1          2.3747
                                              Therapy Visits.
21321......................................  1st and 2nd Episodes, 14 to 15                 C3F2          2.0833
                                              Therapy Visits.
21322......................................  1st and 2nd Episodes, 16 to 17                 C3F2          2.2941
                                              Therapy Visits.
21323......................................  1st and 2nd Episodes, 18 to 19                 C3F2          2.5050
                                              Therapy Visits.
21331......................................  1st and 2nd Episodes, 14 to 15                 C3F3          2.1302
                                              Therapy Visits.
21332......................................  1st and 2nd Episodes, 16 to 17                 C3F3          2.3665
                                              Therapy Visits.
21333......................................  1st and 2nd Episodes, 18 to 19                 C3F3          2.6027
                                              Therapy Visits.
22111......................................  3rd+ Episodes, 14 to 15 Therapy                C1F1          1.6365
                                              Visits.
22112......................................  3rd+ Episodes, 16 to 17 Therapy                C1F1          1.8018
                                              Visits.
22113......................................  3rd+ Episodes, 18 to 19 Therapy                C1F1          1.9672
                                              Visits.
22121......................................  3rd+ Episodes, 14 to 15 Therapy                C1F2          1.7149
                                              Visits.
22122......................................  3rd+ Episodes, 16 to 17 Therapy                C1F2          1.9037
                                              Visits.
22123......................................  3rd+ Episodes, 18 to 19 Therapy                C1F2          2.0924
                                              Visits.
22131......................................  3rd+ Episodes, 14 to 15 Therapy                C1F3          1.8724
                                              Visits.
22132......................................  3rd+ Episodes, 16 to 17 Therapy                C1F3          2.0497
                                              Visits.
22133......................................  3rd+ Episodes, 18 to 19 Therapy                C1F3          2.2270
                                              Visits.
22211......................................  3rd+ Episodes, 14 to 15 Therapy                C2F1          1.8004
                                              Visits.
22212......................................  3rd+ Episodes, 16 to 17 Therapy                C2F1          1.9685
                                              Visits.
22213......................................  3rd+ Episodes, 18 to 19 Therapy                C2F1          2.1365
                                              Visits.
22221......................................  3rd+ Episodes, 14 to 15 Therapy                C2F2          1.8789
                                              Visits.
22222......................................  3rd+ Episodes, 16 to 17 Therapy                C2F2          2.0703
                                              Visits.
22223......................................  3rd+ Episodes, 18 to 19 Therapy                C2F2          2.2618
                                              Visits.
22231......................................  3rd+ Episodes, 14 to 15 Therapy                C2F3          2.0364
                                              Visits.
22232......................................  3rd+ Episodes, 16 to 17 Therapy                C2F3          2.2164
                                              Visits.
22233......................................  3rd+ Episodes, 18 to 19 Therapy                C2F3          2.3964
                                              Visits.
22311......................................  3rd+ Episodes, 14 to 15 Therapy                C3F1          2.0183
                                              Visits.
22312......................................  3rd+ Episodes, 16 to 17 Therapy                C3F1          2.2013
                                              Visits.
22313......................................  3rd+ Episodes, 18 to 19 Therapy                C3F1          2.3842
                                              Visits.
22321......................................  3rd+ Episodes, 14 to 15 Therapy                C3F2          2.0967
                                              Visits.
22322......................................  3rd+ Episodes, 16 to 17 Therapy                C3F2          2.3031
                                              Visits.
22323......................................  3rd+ Episodes, 18 to 19 Therapy                C3F2          2.5094
                                              Visits.
22331......................................  3rd+ Episodes, 14 to 15 Therapy                C3F3          2.2542
                                              Visits.
22332......................................  3rd+ Episodes, 16 to 17 Therapy                C3F3          2.4492
                                              Visits.
22333......................................  3rd+ Episodes, 18 to 19 Therapy                C3F3          2.6441
                                              Visits.
30111......................................  3rd+ Episodes, 0 to 5 Therapy                  C1F1          0.6923
                                              Visits.
30112......................................  3rd+ Episodes, 6 Therapy Visits....            C1F1          0.8811
30113......................................  3rd+ Episodes, 7 to 9 Therapy                  C1F1          1.0699
                                              Visits.

[[Page 41012]]

 
30114......................................  3rd+ Episodes, 10 Therapy Visits...            C1F1          1.2588
30115......................................  3rd+ Episodes, 11 to 13 Therapy                C1F1          1.4476
                                              Visits.
30121......................................  3rd+ Episodes, 0 to 5 Therapy                  C1F2          0.8712
                                              Visits.
30122......................................  3rd+ Episodes, 6 Therapy Visits....            C1F2          1.0399
30123......................................  3rd+ Episodes, 7 to 9 Therapy                  C1F2          1.2087
                                              Visits.
30124......................................  3rd+ Episodes, 10 Therapy Visits...            C1F2          1.3774
30125......................................  3rd+ Episodes, 11 to 13 Therapy                C1F2          1.5462
                                              Visits.
30131......................................  3rd+ Episodes, 0 to 5 Therapy                  C1F3          0.9675
                                              Visits.
30132......................................  3rd+ Episodes, 6 Therapy Visits....            C1F3          1.1485
30133......................................  3rd+ Episodes, 7 to 9 Therapy                  C1F3          1.3294
                                              Visits.
30134......................................  3rd+ Episodes, 10 Therapy Visits...            C1F3          1.5104
30135......................................  3rd+ Episodes, 11 to 13 Therapy                C1F3          1.6914
                                              Visits.
30211......................................  3rd+ Episodes, 0 to 5 Therapy                  C2F1          0.7615
                                              Visits.
30212......................................  3rd+ Episodes, 6 Therapy Visits....            C2F1          0.9693
30213......................................  3rd+ Episodes, 7 to 9 Therapy                  C2F1          1.1771
                                              Visits.
30214......................................  3rd+ Episodes, 10 Therapy Visits...            C2F1          1.3849
30215......................................  3rd+ Episodes, 11 to 13 Therapy                C2F1          1.5927
                                              Visits.
30221......................................  3rd+ Episodes, 0 to 5 Therapy                  C2F2          0.9405
                                              Visits.
30222......................................  3rd+ Episodes, 6 Therapy Visits....            C2F2          1.1281
30223......................................  3rd+ Episodes, 7 to 9 Therapy                  C2F2          1.3158
                                              Visits.
30224......................................  3rd+ Episodes, 10 Therapy Visits...            C2F2          1.5035
30225......................................  3rd+ Episodes, 11 to 13 Therapy                C2F2          1.6912
                                              Visits.
30231......................................  3rd+ Episodes, 0 to 5 Therapy                  C2F3          1.0367
                                              Visits.
30232......................................  3rd+ Episodes, 6 Therapy Visits....            C2F3          1.2367
30233......................................  3rd+ Episodes, 7 to 9 Therapy                  C2F3          1.4366
                                              Visits.
30234......................................  3rd+ Episodes, 10 Therapy Visits...            C2F3          1.6365
30235......................................  3rd+ Episodes, 11 to 13 Therapy                C2F3          1.8364
                                              Visits.
30311......................................  3rd+ Episodes, 0 to 5 Therapy                  C3F1          0.9646
                                              Visits.
30312......................................  3rd+ Episodes, 6 Therapy Visits....            C3F1          1.1753
30313......................................  3rd+ Episodes, 7 to 9 Therapy                  C3F1          1.3861
                                              Visits.
30314......................................  3rd+ Episodes, 10 Therapy Visits...            C3F1          1.5968
30315......................................  3rd+ Episodes, 11 to 13 Therapy                C3F1          1.8076
                                              Visits.
30321......................................  3rd+ Episodes, 0 to 5 Therapy                  C3F2          1.1435
                                              Visits.
30322......................................  3rd+ Episodes, 6 Therapy Visits....            C3F2          1.3342
30323......................................  3rd+ Episodes, 7 to 9 Therapy                  C3F2          1.5248
                                              Visits.
30324......................................  3rd+ Episodes, 10 Therapy Visits...            C3F2          1.7155
30325......................................  3rd+ Episodes, 11 to 13 Therapy                C3F2          1.9061
                                              Visits.
30331......................................  3rd+ Episodes, 0 to 5 Therapy                  C3F3          1.2398
                                              Visits.
30332......................................  3rd+ Episodes, 6 Therapy Visits....            C3F3          1.4427
30333......................................  3rd+ Episodes, 7 to 9 Therapy                  C3F3          1.6456
                                              Visits.
30334......................................  3rd+ Episodes, 10 Therapy Visits...            C3F3          1.8485
30335......................................  3rd+ Episodes, 11 to 13 Therapy                C3F3          2.0514
                                              Visits.
40111......................................  All Episodes, 20+ Therapy Visits...            C1F1          2.1325
40121......................................  All Episodes, 20+ Therapy Visits...            C1F2          2.2812
40131......................................  All Episodes, 20+ Therapy Visits...            C1F3          2.4043
40211......................................  All Episodes, 20+ Therapy Visits...            C2F1          2.3046
40221......................................  All Episodes, 20+ Therapy Visits...            C2F2          2.4532
40231......................................  All Episodes, 20+ Therapy Visits...            C2F3          2.5764
40311......................................  All Episodes, 20+ Therapy Visits...            C3F1          2.5671
40321......................................  All Episodes, 20+ Therapy Visits...            C3F2          2.7158
40331......................................  All Episodes, 20+ Therapy Visits...            C3F3          2.8390
----------------------------------------------------------------------------------------------------------------

C. Outlier Policy

1. Background
    Section 1895(b)(5) of the Act allows for the provision of an 
addition or adjustment to the national standardized 60-day case-mix and 
wage-adjusted episode payment amounts in the case of episodes that 
incur unusually high costs due to patient home health (HH) care needs. 
Prior to the enactment of the Affordable Care Act in March 2010, this 
section of the Act stipulated that total outlier payments could not 
exceed 5 percent of total projected or estimated HH payments in a given 
year. In the July 2000 final rule (65 FR 41188 through 41190), we 
described the method for determining outlier payments. Under this 
system, outlier payments are made for episodes whose estimated costs 
exceed a threshold amount for each Home Health Resource Group (HHRG). 
The episode's estimated cost is the sum of the national wage-adjusted 
per-visit payment amounts for all visits delivered during the episode. 
The outlier threshold for each case-mix group or partial episode 
payment (PEP) adjustment is defined as the 60-day episode payment or 
PEP adjustment for that group plus a fixed dollar loss (FDL) amount. 
The outlier payment is defined to be a proportion of the wage-adjusted 
estimated cost beyond the wage-adjusted threshold. The threshold

[[Page 41013]]

amount is the sum of the wage and case-mix adjusted PPS episode amount 
and wage-adjusted fixed dollar loss amount. The proportion of 
additional costs paid as outlier payments is referred to as the loss-
sharing ratio.
2. Regulatory Update
    In the CY 2010 HH PPS final rule (74 FR 58080 through 58087), we 
discussed excessive growth in outlier payments, primarily the result of 
unusually high outlier payments in a few areas of the country. Despite 
program integrity efforts associated with excessive outlier payments in 
targeted areas of the country, we discovered that outlier expenditures 
exceeded the 5 percent statutory limit. Consequently, we assessed the 
appropriateness of taking action to curb outlier abuse. To mitigate 
possible billing vulnerabilities associated with excessive outlier 
payments and adhere to our statutory limit on outlier payments, we 
adopted an outlier policy that included a 10 percent agency level cap 
on outlier payments. This cap was done in concert with a reduced fixed 
dollar loss (FDL) ratio of 0.67. These policies resulted in a projected 
target outlier pool of approximately 2.5 percent. (The previous outlier 
pool was 5 percent of total HH expenditures.)
    For CY 2010, we first returned 5 percent of these dollars back into 
the national standardized 60-day episode rates, the national per-visit 
rates, the low utilization payment adjustment (LUPA) add-on payment 
amount, and the non-routine supplies (NRS) conversion factor. Then, we 
reduced the CY 2010 rates by 2.5 percent to account for the new outlier 
pool of 2.5 percent. This outlier policy was adopted for CY 2010 only.
3. Statutory Update
    As outlined in the CY 2011 HH PPS final rule (75 FR 70397 through 
70399), sections 3131(b)(1) and 3131(b)(2) of the Affordable Care Act 
amended sections 1895(b)(3)(C) and 1895(b)(5) of the Act. Specifically, 
section 3131(b)(2) of the Affordable Care Act amended section 
1895(b)(5) of the Act by redesignating the existing language as section 
1895(b)(5)(A) of the Act, and revising it to state that the Secretary, 
``may provide for an addition or adjustment to the payment amount 
otherwise made in the case of outliers because of unusual variations in 
the type or amount of medically necessary care. The total amount of the 
additional payments or payment adjustments made under this paragraph 
with respect to a fiscal year or year may not exceed 2.5 percent of the 
total payments projected or estimated to be made based on the 
prospective payment system under this subsection in that year.''
    The result of these revisions was that, beginning in CY 2011, we 
reduced payment rates by 5 percent, targeted up to 2.5 percent of 
estimated total payments to be paid as outlier payments, and applied a 
10 percent agency-level outlier cap.
4. Loss-Sharing Ratio and Fixed Dollar Loss (FDL) Ratio
    For a given level of outlier payments, there is a trade-off between 
the values selected for the FDL ratio and the loss-sharing ratio. A 
high FDL ratio reduces the number of episodes that can receive outlier 
payments, but makes it possible to select a higher loss-sharing ratio 
and, therefore, increase outlier payments for outlier episodes. 
Alternatively, a lower FDL ratio means that more episodes can qualify 
for outlier payments, but outlier payments per episode must then be 
lower.
    The FDL ratio and the loss-sharing ratio must be selected so that 
the estimated total outlier payments do not exceed the 2.5 percent 
aggregate level (as required by section 1895(b)(5)(A) of the Act). In 
the past, we have used a value of 0.80 for the loss-sharing ratio, 
which is relatively high, but preserves incentives for agencies to 
attempt to provide care efficiently for outlier cases. With a loss-
sharing ratio of 0.80, Medicare pays 80 percent of the additional costs 
above the wage-adjusted outlier threshold amount. In the CY 2011 HH PPS 
final rule (75 FR 70398), in targeting total outlier payments as 2.5 
percent of total HH PPS payments, we implemented an FDL ratio of 0.67.
    A preliminary look at partial CY 2010 Health Care Information 
System (HCIS) data indicates that, because the total outlier payments 
comprise approximately 2 percent of total payments, we would maintain 
the current FDL ratio of 0.67. However, in the final rule, we will 
update our estimate of the FDL ratio using the most current and 
complete year of HH PPS data available.
    Table 18 shows outlier payment history as a percentage of total HH 
PPS payments between calendar years 2004 and 2009. Preliminary data for 
CY 2010 is also provided; however, this data represents only a portion 
of the data available and is current only through part of the third 
quarter.

                           Table 18--Outlier Payment History--CY 2004 Through CY 2010
----------------------------------------------------------------------------------------------------------------
                                                                                                      Outlier
                          Year                              Outlier payment      Total HH PPS         payment
                                                                                    payment         percentage
----------------------------------------------------------------------------------------------------------------
2004....................................................        $309,198,604     $11,500,462,624            2.69
2005....................................................         527,096,653      12,885,434,951            4.09
2006....................................................         701,945,386      14,041,853,560            5.00
2007....................................................         996,316,407      15,677,329,001            6.36
2008....................................................       1,127,162,152      17,114,906,875            6.59
2009....................................................       1,204,246,569      18,895,476,901            6.37
2010....................................................         233,274,303      13,878,411,396          * 1.68
----------------------------------------------------------------------------------------------------------------
* This CY 2010 outlier payment projection is based only on claims reported through part of the third quarter.

5. Outlier Relationship to the HH Payment Study
    As we discuss later in this proposed rule, section 3131(d) of the 
Affordable Care Act requires CMS to conduct a study and report on 
developing HH payment revisions that will ensure access to care and 
payment for HH patients with high severity of illness. Our Report to 
Congress containing this study's recommendations is due no later than 
March 1, 2014. Section 3131(d)(1)(A)(iii) of the Affordable Care Act, 
in particular, states that this study may include analysis of potential 
revisions to outlier payments to better reflect costs of treating 
Medicare beneficiaries with high levels of severity of illness.

D. CY 2012 Rate Update

1. Home Health Market Basket Update
    Section 1895(b)(3)(B) of the Act requires that the standard 
prospective

[[Page 41014]]

payment amounts for CY 2012 be increased by a factor equal to the 
applicable home health market basket update for those HHAs that submit 
quality data as required by the Secretary. Section 3401(e) of the 
Affordable Care Act amended section 1895(b)(3)(B) of the Act by adding 
a new clause (vi) which states, ``After determining the home health 
market basket percentage increase * * * the Secretary shall reduce such 
percentage * * * for each of 2011, 2012, and 2013, by 1 percentage 
point. The application of this clause may result in the home health 
market basket percentage increase under clause (iii) being less than 
0.0 for a year, and may result in payment rates under the system under 
this subsection for a year being less than such payment rates for the 
preceding year.''
    The proposed HH PPS market basket update for CY 2012 is 2.5 
percent. This is based on Global Insight Inc.'s first quarter 2011 
forecast, utilizing historical data through the fourth quarter of 2010. 
A detailed description of how we derive the HHA market basket is 
available in the CY 2008 HH PPS proposed rule (72 FR 25356, 25435). Due 
to the requirement in section 1895(b)(3)(B)(vi) of the Act, the 
proposed CY 2012 market basket update of 2.5 percent must be reduced by 
1 percentage point to 1.5 percent. In effect, the proposed CY 2012 
market basket update becomes 1.5 percent.
2. Home Health Care Quality Reporting Program
a. Background and Quality Reporting Requirements
    Section 1895(b)(3)(B)(v)(II) of the Act states that ``each home 
health agency shall submit to the Secretary such data that the 
Secretary determines are appropriate for the measurement of health care 
quality. Such data shall be submitted in a form and manner, and at a 
time, specified by the Secretary for purposes of this clause.'' In 
addition, section 1895(b)(3)(B)(v)(I) of the Act dictates that ``for 
2007 and each subsequent year, in the case of a HHA that does not 
submit data to the Secretary in accordance with subclause (II) with 
respect to such a year, the HH market basket percentage increase 
applicable under such clause for such year shall be reduced by 2 
percentage points.'' This requirement has been codified in regulations 
at Sec.  484.225(i). HHAs that meet the quality data reporting 
requirements would be eligible for the full home health market basket 
percentage increase. HHAs that do not meet the reporting requirements 
would be subject to a 2 percent reduction to the home health market 
basket increase.
b. OASIS Data
    Accordingly, for CY 2012, we propose to continue to use a HHA's 
submission of OASIS data as one form of quality data to meet the 
requirement that the HHA submit data appropriate for the measurement of 
health care quality. We are proposing for CY 2012 to consider OASIS 
assessments submitted by HHAs to CMS in compliance with HHA Conditions 
of Participation and Conditions for Payment for episodes beginning on 
or after July 1, 2010 and before July 1, 2011 as fulfilling one portion 
of the quality reporting requirement for CY 2012. This time period 
would allow 12 full months of data collection and would provide us the 
time necessary to analyze and make any necessary payment adjustments to 
the payment rates for CY 2012. We propose to reconcile the OASIS 
submissions with claims data to verify full compliance with the OASIS 
portion of the quality reporting requirements in CY 2012 and each year 
thereafter on an annual cycle July 1 through June 30 as described 
above.
    As set forth in the CY 2008 final rule, agencies do not need to 
submit OASIS data for those patients who are excluded from the OASIS 
submission requirements under the Home Health Conditions of 
Participation (CoPs) Sec.  484.1-Sec.  484.265, as well as those 
excluded, as described at 70 FR 76202:
     Those patients receiving only nonskilled services;
     Those patients for whom neither Medicare nor Medicaid is 
paying for home health care (patients receiving care under a Medicare 
or Medicaid Managed Care Plan are not excluded from the OASIS reporting 
requirement);
     Those patients receiving pre- or post-partum services; or
     Those patients under the age of 18 years.
    As set forth in the CY 2008 HH PPS final rule (72 FR 49863), 
agencies that become Medicare-certified on or after May 31 of the 
preceding year (2011 for payments in 2012) are excluded from any 
payment penalty for quality reporting purposes for the following CY. 
Therefore, HHAs that are certified on or after May 1, 2011 are excluded 
from the quality reporting requirement for CY 2012 payments. These 
exclusions only affect quality reporting requirements and do not affect 
the HHA's reporting responsibilities under the Conditions of 
Participation and Conditions of Payment.
(1) OASIS Data and Annual Payment Update
    HHAs that submit OASIS data as specified above are considered to 
have met one portion of the quality data reporting requirements. 
Additional portions of the quality data reporting requirements are 
discussed below under sections D.2.c and D.2.d of this preamble.
(2) OASIS Data and Public Reporting
    Section 1895(b)(3)(B)(v)(III) of the Act further states that 
``[t]he Secretary shall establish procedures for making data submitted 
under sub clause (II) available to the public. Such procedures shall 
ensure that a home health agency has the opportunity to review the data 
that is to be made public with respect to the agency prior to such data 
being made public.''
    To meet the requirement for making such data public, we propose to 
continue using a subset of OASIS data that is utilized for quality 
measure development and reported on the Home Health Compare Web site. 
Currently, the Home Health Compare web site lists 23 quality measures 
from the OASIS data set as described below. The Home Health Compare web 
site, which was redesigned in October 2010, is located at http://www.medicare.gov/HHCompare/Home.asp. Each HHA currently has pre-
publication access, through the CMS contractor, to its own quality data 
that the contractor updates periodically. We propose to continue this 
process, to enable each agency to view its quality measures before 
public posting of data on Home Health Compare.
    The following 13 OASIS-C process measures have been publicly 
reported on Home Health Compare since October 2010:
     Timely initiation of care.
     Influenza immunization received for current flu season.
     Pneumococcal polysaccharide vaccine ever received.
     Heart failure symptoms addressed during short-term 
episodes.
     Diabetic foot care and patient education implemented 
during short-term episodes of care.
     Pain assessment conducted.
     Pain interventions implemented during short-term episodes.
     Depression assessment conducted.
     Drug education on all medications provided to patient/
caregiver during short-term episodes.
     Falls risk assessment for patients 65 and older.
     Pressure ulcer prevention plans implemented.
     Pressure ulcer risk assessment conducted.

[[Page 41015]]

     Pressure ulcer prevention included in the plan of care.
    We published information about these new process measures in the 
Federal Register in the CY 2010 HH PPS proposed and final rules (74 FR 
40960 and 74 FR 58096, respectively), and in the CY 2011 HH PPS 
proposed and final rules (75 FR 43250 and 75 FR 70401, respectively). 
We proposed and finalized the decision to update Home Health Compare in 
October 2010 to reflect the addition of the process measures.
    We propose to continue publicly reporting these 13 process measures 
and consider them as measures of home health quality.
    The following 10 OASIS-C outcome measures are currently listed on 
Home Health Compare:
     Improvement in ambulation/locomotion.
     Improvement in bathing.
     Improvement in bed transferring.
     Improvement in management of oral medications.
     Improvement in pain interfering with activity.
     Acute care hospitalization.
     Emergency Department Use Without Hospitalization.
     Improvement in dyspnea.
     Improvement in status of surgical wounds.
     Increase in number of pressure ulcers.
    As proposed and finalized in the CY 2011 HH PPS final rule (75 FR 
70401), these OASIS-C outcome measure calculations will be publicly 
reported for the first time in July 2011. (3) Transition from OASIS-B1 
to OASIS-C
    The implementation of OASIS-C on January 1, 2010 impacted the 
schedule of quality measure reporting for CY 2010 and CY 2011. Although 
sufficient OASIS-C data were collected during CY 2010 and early CY 2011 
and risk models were in development, the outcome reports (found on Home 
Health Compare and the contractor outcome reports used for HHA's 
performance improvement activities) remained static with OASIS-B1 data. 
The last available OASIS-B1 reports remained in the system and on the 
Home Health Compare site until they could be replaced with OASIS-C 
reports. Sufficient numbers of patient episodes were needed to report 
measures based on new OASIS-C data. This is important because measures 
based on patient sample sizes taken over short periods of time can be 
inaccurate and misleading due to issues like seasonal variation and 
under-representation of long-stay home health patients. Once sufficient 
OASIS-C data were collected and submitted to CMS's national repository, 
we could begin producing new reports based on OASIS-C.
    December 2009 was the last month for which outcome data were 
calculated for OASIS-B1 data and OASIS-B1 CASPER outcome reports 
continued to be available after March 2010. OASIS-C process measures 
were made available to preview in September 2010 and were publicly 
reported in October 2010. OASIS-C outcome measures will be available to 
preview in June 2011 and will be publicly reported in July 2011.
c. Claims Data, Proposed Requirements and Outcome Measure Change
    We propose to continue to use the aforementioned specified measures 
derived from the OASIS-C data for purposes of measuring home health 
care quality. We propose to also use measures derived from Medicare 
claims data to measure home health quality. This would also ensure that 
providers would not have an additional burden of reporting quality of 
care measures through a separate mechanism, and that the costs 
associated with the development and testing of a new reporting 
mechanism would be avoided.
    The change to OASIS-C brought about modifications to the OASIS-B1 
measure ``Emergent Care,'' and resulted in the following change to that 
measure:
     Emergency Department Use without Hospitalization: This 
measure replaces the previously reported measure: Emergent care. It 
excludes emergency department visits that result in a hospital 
admission because those visits are already captured in the acute care 
hospitalization measure.
    Upon review of actual claims data for emergency department visits 
and responses to OASIS-C data item M2300, we determined that the claims 
data are a more robust source of data for this measure, therefore the 
OASIS-based measure ``Emergency Department Use Without 
Hospitalization'' will not be publicly reported in July 2011. The ED 
Use Without Hospitalization measure will be recalculated from claims 
data and we propose that public reporting of the claims-based measure 
would begin January 2012. We invite comment on the proposed use of 
claims data in the calculation of home health quality measures and as 
an additional measurement of home health quality.
    To summarize, we propose that the following 13 process and 9 
outcome measures, which comprise measurement of home health care 
quality, would continue to be publicly reported in July 2011 and 
quarterly thereafter:
     Timely initiation of care.
     Influenza immunization received for current flu season.
     Pneumococcal polysaccharide vaccine ever received.
     Heart failure symptoms addressed during short-term 
episodes.
     Diabetic foot care and patient education implemented 
during short-term episodes of care.
     Pain assessment conducted.
     Pain interventions implemented during short-term episodes.
     Depression assessment conducted.
     Drug education on all medications provided to patient/
caregiver during short-term episodes.
     Falls risk assessment for patients 65 and older.
     Pressure ulcer prevention plans implemented.
     Pressure ulcer risk assessment conducted.
     Pressure ulcer prevention included in the plan of care.
     Improvement in ambulation/locomotion.
     Improvement in bathing.
     Improvement in bed transferring.
     Improvement in management of oral medications.
     Improvement in pain interfering with activity.
     Acute care hospitalization.
     Improvement in dyspnea.
     Improvement in status of surgical wounds.
     Increase in number of pressure ulcers.
    We propose that the claims-based measure ``Emergency Department Use 
without Hospitalization'' would be publicly reported in January 2012.
d. Home Health Care CAHPS Survey (HHCAHPS)
    In the HH PPS Rate Update for CY 2011 final rule (75 FR 70404 et 
seq.), we stated that the expansion of the HH quality measures 
reporting requirements for Medicare-certified agencies will include the 
CAHPS[reg] Home Health Care (HHCAHPS) Survey for the CY 2012 annual 
payment update (APU). We are maintaining our existing policy as issued 
in the CY 2011 HH PPS Rate Update, and are moving forward with our 
plans for HHCAHPS linkage to the pay-for-reporting (P4R) requirements 
affecting the HH PPS rate update for CY 2012.
(1) Background and Description of HHCAHPS
    As part of the U.S. Department of Health and Human Services' (DHHS) 
Transparency Initiative, we have implemented a process to measure and 
publicly report patient experiences with home health care using a 
survey

[[Page 41016]]

developed by the Agency for Healthcare Research and Quality's (AHRQ's) 
Consumer Assessment of Healthcare Providers and Systems (CAHPS[supreg]) 
program, and endorsed by the National Quality Forum (NQF). The HHCAHPS 
survey is part of a family of CAHPS[supreg] surveys that asks patients 
to report on and rate their experiences with health care. The Home 
Health Care CAHPS (HHCAHPS) survey presents home health patients with a 
set of standardized questions about their home health care providers 
and about the quality of their home health care. Prior to this survey, 
there was no national standard for collecting information about patient 
experiences that would enable valid comparisons across all HHAs. The 
history of the HHCAHPS has been given in previous rules, but it is also 
available on our Web site at https://homehealthcahps.org and also, in 
the HHCAHPS Protocols and Guidelines Manual, which is downloadable from 
our Web site.
    For public reporting purposes, we will present five measures--three 
composite measures and two global ratings of care from the questions on 
the HHCAHPS survey. The publicly reported data will be adjusted for 
differences in patient mix across home health agencies. Each composite 
measure consists of four or more questions regarding one of the 
following related topics:
     Patient care (Q9, Q16, Q19, and Q24);
     Communications between providers and patients (Q2, Q15, 
Q17, Q18, Q22, and Q23);
     Specific care issues on medications, home safety, and pain 
(Q3, Q4, Q5, Q10, Q12, Q13, and Q14);
    The two global ratings are the overall rating of care given by the 
HHA's care providers, and the patient's willingness to recommend the 
HHA to family and friends.
    The HHCAHPS survey is currently available in six languages. At the 
time of the CY 2010 HH PPS final rule, HHCAHPS was only available in 
English and Spanish translations. In the proposed rule for CY 2010, we 
stated that we would provide additional translations of the survey over 
time in response to suggestions for any additional language 
translations. We now offer HHCAHPS in English, Spanish, Mandarin 
(Simplified) Chinese, Cantonese (Classical) Chinese, Russian, and 
Vietnamese languages. We will continue to consider additional 
translations of the HHCAHPS in response to the needs of the home health 
patient population.
    All of the requirements about eligibility for HHCAHPS and 
conversely, which home health patients are ineligible for HHCAHPS are 
delineated and detailed in the HHCAHPS Protocols and Guidelines Manual 
which is downloadable from the official Home Health Care CAHPS Web site 
https://homehealthcahps.org. To be eligible, home health patients must 
have received at least two skilled home health visits in the past 2 
months, paid for by Medicare or Medicaid. HHCAHPS surveys will not be 
taken from patients who are:
     Under the age of 18;
     Deceased;
     Receiving hospice care;
     Receiving routine maternity care only;
     Living in a State that restricts the release of patient 
information for a specific condition or illness that the patient has; 
or are
     Requesting that their names not be released to anyone.
    We stated in previous rules that Medicare-certified agencies are 
required to contract with an approved HHCAHPS survey vendor. Beginning 
in summer 2009, interested vendors applied to become approved HHCAHPS 
survey vendors. HHCAHPS survey vendors are required to attend 
introductory and all update trainings conducted by CMS and the HHCAHPS 
Survey Coordination Team, as well as to pass a post-training 
certification test. We now have approximately 40 approved HHCAHPS 
survey vendors. The list of approved vendors is available at https://homehealthcahps.org.
(2) HHCAHPS Requirements for CY 2012
    In the CY 2010 HH PPS final rule (74 FR 58078 et seq.), we stated 
that HHCAHPS would not be required for the APU for CY 2011. We did this 
so that HHAs would have more time to prepare for the implementation of 
HHCAHPS. Therefore, in the CY 2010 HH PPS final rule, we stated that 
data collection should take place beginning in the third quarter of CY 
2010 to meet the HHCAHPS reporting requirements for the CY 2012 APU. In 
the CY 2010 HH PPS final rule, and in the CY 2011 HH PPS final rule, we 
stated that Medicare-certified agencies would be required to 
participate in a dry run for at least 1 month in third quarter of 2010 
(July, August, and/or September), and to begin continuous monthly data 
collection in October 2010 through March 2011, for the CY 2012 APU. The 
dry run data were due to the Home Health CAHPS[supreg] Data Center by 
11:59 p.m., eastern standard time (e.s.t.) on January 21, 2011. The dry 
run data will not be publicly reported on the CMS Home Health Compare 
web site. The purpose of the dry run was to provide an opportunity for 
vendors and HHAs to acquire first-hand experience with data collection, 
including sampling and data submission to the Home Health Care 
CAHPS[supreg] Data Center.
    In the CY 2011 HH PPS final rule, it was stated that the mandatory 
period of data collection for the CY 2012 APU would include the dry run 
data in the third quarter 2010, data from each month in the fourth 
quarter of 2010 (October, November and December 2010), and data from 
each month in the first quarter 2011 (January, February and March 
2011). We previously stated that all Medicare-certified HHAs should 
continuously collect HHCAHPS survey data for every month in every 
quarter beginning October 2010, and submit these data for the fourth 
quarter of 2010 to the Home Health CAHPS[supreg] Data Center by 11:59 
p.m., eastern daylight time (e.d.t.) on April 21, 2011. In the CY 2011 
HH PPS final rule, we stated that the data collected for the 3 months 
of the first quarter 2011 would have to be submitted to the Home Health 
CAHPS[supreg] Data Center by 11:59 p.m., e.d.t. on July 21, 2011. We 
also stated that these data submission deadlines would be firm (that 
is, no late submissions would be accepted).
    These periods (a dry run in third quarter 2010, and 6 months of 
data from October 2010 through March 2011) were deliberately chosen to 
comprise the HHCAHPS reporting requirements for the CY 2012 APU because 
they coincided with the OASIS-C reporting requirements that would 
already have been due on June 30, 2011 for the CY 2012 APU. We would 
also exempt Medicare-certified agencies from the HHCAHPS reporting 
requirements if they had fewer than 60 HHCAHPS-eligible unique patients 
from April 1, 2009 through March 31, 2010. In the CY 2011 HH PPS final 
rule, we stated that by January 21, 2011 HHAs would need to provide CMS 
with patient counts for the period of April 1, 2009 through March 31, 
2010. We have posted a form on https://homehealthcahps.org that the 
HHAs would need to use to submit their patient counts. This patient 
counts reporting requirement would pertain only to Medicare-certified 
HHAs with fewer than 60 HHCAHPS eligible, unduplicated or unique 
patients for that time period. The aforementioned agencies would be 
exempt from conducting the HHCAHPS survey for the APU in CY 2012.
    We stated in the CY 2010 HH PPS final rule (74 FR 58078) and in the 
CY

[[Page 41017]]

2011 HH PPS final rule that we would exempt newly Medicare-certified 
HHAs. We realize that if an HHA became Medicare-certified April 1, 2010 
and after, then they would be exempt from participating in HHCAHPS.
    For CY 2012, we propose to maintain our policy that all HHAs, 
unless covered by specific exclusions, must meet the quality reporting 
requirements or be subject to a two (2) percentage point reduction in 
the HH market basket percentage increase, in accordance with section 
1895(b)(3)(B)(v)(I) of the Act.
(3) HHCAHPS Reconsiderations and Appeals Process
    We stated in the CY 2011 HH PPS final rule that we would propose a 
reconsiderations and appeals process for HHAs not meeting the HHCAHPS 
reporting requirements for CY 2012. We are therefore now proposing a 
reconsiderations and appeals process for HHAs that fail to meet the 
HHCAHPS data collection requirements. We are proposing that HHAs that 
are not compliant with OASIS-C and/or HHCAHPS requirements for the CY 
2012 APU requirements will be notified after a process is followed to 
confirm that they were noncompliant with CY 2012 quality reporting 
requirements. We are proposing to issue a Joint Signature Memorandum to 
RHHIs/MACs with a list of HHAs not compliant with OASIS and/or HHCAHPS. 
We are proposing that the September Memorandum include language 
regarding evidence required for the reconsideration process. We are 
proposing that the language in the transmittal include information to 
the HHAs about how to prepare a request for reconsideration of the CMS 
decision, and these HHAs will have 30 days to file their requests for 
reconsiderations to CMS. We are proposing that we examine each request 
and make a determination about whether we plan to uphold our original 
decision. We are proposing that HHAs receive CMS'reconsideration 
decision by December 31, 2011. We are proposing that HHAs have a right 
to appeal under 42 CFR 405, subpart R, to the Provider Reimbursement 
Review Board (PRRB) if they were not satisfied with the CMS 
reconsideration determination.
    We are proposing that this Memorandum be a CMS transmittal that 
would be sent out the first week of September 2011 from the CMS Manual 
System, Medicare Claims Processing. We are proposing that this CMS 
transmittal be sent to Fiscal Intermediaries (FIs), Regional Home 
Health Intermediaries (RHHIs) and/or Carriers. We propose that the 
RHHIs/MACs verify the claims submissions for the identified timeframe 
for the 2012 APU period, to confirm that the claims match the HHAs we 
identified as noncompliant with OASIS and HHCAHPS. In late September/
early October, the appropriate staff within CMS would review your 
submission. If necessary, the RHHIs/MACs would identify and notify the 
HHAs that they could lose 2 percent of their 2012 APU, and provide them 
with instructions on how to request reconsideration. In early November 
2011, the RHHIs/MACS would forward the HHAs reconsiderations to CMS on 
a flow basis so that we could review and prepare recommendations for 
cross component review within CMS throughout the month of November. We 
propose to have CMS finish this process in December, and about mid-
December to circulate the recommendations for clearance and final 
determinations by CMS senior leadership. We propose that the HHAs would 
be informed about CMS' final decisions by December 31, 2011.
(4) HHCAHPS Oversight Activities
    We stated in the CY 2011 HH PPS final rule that vendors and HHAs 
would be required to participate in HHCAHPS oversight activities to 
ensure compliance with HHCAHPS protocols, guidelines, and survey 
requirements. The purpose of the oversight activities is to ensure that 
HHAs and approved survey vendors follow the HHCAHPS Protocols and 
Guidelines Manual. As stated, all approved survey vendors must develop 
a Quality Assurance Plan (QAP) for survey administration in accordance 
with the HHCAHPS Protocols and Guidelines Manual. The first QAP must be 
submitted within 6 weeks of the data submission deadline after the 
vendor's first quarterly data submission. The QAP must be updated and 
submitted annually thereafter and at any time that changes occur in 
staff or vendor capabilities or systems. A model QAP is included in the 
HHCAHPS Protocols and Guidelines Manual. The QAP should include the 
following:
     Organizational Background and Staff Experience.
     Work Plan.
     Sampling Plan.
     Survey Implementation Plan.
     Data Security, Confidentiality and Privacy Plan.
     Questionnaire Attachments.
    As part of the oversight activities, the HHCAHPS Survey 
Coordination Team conducts on-site visits to the HHCAHPS vendors. The 
purpose of the site visits is to allow the HHCAHPS Coordination Team to 
observe the entire Home Health Care CAHPS Survey implementation 
process, from the sampling stage through file preparation and 
submission, as well as to assess how the HHCAHPS data are stored. The 
HHCAHPS Survey Coordination Team reviews the survey vendor's survey 
systems, and assesses administration protocols based on the HHCAHPS 
Protocols and Guidelines Manual posted at https://homehealthcahps.org. 
The HHCAHPS Survey Coordination Team includes the CMS staff assigned to 
work on HHCAHPS, and the Federal contractor for the HHCAHPS 
implementation. HHCAHPS survey vendors are not part of the HHCAHPS 
Survey Coordination Team. The systems and program review include, but 
are not limited, to the following:
     Survey management and data systems;
     Printing and mailing materials facilities;
     Telephone call center facilities;
     Data receipt, entry and storage facilities; and
     Written documentation of survey processes.
    After the site visits, vendors are given a defined time period in 
which to correct any identified issues and provide follow-up 
documentation of corrections for review. In general, we propose that 
the defined time periods will be between 2 weeks to 1 month after these 
issues are stated in the HHCAHPS Coordination Team's site visit report 
to the survey vendor. It is proposed that survey vendors will be 
subject to follow-up site visits as needed.
(5) HHCAHPS Requirements for CY 2013
    For the CY 2013 APU, we propose to require HHCAHPS data collection 
and reporting for four quarters. The data collection period will 
include second quarter 2011 through first quarter 2012. We propose that 
HHAs will be required to submit their HHCAHPS data files to the Home 
Health CAHPS Data Center the third Thursday of the month (in the months 
of October, January, April and July). HHAs will be required to submit 
their HHCAHPS data files to the Home Health CAHPS Data Center for CY 
2013 as follows: the data for the second quarter 2011 by 11:59 p.m., 
e.d.t. on October 20, 2011; the data for the third quarter 2011 by 
11:59 p.m., e.s.t. on January 19, 2012; the data for the fourth quarter 
2011 by 11:59 p.m., e.d.t. on April 19, 2012; and the data for the 
first quarter 2012 by 11:59 p.m., e.d.t. on July 19, 2012.

[[Page 41018]]

    We propose to require that all HHAs that have fewer than 60 
HHCAHPS-eligible unduplicated or unique patients in the period of April 
1, 2010 through March 31, 2011 will be exempt from the HHCAHPS data 
collection and submission requirements for the CY 2013 APU. For the CY 
2013 APU, agencies with fewer than 60 HHCAHPS-eligible, unduplicated or 
unique patients would be required to submit their counts on the 
Participation Exemption Request form posted at https://homehealthcahps.org by 11:59 p.m., e.d.t. on April 19, 2012. This 
deadline is firm, as are all of the quarterly data submission 
deadlines.
    We propose to exempt HHAs receiving Medicare certification on or 
after April 1, 2011 from the full HHCAHPS reporting requirement for the 
CY 2013 APU, because these HHAs were not Medicare-certified in the 
period of April 1, 2010 and March 31, 2011.
(6) HHCAHPS Codified Criteria
    The following codified criteria stay the same as issued in the CY 
2011 HH PPS final rule (75 FR 70465). We stated in Sec.  484.250(b) 
that ``An HHA that has less than 60 eligible unique HHCAHPS patients 
annually must submit to CMS their total HHCAHPS patient count to CMS to 
be exempt from the HHCAHPS reporting requirements.'' In Sec.  
484.250(c), we stated that ``An HHA must contract with an approved, 
independent HHCAHPS survey vendor to administer the HHCAHPS on its 
behalf.''
    In Sec.  484.250(c)(1), we stated that ``CMS approves an HHCAHPS 
survey vendor if such applicant has been in business for a minimum of 3 
years and has conducted surveys of individuals and samples for at least 
2 years. For HHCAHPS, a ``survey of individuals'' is defined as the 
collection of data from at least 600 individuals selected by 
statistical sampling methods and the data collected are used for 
statistical purposes. All applicants that meet these requirements will 
be approved by CMS.''
    In Sec.  484.250(c)(2) we stated that ``No organization, firm, or 
business that owns, operates, or provides staffing for a HHA is 
permitted to administer its own Home Health Care CAHPS (HHCAHPS) Survey 
or administer the survey on behalf of any other HHA in the capacity as 
an HHCAHPS survey vendor. Such organizations will not be approved by 
CMS as HHCAHPS survey vendors.''
    The following criteria from the CY 2011 HH PPS final rule are 
proposed to be revised so that the requirements for OASIS and Home 
Health CAHPS are clearly delineated in the regulations. In the CY 2011 
HH PPS final rule (75 FR 70465), we stated for Sec.  484.250, Patient 
Assessment Data, that ``An HHA must submit to CMS the OASIS-C data 
described at Sec.  484.55(b)(1) and Home Health Care CAHPS data for CMS 
to administer the payment rate methodologies described in Sec.  
484.215, Sec.  484.230, and Sec.  484.235 of this subpart, and meet the 
quality reporting requirements of section 1895(b)(3)(B)(v) of the 
Act.''
    We propose to revise this section to clarify that HHCAHPS is 
associated with the APU described at Sec.  484.225(i) and the quality 
reporting requirements, and not with other payment requirements.
(7) HHCAHPS Requirements for CY 2014
    For the CY 2014 APU, we propose to require HHCAHPS data collection 
and reporting for four quarters. The data collection period would 
include second quarter 2012 through first quarter 2013. It is proposed 
that HHAs will be required to submit their HHCAHPS data files to the 
Home Health CAHPS Data Center the third Thursday of the month for the 
months of October, January, April and July. It is proposed that HHAs 
will be required to submit their HHCAHPS data files to the Home Health 
CAHPS Data Center for CY 2014 as follows: for the second quarter 2012 
by 11:59 p.m., e.d.t. on October 18, 2012; for the third quarter 2012 
by 11:59 p.m., e.s.t. on January 17, 2013; for the fourth quarter 2012 
by 11:59 p.m., e.d.t. on April 18, 2013; and for the first quarter 2013 
by 11:59 p.m., e.d.t. on July 18, 2013.
    As noted, we exempt HHAs receiving Medicare certification on or 
after April 1, 2012 from the full HHCAHPS reporting requirement for the 
CY 2014 APU, as data submission and analysis will not be possible for 
an agency that late in the reporting period for the CY 2014 APU 
requirements.
    As noted, we require that all HHAs that have fewer than 60 HHCAHPS-
eligible unduplicated or unique patients in the period of April 1, 2011 
through March 31, 2012 will be exempt from the HHCAHPS data collection 
and submission requirements for the CY 2014 APU. For the CY 2014 APU, 
agencies with fewer than 60 HHCAHPS-eligible, unduplicated or unique 
patients would be required to submit their counts on the Participation 
Exemption Request form posted on https://homehealthcahps.org by 11:59 
p.m., e.d.t. on April 18, 2013. This deadline is firm, as are all of 
the quarterly data submission deadlines.
(8) For Further Information on the HHCAHPS Survey
    We encourage HHAs interested in learning about the survey to view 
the HHCAHPS Survey Web site at the official Web site for the HHCAHPS at 
https://homehealthcahps.org. Home health agencies can also send an e-
mail to the HHCAHPS Survey Coordination Team at HHCAHPS@rti.org, or 
telephone toll-free (1-866-354-0985) for more information about 
HHCAHPS.
3. Home Health Wage Index
    Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the 
Secretary to provide appropriate adjustments to the proportion of the 
payment amount under the HH PPS to account for area wage differences, 
using adjustment factors that reflect the relative level of wages and 
wage-related costs applicable to the furnishing of home health 
services. We apply the appropriate wage index value to the labor 
portion of the HH PPS rates based on the site of service for the 
beneficiary (defined by section 1861(m) of the Act as the beneficiary's 
place of residence). Previously, we determined each HHA's labor market 
area based on definitions of Metropolitan Statistical Areas (MSAs) 
issued by the Office of Management and Budget (OMB). We have 
consistently used the pre-floor, pre-reclassified hospital wage index 
data to adjust the labor portion of the HH PPS rates. We believe the 
use of the pre-floor, pre-reclassified hospital wage index data results 
in an appropriate adjustment to the labor portion of the costs, as 
required by statute.
    In the CY 2006 HH PPS final rule for (70 FR 68132), we began 
adopting revised labor market area definitions as discussed in the 
Office of Management and Budget (OMB) Bulletin No. 03-04 (June 6, 
2003). This bulletin announced revised definitions for Metropolitan 
Statistical Areas (MSAs) and the creation of Micropolitan Statistical 
Areas and Core-Based Statistical Areas (CBSAs). The bulletin is 
available online at http://www.whitehouse.gov/omb/bulletins/b03-04.html. In addition, OMB published subsequent bulletins regarding CBSA 
changes, including changes in CBSA numbers and titles. This rule 
incorporates the CBSA changes published in the most recent OMB 
bulletin. The OMB bulletins are available at http://www.whitehouse.gov/omb/bulletins/index.html.
    Finally, we continue to use the methodology discussed in the CY 
2007 HH PPS final rule for (71 FR 65884) to address those geographic 
areas in which there are no IPPS hospitals and, thus, no

[[Page 41019]]

hospital wage data on which to base the calculation of the HH PPS wage 
index. For rural areas that do not have IPPS hospitals and, therefore, 
lack hospital wage data on which to base a wage index, we use the 
average wage index from all contiguous CBSAs as a reasonable proxy. 
Since CY 2007, this methodology was used to calculate the wage index 
for rural Massachusetts. However, we now have wage data from an IPPS 
hospital in rural Massachusetts. The hospital was formerly a critical 
access hospital (CAH), but converted to an IPPS hospital in 2008, the 
base year for the 2012 wage index. Therefore, it is no longer necessary 
to apply this methodology to rural Massachusetts for CY 2012.
    For rural Puerto Rico, we do not apply this methodology due to the 
distinct economic circumstances that exist there, but instead continue 
using the most recent wage index previously available for that area 
(from CY 2005).
    For urban areas without IPPS hospitals, we use the average wage 
index of all urban areas within the State as a reasonable proxy for the 
wage index for that CBSA. For CY 2012, there is an additional urban 
area (Yuba City, CA) without hospital wage data. Therefore, for CY 
2012, the two urban areas without hospital wage data are Hinesville-
Fort Stewart, Georgia (CBSA 25980) and Yuba City, CA (CBSA 49700).
    The wage index values for rural areas and the CBSAs and their 
associated wage index values are available via the Internet at: http://www.cms.gov/HomeHealthPPS/HHPPSRN/list.asp.
4. Proposed CY 2012 Payment Update
a. National Standardized 60-Day Episode Rate
    The Medicare HH PPS has been in effect since October 1, 2000. As 
set forth in the July 3, 2000 final rule (65 FR 41128), the base unit 
of payment under the Medicare HH PPS is a national standardized 60-day 
episode rate. As set forth in Sec.  484.220, we adjust the national 
standardized 60-day episode rate by a case-mix relative weight and a 
wage index value based on the site of service for the beneficiary.
    In the CY 2008 HH PPS final rule with comment period, we refined 
the case-mix methodology and also rebased and revised the home health 
market basket. To provide appropriate adjustments to the proportion of 
the payment amount under the HH PPS to account for area wage 
difference, we apply the appropriate wage index value to the labor 
portion of the HH PPS rates. The labor-related share of the case-mix 
adjusted 60-day episode rate is 77.082 percent and the non-labor-
related share is 22.918 percent. The proposed CY 2012 HH PPS rates use 
the same case-mix methodology and application of the wage index 
adjustment to the labor portion of the HH PPS rates as set forth in the 
CY 2008 HH PPS final rule with comment period. Following are the steps 
we take to compute the case-mix and wage adjusted 60-day episode rate:
    (1) Multiply the national 60-day episode rate by the patient's 
applicable case-mix weight.
    (2) Divide the case-mix adjusted amount into a labor (77.082 
percent) and a non-labor portion (22.918 percent).
    (3) Multiply the labor portion by the applicable wage index based 
on the site of service of the beneficiary.
    (4) Add the wage-adjusted portion to the non-labor portion, 
yielding the case-mix and wage adjusted 60-day episode rate, subject to 
any additional applicable adjustments.
    In accordance with section 1895(b)(3)(B) of the Act, this document 
constitutes the annual update of the HH PPS rates. The HH PPS 
regulations at Sec.  484.225 set forth the specific annual percentage 
update methodology. In accordance with Sec.  484.225(i), for a HHA that 
does not submit home health quality data, as specified by the 
Secretary, the unadjusted national prospective 60-day episode rate is 
equal to the rate for the previous calendar year increased by the 
applicable home health market basket index amount minus two percentage 
points. Any reduction of the percentage change will apply only to the 
calendar year involved and will not be considered in computing the 
prospective payment amount for a subsequent calendar year.
    For CY 2012, we are proposing to base the wage index adjustment to 
the labor portion of the HH PPS rates on the most recent pre-floor and 
pre-reclassified hospital wage index. As discussed in the July 3, 2000 
HH PPS final rule, for episodes with four or fewer visits, Medicare 
pays the national per-visit amount by discipline, referred to as a 
LUPA. We propose to update the national per-visit rates by discipline 
annually by the applicable home health market basket percentage. We 
propose to adjust the national per-visit rate by the appropriate wage 
index based on the site of service for the beneficiary, as set forth in 
Sec.  484.230. We propose to adjust the labor portion of the updated 
national per-visit rates used to calculate LUPAs by the most recent 
pre-floor and pre-reclassified hospital wage index. We are also 
proposing to update the LUPA add-on payment amount and the NRS 
conversion factor by the applicable home health market basket update of 
1.5 percent for CY 2012.
    Medicare pays the 60-day case-mix and wage-adjusted episode payment 
on a split percentage payment approach. The split percentage payment 
approach includes an initial percentage payment and a final percentage 
payment as set forth in Sec.  484.205(b)(1) and Sec.  484.205(b)(2). We 
may base the initial percentage payment on the submission of a request 
for anticipated payment (RAP) and the final percentage payment on the 
submission of the claim for the episode, as discussed in Sec.  409.43. 
The claim for the episode that the HHA submits for the final percentage 
payment determines the total payment amount for the episode and whether 
we make an applicable adjustment to the 60-day case-mix and wage-
adjusted episode payment. The end date of the 60-day episode as 
reported on the claim determines which calendar year rates Medicare 
would use to pay the claim.
    We may also adjust the 60-day case-mix and wage-adjusted episode 
payment based on the information submitted on the claim to reflect the 
following:
     A low utilization payment provided on a per-visit basis as 
set forth in Sec.  484.205(c) and Sec.  484.230.
     A partial episode payment adjustment as set forth in Sec.  
484.205(d) and Sec.  484.235.
     An outlier payment as set forth in Sec.  484.205(e) and 
Sec.  484.240.
b. Proposed Updated CY 2012 National Standardized 60-Day Episode 
Payment Rate
    In calculating the annual update for the CY 2012 national 
standardized 60-day episode payment rates, we first look at the CY 2011 
rates as a starting point. The CY 2011 national standardized 60-day 
episode payment rate is $2,192.07.
    Next, we update the payment amount by the proposed CY 2012 home 
health market basket update of 1.5 percent.
    As previously discussed in section II.A. (``Case-Mix Measurement'') 
of this proposed rule, our updated analysis of the change in case-mix 
that is not due to an underlying change in patient health status 
reveals an additional increase in nominal change in case-mix. 
Therefore, we propose to reduce rates by 5.06 percent in CY 2012, 
resulting in a proposed CY 2012 national standardized 60-day episode 
payment rate of $2,112.37. The proposed CY 2012 national standardized 
60-day episode payment rate for an HHA that submits the required 
quality data is shown in Table 19. The proposed CY 2012 national 
standardized 60-day episode

[[Page 41020]]

payment rate for an HHA that does not submit the required quality data 
is updated by the proposed CY 2012 home health market basket update 
(1.5 percent) minus 2 percentage points and is shown in Table 20.

  Table 19--Proposed CY 2012 National 60-Day Episode Payment Amount Updated by the Proposed Home Health Market
 Basket Update, Before Case-Mix Adjustment and Wage Adjustment Based on the Site of Service for the Beneficiary
----------------------------------------------------------------------------------------------------------------
                                                                    Multiply by
                                                                   the proposed   Reduce by 5.06    Proposed CY
                                                                   CY 2012 home     percent for    2012 national
   CY 2011 National standardized 60-day  episode payment rate      health market  nominal change  standardized 6-
                                                                   basket update    in case-mix     day episode
                                                                  of 1.5 percent                   payment rate
----------------------------------------------------------------------------------------------------------------
$2,192.07.......................................................         x 1.015        x 0.9494       $2,112.37
----------------------------------------------------------------------------------------------------------------

 Table 20--For HHAs That Do Not Submit the Quality Data--Proposed CY 2012 National 60-Day Episode Payment Amount
Updated by the Proposed Home Health Market Basket Update Before Case-Mix Adjustment and Wage Adjustment Based on
                                     the Site of Service for the Beneficiary
----------------------------------------------------------------------------------------------------------------
                                                                    Multiply by
                                                                   the proposed
                                                                   CY 2012 home
                                                                   health market  Reduce by 5.06    Proposed CY
                                                                   basket update    percent for    2012 National
    CY 2011 National standardized 60-day episode payment rate     of 1.5 percent  nominal change   standardized
                                                                      minus 2       in case-mix   60-day episode
                                                                    percentage                     payment rate
                                                                   points (-0.5
                                                                     percent)
----------------------------------------------------------------------------------------------------------------
$2,192.07.......................................................         x 0.995        x 0.9494        $2070.75
----------------------------------------------------------------------------------------------------------------

c. National Per-Visit Rates Used To Pay LUPAs and Compute Imputed Costs 
Used in Outlier Calculations
    In calculating the CY 2012 national per-visit rates used to 
calculate payments for LUPA episodes and to compute the imputed costs 
in outlier calculations, the CY 2011 national per-visit rates for each 
discipline are updated by the proposed CY 2012 home health market 
basket update of 1.5 percent. National per-visit rates are not subject 
to the 5.06 percent reduction related to the nominal increase in case-
mix. The CY 2012 national per-visit rates per discipline are shown in 
Table 21. The six home health disciplines are as follows:
     Home Health Aide (HH aide);
     Medical Social Services (MSS);
     Occupational Therapy (OT);
     Physical Therapy (PT);
     Skilled Nursing (SN); and
     Speech Language Pathology Therapy (SLP).

   Table 21--Proposed CY 2012 National Per-Visit Amounts for LUPAs (Not Including the LUPA Add-On Amount for a
 Beneficiary's Only Episode or the Initial Episode in a Sequence of Adjacent Episodes) and Outlier Calculations
                Updated by the Proposed Health Market Basket Update, Before Wage Index Adjustment
----------------------------------------------------------------------------------------------------------------
                                                    For HHAs that DO submit the     For HHAs that DO NOT submit
                                                       required quality data         the required quality data
                                                 ---------------------------------------------------------------
                                                                                    Multiply by
                                   CY 2011 per-                                    the proposed
                                   visit amounts    Multiply by                   CY 2012 market
   Home health discipline type      per 60-day     the proposed     Proposed CY    basket update    Proposed CY
                                      episode     CY 2012 market  2012 per-visit  of 1.5 percent  2012 per-visit
                                                   basket update      payment         minus 2         payment
                                                  of 1.5 percent                    percentage
                                                                                   points (-0.5
                                                                                     percent)
----------------------------------------------------------------------------------------------------------------
HH Aide.........................          $50.42         x 1.015          $51.18         x 0.995          $50.17
MSS.............................          178.46         x 1.015          181.14         x 0.995          177.57
OT..............................          122.54         x 1.015          124.38         x 0.995          121.93
PT..............................          121.73         x 1.015          123.56         x 0.995          121.12
SN..............................          111.32         x 1.015          112.99         x 0.995          110.76
SLP.............................          132.27         x 1.015          134.25         x 0.995          131.61
----------------------------------------------------------------------------------------------------------------

[[Page 41021]]

d. LUPA Add-on Payment Amount Update
    Beginning in CY 2008, LUPA episodes that occur as the only episode 
or initial episode in a sequence of adjacent episodes are adjusted by 
adding an additional amount to the LUPA payment before adjusting for 
area wage differences. We update the LUPA payment amount by the 
proposed CY 2012 home health market basket update percentage of 1.5 
percent. The LUPA add-on payment amount is not subject to the 5.06 
percent reduction related to the nominal increase in case-mix. For CY 
2012, we propose that the add-on to the LUPA payment to HHAs that 
submit the required quality data be updated by the proposed CY 2012 
home health market basket update of 1.5 percent. The proposed CY 2012 
LUPA add-on payment amount is shown in Table 22. We propose that the 
add-on to the LUPA payment to HHAs that do not submit the required 
quality data would be updated by the proposed CY 2012 home health 
market basket update (1.5 percent) minus two percentage points.

                                 Table 22--Proposed CY 2012 LUPA Add-On Amounts
----------------------------------------------------------------------------------------------------------------
                                                    For HHAs that DO submit the     For HHAs that DO NOT submit
                                                       required quality data         the required quality data
                                                 ---------------------------------------------------------------
                                                                                    Multiply by
                                                                                   the proposed
                                                    Multiply by                   CY 2012 market
           CY 2011 LUPA add-on amount              the proposed     Proposed CY    basket update    Proposed CY
                                                  CY 2012 market  2012 LUPA add-  of 1.5 percent  2012 LUPA add-
                                                   basket update     on amount        minus 2        on amount
                                                  of 1.5 percent                    percentage
                                                                                   points (-0.5
                                                                                     percent)
----------------------------------------------------------------------------------------------------------------
$93.31..........................................         x 1.015          $94.71         x 0.995          $92.84
----------------------------------------------------------------------------------------------------------------

e. Nonroutine Medical Supply Conversion Factor Update
    Payments for nonroutine medical supplies (NRS) are computed by 
multiplying the relative weight for a particular severity level by the 
NRS conversion factor. We first increase CY 2010 NRS conversion factor 
($52.54) by the proposed market basket of 1.5 percent. Then we reduce 
that amount by 5.06 percent to account for the increase in nominal 
case-mix. The final updated CY 2012 NRS conversion factor for 2012 
appears in Table 23. For CY 2012, the NRS conversion factor is $53.33.

Table 23--Proposed CY 2012 NRS Conversion Factor for HHAs That DO Submit
                        the Required Quality Data
------------------------------------------------------------------------
                                    Multiply by the
                                   proposed CY 2012    Proposed CY 2011
  CY 2011 NRS conversion factor      market basket      NRS conversion
                                     update of 1.5          factor
                                        percent
------------------------------------------------------------------------
$52.54..........................             x 1.015              $53.33
------------------------------------------------------------------------

    Using the NRS conversion factor ($53.33) for CY 2012, the payment 
amounts for the various severity levels are shown in Table 24.

        Table 24--Proposed CY 2012 NRS Payment Amounts for HHAs That DO Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                                                    Proposed CY
                Severity level                          Points (scoring)             Relative        2012 NRS
                                                                                      weight      payment amount
----------------------------------------------------------------------------------------------------------------
1............................................  0................................          0.2698          $14.39
2............................................  1 to 14..........................          0.9742           51.95
3............................................  15 to 27.........................          2.6712          142.46
4............................................  28 to 48.........................          3.9686          211.65
5............................................  49 to 98.........................          6.1198          326.37
6............................................  99+..............................         10.5254          561.32
----------------------------------------------------------------------------------------------------------------

    For HHAs that do not submit the required quality data, we again 
begin with the CY 2011 NRS conversion factor. We first increase the CY 
2011 NRS conversion factor ($52.54) by the proposed CY 2012 home health 
market basket update percentage of 1.5 percent minus 2 percentage 
points. The CY 2011 NRS conversion factor for HHAs that do not submit 
quality data is shown in Table 25.

[[Page 41022]]

  Table 25--Proposed CY 2012 NRS Conversion Factor for HHAs That Do Not
                    Submit the Required Quality Data
------------------------------------------------------------------------
                                    Multiply by the
                                   proposed CY 2012
                                     market basket     Proposed CY 2012
  CY 2011 NRS conversion factor      update of 1.5      NRS conversion
                                    percent minus 2         factor
                                   percentage points
                                    (-0.5 percent)
------------------------------------------------------------------------
$52.54..........................             x 0.995              $52.28
------------------------------------------------------------------------

    The payment amounts for the various severity levels based on the 
updated conversion factor for HHAs that do not submit quality data are 
calculated in Table 26.

      Table 26--Proposed CY 2012 NRS Payment Amounts for HHAs That Do Not Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                                                                                     Relative      Proposed NRS
                Severity level                         Points  (scoring)              weight      payment amount
----------------------------------------------------------------------------------------------------------------
1............................................  0................................          0.2698          $14.11
2............................................  1 to 14..........................          0.9742           50.93
3............................................  15 to 27.........................          2.6712          139.65
4............................................  28 to 48.........................          3.9686          207.48
5............................................  49 to 98.........................          6.1198          319.94
6............................................  99+..............................         10.5254          550.27
----------------------------------------------------------------------------------------------------------------

5. Rural Add-On
    Section 421(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act (MMA) of 2003 (Pub. L. 108-173, enacted on December 
8, 2003 and as amended by section 3131(c) of the Affordable Care Act) 
provides an increase of 3 percent of the payment amount otherwise made 
under section 1895 of the Act for home health services furnished in a 
rural area (as defined in section 1886(d)(2)(D) of the Act), for 
episodes and visits ending on or after April 1, 2010 and before January 
1, 2016. The statute waives budget neutrality related to this 
provision, as the statute specifically states that the Secretary shall 
not reduce the standard prospective payment amount (or amounts) under 
section 1895 of the Act applicable to home health services furnished 
during a period to offset the increase in payments resulting in the 
application of this section of the statute.
    The 3 percent rural add-on is applied to the national standardized 
60-day episode rate, national per-visit rates, LUPA add-on payment, and 
NRS conversion factor when home health services are provided in rural 
(non-CBSA) areas. Refer to Tables 27 thru 31 for these payment rates.

Table 27--Proposed CY 2012 Payment Amounts for 60-Day Episodes for Services Provided in a Rural Area Before Case-
                                          Mix and Wage Index Adjustment
----------------------------------------------------------------------------------------------------------------
              For HHAs that do submit quality data                   For HHAs that do not submit quality data
----------------------------------------------------------------------------------------------------------------
                                                  Proposed Rural                                  Proposed rural
                                                      CY 2012       Proposed CY                       CY 2012
    Proposed CY 2012 national       Multiply by      national      2012 national    Multiply by      national
   standardized 60-day episode     the 3 percent   standardized    standardized    the 3 percent   standardized
          payment rate             rural add-on   60-day episode  60-day episode   rural add-on   60-day episode
                                                   payment rate    payment rate                    payment rate
----------------------------------------------------------------------------------------------------------------
$2,112.37.......................          x 1.03       $2,175.74       $2,070.75          x 1.03       $2,132.87
----------------------------------------------------------------------------------------------------------------

                    Table 28--Proposed CY 2012 Per-Visit Amounts for Services Provided in a Rural Area, Before Wage Index Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               For HHAs that do submit quality data          For HHAs that do not submit quality data
                                                         -----------------------------------------------------------------------------------------------
               Home health discipline type                  Proposed CY     Multiply by   Proposed rural    Proposed CY     Multiply by   Proposed rural
                                                          2012 per-visit   the 3 percent   CY 2012 per-   2012 per-visit   the 3 percent   CY 2012 per-
                                                               rate        rural add-on     visit rate         rate        rural add-on     visit rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
HH Aide.................................................          $51.18          x 1.03          $52.72          $50.17          x 1.03          $51.68
MSS.....................................................          181.14          x 1.03          186.57          177.57          x 1.03          182.90
OT......................................................          124.38          x 1.03          128.11          121.93          x 1.03          125.59
PT......................................................          123.56          x 1.03          127.27          121.12          x 1.03          124.75
SN......................................................          112.99          x 1.03          116.38          110.76          x 1.03          114.08

[[Page 41023]]

 
SLP.....................................................          134.25          x 1.03          138.28          131.61          x 1.03          135.56
--------------------------------------------------------------------------------------------------------------------------------------------------------

               Table 29--Proposed CY 2012 LUPA Add-On Amounts for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
              For HHAs that do submit quality data                   For HHAs that do not submit quality data
----------------------------------------------------------------------------------------------------------------
                                    Multiply by   Proposed rural    Proposed CY     Multiply by   Proposed Rural
  Proposed CY 2012 LUPA add-on     the 3 percent   CY 2012 LUPA   2012 LUPA add-   the 3 percent   CY 2012 LUPA
             amount                rural add-on    add-on amount     on amount     rural add-on    add-on amount
----------------------------------------------------------------------------------------------------------------
$94.71..........................          x 1.03          $97.55          $92.84          x 1.03          $95.63
----------------------------------------------------------------------------------------------------------------

              Table 30--Proposed CY 2012 NRS Conversion Factor for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
              For HHAs that do submit quality data                   For HHAs that do not submit quality data
----------------------------------------------------------------------------------------------------------------
                                                  Proposed rural    Proposed CY                     Proposed CY
   Proposed CY 2011 conversion      Multiply by       CY 2012          2012         Multiply by     rural 2012
             factor                the 3 percent    conversion      conversion     the 3 percent    conversion
                                   rural add-on       factor          factor       rural add-on       factor
----------------------------------------------------------------------------------------------------------------
$53.33..........................          x 1.03          $54.93          $52.28          x 1.03          $53.85
----------------------------------------------------------------------------------------------------------------

               Table 31--Proposed CY 2012 NRS Payment Amounts for Services Provided in Rural Areas
----------------------------------------------------------------------------------------------------------------
                                                      For HHAs that do submit       For HHAs that do not submit
                                                   quality data  (NRS conversion   quality data  (NRS conversion
                                                         factor = $54.93)                factor = $53.85)
                                     Points      ---------------------------------------------------------------
        Severity level              (scoring)                        Total NRS                       Total NRS
                                                     Relative     payment amount     Relative     payment amount
                                                      weight         for rural        weight         for rural
                                                                       areas                           areas
----------------------------------------------------------------------------------------------------------------
1.............................  0...............          0.2698          $14.82          0.2698          $14.53
2.............................  1 to 14.........          0.9742           53.51          0.9742           52.46
3.............................  15 to 27........          2.6712          146.73          2.6712          143.84
4.............................  28 to 48........          3.9686          218.00          3.9686          213.71
5.............................  49 to 98........          6.1198          336.16          6.1198          329.55
6.............................  99+.............         10.5254          578.16         10.5254          566.79
----------------------------------------------------------------------------------------------------------------

E. Therapy Corrections and Clarifications

1. Therapy Technical Correction to Regulation Text
    As part of our ``Home Health Prospective Payment System Rate Update 
for Calendar Year 2011,'' (75 FR 70389 through 70461), we clarified 
policies related to how therapy services are to be provided and 
documented.
    Specifically, the clarifications included that: (1) Measurable 
treatment goals be described in the plan of care and that the patient's 
clinical record demonstrate that the method used to assess a patient's 
function include objective measurement and successive comparison of 
measurements, thus enabling objective measurement of progress toward 
goals and/or therapy effectiveness; (2) a qualified therapist (instead 
of an assistant) perform the needed therapy service, assess the 
patient, measure progress, and document progress toward goals at least 
once every 30 days during a therapy patient's course of treatment; and 
(3) for those patients needing 13 or 19 therapy visits, we require that 
a qualified therapist (instead of an assistant) perform the therapy 
service required at the 13th and 19th visits, assess the patient, and 
measure and document the effectiveness of the therapy.
    As a result of comments received on the CY 2011 proposed rule, we 
finalized flexibility for the 13th and 19th visit requirements in cases 
when: (1) The patient resides in a rural area; (2) documented 
exceptional circumstances prevent the therapist from making the 
required visit; and (3) patients receive more than one type of therapy. 
The CY 2011 HH PPS final rule preamble discussions clearly described 
that even with the flexibility which we finalized, for those patients 
who require 13 and 19 therapy visits, the qualified therapist's visit, 
assessment, and documentation must occur no later than the 13th and 
19th visits.
    However, regulation text associated with these changes at Sec.  
409.44(c)(2)(i)(D)(2) reads, ``Where more than one discipline of 
therapy is being provided, the qualified therapist

[[Page 41024]]

from each discipline must provide the therapy service and functionally 
reassess the patient in accordance with Sec.  409.44(c)(2)(i)(A) during 
the visit which would occur close to but before the 19th visit per the 
plan of care.'' Therefore, to better align our regulations with our 
described final policies, we propose to correct the regulation text at 
Sec.  409.44(c)(2)(i)(D)(2) to read ``Where more than one discipline of 
therapy is being provided, the qualified therapist from each discipline 
must provide the therapy service and functionally reassess the patient 
in accordance with Sec.  409.44(c)(2)(i)(A) during the visit which 
would occur close to but no later than the 19th visit per the plan of 
care.''
2. Occupational Therapy Policy Clarifications
    We are proposing to clarify when occupational therapy is considered 
a dependent service versus when it is considered a qualifying service 
under the Medicare home health benefit. Section 1861(m)(2) of the Act 
established occupational therapy as a home health service. Section 
1814(2)(C) of the Act provided that to qualify for the benefit, a 
physician must certify that such services are or were required because 
the individual needs or needed skilled nursing care (other than solely 
venipuncture for the purpose of obtaining a blood sample) on an 
intermittent basis or physical or speech therapy or, in the case of an 
individual who has been furnished home health services based on such a 
need and who no longer has such a need for such care or therapy, 
continues or continued to need occupational therapy. We codified the 
requirement for skilled services in the Medicare home health benefit at 
Sec.  409.42(c). This section further delineates beneficiary 
qualifications for home health, including what is meant by, ``in need 
of skilled services.'' Following this detailed explanation, skilled 
services, in Sec.  409.42(c)(2) through (c)(4) include physical therapy 
services and speech-language pathology services that meet the 
requirements of Sec.  409.44(c), and continuing occupational therapy 
services that meet the requirements of Sec.  409.44(c) if the 
beneficiary's eligibility for home health services has been established 
by virtue of a prior need for intermittent skilled nursing care, 
speech-language pathology services, or physical therapy in the current 
or prior certification period.
    In addition to the above-mentioned designation and treatment of 
occupational therapy as a qualifying home health service, occupational 
therapy is also described as a dependent service, as currently 
specified in Sec.  409.45(d) where we state occupational therapy 
services that are not qualifying services under Sec.  409.44(c) are 
nevertheless covered as dependent services if the requirements of Sec.  
409.44(c)(2)(i) through (iv), as to reasonableness and necessity, are 
met.
    To clarify the status of when occupational therapy becomes a 
qualifying service, we propose to change the above-mentioned regulation 
text at Sec.  409.42(c)(4) to establish exactly when occupational 
therapy becomes a qualifying service. That is, we propose to amend this 
regulatory text to demonstrate when a continuing need for occupational 
therapy allows for its continued eligibility even though it becomes the 
sole skilled service being provided. Specifically, we propose to amend 
Sec.  409.42(c)(4) to state occupational therapy services that meet the 
requirements of Sec.  409.44(c) initially qualify for home health 
coverage as a dependent service as defined in Sec.  409.45(d) if the 
beneficiary's eligibility for home health services has been established 
by virtue of a prior need for intermittent skilled nursing care, 
speech-language pathology services, or physical therapy in the current 
or prior certification period. Subsequent to an initial covered 
occupational therapy service, continuing occupational therapy services 
which meet the requirements of Sec.  409.44(c) are considered to be 
qualifying services.
    We also propose a change to Sec.  409.44(c)to include a technical 
correction to this regulation text. Specifically, the current 
regulation text states ``(c) Physical therapy, speech-language 
pathology services, and occupational therapy. To be covered, physical 
therapy, speech-language pathology services, and occupational therapy 
must satisfy the criteria in paragraphs (c)(1) through (4) of this 
section.'' We propose to correct ``(c)(1) through (4)'' to, ``(c)(1) 
and (2),'' which is the correct reference.

F. Home Health Face-to-Face Encounter

    As described in the CY 2011 HH PPS final rule (70 FR 70427), 
section 6407(a) of the Patient Protection and Affordable Care Act, as 
amended by section 10605 of the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), amended the requirements 
for physician certification of home health services contained in 
sections 1814(a)(2)(C) and 1835(a)(2)(A) of the Act by requiring that, 
as a condition for payment, prior to certifying a patient's eligibility 
for the home health benefit, the physician must document that the 
physician himself or herself or a permitted nonphysician practitioner 
(NPP) has had a face-to-face encounter with the patient.
    The statute describes NPPs who may perform this face-to-face 
patient encounter as a nurse practitioner or clinical nurse specialist, 
as those terms are defined in section 1861(aa)(5) of the Act, who is 
working in collaboration with the physician in accordance with State 
law, or a certified nurse-midwife (as defined in section 1861(gg) of 
the Act, as authorized by State law), or a physician assistant (as 
defined in section 1861(aa)(5) of the Act), under the supervision of 
the physician.
    The statutory provision allows the permitted NPPs to perform the 
face-to-face encounter and inform the certifying physician, who 
documents the encounter as part of the certification of eligibility.
    Stakeholder feedback received during the CY 2011 rulemaking comment 
period urged CMS to also allow, in addition to an NPP, the physician 
who attended to the patient during a recent hospital or post-acute stay 
to inform the certifying physician regarding their encounters with the 
patient, as an NPP is allowed to do presently to satisfy the face-to-
face encounter requirement. Typically, it is the patient's primary care 
physician who certifies a patient's eligibility for the home health 
benefit and oversees the patient's home health care plan. As finalized 
in the CY 2011 HH PPS final rule, a hospital or post-acute attending 
physician's encounter with the home health patient satisfies the face-
to-face encounter requirement only when the attending physician 
certifies the patient's home health eligibility.
    Stakeholders stated to CMS that many hospital attending physicians 
may order home health services upon discharge, but do not want the 
burden associated with certifying home health eligibility and 
establishing a patient's plan of care. Stakeholders further stated that 
because NPPs can perform the encounter and inform the certifying 
physician, it makes no sense to preclude the physician who attended to 
the patient in the hospital from informing the certifying physician 
about the patient for the purpose of satisfying the face-to-face 
encounter. Further, they argued that for patients admitted to home 
health following a hospital or post-acute discharge, such a policy 
would be consistent with the goal of the provision, which is increased 
physician involvement in a patient's home health certification of 
eligibility.
    Fifty percent of home health patients are admitted to home health 
immediately following a hospital discharge. As such, the physician who 
attended to these patients in the

[[Page 41025]]

hospital has the sort of involvement with the patient and knowledge 
about the patient's need for home care which was the intent of the 
provision. Similarly, for patients admitted to home health from a post-
acute setting, the physician who attended to the patient during the 
post-acute stay would also have the involvement with and knowledge of 
the patient as was the intent of the provision.
    We believe that the statute does not preclude a patient's acute or 
post-acute attending physician from informing the certifying physician 
regarding their experience with the patient for the purpose of the 
face-to-face encounter requirement, as an NPP can. Instead, we believe 
that for patients admitted to home health following discharge from an 
acute or post-acute stay, the statutory language contains an 
unintentional gap in that it does not explicitly include language which 
allows the acute or post-acute attending physician to inform the 
certifying physician regarding his or her face-to-face encounters with 
the patient.
    Therefore, for patients admitted to home health upon discharge from 
a hospital or post-acute setting, we propose to allow the physician who 
attended to the patient in the hospital or post-acute setting to inform 
the certifying physician regarding their encounters with the patient to 
satisfy the face-to-face encounter requirement, much like an NPP 
currently can.
    In addition to meeting the goals of the face-to-face encounter 
provision, we believe this proposed policy change will result in 
enhanced communication between the attending and certifying physicians. 
We believe this enhanced communication will result in an improved 
transition of care from the hospital or post-acute setting to the home 
health setting. Improving a patient's transition from one healthcare 
setting to another is widely regarded to be directly related to 
improved patient care and improved patient outcomes. We believe that 
this policy change encourages the attending acute or post-acute 
physician who is best informed of the patient's most current clinical 
condition to collaboratively communicate the patient's need for home 
health services to the certifying physician. Because a standard 
protocol of communication or documentation is not mandated between the 
acute or post-acute physician and a patient's community physician, we 
believe the additional flexibility with the face-to-face encounter will 
encourage increased communication between the physicians and better 
care coordination for the patient. Increased physician communication 
regarding the patient's clinical condition fits within the framework of 
Congress' goals associated with the face-to-face encounter requirement.
    We propose to revise Sec.  424.22(a)(1)(v) so that the certifying 
physician's documentation of the face-to-face encounter clearly states 
that either the certifying physician himself or herself, the permitted 
NPP, or, for patients admitted to home health immediately after an 
acute or post-acute stay, the attending acute or post-acute physician, 
has had a face-to-face encounter with the patient. We propose that the 
attending acute or post-acute physician must communicate the clinical 
findings of the face-to-face encounters with the patient to the 
certifying physician, so that the certifying physician could document 
the face-to-face encounter accordingly, as part of the signed 
certification. Further, we are proposing to simplify the regulation 
text at Sec.  424.22(a)(1)(v)(A) as some found the current regulation 
text confusing as it relates to the need for NPPs to document their 
encounters with the patient. Some confused this documentation, which is 
required of all practitioners who see Medicare patients, with the face-
to-face encounter documentation which is part of the certification. 
Therefore, we propose to revise in Sec.  424.22(a)(1)(v)(A) that the 
nonphysician practitioner or the attending acute or post-acute 
physician performing the face-to-face encounter must communicate the 
clinical findings of that face-to-face patient encounter to the 
certifying physician.
    We propose implementing the above face-to-face encounter provision 
for starts of care beginning January 1, 2012 and later.

G. Payment Reform: Home Health Study and Report

    Section 3131(d) of the Affordable Care Act requires the Secretary 
to conduct a study on home health agency costs of providing access to 
care to low-income Medicare beneficiaries or beneficiaries in medically 
underserved areas, and in treating beneficiaries with varying levels of 
severity of illness (specifically, patients with ``high levels of 
severity of illness''). As part of the study, we may analyze methods to 
revise the current Home Health Prospective Payment System (HH PPS) to 
ensure access to care and better account for costs for these patients.
    The study may analyze the need for payment adjustments for services 
that involve either more or fewer resources than are reflected in the 
current HH PPS; changes to reflect resources involved with providing 
home health services to low-income Medicare beneficiaries or Medicare 
beneficiaries residing in medically underserved areas, and ways outlier 
payments could be revised to reflect costs of treating Medicare 
beneficiaries with high levels of severity of illness. Section 3131(d) 
of the Affordable Care Act also allows for the study to investigate 
other issues with the payment system as the Secretary determines 
appropriate. We plan for the study to evaluate the current HH PPS and 
develop payment reform options which might minimize vulnerabilities and 
more accurately align payment with patient resource costs. No later 
than March 1, 2014, we must deliver a Report to Congress regarding the 
study, which may include potential recommendations for revisions to the 
HH PPS, recommendations for legislation and administrative action and 
recommendations for whether additional research is needed.
    The Affordable Care Act study provision was enacted to address 
concerns that some beneficiaries are at risk of not having access to 
Medicare home health services and that the current HH PPS encourages 
providers to adopt selective admission patterns to achieve higher 
margins.
    Congress also provided CMS with the authority to conduct a separate 
demonstration project to test recommended payment system changes 
resulting from this study.
    To accomplish these goals, in the fall of 2010 we awarded a 
contract to set the foundation for the study and develop a study 
analytic approach. Progress to date includes: (1) Reviewing research 
relevant to the goals of the study; (2) establishing and convening a 
technical expert panel comprised of home health industry stakeholders, 
subject matter experts, and researchers to obtain input regarding the 
study analytic plan (specifically, we solicited input from the panel 
regarding approaches to define and study these vulnerable populations 
which may experience difficulties accessing home health care); (3) 
hosting Open Door Forums to solicit additional input on the study 
analytic design from HHAs, providers, and trade associations; and (4) 
currently performing investigatory data analysis and finishing the 
analytic design. Materials related to the contractor's findings are 
available at http://www.cms.gov/HomeHealthPPS/Downloads/HHPPS_LiteratureReview.pdf.
    This summer, we plan to award another contract that will build upon 
the foundation established. Specifically, this contract will refine the 
analytic

[[Page 41026]]

plan, perform the detailed analysis and ultimately recommend payment 
model options. We will provide updates regarding our progress in future 
rulemaking and open door forums.

H. International Classification of Diseases 10th Edition (ICD-10) 
Coding

    Effective March 17, 2009, CMS finalized its policies for the HIPAA 
Administrative Simplification: Modifications to the Medical Data Code 
Set Standards to Adopt ICD-10-CM and ICD-10-PCS (74 FR 3328). The March 
17, 2009 final rule modifies the standard medical data code sets for 
coding diagnoses by adopting the International Classification of 
Disease, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis 
coding, including the Official ICD-10-CM Guidelines for Coding and 
Reporting. These new codes replace the International Classification of 
Diseases, 9th Revision, Clinical Modification, Volumes 1 and 2, 
including the Official ICD-9-CM Guidelines for Coding and Reporting. 
Entities are required to have implemented the adopted policies by 
October 1, 2013. On October 1, 2013, the ICD-9 code sets used to report 
medical diagnoses will be replaced by the ICD-10 code sets. In 
preparation for the transition to the use of ICD-10-CM codes, CMS is 
currently undergoing extensive efforts to update the Medicare payment 
systems.
    One of the key activities identified under this transition to ICD-
10-CM codes is the need for CMS to review and update the payment 
systems which currently use ICD-9-CM codes. Home Health Agencies report 
ICD-9-CM codes for their patients through OASIS-C. HHAs enter data 
(including the ICD-9-CM codes) collected from their patients' OASIS 
assessments into a data collection software tool. For Medicare 
patients, the data collection software invokes HH PPS Grouper software 
to assign a Health Insurance Prospective Payment System (HIPPS) code on 
the Medicare HH PPS bill, ultimately enabling CMS' claims processing 
system to reimburse the HHA for services provided to patients receiving 
Medicare's home health benefit. The HH PPS Grouper currently utilizes 
ICD-9-CM codes to calculate the HIPPS code. Effective October 1, 2013, 
the HH PPS Grouper will utilize the ICD-10-CM codes to calculate the 
HIPPS code.
    We have been working with the HHRG maintenance contractor to revise 
the HHRG to accommodate ICD-10-CM codes, as well as identify the 
appropriate ICD-10-CM codes to be included in each diagnosis group 
within the HHRG. In addition, we have also contracted with Abt 
Associates to assist with resolving the transition of certain codes 
that may be mapped to more than one diagnosis code under ICD-10-CM.
    To assist home health agencies and their vendors in preparing for 
this transition, the Agency is committed to providing information for 
transitioning the HHRG to accommodate ICD-10-CM codes effective October 
1, 2013. The Agency will update providers and vendors through the ICD-
10-CM National Provider outreach calls on our conversion plans. 
Additional detail concerning teleconference registration is available 
at http://www.cms.gov/ICD10/Tel10/list.asp?intNumPerPage=20&submit=Go. 
Further details pertaining to our plans will be announced through the 
National Provider outreach calls.
    We will provide a proposed list of ICD-10-CM codes for the HHRG 
through the ICD-10 section of the Web site. Specific dates will be 
announced through the National Provider outreach calls. The preliminary 
plans include publishing the proposed list of ICD-10-CM codes for the 
HHRG by October, 1, 2011, for industry review, as well as describing 
our testing approach for the HHRG to accommodate and process ICD-10-CM 
codes through the ICD-10 section of the CMS Web site. The objective of 
the ICD-10-CM HHRG testing is to verify that all properly formatted 
input data containing ICD-10-CM diagnosis codes will produce the 
expected output. The HHRG maintenance contractor will convert current 
OASIS-C records to their translated ICD-10-CM codes to determine that 
appropriate outputs are achieved. CMS and the HHRG maintenance 
contractor will review the results of the testing to determine if 
additional testing is required.
    In addition, in April 2013, we plan to share the ICD-10-CM HHRG 
software with those vendors and home health agencies that have agreed 
to serve as Beta Testers and get their feedback regarding the 
software's functionality. Issues and concerns noted by the Beta Testers 
will be reviewed and addressed by the HHRG Maintenance Contractor in 
consultation with CMS.
    CMS plans to release the final version of the ICD-10-CM HHRG in 
July 2013 to permit HHAs and their vendors sufficient time to install 
the software.

I. Clarification To Benefit Policy Manual Language on ``Confined to the 
Home'' Definition

    To address the recommended changes of the Office of Inspector 
General (OIG) to the home health benefit policy manual, CMS is 
proposing to clarify its ``confined to the home'' definition to more 
accurately reflect the definition as articulated in the Act. Further 
clarification of the ``confined to the home'' definition will not only 
ensure statutory compatibility, but will also strengthen the position 
of the Government in applicable court cases. We propose to realign the 
existing manual criteria with the statute to create a clearer and more 
accurate ``confined to the home'' definition. We believe that such 
changes will strengthen our manual's definition of ``confined to the 
home'', providing more definitive guidance to home health agencies for 
compliance with this requirement.
    We propose to move the requirement that the patient need supportive 
devices, transportation, etc., to the beginning of section 30.1.1 of 
the Chapter 7 Home Health Benefit Policy Manual as a necessary 
requirement to be considered ``confined to the home.'' Further, we 
propose to remove vague terms from section 30.1.1, such as ``generally 
speaking,'' to ensure clear and specific requirements for the 
definition. These changes more closely align our policy manual with the 
Act to prevent confusion or distortion of requirements and promote a 
clearer enforcement of the statute. As such, we propose that section 
30.1.1 begin with the following, revised language: ``30.1.1--Patient 
Confined to the Home.''
    For a patient to be eligible to receive covered home health 
services under both Part A and Part B, the statute requires that a 
physician certify in all cases that the patient is confined to his/her 
home. For purposes of the statute, an individual shall be considered 
``confined to the home'' (that is, homebound) if the following exist:
    (1) The individual has a condition due to an illness or injury that 
restricts his or her ability to leave their place of residence except 
with: the aid of supportive devices such as crutches, canes, 
wheelchairs, and walkers; the use of special transportation; or the 
assistance of another person; or if leaving home is medically 
contraindicated.
    (2) The individual does not have to be bedridden to be considered 
``confined to the home''. However, the condition of the patient should 
be such that there exists a normal inability to leave home and, 
consequently, leaving home would require a considerable and taxing 
effort.
    If the patient does in fact leave the home, the patient may 
nevertheless be considered homebound if the absences from the home are 
infrequent or for periods of relatively short duration, or are 
attributable to the need to receive health care treatment. Absences

[[Page 41027]]

attributable to the need to receive health care treatment include, but 
are not limited to:
     Attendance at adult day centers, licensed or certified by 
a State or accredited to furnish adult day-care services in the State, 
to receive therapeutic, psychological, or medical treatment;
     Ongoing receipt of outpatient kidney dialysis; or
     The receipt of outpatient chemotherapy or radiation 
therapy.
    Any absence of an individual from the home attributable to the need 
to receive health care treatment, including regular absences for the 
purpose of participating in therapeutic, psychosocial, or medical 
treatment in an adult day-care program that is licensed or certified by 
a State, or accredited to furnish adult day-care services in a State, 
shall not disqualify an individual from being considered to be confined 
to his home. Any other absence of an individual from the home shall not 
so disqualify an individual if the absence is of an infrequent or of 
relatively short duration. For purposes of the preceding sentence, any 
absence for the purpose of attending a religious service shall be 
deemed to be an absence of infrequent or short duration. It is expected 
that in most instances, absences from the home that occur will be for 
the purpose of receiving health care treatment. However, occasional 
absences from the home for nonmedical purposes, for example, an 
occasional trip to the barber, a walk around the block or a drive, 
attendance at a family reunion, funeral, graduation, or other 
infrequent or unique event would not necessitate a finding that the 
patient is not homebound if the absences are undertaken on an 
infrequent basis or are of relatively short duration and do not 
indicate that the patient has the capacity to obtain the health care 
provided outside rather than in the home.
    Some examples of homebound patients that illustrate the factors 
used to determine whether a homebound condition exists would be: * * 
*''

III. Collection of Information Requirements

    This document does not impose any new information collection and 
recordkeeping requirements. The information collection requirements 
discussed in proposed Sec.  424.22 are currently approved under OMB 
control number 0938-1083. The information collection requirements 
discussed in proposed Sec.  484.250, the OASIS-C and Home Health Care 
CAHPS, are currently approved under OMB control numbers 0938-0760 and 
0938-1066, respectively. Consequently, it need not be reviewed by the 
Office of Management and Budget under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. Chapter 35).

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Introduction

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
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. A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any 1 year). This proposed rule has been designated an 
``economically significant'' rule under section 3(f)(1) of Executive 
Order 12866. Accordingly, the rule has been reviewed by the Office of 
Management and Budget.

B. Statement of Need

    This proposed rule adheres to the following statutory requirements. 
Section 4603(a) of the BBA mandated the development of a HH PPS for all 
Medicare-covered HH services provided under a plan of care (POC) that 
were paid on a reasonable cost basis by adding section 1895 of the Act, 
entitled ``Prospective Payment For Home Health Services''. Section 
1895(b)(1) of the Act requires the Secretary to establish a HH PPS for 
all costs of HH services paid under Medicare. In addition, section 
1895(b)(3)(A) of the Act requires (1) the computation of a standard 
prospective payment amount include all costs for HH services covered 
and paid for on a reasonable cost basis and that such amounts be 
initially based on the most recent audited cost report data available 
to the Secretary, and (2) the standardized prospective payment amount 
be adjusted to account for the effects of case-mix and wage levels 
among HHAs. Section 1895(b)(3)(B) of the Act addresses the annual 
update to the standard prospective payment amounts by the HH applicable 
percentage increase. Section 1895(b)(4) of the Act governs the payment 
computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act 
require the standard prospective payment amount to be adjusted for 
case-mix and geographic differences in wage levels. Section 
1895(b)(4)(B) of the Act requires the establishment of appropriate 
case-mix adjustment factors for significant variation in costs among 
different units of services. Lastly, section 1895(b)(4)(C) of the Act 
requires the establishment of wage adjustment factors that reflect the 
relative level of wages, and wage-related costs applicable to HH 
services furnished in a geographic area compared to the applicable 
national average level.
    Section 1895(b)(5) of the Act, as amended by section 3131 of the 
Affordable Care Act, gives the Secretary the option to make changes to 
the payment amount otherwise paid in the case of outliers because of 
unusual variations in the type or amount of medically necessary care. 
Section 1895(b)(3)(B)(v) of the Act requires HHAs to submit data for 
purposes of measuring health care quality, and links the quality data 
submission to the annual applicable percentage increase. Also, section 
3131 of the Affordable Care Act requires that HH services furnished in 
a rural area (as defined in section 1886(d)(2)(D) of the Act) with 
respect to episodes and visits ending on or after April 1, 2010, and 
before January 1, 2016, receive an increase of 3 percent the payment 
amount otherwise made under section 1895 of the Act.

C. Overall Impact

    The update set forth in this proposed rule applies to Medicare 
payments under HH PPS in CY 2012. Accordingly, the following analysis 
describes the impact in CY 2012 only. We estimate that the net impact 
of the proposals in

[[Page 41028]]

this rule is approximately $640 million in CY 2012 savings. The $640 
million impact due to the proposed CY 2012 HH PPS rule reflects the 
distributional effects of an updated wage index ($20 million increase) 
plus the 1.5 percent HH market basket update ($290 million increase), 
for a total increase of $310 million. The 5.06 percent case-mix 
adjustment applicable to the national standardized 60-day episode rates 
($950 million decrease) plus the combined wage index and market basket 
($310 million increase) results in a total savings of $640 million in 
CY 2012. The $640 million in savings is reflected in the first row of 
column 3 of Table 32 as a 3.35 percent decrease in expenditures when 
comparing the current CY 2011 HH PPS to the proposed CY 2012 HH PPS.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of less than $7.0 million to $34.5 million in any 1 year. For 
the purposes of the RFA, our updated data show that approximately 98 
percent of HHAs are considered to be small businesses according to the 
Small Business Administration's size standards with total revenues of 
$13.5 million or less in any 1 year. Individuals and States are not 
included in the definition of a small entity. The Secretary has 
determined that this proposed rule would have a significant economic 
impact on a substantial number of small entities. We define small HHAs 
as those with total revenues of $13.5 million or less in any 1 year. 
Analysis of Medicare cost report data reveals a 3.63 percent decrease 
in estimated payments to small HHAs in CY 2012.
    A discussion on the alternatives considered is presented in section 
V.E. below. The following analysis, with the rest of the preamble, 
constitutes our initial RFA analysis. We solicit comment on the RFA 
analysis provided.
    In this proposed rule, we have stated that our analysis reveals 
that nominal case-mix continues to grow under the HH PPS. Specifically, 
nominal case-mix has grown from the 17.45 percent growth identified in 
our analysis for CY 2011 rulemaking to 19.03 percent for this year's 
rulemaking (see further discussion in sections II.A. and II.B.). 
Because we have not yet accounted for all of the increase in nominal 
case-mix, that is case-mix that is not real (real being related to 
treatment of more resource intense patients), case-mix reductions are 
necessary. As such, we believe it is appropriate to reduce the HH PPS 
rates now, so as to move towards more accurate payment for the delivery 
of home health services. Our analysis shows that smaller HHAs are 
impacted slightly more than are larger HHAs by the proposed provisions 
of this rule.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This proposed rule 
applies to HHAs. Therefore, the Secretary has determined that this 
proposed rule would not have a significant economic impact on the 
operations of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold is approximately $136 million. This proposed rule is not 
anticipated to have an effect on State, local, or tribal governments in 
the aggregate, or by the private sector, of $136 million or more.

D. Detailed Economic Analysis

    This proposed rule sets forth updates to the HH PPS rates contained 
in the CY 2011 HH PPS final rule. The impact analysis of this proposed 
rule presents the estimated expenditure effects of policy changes 
proposed in this rule. We use the latest data and best analysis 
available, but we do not make adjustments for future changes in such 
variables as number of visits or case-mix.
    This analysis incorporates the latest estimates of growth in 
service use and payments under the Medicare home health benefit, based 
on Medicare claims from 2009. We note that certain events may combine 
to limit the scope or accuracy of our impact analysis, because such an 
analysis is future-oriented and, thus, susceptible to errors resulting 
from other changes in the impact time period assessed. Some examples of 
such possible events are newly-legislated general Medicare program 
funding changes made by the Congress, or changes specifically related 
to HHAs. In addition, changes to the Medicare program may continue to 
be made as a result of the Affordable Care Act, or new statutory 
provisions. Although these changes may not be specific to the HH PPS, 
the nature of the Medicare program is such that the changes may 
interact, and the complexity of the interaction of these changes could 
make it difficult to predict accurately the full scope of the impact 
upon HHAs.
    Table 32 represents how HHA revenues are likely to be affected by 
the policy changes proposed in this rule. For this analysis, we used 
linked home health claims and OASIS assessments; the claims represented 
a 20-percent sample of 60-day episodes occurring in CY 2009. The first 
column of Table 32 classifies HHAs according to a number of 
characteristics including provider type, geographic region, and urban 
and rural locations. The second column shows the payment effects of the 
wage index only. The third column shows the payment effects of all the 
proposed policies outlined earlier in this rule. For CY 2012, the 
average impact for all HHAs due to the effects of the wage index is a 
0.10 percent increase in payments. The overall impact for all HHAs, in 
estimated total payments from CY 2011 to CY 2012, is a decrease of 
approximately 3.35 percent.
    As shown in Table 32, the combined effects of all of the changes 
vary by specific types of providers and by location. Rural and 
voluntary non-profit agencies fare considerably better than urban and 
proprietary agencies as a result of the proposed provisions of this 
rule. We believe this is due mainly to the distributional effects of 
the recalibration of the case-mix weights as described in section II.A 
of the proposed rule. Essentially, these impacts suggest that under the 
current case-mix system, rural and voluntary non-profit agencies bill 
less for high therapy episodes than do urban and proprietary agencies.

[[Page 41029]]

  Table 32--Proposed Home Health Agency Policy Impacts for CY 2012, by
                  Facility Type and Area of the Country
------------------------------------------------------------------------
                                       Comparisons
                                   -------------------
                                      Percent change    Impact of all CY
               Group                    due to the     2012 policies \1\
                                      effects of the        (percent)
                                       updated wage
                                     index  (percent)
------------------------------------------------------------------------
All Agencies......................               0.10              -3.35
Type of Facility
    Free-Standing/Other Vol/NP....               0.29              -0.49
    Free-Standing/Other                          0.08              -4.68
     Proprietary..................
    Free-Standing/Other Government              -0.13              -2.13
    Facility-Based Vol/NP.........              -0.03               0.17
    Facility-Based Proprietary....               0.03              -3.02
    Facility-Based Government.....              -0.06              -0.59
        Subtotal: Freestanding....               0.12              -3.82
        Subtotal: Facility-based..              -0.03              -0.21
        Subtotal: Vol/NP..........               0.17              -0.24
        Subtotal: Proprietary.....               0.08              -4.65
        Subtotal: Government......              -0.10              -1.38
Type of Facility (Rural * Only)
    Free-Standing/Other Vol/NP....               1.88               0.94
    Free-Standing/Other                          0.25              -3.74
     Proprietary..................
    Free-Standing/Other Government              -0.21              -1.39
    Facility-Based Vol/NP.........              -0.20               0.20
    Facility-Based Proprietary....              -0.30              -2.12
    Facility-Based Government.....              -0.05              -0.27
Type of Facility (Urban * Only)
    Free-Standing/Other Vol/NP....               0.05              -0.70
    Free-Standing/Other                          0.06              -4.83
     Proprietary..................
    Free-Standing/Other Government              -0.02              -3.13
    Facility-Based Vol/NP.........               0.02               0.16
    Facility-Based Proprietary....               0.25              -3.65
    Facility-Based Government.....              -0.09              -0.99
Type of Facility (Urban* or
 Rural*)
    Rural.........................               0.35              -2.15
    Urban.........................               0.05              -3.57
Facility Location: Region*
    North.........................               0.68               0.71
    South.........................              -0.08              -4.97
    Midwest.......................              -0.09              -3.91
    West..........................               0.36              -0.82
    Outlying......................               0.43              -3.05
Facility Location: Area of the
 Country
    New England...................               1.35               0.69
    Mid Atlantic..................               0.30               0.71
    South Atlantic................              -0.49              -5.77
    East South Central............              -0.66              -6.28
    West South Central............               0.51              -3.76
    East North Central............              -0.22              -4.41
    West North Central............               0.49              -1.63
    Mountain......................               0.32              -4.22
    Pacific.......................               0.37               0.68
    Outlying......................               0.43              -3.05
Facility Size: (Number of First
 Episodes)
     $13.5 million).............
------------------------------------------------------------------------
Note: Based on a 20 percent sample of CY 2009 claims linked to OASIS
  assessments.
* Urban/rural status, for the purposes of these simulations, is based on
  the wage index on which episode payment is based. The wage index is
  based on the site of service of the beneficiary.
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.

[[Page 41030]]

 
\1\ Percent change due to the effects of the updated wage index, the 1.5
  percent proposed market basket update, the 5.06 percent case-mix
  adjustment, and the 3 percent rural add-on.

E. Alternatives Considered

    As described in section V.C. above, if we implement the case-mix 
adjustment for CY 2012 along with the market basket update and the 
updated wage index, the aggregate impact would be a net decrease of 
$640 million in payments to HHAs, resulting from a $310 million 
increase due to the updated wage index and the market basket update and 
a $950 million reduction from the 5.06 percent case-mix adjustment. If 
we were to not implement the case-mix adjustment for CY 2012, Medicare 
would pay an estimated $950 million more to HHAs in CY 2012, for a net 
increase in payments to HHAs in CY 2012 of $310 million (market basket 
update and updated wage index). We believe that not implementing a 
case-mix adjustment, and paying out an additional $950 million to HHAs 
when those additional payments are not reflective of HHAs treating 
sicker patients, would not be in line with the intent of the HH PPS, 
which is to pay accurately and appropriately for the delivery of home 
health services to Medicare beneficiaries.
    Section 1895(b)(3)(B)(iv) of the Act gives CMS the authority to 
implement payment reductions for nominal case-mix growth, changes in 
case-mix that are unrelated to actual changes in patient health status. 
We are committed to monitoring the accuracy of payments to HHAs, which 
includes the measurement of the increase in nominal case-mix, which is 
an increase in case-mix that is not due to patient acuity. As discussed 
in section II.A. of this rule, we have determined that there is a 19.03 
percent nominal case-mix change from 2000 to 2009. To account for the 
remainder of the 19.03 percent residual increase in nominal case-mix 
beyond that which was has been accounted for in previous payment 
reductions (2.75 percent in CY 2008 through CY 2010 and 3.79 percent in 
CY 2011), we have estimated that the percentage reduction to the 
national standardized 60-day episode rates for nominal case-mix change 
for CY 2012 would be 5.06 percent.
    We believe that the alternative of not implementing a case-mix 
adjustment to the payment system in CY 2012 to account for the increase 
in case-mix that is not real would be detrimental to the integrity of 
the PPS. As discussed in section II.A. of this rule, because nominal 
case-mix continues to grow (about 1 percent each year in 2006 and 2007, 
4 percent in 2008, and 2 percent in 2009), and thus to date we have not 
accounted for all the increase in nominal case-mix growth, we believe 
it is appropriate to reduce HH PPS rates now, thereby paying more 
accurately for the delivery of home health services under the Medicare 
home health benefit. The other reduction to HH PPS payments, a 1.0 
percentage point reduction to the proposed CY 2012 home health market 
basket update, is discussed in this rule and is not discretionary as it 
is a requirement in section 1895(b)(3)(B)(vi) of the Act (as amended by 
the Affordable Care Act).
    We solicit comment on the alternatives considered in this analysis.

F. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), in Table 16 below, we 
have prepared an accounting statement showing the classification of the 
transfers associated with the provisions of this proposed rule. This 
table provides our best estimate of the decrease in Medicare payments 
under the HH PPS as a result of the changes presented in this proposed 
rule.

 Table 33--Accounting Statement: Classification of Estimated Transfers,
              From the CY 2011 HH PPS to the CY 2012 HH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  -$640 million.
From Whom to Whom?                          Federal Government to HH
                                             providers.
------------------------------------------------------------------------

G. Conclusion

    In conclusion, we estimate that the net impact of the proposals in 
this rule is approximately $640 million in CY 2012 savings. The $640 
million impact to the proposed CY 2012 HH PPS reflects the 
distributional effects of an updated wage index ($20 million increase), 
the 1.5 percent home health market basket update ($290 million 
increase), and the 5.06 percent case-mix adjustment applicable to the 
national standardized 60-day episode rates ($950 million decrease). 
This analysis, together with the remainder of this preamble, provides a 
Regulatory Impact Analysis.

VI. Federalism Analysis

    Executive Order 13132 on Federalism (August 4, 1999) establishes 
certain requirements that an agency must meet when it promulgates a 
proposed rule (and subsequent final rule) that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. We have reviewed this 
proposed rule under the threshold criteria of Executive Order 13132, 
Federalism, and have determined that it would not have substantial 
direct effects on the rights, roles, and responsibilities of States, 
local or tribal governments.

List of Subjects

42 CFR Part 409

    Health facilities, Medicare.

42 CFR Part 424

    Emergency medical services, Health facilities, Health professions, 
Medicare, Reporting and recordkeeping requirements.

42 CFR Part 484

    Health facilities, Health professions, Medicare, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposed to amend 42 CFR chapter IV as set forth 
below:

PART 409--HOSPITAL INSURANCE BENEFITS

    1. The authority citation for part 409 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart C--Posthospital SNF Care

    2. Section 409.42 is amended by revising paragraph (c)(4) to read 
as follows:

Sec.  409.42  Beneficiary qualifications for coverage of services.

* * * * *
    (c) * * *
    (4) Occupational therapy services that meet the requirements of 
Sec.  409.44(c) of this subpart initially qualify for home health 
coverage as a dependent service as defined in Sec.  409.45(d) of this 
subpart if the beneficiary's eligibility for home health services has 
been established by virtue of a prior need for intermittent skilled 
nursing care, speech-language pathology services, or physical therapy 
in the current or prior certification

[[Page 41031]]

period. Subsequent to an initial covered occupational therapy service, 
continuing occupational therapy services which meet the requirements of 
Sec.  409.44(c) of this subpart are considered to be qualifying 
services.
* * * * *
    3. Section 409.44 is amended by--
    A. Revising the introductory text of paragraph (c).
    B. Revising paragraph (c)(2)(i)(D)(2).
    The revisions read as follows:

Sec.  409.44  Skilled services requirements.

* * * * *
    (c) Physical therapy, speech-language pathology services, and 
occupational therapy. To be covered, physical therapy, speech-language 
pathology services, and occupational therapy must satisfy the criteria 
in paragraphs (c)(1) and (2) of this section.
* * * * *
    (2) * * *
    (i) * * *
    (D) * * *
    (2) Where more than one discipline of therapy is being provided, 
the qualified therapist from each discipline must provide the therapy 
service and functionally reassess the patient in accordance with Sec.  
409.44(c)(2)(i)(A) of this section during the visit which would occur 
close to but no later than the 19th visit per the plan of care.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    4. The authority citation for part 424 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart B--Certification and Plan Requirements

    5. Section 424.22 is amended by--
    A. Revising the introductory text of paragraph (a)(1)(v).
    B. Revising paragraph (a)(1)(v)(A).
    The revisions read as follows:

Sec.  424.22  Requirements for home health services.

* * * * *
    (a) * * *
    (1) * * *
    (v) The physician responsible for performing the initial 
certification must document that the face-to-face patient encounter, 
which is related to the primary reason the patient requires home health 
services, has occurred no more than 90 days prior to the home health 
start of care date or within 30 days of the start of the home health 
care by including the date of the encounter, and including an 
explanation of why the clinical findings of such encounter support that 
the patient is homebound and in need of either intermittent skilled 
nursing services or therapy services as defined in Sec.  409.42(a) and 
(c) of this subpart, respectively. Under sections 1814(a)(2)(C) and 
1835(a)(2)(A) of the Act, the face-to-face encounter must be performed 
by the certifying physician himself or herself, by the nurse 
practitioner, a clinical nurse specialist (as those terms are defined 
in section 1861(aa)(5) of the Act) who is working in collaboration with 
the physician in accordance with State law, a certified nurse midwife 
(as defined in section 1861(gg) of the Act) as authorized by State law, 
a physician assistant (as defined in section 1861(aa)(5) of the Act) 
under the supervision of the physician, or, for patients admitted to 
home health immediately after an acute or post-acute stay, the 
attending acute or post-acute physician. The documentation of the face-
to-face patient encounter must be a separate and distinct section of, 
or an addendum to, the certification, and must be clearly titled, dated 
and signed by the certifying physician.
    (A) The nonphysician practitioner or the attending acute or post-
acute physician performing the face-to-face encounter must communicate 
the clinical findings of that face-to-face patient encounter to the 
certifying physician.
* * * * *

PART 484--HOME HEALTH SERVICES

    6. The authority citation for part 484 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).

Subpart E--Prospective Payment System for Home Health Agencies

    7. Section 484.250 is revised to read as follows:

Sec.  484.250  Patient assessment data.

    (a) Data submission. The following data must be submitted to CMS:
    (1) An HHA must submit the OASIS-C data described at Sec.  
484.55(b)(1) of this part for CMS to administer the payment rate 
methodologies described in Sec.  484.215, Sec.  484.230, and Sec.  
484.235 of this subpart, and meet the quality reporting requirements of 
section 1895(b)(3)(B)(v) of the Act.
    (2) An HHA must submit the Home Health Care CAHPS survey data for 
CMS to administer the payment rate methodologies described in Sec.  
484.225(i) of this subpart, and meet the quality reporting requirements 
of section 1895(b)(3)(B)(v) of the Act.
    (b) Patient count. An HHA that has less than 60 eligible unique 
HHCAHPS patients annually must annually submit to CMS their total 
HHCAHPS patient count to CMS to be exempt from the HHCAHPS reporting 
requirements for a calendar year period.
    (c) Survey requirements. An HHA must contract with an approved, 
independent HHCAHPS survey vendor to administer the HHCAHPS Survey on 
its behalf.
    (1) CMS approves an HHCAHPS survey vendor if such applicant has 
been in business for a minimum of 3 years and has conducted surveys of 
individuals and samples for at least 2 years.
    (i) For HHCAHPS, a ``survey of individuals'' is defined as the 
collection of data from at least 600 individuals selected by 
statistical sampling methods and the data collected are used for 
statistical purposes.
    (ii) All applicants that meet these requirements will be approved 
by CMS.
    (2) No organization, firm, or business that owns, operates, or 
provides staffing for a HHA is permitted to administer its own Home 
Health Care CAHPS (HHCAHPS) Survey or administer the survey on behalf 
of any other HHA in the capacity as an HHCAHPS survey vendor. Such 
organizations will not be approved by CMS as HHCAHPS survey vendors.
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: June 10, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 24, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-16938 Filed 7-5-11; 4:15 pm]
BILLING CODE 4120-01-P
```