[Federal Register Volume 74, Number 155 (Thursday, August 13, 2009)]
[Proposed Rules]
[Pages 40948-41005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: R9-18587]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 409, 424, 484, and 489



Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2010; Proposed Rule; Republication

Federal Register / Vol. 74 , No. 155 / Thursday, August 13, 2009 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 424, 484, and 489

[CMS-1560-P]
RIN 0938-AP20


Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2010

    Editorial Note:  Federal Register proposed rule document E9-
18587, originally published at pages 39436 to 39496 in the issue of 
Thursday, August 6, 2009, included incorrect tables from pages 39471 
to 39496. This document, along with the correct tables, is being 
republished in its entirety.

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth an update to the Home Health 
Prospective Payment System (HH PPS) rates; the national standardized 
60-day episode rates, the national per-visit rates, the non-routine 
medical supply (NRS) conversion factor, and the low utilization payment 
amount (LUPA) add-on payment amount, under the Medicare prospective 
payment system for home health agencies effective January 1, 2010. In 
addition, this rule proposes a change to the HH PPS outlier policy and 
proposes to require the submission of OASIS data as a condition for 
payment under the HH PPS. Also, this rule proposes payment safeguards 
that would improve our enrollment process, improve the quality of care 
that Medicare beneficiaries receive from HHAs, and reduce the Medicare 
program's vulnerability to fraud. This rule also proposes clarifying 
language to the ``skilled services'' section and Condition of 
Participation (CoP) section of our regulations. This proposed rule also 
clarifies the coverage of routine medical supplies under the HH PPS. We 
are also soliciting comments on: Physician/patient interaction 
associated with the home health plan of care (POC); a Consumer 
Assessment of Healthcare Providers and Systems (CAHPS) Home Health Care 
Survey; the Outcome and Assessment Information Set (OASIS), Version C, 
effective January 1, 2010; proposed pay for reporting measures for use 
in CY 2011; and a number of minor payment-related issues. We are also 
responding to comments received as a result of our solicitation in the 
CY 2008 HH PPS final rule with comment period.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 28, 
2009.

ADDRESSES: In commenting, please refer to file code CMS-1560-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-1560-P, P.O. Box 8016, Baltimore, MD 
21244-1850.
    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-1560-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.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410)786-0131 
(overall HH PPS). Sharon Ventura, (410) 786-1985 (for information 
related to payment rates and wage indexes). James Bossenmeyer, (410) 
786-9317 (for information related to payment safeguards). Doug Brown, 
(410) 786-0028 (for quality issues). Kathleen Walch, (410) 786-7970 
(for skilled services requirements and clinical issues).

Table of Contents

I. Background
    A. Requirements of the Balanced Budget Act of 1997 for 
Establishing the Prospective Payment System for Home Health Services
    B. Deficit Reduction Act of 2005
    C. System for Payment of Home Health Services
    D. Updates to the HH PPS
II. Analysis of and Responses to Comments on the HH PPS Refinement 
and Rate Update for CY 2008
III. Provisions of the Proposed Regulation

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    A. Outlier Policy
    B. Case-Mix Measurement Analysis
    C. Proposed CY 2010 Payment Rate Update
    1. Home Health Market Basket Update
    2. Home Health Care Quality Improvement
    3. Home Health Wage Index
    4. Proposed CY 2010 Payment Update
    a. National Standardized 60-Day Episode Rate
    b. Proposed Updated CY 2010 National Standardized 60-Day Episode 
Payment Rate
    c. Proposed National Per-Visit Rates Used To Pay LUPAs and 
Compute Imputed Costs Used in Outlier Calculations
    d. Proposed LUPA Add-On Payment Amount Update
    e. Proposed Non-Routine Medical Supply Conversion Factor Update
    D. OASIS Issues
    1. HIPPS Code Reporting
    2. OASIS Submission as a Condition for Payment
    E. Qualifications for Coverage as They Relate to Skilled 
Services Requirements
    F. OASIS for Significant Change in Condition No Longer 
Associated With Payment
    G. Proposed Payment Safeguards for Home Health Agencies
    H. Physician Certification and Recertification of the Home 
Health Plan of Care
    I. Routine Medical Supplies
IV. Collection of Information Requirements
    A. ICRs Regarding the Requirements for Home Health Services
    B. ICRs Regarding Deactivation of Medicare Billing Privileges
    C. ICRs Regarding Prohibition Against Sale or Transfer of 
Billing Privileges
    D. ICRs Regarding Patient Assessment Data
V. Response to Comments
VI. Regulatory Impact Analysis

I. Background

A. Requirements of the Balanced Budget Act of 1997 for Establishing the 
Prospective Payment System for Home Health Services

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) enacted on 
August 5, 1997, significantly changed the way Medicare pays for 
Medicare home health services. Section 4603 of the BBA 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 cost-based reimbursement 
system.
    Section 4603(a) of the BBA mandated the development of a HH PPS for 
all Medicare-covered home health 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 home health services 
paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires that: (1) The computation 
of a standard prospective payment amount include all costs for home 
health services covered and paid for on a reasonable cost basis and be 
initially based on the most recent audited cost report data available 
to the Secretary, and (2) the prospective payment amounts be 
standardized to eliminate the effects of case-mix and wage levels among 
HHAs.
    Section 1895(b)(3)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the home health applicable 
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 that adjusts for significant variation in costs among different 
units of services.
    Similarly, section 1895(b)(4)(C) of the Act requires the 
establishment of wage adjustment factors that reflect the relative 
level of wages, and wage-related costs applicable to home health 
services furnished in a geographic area compared to the applicable 
national average level. Pursuant to 1895(b)(4)(c), 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. Total outlier payments in a given 
fiscal year (FY) or year may not exceed 5 percent of total payments 
projected or estimated.
    In accordance with the statute, we published a final rule (65 FR 
41128) in the Federal Register on July 3, 2000, to implement the HH PPS 
legislation. The July 2000 final rule established requirements for the 
new HH PPS for home health services as required by section 4603 of the 
BBA, as subsequently amended by section 5101 of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act (OCESAA) for 
Fiscal Year 1999 (Pub. L. 105-277), enacted on October 21, 1998; and by 
sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), 
enacted on November 29, 1999. The requirements include the 
implementation of a HH PPS for home health services, consolidated 
billing requirements, and a number of other related changes. The HH PPS 
described in that rule replaced the retrospective reasonable cost-based 
system that was used by Medicare for the payment of home health 
services under Part A and Part B. For a complete and full description 
of the HH PPS as required by the BBA, see the July 2000 HH PPS final 
rule (65 FR 41128 through 41214).

B. Deficit Reduction Act of 2005

    On February 8, 2006, the Deficit Reduction Act of 2005 (Pub. L. 
109-171) (DRA) was enacted. Section 5201 of the DRA requires HHAs to 
submit data for purposes of measuring health care quality, and links 
the quality data submission to payment. This requirement is applicable 
for CY 2007 and each subsequent year. If an HHA does not submit quality 
data, the home health market basket percentage increase will be reduced 
2 percentage points. In accordance with the statute, we published a 
final rule (71 FR 65884, 65935) in the Federal Register on November 9, 
2006 to implement the pay-for-reporting requirement of the DRA, 
codified at 42 CFR 484.225(h) and (i).

C. 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 home health disciplines (skilled 
nursing, home health 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 III.C.4.e). Durable medical equipment 
covered under the home health benefit is paid for outside the HH PPS 
payment. 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). Clinical needs, functional status, and service utilization are 
computed from responses to selected data elements in the OASIS 
assessment instrument.
    For episodes with four or fewer visits, Medicare pays on the basis 
of a national

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per-visit rate by discipline; 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.

D. Corrections

    We published a final rule with comment period in the Federal 
Register on August 29, 2007 (72 FR 49762) that set forth a refinement 
and rate update to the 60-day national episode rates and the national 
per-visit rates under the Medicare prospective payment system for home 
health services for CY 2008. In this final rule with comment period, in 
Table 10B (72 FR 49854), the short description for ICD-9-CM code 250.8x 
& 707.10-707.9 should read ``PRIMARY DIAGNOSIS = 250.8x AND FIRST OTHER 
DIAGNOSIS=707.10-707.9''. Instead of a formal correction notice, we are 
notifying the public of this correction in this proposed rule, and 
subsequent final rule.

E. 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.
    We published a notice in the Federal Register on November 3, 2008 
(73 FR 65351) 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 home health services for CY 2009.

II. Analysis of and Responses to Comments on the HH PPS Refinement and 
Rate Update for CY 2008

    Our 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. For that final rule, analysis performed on home health claims 
data, from CY 2005, 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. We then 
performed a more detailed analysis on the 12.78 percent increase in 
case-mix to see if any portion of that increase was associated with a 
real change in the actual clinical condition of home health patients. 
CMS examined data on demographics, family support, pre-admission 
location, clinical severity, and non-home health Part A Medicare 
expenditure data to predict the average case-mix weight for 2005. As a 
result of that analysis, CMS recognized that an 11.75 percent increase 
in case-mix was due to changes in coding practices and documentation 
rather than to treatment of more resource-intensive patients.
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, CMS 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 taken at 2.75 
percent per year for three years beginning in CY 2008 and at 2.71 
percent for the fourth year in CY 2011. CMS indicated that it would 
continue to monitor for any further increase in case-mix that was not 
related to a change in patient status, and would adjust the percentage 
reductions and/or implement further case-mix change adjustments in the 
future.
    The CY 2008 HH PPS final rule with comment period specifically 
solicited comments on the 2.71 percent reduction that is scheduled to 
occur in 2011. In response, we received approximately 44 items of 
correspondence from the public. Comments originated from trade 
associations, HHAs, hospitals, and health care professionals such as 
physicians, nurses, social workers, and physical and occupational 
therapists. In the HH PPS Rate Update for CY 2009, we stated that we 
would delay our responses to these comments until future rulemaking, 
enabling us to respond more comprehensively as more current data became 
available. The following discussion, arranged by subject area, includes 
our responses to the comments.

A. Payment Reductions in the 4th Year (2011)

    Comment: Commenters requested that CMS release the Abt technical 
report so that the industry could review the data and information 
within it. Without the Abt report, the commenters stated the industry 
would be unable to offer meaningful comments on the case-mix 
reductions.
    Response: The Abt Technical Report was posted online and made 
available to the public on April 30, 2008 at: http://www.cms.hhs.gov/Reports/downloads/Coleman_Final_April_2008.pdf. Although we posted 
the report later than anticipated, we believe that the CY 2008 HH PPS 
final rule with comment period adequately presented information, 
documentation and evidence describing the Abt case-mix study and CMS' 
rationale for the reductions. Accordingly, we believe we have provided 
sufficient time and information to the public to fully review and 
comment upon the rate reductions that will take effect in CY 2011.
    Comment: A commenter suggested that the 4th year cut of 2.71 
percent be eliminated or indefinitely deferred until better data are 
available. Some commenters stated that an additional year of rate cuts 
will place a financial burden on HHAs, and will result in limited 
access to home care, especially in rural areas. These commenters 
further state that limited access may result in more hospitalizations 
and/or care being provided in more costly settings. Commenters also 
stated that imposing a 4th year reduction on HHAs would be detrimental 
and unduly harsh, as many HHAs are already struggling to meet the 
rising costs of providing care, and that the reductions will cause HHAs 
to operate at negative margins and likely close.
    Several commenters suggested alternatives to CMS' approach to 
adjusting for nominal case-mix. For example, one commenter suggested 
spreading the total cuts across a 6-year period rather than a 4-year 
period, enabling CMS to better monitor the impact of the CY 2008 HH PPS 
refinements and CY 2008 and 2009 reductions prior to imposing 
additional reductions.
    Another commenter suggested that CMS withdraw its decision to 
reduce the payment rates until CMS could design and implement a better 
method to analyze changes in the case-mix, based on adjusted final 
claims data that would utilize patient characteristics in the model, as 
well as changes in per-patient annual expenditures, patient clinical, 
functional, and service utilization data, and dynamic factors in the 
Medicare system that impact on the nature of patients served with home 
health care.
    Response: Our continued analysis shows that Medicare nominal case-
mix continues to increase. Therefore, we continue to believe it 
necessary to reduce rates through 2011 to counterbalance the Medicare 
expenditure effects of this nominal increase. We also continue to 
believe that phasing in the reductions over a four year period provides 
fair and ample time for HHAs to prepare for the reductions.
    As more current data become available, we will continue to update 
our case-mix analysis. As discussed in Section III.B. of this proposed 
rule,

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based on analysis of data through 2007, nominal case-mix has further 
increased. We now estimate that the nominal case-mix has grown by an 
estimated 13.56 percent between FY 1999 (the Interim Payment System 
(IPS) baseline period) and 2007, an additional 1.81 percentage points 
above the previously recognized increase. If we were to account for the 
entire 13.56 percent increase in nominal case-mix in one year (taking 
into account that we have already imposed 2.75 percentage reductions in 
CY 2008 and CY 2009), we estimate that the percentage reduction in the 
national standardized 60-day episode payment rates and the NRS 
conversion factor would be 6.89 percent in CY 2010. If we were to 
account for the entire 13.56 percent increase in nominal case-mix over 
two years (taking into account that we have already imposed 2.75 
percentage reductions in CY 2008 and CY 2009), we estimate that the 
percentage reduction in the national standardized 60-day episode 
payment rates and the NRS conversion factor for each of the remaining 
two years (2010 and 2011) would be 3.51 percent per year. As discussed 
in Section II.C. of this proposed rule, we currently plan to move 
forward with the CY 2010 reduction of 2.75 percent, as set forth in the 
CY 2008 final rule. However, we note that, in light of, among other 
things, new policy developments, more recent information, or changed 
circumstances from the time the CY 2008 rule was published, the 
Secretary is also considering making additional changes in the final 
rule to account for the residual increase in nominal case-mix discussed 
above. In such an instance, we would consider accounting for the 
residual increase in nominal case-mix in one year in the final rule, 
which we estimate would result in a 6.89 percent reduction to the 
national standardized 60-day episode payment rates and the NRS 
conversion factor for CY 2010. We are seeking comments on the full 
range of potential nominal case-mix reduction percentages.
    With high projected HH margins and continued growth in the number 
of new HH agencies, we do not believe that the 2.71 percent reduction 
for 2011 will result in decreased access to home health care for 
Medicare beneficiaries. The Medicare Payment Advisory Commission's 
(MedPAC) March 2009 Annual Report states that the home health industry 
margin for 2007 was 16.6 percent and projects that average margins for 
2009, which considers the 2.75 reduction, will be 12.2 percent. MedPAC 
also analyzed the average rate of HH cost growth and found that in most 
years, the rate of actual cost growth in HHAs has been lower than the 
rate of inflation indicated by the home health market basket. MedPAC 
reports that payments for HHAs have exceeded costs for all of the 
period under PPS by a wide margin.
    Also, in their March 2009 report, MedPAC reports a 32 percent 
growth in the number of HH agencies since 2003, stating that the supply 
of agencies continues to increase faster than the growth in the overall 
number of Medicare beneficiaries. We believe that new home health 
providers continue to enter the home health industry because Medicare 
payment levels give them adequate incentive to do so.
    In response to commenters who suggested that we consider 
alternative methods to identify nominal case-mix before we impose the 
CY 2011 reductions, we continue to believe that the Abt model 
adequately identifies nominal case-mix. As we described in our August 
2007 final rule, our enhanced model included variables such as changes 
in the age structure of the home health user population, changes in the 
types of patients being admitted to home health, utilization of 
Medicare Part A services in the 120 days leading up to home health, the 
type of preadmission acute care stays when the patient last had such a 
stay and variables describing living situations. Many of these model 
enhancements addressed suggestions made by the industry in their 
proposed rule comments.

B. General Case-Mix Comments

    Our August 29, 2007 final rule with comment period solicited 
comments only on the 2.71 percent fourth year reduction (72 FR 49762). 
Nevertheless, we received several comments unrelated to the fourth year 
reduction. Because such comments (including comments on outliers, LUPAs 
(Low Utilization Payment Adjustments), OASIS, wage index, operational 
issues, diagnosis coding, HHRGs, and wound care payment) are out of the 
scope of this rulemaking, we are not responding to these comments in 
this proposed rule. However, we are responding to comments on case-mix 
measurement methodology, as we believe such comments are tangentially 
related to the reduction for CY 2011, and because we wish to fully 
address this issue.
    Comment: A commenter stated that the August 27, 2007 final rule 
with comment period was not a ``logical outgrowth'' of the May 4, 2007 
proposed rule. The commenter stated that CMS used a different 
methodology for evaluating case-mix weight scores and changes in 
patient characteristics than had been used in the proposed rule. The 
commenter recommended that CMS engage in another cycle of rulemaking in 
order to provide further opportunity to comment.
    Response: The policy adopted in the August 2007 final rule was a 
policy that adjusted payments in order to account for increases in 
nominal case-mix. This policy was both proposed and finalized. The 
commenter is addressing not the policy of adjusting payments for 
nominal case-mix increases, but rather, how CMS implements this policy; 
that is, the methodology CMS uses for determining the level of nominal 
case-mix increase. While we do not believe we are required to subject 
our exact, final calculations regarding the increase to public comment, 
it is also important to note that our final methodology clearly was an 
outgrowth of the proposed rule. The proposed rule included a detailed 
analysis of various kinds of data, such as an extensive review of the 
content of changes in OASIS instructions, a review of changes in the 
frequencies of severity levels of the case-mix system, and a detailed 
presentation of how OASIS items other than those used for case-mix 
frequently changed little, if at all. We also discussed the pattern of 
change in functional items, showing that for a number of items, some 
changes occurred at the high-functioning end, while the worst-
functioning levels didn't increase in the population. There was a 
similar analysis of wound item changes. Our interpretation of the 
totality of the data was that real case-mix did not materially change 
since the IPS baseline. We also identified a large increase in post-
surgical patients with their traditionally lower case-mix index. 
However, we made an adjustment to our estimate of case-mix change to 
account for the change in the composition of the home health industry 
on account of the exit of some hospital-owned agencies. These details 
enabled the home health industry to analyze our proposed methodology 
and provide comments suggesting specific types of changes in patient 
acuity that could help to explain identified changes in home health 
case-mix. For the final rule, we enhanced our formal estimate of case-
mix change, which we had statistically adjusted to account for change 
in the presence of hospital-owned agencies in the industry, with a 
methodology that statistically adjusted for multiple factors, including 
the types of factors mentioned by commenters. Application of this model 
allowed us to simultaneously ``subtract'' from the

[[Page 40952]]

growth in the national case-mix index the effects of a multitude of 
factors besides the change in hospital-owned agencies. Additionally, in 
the May 4, 2007 proposed rule (72 FR 25395) we indicated that our 
analysis for the final rule would be updated to include 2005 data.
    Specifically, for the final rule, we updated the case-mix index and 
some of the statistical data (e.g., average resources per episode) to 
include 2005 data. We also added analyses focusing on certain types of 
patients, including those mentioned in public comments on the proposal 
(e.g., knee replacement patients). Further, as just discussed in the 
paragraph above, we added results from a multivariate model of case-mix 
that isolated real case-mix change between the HH IPS baseline and 
2005. The newly added data and the model responded to comments that 
cited circumstances of particular types of patients and/or sought 
additional types of evidence. These added data and analyses were made 
in response to the proposed rule comments. The data and information 
added for the final rule, along with the entire array of evidence we 
presented in the proposed and the final rule are the bases for the 
identification of nominal case-mix change.
    Comment: Some commenters focused on the finding that only 8 percent 
of the case-mix change from 2000 to 2005 was real. These commenters 
recommended that CMS start with the assumption that all case-mix change 
is real, and only consider the amount that could be estimated as 
nominal to be unjustified.
    Another commenter pointed to CMS' assertion that ``real'' case-mix 
increased prior to implementation of the HH PPS (prior to September 
2000) and argued that this fact demonstrates that it was unreasonable 
for CMS to assume that none of the change after that point was real.
    Commenters suggested that case-mix has increased due to several 
factors, including earlier discharges from general acute hospitals, PPS 
changes that provided incentives to treat higher-acuity patients, and 
other post-acute care regulations issued by CMS (such as the inpatient 
rehabilitation ``75% Rule''), which diverts more medically complex 
patients to homecare. One commenter urged CMS to defer any adjustment 
for case-mix change and to perform an analysis that accounted for these 
factors.
    Response: The predictive model isolated 8.03 percent of the overall 
12.78 percent increase in case-mix as real, resulting in an 11.75 
percent nominal increase in case-mix. We relied on those results to 
arrive at the nominal case-mix reductions -2.75 percent for 3 years and 
-2.71 percent for the fourth year of the phase-in. (Refer to Section 
III.B. of this proposed rule for an update based on analysis of data 
through 2007.) Thus, our model allowed and presumed some real case-mix 
change. The model data relied on claims data instead of OASIS data 
(with the exception of one variable, which described the patient's 
living situation), to avoid reliance on data which we knew were subject 
to coding changes such as those resulting from educational 
improvements, changes in OASIS instructions, and financial incentives. 
The model takes into account the total change between the baseline and 
the follow-up year (2005) in the sources of patients (hospital, 
inpatient rehabilitation facility, and skilled nursing facility). It 
also takes into account total change in the types of acute hospital 
problems and hospital-recorded comorbidities experienced by patients 
before they entered home health care, total change in living situation, 
and total change in patients' Part A expenditures incurred in the 120 
days leading up to the beginning of each episode (expenditures were 
adjusted for price increases). Length of stay is also accounted for by 
summing the number of inpatient days of various types. Additionally, we 
added analyses focusing on certain types of patients, including those 
mentioned in public comments on the proposal (e.g., knee replacement 
patients).
    Every predictive model has its limitations; however, we believe the 
model and data we used were the best available for the purposes of 
measuring case-mix in an unbiased manner. For example, we relied on 
hospital claims data instead of OASIS data (with the exception of one 
OASIS variable), and enhanced our calculation method to include a 
multivariate approach to case-mix measurement. For those patients who 
were hospitalized before home care, the model included whether the 
hospitalization was surgical or medical, and in many cases the model 
identified the particular, detailed conditions that were responsible 
for that hospital stay. These additions to the model were suggested by 
the industry in comments on the proposed rule.
    Moreover, we again note that the Abt model was not the sole basis 
for the final regulation provision on nominal case-mix change. The 
basis for the final provision was the entire array of evidence we 
presented in the proposed and the final rules. In addition, in the May 
4, 2007, proposed rule (72 FR 25362-25366) we noted data as well as 
commentary from observers indicating that therapy treatment plans were 
sometimes ``padded'' to reach the ten-visit therapy threshold; we 
consider this behavior a component of nominal case-mix change, because 
therapy visits help to determine the case-mix group.
    In response to the comment that CMS should have started with the 
assumption that all case-mix growth was real, and then calculate what 
portion, if any, was nominal, the model did assess real case-mix using 
a variety of Part A claims. We then compared the model's prediction of 
real case-mix with the actual billed case-mix, determining the 
calculated difference to be nominal. The May 4, 2007, proposed rule put 
the case-mix of the Medicare home health population in historical 
perspective. It described the changes affecting the home health benefit 
since the Balanced Budget Act of 1997 and cited MedPAC, GAO and other 
literature findings that the HH IPS had a strong impact on the types of 
patients served. We compared the case-mix index from the Abt Associates 
study sample with the case-mix index of the HH IPS baseline (1999-
2000), a comparison that suggested that changes in real case-mix did 
occur as a result of the HH IPS. Literature findings (GAO, ``Medicare 
Home Health Benefit: Impact of Interim Payment System and Agency 
Closures on Access to Services,'' September 1998, GAO/HEHS-98-238) 
describe an HH IPS incentive to admit many different patients with 
short-term or rehabilitation needs instead of lengthy low skilled care 
needs. We did not rule out that some of the change during that period 
was nominal, in part because the HH PPS proposed rule of 1999 probably 
affected provider behavior.
    Moreover, our analysis of changes in resource use showed that 
resource use stayed below the resource use level of the HH IPS period 
for much of the succeeding five years, casting doubt on the commenters' 
assertion that patient acuity increased. Specifically, after the IPS 
was implemented, we saw a decline in visit use from 73 visits per 
person in 1997 to 42 visits per person in 1999. The number of visits 
further decreased under the HH PPS, decreasing to 37 in 2000, and 31 
for each year 2001 through 2004.
    Comment: A commenter believes that CMS's decision to implement 
these payment reductions is unjustified and flawed for two basic 
reasons: (1) There have been actual changes in the home health 
population; and (2) providers have improved the accuracy of OASIS 
coding. The commenter refers to recently released data by Outcome 
Concept Systems citing the average 2005 adjusted case-mix weight 
nationally and

[[Page 40953]]

in New York was approximately 1.15, not 1.2361, as CMS asserts.
    The commenter believes that the average case-mix weight has changed 
because CMS fails to consider therapy as a patient characteristic and 
because patients' clinical severity has increased. Furthermore, the 
commenter believes that the increase in patients' clinical needs is 
largely due to an inpatient hospital payment system that has created 
incentives for early discharge of patients who require more care. The 
result is a home health population with higher acuity and more intense 
resource needs. The commenter also states that growth in Medicare 
Advantage plans has shifted lower acuity patients out of traditional 
Medicare, leaving higher need and higher cost beneficiaries within the 
traditional Medicare program.
    A commenter stated that current OASIS data show that HHAs are 
admitting increased numbers of beneficiaries with: (1) Comorbidities 
such as diabetes and obesity; (2) abnormalities of gait; (3) wound 
infections; (4) urinary incontinence; and (5) increased cognitive 
function deficits. The accumulative effect of these admissions has 
necessitated increased therapy services which have resulted in higher 
clinical and functional scores in case-mix weights. In addition, the 
commenter believes that physical therapy services were underutilized 
during the HH IPS and at the onset of the HH PPS because of lack of 
clinical knowledge and understanding of best practice standards. The 
delivery of medical services in the home has improved over recent 
years. This is evident by implementation of quality measures and 
outcomes data. Several commenters believe that the increase in average 
case-mix can be attributed fully to an improvement in each agency's 
ability to correctly answer OASIS items and increased emphasis on OASIS 
validity by Quality Improvement Organizations (QIO). Another commenter 
stated that their agency has experienced a change in the percentage of 
orthopedic patients due to changes in regulations for rehabilitation 
hospitals.
    Response: In the May 4, 2007 HH PPS proposed rule, we indicated 
that the analysis of national case-mix would be updated using 2005 data 
in that year's HH PPS final rule, and that the annual adjustments for 
nominal case-mix change would be modified accordingly.
    As we have noted elsewhere, improvements in coding do not represent 
real case-mix changes, which means that the Medicare program arguably 
may have overpaid for some of the services which were provided after 
improvements in OASIS coding were implemented. CMS subsequently 
adjusted the standardized payment amount to compensate for the nominal 
change in case-mix used to pay claims in the years following the 
introduction of the PPS.
    We acknowledge that therapy treatment services were used as a case-
mix characteristic in the case-mix model, in the absence of sufficient 
explanatory power from OASIS data items to model resource use by 
themselves. However, we found a dramatic change in the distribution of 
episodes according to the number of therapy visits between the HH IPS 
baseline period and the early years of the HH PPS period, and the new 
distribution has persisted. We continue to believe that the change in 
this short period is an indication of behavioral change on the part of 
home health agencies, and is not necessarily related to real case-mix 
change. Moreover, the distributional shift occurred in the absence of 
convincing evidence from various OASIS items that patients were 
actually more impaired and sickly. Furthermore, when we took account of 
patient characteristics in the model of real case-mix change, the 
results did not support a large difference in patient acuity.
    We also note that the reporting of more comorbidities by HHAs is 
not clear evidence of change in patient status, as it could be a result 
of improvements in coding training alone. In addition, changes in 
regulations affecting rehabilitation hospitals are represented in the 
case-mix change model by the variables that measure the source of 
admission.
    To the extent that the home health industry has accomplished 
improvements in patient function without adding significant resources 
to the provision of care in home health episodes, we understand this is 
likely attributable to shifts in the service mix provided within the 
episode, as well as improved care practices. Again, however, the 
situation does not necessarily indicate a real change in case-mix.
    Without more detailed information about their analysis, we are 
unable to comment on the implication in the statistic from Outcome 
Concept Systems in New York State (as reported by the commenter) that 
the average case-mix rose only 1.15 as compared to 1.2361 in CMS's 
analysis. The average case-mix is computed from an extremely large 
representative sample of national home health claims data. The 
commenter does not provide information about the method of adjustment, 
the conditions of data-gathering, or the quality or source of the data 
sources used by Outcome Concept Systems.
    Comment: A commenter stated that CMS' review of 20 percent of 
claims (OASIS for 2004-2005) does not reflect the patient 
characteristics in 2007, and it certainly does not reflect those 
receiving services in 2010 and 2011.
    Response: We based our proposals on the latest statistically 
representative data available, and those data were from 2005 at the 
time of the preparation of the final regulation. We will continue to 
update the data as they become available.
    Comment: A commenter stated that CMS should look more closely at 
specific agencies it suspects may be upcoding and then seek financial 
restitution from those that are ultimately deemed to be following this 
practice. Across-the-board cuts of this magnitude are unwarranted at a 
time when the home health industry should be receiving additional 
support to serve an expanding older population.
    Response: As we stated in the CY 2008 HH PPS final rule (72 FR at 
49837), we believe that it is more appropriate to implement a 
nationwide approach to the issue of a case-mix change adjustment. An 
individual agency approach would be administratively burdensome and 
difficult to implement. Policies to address the identity of agencies in 
light of changes to organizational structures and configurations would 
need to be developed. Furthermore, smaller agencies might have 
difficulty in providing accurate measures of real case-mix changes 
because of their small caseloads. Because the nominal increase in case-
mix grew significantly from 2003 to 2005 (8.7 percent to 11.75 
percent), we spread out the schedule of adjustments from 3 years to 4 
years in order to ameliorate the impact that would have been felt by 
HHAs had we decided to account for the entire 11.75 percent increase in 
case-mix over 3 years.
    Comment: A commenter is concerned that CMS has not correctly 
addressed factors measuring the apparent ``creep''. Additionally, the 
commenter states that it was useful to have CMS clarify that they had 
excluded LUPAs from the two measurement bases utilized and that fact 
raises an issue that CMS did not address in the rule. When the original 
HH PPS was proposed (October 1999) and finalized (July 2000), CMS 
asserted that it expected LUPA incidence, as estimated by its 
actuaries, would be five percent. Actual incidence has, since 
implementation, averaged sixteen percent of total reimbursements. Using

[[Page 40954]]

just a five percent rate of occurrence resulted in every original HHRG 
assigned a lower value than if CMS had used, say, a fifteen percent 
rate of incidence. Accordingly, the commenter argues that home health 
agencies were under-compensated by approximately 11 percent for LUPA 
savings.
    Response: While this comment is outside the scope of the topic (the 
4th year reductions) which we solicited comments on, we will briefly 
respond. In the July 2000 final rule (65 FR 41162), we stated that the 
estimate of the percentage of LUPA episodes was an actuarial estimate, 
as were the estimates of incidence of SCICs, PEPs, and outliers. Our 
base episode payment rates are derived using the best data available at 
that time. The commenter is correct that the actual number of LUPA 
episodes is higher than our original estimate. However, while it is 
true that 16 percent of episodes from the 1998 pre-PPS data analysis 
were shown to be LUPA-type episodes (65 FR 41186), we also provided 
reasoning in that discussion as to why we believed actual LUPA 
incidence under the HH PPS would be lower. Granted, the incidence of 
LUPAs did not drop to the level of 5 percent of the total number of 
episodes as was originally estimated, however the average actual 
incidence of LUPAs is, and has always been considerably lower than the 
16 percent suggested by the commenter. In fact, data analysis shows us 
that the incidence of LUPA episodes was first measured at approximately 
15.2 percent of the total number of episodes and has continued to 
decrease under the HH PPS. Specifically, recent analysis of home health 
claims shows that LUPA episodes made up approximately 10.6 percent of 
the total number HH PPS episodes in CY 2007.
    Another important fact that should not be lost, as part of this 
discussion, is that while the incidence of LUPAs is less than 
originally estimated, we note that the average number of home health 
visits provided per episode for non-LUPAs episodes is also lower than 
what we originally estimated (65 FR 41171) when we built the base 
payment rates (21.16 vs 25.5 home health visits). Hence, the national 
standardized 60-day episode payment is currently based on the delivery 
of significantly more home health visits per episode (25.5) than is 
currently being delivered (21.16).
    It is also worth noting that the manner in which the commenter 
appears to arrive at their under-compensation of payment percentage is 
by subtracting the original estimate for LUPA episodes of 5 percent 
from their inaccurate estimate of 16 percent incidence of LUPA 
episodes. In addition to the commenters 16 percent being inaccurate (as 
mentioned above), it is important to point out that even in doing the 
math, an inaccurate 16 percent minus 5 percent actually reflects that 
there is an 11 percentage point difference between the two, not an 11 
percent under-compensation in payment as the commenter suggests. 
Because the incidence of LUPAs is considerably lower than the 16 
percent that the commenter suggests, and the average number of home 
health visits per episode is far less than originally estimated, HHAs 
have not been under-compensated by 11 percent, as the commenter 
suggests.
    Since the inception of the HH PPS, we have monitored home health 
utilization in preparing the refinements to the HH PPS. We have always 
contended that it would not be appropriate to address single aspects of 
the system, as the many pieces/aspects of the system interact and there 
are causes and effects that each has on one another. Consequently, we 
have addressed those issues for which we believed we had adequate 
information, as a result of our analysis in the CY 2008 HH PPS proposed 
and final rules. In doing so, as is generally done in a prospective 
payment system, we decided not to make retroactive adjustments for 
actual utilization that differed from estimates.

III. Provisions of the Proposed Rule

A. Outlier Policy

1. Background
    Section 1895(b)(5) of the Act allows for the provision of an 
addition or adjustment to the regular 60-day case-mix and wage-adjusted 
episode payment amount in the case of episodes that incur unusually 
high costs due to patient home health care needs. This section further 
stipulates that total outlier payments in a given year may not exceed 5 
percent of total projected or estimated HH PPS payments. Section 
1895(b)(3)(C) of the Act stipulates that the standard episode payment 
be reduced by such a proportion to account for the aggregate increase 
in payments resulting from outlier payments.
    In the July 2000 final rule (65 FR 41189), we described and 
subsequently implemented an HH PPS outlier policy under which we reduce 
the standard episode payment by 5 percent, and target up to 5 percent 
of total projected estimated HH PPS payments to be paid as outlier 
payments. The July 2000 final rule described a methodology for 
determining outlier payments. Under this system, outlier payments are 
made for episodes whose estimated cost exceeds a threshold amount. The 
episode's estimated cost is the sum of the national wage-adjusted per-
visit rate amounts for all visits delivered during the episode. The 
outlier threshold is defined as the national standardized 60-day 
episode payment rate for that case-mix group plus a fixed dollar loss 
(FDL) amount. Both components of the outlier threshold are wage-
adjusted. The wage-adjusted FDL amount represents the amount of loss 
that an agency must experience before an episode becomes eligible for 
outlier payments. The wage-adjusted FDL amount is computed by 
multiplying the national standardized 60-day episode payment amount by 
the FDL ratio, and wage-adjusting that amount. That wage-adjusted FDL 
amount is added to the HH PPS payment amount to arrive at the wage-
adjusted outlier threshold amount. The outlier payment is defined to be 
a proportion of the wage-adjusted estimated costs beyond the wage-
adjusted outlier threshold amount. The proportion of additional costs 
paid as outlier payments is referred to as the loss-sharing ratio. The 
FDL ratio and the loss-sharing ratio were selected so that the 
estimated total outlier payments would not exceed the 5 percent level. 
We chose 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. A loss-sharing ratio of 
0.80 means that Medicare pays 80 percent of the additional costs above 
the wage-adjusted outlier threshold amount. A loss-sharing ratio of 
0.80 is also consistent with the loss-sharing ratios used in other 
Medicare PPS outlier policies, such as inpatient hospital, inpatient 
rehabilitation, long-term hospital, and inpatient psychiatric payment 
systems. In CY 2000, we estimated that a FDL ratio of 1.13 would yield 
estimated total outlier payments that were projected to be no more than 
5 percent of total HH PPS payments. As discussed in the October 1999 
proposed rule (64 FR 58169) and the July 2000 final rule (65 FR 41189), 
the percentage constraint on total outlier payments creates a tradeoff 
between the values selected for the FDL amount and the loss-sharing 
ratio. For a given level of outlier payments, a higher fixed dollar 
loss amount reduces the number of cases that receive outlier payments, 
but makes it possible to select a higher loss-sharing ratio and 
therefore increase outlier payments per episode. Alternatively, a lower 
fixed dollar loss amount means that more episodes qualify for outlier 
payments but outlier payments per episode must be lower.

[[Page 40955]]

Therefore, setting these two parameters involves policy choices about 
the number of outlier cases and their rate of payment.
    When the data became available, we performed an analysis of CY 2001 
home health claims data. This analysis revealed that outlier episodes 
represented approximately 3 percent of total episodes and 3 percent of 
total HH PPS payments. Additionally, we performed the same analysis on 
CY 2002 and CY 2003 home health claims data and found the number of 
outlier episodes and payments held at approximately 3 percent of total 
episodes and total HH PPS payments, respectively. Based on these 
analyses and comments we received, we decided that an update to the FDL 
ratio would be appropriate.
    To that end, for the October 22, 2004 HH PPS rate update for the CY 
2005 final rule, we performed data analysis on CY 2003 HH PPS claims 
data. The results of that analysis indicated that a FDL ratio of 0.70 
was consistent with the existing loss-sharing ratio of 0.80 and a 
projected target percentage of estimated outlier payments of no more 
than 5 percent. Consequently, we updated the FDL ratio from the initial 
ratio of 1.13 to an FDL ratio of 0.70. Our analysis showed that 
reducing the FDL ratio from 1.13 to 0.70 would increase the percentage 
of episodes that qualified for outlier episodes from 3.0 percent to 
approximately 5.9 percent. A FDL ratio of 0.70 also better met the 
estimated 5 percent target of outlier payments to total HH PPS 
payments. We believed that this updated FDL ratio of 0.70 preserved a 
reasonable degree of cost sharing, while allowing a greater number of 
episodes to qualify for outlier payments.
    Our CY 2006 update to the HH PPS rates (70 FR 68132) updated the 
FDL ratio from 0.70 to 0.65 to allow even more home health episodes to 
qualify for outlier payments and to better meet the estimated 5 percent 
target of outlier payments to total HH PPS payments. For the CY 2006 
update, we used CY 2004 home health claims data.
    In our CY 2007 update to the HH PPS rates (71 FR 65884) we again 
updated the FDL ratio from 0.65 to 0.67 to better meet the estimated 5 
percent target of outlier payments to total HH PPS payments. For the CY 
2007 update, we used CY 2005 home health claims data.
    In the CY 2008 final rule with comment period, in the interest of 
using the latest data and best analysis available, we performed 
supplemental analysis on the most recent data available in order to 
best estimate the FDL ratio. That analysis derived a final FDL ratio of 
0.89 for CY 2008.
    In order to determine the appropriate value for the FDL ratio for 
the CY 2009 rate update, in the November 3, 2008 HH PPS Rate Update for 
CY 2009 notice (73 FR 65351), we performed an analysis using the most 
recent, complete available data at the time (CY 2006), applying a 
methodology similar to that which we used to update the FDL ratio in 
the CY 2008 HH PPS final rule. That updated analysis projected that in 
CY 2009 we would expend an estimated 10.26 percent of total estimated 
HH PPS payments in outlier payments, more than twice our 5 percent 
statutory limit. Our analysis also revealed that this growth in outlier 
payments was primarily the result of excessive growth in outlier 
payments in a few discrete areas of the country. We noticed statistical 
anomalies in outlier payments in terms of both high outlier dollars and 
as a percentage of total HH PPS payments, in areas such as Miami-Dade 
Florida, where outlier payments to providers far exceed the national 
average and the 5 percent target for outlier payments. Using similar 
analysis to what was performed for the CY 2008 final rule with comment, 
we estimated that we would need to raise our FDL ratio from 0.89 to 
2.71 for CY 2009 in order for estimated outlier payments to be no more 
than 5 percent of total HH PPS payments. In addition, the size of these 
statistical anomalies raised concerns about the medical necessity of 
the outlier episodes in some areas. However, in our CY 2009 payment 
update, we did not raise the FDL ratio to 2.71, given the statistical 
outlier data anomalies that we identified in certain targeted areas, 
because program integrity efforts, such as payment suspensions for 
suspect HHAs, were underway to address excessive, suspect outlier 
payments that were occurring in these areas. Instead, we maintained the 
then-current (CY 2008) FDL ratio of 0.89 in CY 2009 while actions to 
remedy any inappropriate outlier payments in these target areas of the 
country were effectuated.
2. Proposed Change To Target Outlier Payment Percentage
    For CY 2010 rulemaking, we have expanded our outlier analysis. In 
addition to assessing what FDL ratio would most accurately achieve the 
5 percent target of outlier payments as a percentage of total HH PPS 
payments, we also performed analyses to assess the appropriateness of 
adopting a lower target percentage of outlier payments to total HH PPS 
payments. Some commenters to our CY 2008 proposed rule suggested that 
CMS should consider targeting a lower percentage in outlier payments to 
total estimated HH PPS payments.
    Commenters suggested that by lowering the target outlier percentage 
to total estimated HH payments, CMS could then return to the national 
standardized 60-day episode payment rate, a portion of that 5 percent 
which was originally withheld from the rates to fund the 5 percent of 
total estimated HH PPS outlier payments. In our response to the CY 2008 
comments, we described our concern that reducing the target outlier 
percentage could risk access to home care for high needs patients. 
However, recent analysis of more current data, specifically CY 2007 and 
CY 2008 data, suggests that a target around that of 2.5 percent in 
outlier payments to total estimated HH PPS payments may be a more 
appropriate target than 5 percent, while not risking access to care for 
high needs patients. Section 1895(b)(5) of the Act states that the 
Secretary ``may'' provide for an addition or adjustment to the payment 
amount otherwise made in the case of outliers. It goes on to say that 
if the Secretary decides to provide such a payment, that the total 
amount of the additional payments or payment adjustments may not exceed 
5 percent of the total payment projected or estimated to be made under 
the payment system. Consequently, providing an addition or adjustment 
to the payment amount for outliers is optional and not statutorily 
required. We performed an analysis of all providers who receive outlier 
payments, focusing our analysis on total HH PPS payments, total outlier 
payments, number of episodes, number of outlier episodes, and location 
of provider. As discussed below under ``Proposed Outlier Cap Policy'', 
our analysis incorporates a proposed 10 percent cap on outliers and 
looks at outlier payments as a percentage of total HH PPS payments with 
that 10 percent cap in place. In our analysis of 2007 data, after 
implementing the 10 percent cap, outlier dollars accounted for 
approximately 2.1 percent of total HH PPS payments.
    Additionally, we performed a separate analysis on a major 
association of home health agencies who claim to be safety-net 
providers, serving sicker, more costly patients. The average outlier 
payment to these agencies is also under 2 percent. Therefore, we 
believe a target of less than 5 percent for outlier dollars as a 
percentage of total estimated HH PPS payments is appropriate. However, 
past years' data trends show us that outlier payments will likely 
continue to

[[Page 40956]]

grow. Consequently, we propose to change our target percentage of 
outlier payments from 5 percent to approximately 2.5 percent of total 
estimated HH PPS payments.
    Currently, we reduce the national standardized 60-day episode 
payment rates, the national per-visit rates, the LUPA add-on amount, 
and the NRS conversion factor by 5 percent in order to create an 
outlier pool that accommodates estimated outlier payments of 5 percent 
of total HH PPS payments. Targeting the percentage of outlier payments 
at approximately 2.5 percent will allow us to create a smaller outlier 
pool and return the remaining 2.5 percent to the HH PPS rates. We would 
retain a 2.5 percent reduction to the national standardized 60-day 
episode rates, the national per-visit rates, the LUPA add-on payment 
amount, and the NRS conversion factor to fund the proposed target of 
approximately 2.5 percent of total estimated HH PPS payments in outlier 
payments, adhering to the statutory requirement in Section 1895(b)(3) 
of the Act.
3. Proposed Outlier Cap Policy
    Although program integrity efforts associated with excessive 
outlier payments continue in targeted areas of the country, we continue 
to be at risk of exceeding the 5 percent statutory limit on estimated 
outlier expenditures. Therefore, our recent analysis also focused on 
whether a broader policy change to our outlier payment policy might 
also be warranted, to mitigate possible billing vulnerabilities 
associated with excessive outlier payments, and to adhere to our 
statutory limit on outlier payments.
    We also considered eliminating outlier payments altogether and 
restoring the 5 percent, originally taken out of the national 
standardized 60-day episode rates, the national per-visit rates, the 
LUPA add-on payment amount, and the NRS conversion factor to pay for 
the existing outlier policy, back into the HH PPS rates. Eliminating 
outlier payments would simplify payments to HHAs and remove the 
vulnerability associated with inappropriate outlier payments. However, 
we are concerned that eliminating outlier payments to HHAs could result 
in denying added protection to HHAs that historically treat sicker, 
more costly patients.
    In attempts to better estimate outlier payments as a percentage of 
total HH PPS payments and to mitigate vulnerabilities associated with 
inappropriate outlier payments, we also looked into options that would 
impose an outlier cap, at the agency level, such that in any given 
year, an individual HHA would receive no more than a set percentage of 
its total HH PPS payments in outlier payments. We performed extensive 
analyses to model the impact to HHAs of a variety of percent caps in 
outlier payments. A primary focus of this analysis was to identify HHAs 
which would be representative of the types of agencies we are most 
concerned about disadvantaging with an outlier policy that included an 
outlier cap at the agency level. Our analysis revealed that a 10 
percent agency cap in outlier payments would mitigate potential 
inappropriate outlier billing vulnerabilities while minimizing the 
access to care risk for high needs patients.
    We used CY 2007 claims data to perform a detailed impact analysis. 
We identified 1137 HH agencies whose outlier payments exceeded 10 
percent of their total HH PPS payments in CY 2007. However, we excluded 
700 of these agencies from the impact analysis, because these agencies 
received sizeable outlier payments (totaling at least around $100,000), 
had high percentages (at least around 30 percent) of outlier payments 
to total HH PPS payments, and were located in the counties in FL, TX 
and CA where we believe possible program integrity issues had been 
identified.
    We targeted our in-depth impact analysis to the remaining 437 
agencies, about 5 percent of all Medicare home health agencies. We 
analyzed these agencies as a group and individually. Our analysis 
focused on total HH PPS payments, total outlier payments, number of 
episodes, number of outlier episodes, percentage reductions in payments 
if a 10 percent outlier cap were imposed, and location. Analyzing CY 
2007 data, these 437 agencies would have experienced about a 10 percent 
decrease in their total HH payments if an outlier cap of 10 percent, at 
the agency level, were imposed. As we looked closely at the individual 
437 agencies, we excluded additional agencies for a number of reasons. 
Specifically, we excluded 70 agencies that had fewer than 20 Medicare 
HH episodes, believing that Medicare beneficiaries account for such a 
small part of their business that they are not representative of the 
types of agencies we are most concerned about disadvantaging with an 
outlier cap policy.
    We excluded an additional 197 agencies because they are also 
located in the counties identified as experiencing program integrity 
problems. While these 197 agencies did not receive exorbitant outlier 
payments, their relatively high outlier payment percentages to total 
agency HH PPS payments led us to suspect inappropriate payments. We 
believe that the remaining 170 agencies, representing less than 2 
percent of all Medicare home health agencies, are representative of the 
types of agencies we are most concerned about disadvantaging with an 
outlier policy that included a 10 percent cap at the agency level.
    This analysis showed that almost all of the 170 agencies are in 
urban areas, with only 16 agencies in rural areas. The total number of 
episodes that resulted in outlier payments is 4,497, about 15 percent 
of their total episodes. The total HH PPS payments for these agencies 
equaled about $85 million in CY 2007. The total outlier payments for 
these agencies equaled $14.4 million, representing an average of about 
17 percent of their total HH PPS payments. The total amount of payments 
that would be lost by these providers due to a 10 percent cap would be 
$6.6 million, representing an average of approximately 7.9 percent of 
their total HH PPS payments. However, because most affected agencies 
are in urban areas, and there is not an access problem with regard to 
receiving home health services in urban areas, we do not expect that an 
outlier cap of 10 percent at the agency level would result in any 
access to care issues.
    Additionally, we also performed a separate analysis of the major 
home health agency association which claims to service a sicker, more 
costly population. In 2007, only one of these agencies exceeded 10 
percent of its total episode payments in outlier payments, receiving 
approximately 15 percent of its total HH PPS payments in outlier 
payments.
    Finally, we performed an analysis of the impact that imposing an 
outlier cap of 10 percent at the agency level would have on total 
outlier payments as a percentage of total HH PPS payments. The FDL 
ratio for CY 2007 was 0.67. In simulating for 2010 using 2007 data, 
imposing an outlier cap of 10 percent at the agency level, we estimate 
that we would pay approximately 2.32 percent of total HH PPS payments 
in outlier payments.
    Therefore, to mitigate possible billing vulnerabilities associated 
with excessive outlier payments, and to adhere to our statutory limit 
on outlier payments, we propose to implement an agency level outlier 
cap such that in any given calendar year, an individual HHA would 
receive no more than 10 percent of its total HH PPS payments in outlier 
payments. Additionally, we propose to

[[Page 40957]]

reduce the FDL ratio to 0.67 for CY 2010. This combination of a 10 
percent agency level outlier cap, and reduced FDL ratio of 0.67, and 
allowing for future growth in outlier payments, results in a projected 
target outlier payment outlay of approximately 2.5 percent of total HH 
PPS payments in outlier payments.
    Our analysis demonstrates that approximately 2 percent of HH 
agencies may experience an average 7.9 percent decrease in payments. 
This decrease will be mitigated by a 2.5 percent increase in the HH PPS 
rates, as a result of lowering the outlier pool from 5 percent to 2.5 
percent. However, these impacts are averages. Some agencies that 
legitimately serve a sicker population may experience a larger 
decrease. Because MedPAC reported in their January 2009 public meeting 
(http://www.medpac.gov/transcripts/0108-0109MedPAC.final.pdf) that 
Medicare beneficiaries have access to an adequate number of HHAs, we do 
not believe this policy will result in access to home care issues for 
high needs patients.
    As discussed in the CY 2009 HH PPS Update notice (73 FR 65357), 
past experience has shown that outlier payments have been increasing as 
a percentage of total payments from 4.1 percent in CY 2005, to 5.0 
percent in CY 2006, to 6.4 percent in CY 2007. Analysis at the time of 
the above notice indicated that we could expect outlier payments as a 
percentage of total HH PPS payments to be approximately 8.1 percent of 
total payments in CY 2008, and increase to approximately 10.26 percent 
in CY 2009. Given that predicted trend in outlier payments, we 
estimated that we would have had to raise our FDL ratio from 0.89 to 
2.71 for CY2009 in order to ensure that estimated outlier payments 
would be no more than 5 percent of total HH PPS payments. We believe 
that it is the high suspect outlier payments in suspect areas of the 
country that cause existing data analysis to seemingly require such a 
high FDL ratio in order to meet the target 5 percent of total HH PPS 
payments.
    Because outlier payments continue to grow, and those outlier 
payments as a percentage of total HH PPS payments already exceed the 
statutory limit, absent our proposed outlier cap of 10 percent at the 
agency level, we would be required to raise the FDL ratio to a level 
much higher than either the current 0.89 or the proposed 0.67, and 
doing so would deleteriously affect agencies providing legitimate care 
to home health beneficiaries. We do not believe that raising the FDL 
ratio to such a high level, making it even harder for legitimate 
episodes to qualify for outlier payments, is the appropriate policy, 
especially given the fact that we believe it is these high suspect 
outlier payments in suspect areas of the country that are causing 
outlier payments as a percentage of total HH PPS payments to continue 
to increase to levels beyond the existing 5 percent target. Conversely, 
we believe that our proposed outlier policy that includes a 10 percent 
cap on outlier payments at the agency level, in concert with a new 2.5 
percent outlier pool (as opposed to the existing 5 percent outlier 
pool), and returning 2.5 percent back into the national standardized 
60-day episode rates, the national per-visit rates, the LUPA add-on 
payment amount, and the NRS conversion factor, with a 0.67 FDL ratio, 
would be the appropriate policy at this time. We expect the new outlier 
policy to curtail approximately $340 million, in CY 2010, in what we 
believe to be inappropriate outlier payments.
    Finally, CMS will continue to monitor the trends in outlier 
payments and these policy effects. Specifically, CMS plans to analyze 
overall national spending on outlier payments relative to the new 2.5 
percent outlier pool by geographic area and provider type. CMS also 
plans on looking at outlier payments, per HHA, relative to the proposed 
10 percent cap on outlier payments at the agency level by geographic 
area and provider type. So far as activities related to high suspect 
outlier payments, CMS is continuing with program integrity efforts 
including possible payment suspensions for suspect agencies. If we are 
unable to see measurable improvements with respect to suspected 
fraudulent billing practices as they relate to HHA outlier payments, 
CMS may consider eliminating the outlier policy entirely in future 
rulemaking.
    Proposed implementation approach to a 10 percent agency level 
outlier cap.
    CMS envisions the proposed 10 percent cap on outlier payments at 
the agency level would be managed by the claims processing system. For 
each HH provider, for a given calendar year, the claims processing 
system would maintain a running tally of YTD total HH PPS payments and 
YTD actual outlier payments. The claims processing system would ensure 
that each time a claim for a provider was processed; YTD outlier 
payments for that calendar year could never exceed 10 percent of YTD 
total HH PPS payments for that provider for that calendar year. As a 
provider's claims (RAPs and final claims) were processed and YTD HH PPS 
payments for that calendar year increased throughout the course of the 
year, the claims processing system would be triggered to pay outlier 
payments, adjusting prior final claims by paying previously unpaid 
outlier payments, as the YTD total HH PPS payments for that calendar 
year allowed, never exceeding 10 percent of total YTD HH payments for 
that calendar year. In cases where a provider submitted a claim with an 
outlier payment early in the year when YTD total HH PPS payments for 
that calendar year were low, outlier payments would be delayed until 
YTD total HH PPS payments for that calendar year reached a level to pay 
the outlier payment.
    More specifically, instead of a given claim being readjusted 
several times as total HH PPS payments increase, but not enough to pay 
an entire outlier payment on a given claim, we are considering a 
process by which an outlier payment on a previous claim would not be 
adjusted until total HH PPS payments for that calendar year were such 
that the entire outlier payment could be made without exceeding 10 
percent of total HH PPS payments for a particular HHA for that calendar 
year. Doing so would avoid not only the cost of possible multiple 
adjustments to a given claim, but would also simplify the process 
making adjustments easier to track and understand. We solicit comments 
on these proposed outlier policy changes.

B. Case-Mix Measurement Analysis

    In the CY 2008 HH PPS final rule with comment period, we stated 
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 nominal and 
real. We have continued to monitor case-mix changes and our latest 
analysis supports the payment adjustments which we implemented in the 
CY 2008 HH PPS.
    We have updated our examination of five conditions that commenters 
on our case mix change adjustment suggested indicate a real case mix 
change. This analysis was originally summarized as Table 8 in the 
August 29, 2007, final rule. The updated results (see Table 1 below) 
show that the shares of episodes preceded by a hospital discharge for 
hip fracture, congestive heart failure, and cerebrovascular accident 
have continued to decline since the IPS baseline. The percent share for 
hip and knee replacements rose and then began to decline slightly 
around the middle of the time series shown. (Note: Data since 2005 for 
joint replacements differ slightly from the original Table regarding 
the five conditions published in the August 29, 2007, Final Rule 
because we changed our methodology to recognize several ICD-9 procedure 
code

[[Page 40958]]

changes that affected joint replacements). The increase in joint 
replacements as a proportion of all episodes was not sustained at the 
2004-2005 level by the end of the period, perhaps because whatever 
mechanism operated to cause the growth lost some of its strength, or 
perhaps because even faster growth occurred in other types of episodes 
(such as outlier episodes and/or later episodes).
    Our interpretation of these trends in the Aug. 29, 2007, Final Rule 
was that, with the possible exception of knee replacements, the trends 
observed at that time were not clearly indicative of a more-severe case 
mix. If anything, the sustained downward trend for hip fracture, CHF, 
and CVA suggests that the burden of these diseases on home health 
providers is lighter now than it used to be. For hip replacement, the 
share appears to have ended up (thus far) below the share of such 
patients during the IPS period. For knee replacements, it appears that 
shares may have ceased climbing. Our interpretation of the knee 
replacement trend in the August 29, 2007, final rule was that this 
category constituted a small share, that the Abt case mix change model 
took account of it, and that based on the model results the knee 
replacement change apparently was not enough to move the estimate of 
real case mix change very much. The updated data now suggest that knee 
replacements leveled off as a share of total episodes since around 
2005. As a result, we have not changed our interpretation of the trends 
in episode shares for these five conditions.
    Our estimates of average number of days from hospital discharge to 
entrance into home health was an attempt to examine the hypothesis that 
patients were entering home health in a more sickly condition. We did 
not see any evidence of that for the three medical conditions; the 
number of days prior to entering home health exhibits no clear trend. 
For joint replacements, as in the earlier analysis, we saw a continuing 
decline in the average number of days prior to entering home health. 
These patients may present in a more sickly condition than was the case 
under IPS, but they are no longer a growing share of the HH caseload 
and represent slightly less than 4% of the episodes. Combined with the 
downward or stabilizing trends in the shares for all five conditions, 
the shortening of the time period to admission for the two joint 
replacement conditions does not suggest an overall more-acute case mix, 
at least as indicated by these five conditions. As we noted in the CY 
2008 final rule, the Abt Associates model simultaneously takes account 
of all of the kinds of patients incurring home health episodes, 
including the five conditions detailed here.

                                                                         Table 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                  CY2008
                                                                          FY2000   CY2001   CY2002   CY2003   CY2004   CY2005   CY2006   CY2007     *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hip fracture.............................  pct share...................     0.82     0.83     0.75     0.73     0.70     0.62     0.56     0.50     0.48
                                           days prior to entering......     7.19     7.12     7.17     7.21     7.30     7.10     7.08     7.20     7.00
Congestive heart failure.................  pct share...................     3.31     3.06     2.96     2.89     2.72     2.45     2.23     1.95     2.06
                                           days prior to entering......     3.38     3.28     3.35     3.33     3.36     3.40     3.40     3.53     3.55
Cerebrovascular accident.................  pct share...................     1.52     1.45     1.40     1.29     1.15     1.03     0.92     0.85     0.82
                                           days prior to entering......     4.32     4.23     4.21     4.29     4.20     4.32     4.31     4.42     4.59
Hip replacement..........................  pct share...................     1.47     1.65     1.64     1.59     1.63     1.49     1.38     1.33     1.27
                                           days prior to entering......     6.45     6.32     6.26     6.29     5.92     5.56     5.30     5.01     4.78
Knee replacement.........................  pct share...................     1.89     2.20     2.31     2.44     2.59     2.74     2.62     2.49     2.64
                                           days prior to entering......     5.40     5.30     5.42     5.19     4.93     4.60     4.25     3.99     3.71
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Based on a 10% beneficiary HH user sample.
* CY 2008 data for first quarter of the year only.

    In the course of updating the estimate of real case-mix change, our 
analysis contractor, Abt Associates, discovered a number of errors in 
data handling for the case-mix change model. The analysis files 
included relatively small numbers of records that should have been 
excluded, and relatively small numbers that were dropped but that 
should have been included. Another error was in the handling of missing 
data for one of the key variables in the regression model (patient's 
living situation); data were not recognized as missing and were 
therefore miscoded. Methodologically, an improvement was implemented to 
ensure that the observation period for the IPS baseline sample was 
consistent with the observation period for the PPS sample (2005).
    Abt Associates made corrections in response to each problem 
identified. The only significant change in results came from correcting 
the handling of missing data. Correcting this error (by imputing values 
for cases with missing data) caused an increase in the estimated real 
change in case-mix. Our original estimate, published in the CY 2008 HH 
PPS final rule (72 FR 49842), was that about 8.03 percent of the 
increase in case-mix between the IPS baseline (1999-2000) and 2005 was 
due to actual changes in patient characteristics (i.e., ``real''). 
After this correction, the real case-mix change estimate for the same 
period increased by several percentage points. Had the data corrections 
and improvements been implemented in the CY 2008 HH PPS final rule, our 
estimate of real case-mix change, as a percentage of total case-mix 
change, would have been approximately 14.15 percent as opposed to 8.03 
percent (73 FR 49833, 49842). Updating that analysis, using PPS data 
from 2006, our best estimate of real case-mix change, as a percentage 
of total case-mix change, is slightly lower (11.45 percent). This is 
due to the combination of continued strong annual growth between 2005 
and 2006 in the average case-mix weight, along with little change 
between 2005 and 2006 in patient characteristics.
    We have further updated our case-mix analysis, for this rule, using 
PPS data from 2007. That analysis indicated a 15.03 percent increase in 
the overall observed case-mix since 2000. We next determined what 
portion of that increase was associated with a real change in the 
actual clinical condition of home health patients. As was done for the 
CY 2008 final rule, using Abt Associates' 6-phase model, we examined 
data on demographics, family support, pre-admission location, clinical 
severity, and non-home health Part A Medicare expenditure data to 
predict the average case-mix weight for 2007.

[[Page 40959]]

As such, our best estimate is that approximately 9.77 percent of the 
15.03 percent increase in the overall observed case-mix between the IPS 
baseline and 2007 is real, that is, due to actual changes in patient 
characteristics.
    The estimate of real case-mix change continues to decrease for a 
number of reasons: First, because the nominal change in case-mix 
continues to grow, real case-mix as a percentage of the total change/
increase in case-mix becomes less. With each successive sample, 
beginning with 2005 data (in the CY 2008 final rule), the predicted 
average national case-mix weight is moving very little because the 
variables in the model used to predict case-mix are not changing much. 
At the same time, the actual average case-mix continues to grow 
steadily. Thus, the gap between the predicted case-mix value, which is 
based on information external to the OASIS, and the actual case-mix 
value, grows with each successive sample. Consequently, as a result of 
this analysis, CMS recognizes that a 13.56 percent nominal increase 
((15.03-(15.03 x 0.0977)) in case-mix is due to changes in coding 
practices and documentation rather than to treatment of more resource-
intensive patients.
    To compensate for this growth over four years, an increase of this 
magnitude (13.56 percent), had it existed when the CY 2008 final rule 
was published, would have implied reductions in the rates of 3.13 
percent per year for 4 years (CY 2008-CY 2011). We stated in our CY 
2008 HH PPS proposed and final rules that we might find it necessary to 
adjust the offsets as new data became available. Given that we have 
adjusted the rates for two consecutive years by -2.75 percent in each 
year, based on 2007 data available for this proposed rule, if we were 
to account for the residual increase in nominal case-mix over the next 
two years, maintain our existing policy of a -2.75 percent case-mix 
change in 2010, and account for the residual increase in nominal case-
mix in 2011, we estimate that the percentage reduction in the rates for 
nominal case-mix change in 2011 would be 4.26 percent. If we were to 
account (in the final rule) for the full residual increase in nominal 
case-mix in CY 2010, we estimate that the percentage reduction to the 
national standardized 60-day episode rates and the NRS conversion 
factor would be 6.89 percent. Similarly, if we were to account (in the 
final rule) for the full residual increase in nominal case-mix in two 
years, we estimate that the percentage reduction to the national 
standardized 60-day episode payment rates and the NRS conversion factor 
would be 3.51 percent, per year, in CY 2010 and CY 2011. We are 
planning to move forward with our existing policy, as implemented in 
the August 22, 2007 HH PPS Refinement and Rate Update for CY 2008 final 
rule with comment, of imposing a 2.75 percent reduction to the national 
standardized 60-day episode rates and the NRS conversion factor for CY 
2010. We are accepting comments on the reduction percentages. We will 
continue to monitor any future changes in case-mix as more current data 
become available. Given the continued growth in nominal case-mix, we 
expect to revise, upward, the 2.71 percent reduction to the national 
standardized 60-day episode rates and the NRS conversion factor for CY 
2011 in next year's rule. Analysis in next year's rule will update the 
measure of the nominal increase in case-mix and compute the appropriate 
percent reduction to the national standardized 60-day episode rates and 
the NRS conversion factor to account for that increase.
    We may update the above-mentioned analysis for the final rule in a 
number of ways. We have been assembling data to enhance the Abt model 
to take into account factors that might have been unmeasured in the 
original model. We plan to introduce diagnostic summaries created from 
a broader sweep of the patient's claims history, including Part B 
claims. Specifically, we may add information from the Medicare 
Hierarchical Coexisting Condition (HCC) data file to identify diagnoses 
for home health users and their impact on the predicted real case-mix 
weight. The HCC system is used for risk adjustment in Part C of the 
Medicare program. CMS annually produces an HCC record containing 
diagnosis flags and an HCC ``score'' for every beneficiary. The 
diagnoses used for HCC risk adjustment come from hospital inpatient 
claims (primary and secondary diagnoses) (including rehabilitation, 
long-term, and psychiatric hospitals), hospital outpatient department 
claims, physician claims, and claims from clinically trained 
nonphysicians such as podiatrists, psychologists, and physical 
therapists. Until now, diagnostic information for the Abt model came 
from Part A inpatient claims only.
    Commenters have suggested that we take into account changes in the 
role of managed care in the Medicare program. These commenters stated 
that growth in managed care enrollment implies a generally sicker 
population remaining in the fee-for-service program; a change in home 
health users' general health status might be reflected in OASIS items 
that determine the episode's HHRG. Medicare managed care began to grow 
modestly in 2004, but growth accelerated in 2006. Therefore, another 
enhancement that we may test is a variable measuring managed care 
penetration in the beneficiary's area; this variable is intended to 
capture any possible effects of attrition from FFS Medicare due to 
growing enrollment in Medicare Advantage plans. Attrition might result 
in the exit of relatively healthy beneficiaries from the FFS program, 
leaving a population in FFS whose average health status worsens over 
time. It is only the FFS population that is at risk for home health 
benefit use in the HH PPS.

C. Proposed CY 2010 Rate Update

1. The Home Health Market Basket Update
    Section 1895(b)(3)(B) of the Act requires for CY 2010 that the 
standard prospective payment amounts be increased by a factor equal to 
the applicable home health market basket update for those HHAs that 
submit quality data as required by the Secretary.
    The proposed HH PPS market basket update for CY 2010 is 2.2 
percent. This is based on Global Insight Inc.'s first quarter 2009 
forecast, utilizing historical data through the fourth quarter 2008. A 
detailed description of how we derive the HHA market basket is 
available in the CY 2008 Home Health PPS proposed rule (72 FR 25356, 
25435).
2. Home Health Care Quality Improvement
    Section 1895(b)(3)(B)(v)(II) of the Act requires 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 home health agency that 
does not submit data to the Secretary in accordance with subclause (II) 
with respect to such a year, the home health market basket percentage 
increase applicable under such clause for such year shall be reduced by 
2 percentage points.'' This requirement has been codified in 
regulations at Sec.  484.225.
    CMS published information about the quality measures in the Federal 
Register as a proposed rule on May 4, 2007 (72 FR 25449, 25452) and as 
a final rule with comment period on August 29, 2007 (72 FR 49861, 
49864). We proposed and made final the decision to use a subset of 
OASIS data that is

[[Page 40960]]

publicly reported on Home Health Compare as the appropriate measure of 
home health quality.
    Reporting these quality data has also required the development of 
several supporting mechanisms such as the HAVEN software, used to 
encode and transmit data using a CMS standard electronic record layout, 
edit specifications, and data dictionary. The HAVEN software includes 
the required OASIS data set that has become a standard part of HHA 
operations. These early investments in data infrastructure and 
supporting software that CMS and HHAs have made over the past several 
years in order to create this quality reporting structure have been 
successful in making quality reporting and measurement an integral 
component of the HHA industry.
    Development and selection of home health quality measures is a 
constant and dynamic process based on the characteristics and needs of 
the population served. A total of 54 quality measures are currently 
reported to home health agencies for use in their Outcomes Based 
Quality Improvement (OBQI) activities. Every three years a selection of 
Home Health quality measures are submitted to the National Quality 
Forum (NQF) for consideration and endorsement through their consensus 
process. A subset of measures are chosen by CMS for public reporting on 
the Home Health Compare Web site. The following twelve measures are 
currently publicly reported:
    <bullet> Improvement in ambulation/locomotion,
    <bullet> Improvement in bathing,
    <bullet> Improvement in transferring,
    <bullet> Improvement in management of oral medications,
    <bullet> Improvement in pain interfering with activity,
    <bullet> Acute care hospitalization,
    <bullet> Emergent care,
    <bullet> Discharge to community,
    <bullet> Improvement in dyspnea,
    <bullet> Improvement in urinary incontinence,
    <bullet> Improvement in status of surgical wounds, and
    <bullet> Emergent care for wound infections, deteriorating wound 
status.
    Accordingly, for CY 2010, we propose to continue to use submission 
of OASIS data and the quality measures that are publicly reported on 
Home Health Compare to meet the requirement that the HHA submit data 
appropriate for the measurement of health care quality. Continuing to 
use the specified measures from the OASIS instrument for purposes of 
measuring health care quality ensures that providers will not have an 
additional burden of reporting through a separate mechanism, and that 
the costs associated with the development and testing of a new 
reporting mechanism can be avoided.
    We are proposing for CY 2010 to consider OASIS assessments 
submitted by HHAs to CMS in compliance with HHA conditions of 
participation for episodes beginning on or after July 1, 2008 and 
before July 1, 2009 as fulfilling the quality reporting requirement for 
CY 2010. 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 in CY 2010 and each 
year thereafter. We propose to reconcile the OASIS submissions with 
claims data in order to verify full compliance with the quality 
reporting requirements in CY 2010 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 with comment period (72 FR 
49863), agencies do not need to submit quality measures for reporting 
purposes for those patients who are excluded from the OASIS submission 
requirements under the Home Health Conditions of Participation (CoP). 
The conditions of participation (42 CFR 484.200-484.265) that require 
submission also provide for exclusions from this requirement if:
    <bullet> Those patients are receiving only non-skilled services,
    <bullet> 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),
    <bullet> Those patients are receiving pre- or post-partum services, 
or
    <bullet> Those patients are under the age of 18 years.
    As set forth in the CY 2008 final rule with comment period (72 FR 
49863), agencies that certify on or after May 31 of the preceding year 
involved are excluded from any payment penalty for quality reporting 
purposes for the following CY. Therefore, HHAs that are certified on or 
after May 1, 2009 are excluded from the quality reporting requirement 
for CY 2010 payments since data submission and analysis will not be 
possible for an agency certified this late in the reporting time 
period. At the earliest time possible after obtaining the CMS 
Certification Number (CCN), reporting would be mandatory. These 
exclusions only affect quality reporting requirements and do not affect 
the HHA's reporting responsibilities under the CoP.
    HHAs that meet the 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. We provide the 
proposed payment rates in Tables 1, 2, and 3.
    Section 1895(b)(3)(B)(v)(III) of the Act further requires that 
``[t]he Secretary shall establish procedures for making data submitted 
under subclause (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 the Home Health Compare Web site, 
which lists HHAs geographically. Currently, the Home Health Compare Web 
site lists 12 quality measures from the OASIS set as described above. 
The Home Health Compare Web site is located at the following Web 
address: http://www.medicare.gov/HHCompare/Home.asp. Each HHA currently 
has pre-publication access (through the CMS contractor) to its own 
quality data (which the contractor updates periodically). We plan to 
continue this process, to enable each agency to view its quality 
measures before public posting of data on Home Health Compare.
    CMS is requesting OMB approval to modify the OASIS data set. This 
process is in the final stages of OMB clearance. Pending OMB approval, 
CMS intends to implement the use of the OASIS-C (Form Number CMS-R-245 
(OMB<greek-i> 0938-0760)) on January 1, 2010. This revision to the 
current OASIS version B-1 has undergone additional testing as part of 
the information collection request approved under OMB control number 
0938-1040. As part of the OMB approval process, the revision to the 
current OASIS version was also distributed for public comment and other 
technical expert recommendations over the past few years. We propose 
that this new version of OASIS be collected on episodes of care with a 
corresponding OASIS item (M0090) date of January 1, 2010 or later. The 
OASIS-C can be found using the following link: http://www.cms.hhs.gov/PaperworkReductionActof1995/PRAL/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=2&sortOrder=descending&itemID=CMS1217682&intNumPerPage=10.
    We are also planning to update Home Health Compare to reflect the 
addition of the following 13 new process of care measures:
    [cir] Timely initiation of care,

[[Page 40961]]

    [cir] Influenza immunization received for current flu season,
    [cir] Pneumococcal polysaccharide vaccine ever received,
    [cir] Heart failure symptoms addressed during short-term episodes,
    [cir] Diabetic foot care and patient education implemented during 
short-term episodes of care,
    [cir] Pain assessment conducted,
    [cir] Pain interventions implemented during short-term episodes,
    [cir] Depression assessment conducted,
    [cir] Drug education on all medications provided to patient/
caregiver during short-term episodes.
    [cir] Falls risk assessment for patients 65 and older,
    [cir] Pressure ulcer prevention plans implemented,
    [cir] Pressure ulcer risk assessment conducted, and
    [cir] Pressure ulcer prevention included in the plan of care.
    Also under consideration are three additional process of care 
measures that may be added to Home Health Compare based on results of 
consumer testing. Those additional process measures are:
    [cir] Drug education on high risk medications provided to patient/
caregiver at start of episode;
    [cir] Potential medication issues identified and timely physician 
contact at start of episode;
    [cir] Potential medication issues identified and timely physician 
contact during episode.
    The implementation of OASIS-C will impact the quality data 
reporting requirement for the CY 2011 HH PPS. However, we expect the 
conversion from OASIS-B1 to OASIS-C to have little to no impact on 
HHAs' ability to meet the quality data reporting requirements under 
Section 1895(b)(3)(B)(v).
    For CY 2011, CMS proposes to expand the home health quality 
measures reporting requirements to include the Consumer Assessment of 
Healthcare Providers and Systems (CAHPS[supreg]) Home Health Care 
Survey (pending OMB approval). The CAHPS[supreg] Home Health Care 
Survey (hereafter ``HHCAHPS'') is a quality tool that we believe that 
we can use to collect quality of care data, as required by section 
1895(b)(3)(B)(v)(II) of the Act, and as permitted under section 
1861(o)(8) of the Act, which requires any Medicare participating HHA to 
``meet [ ] such additional requirements * * * as the Secretary finds 
necessary for the effective and efficient operation of the program''. 
The HHCAHPS data collection will support the effective and efficient 
operation of the program because patients' feedback on their 
perspectives of the home health quality of care from the agency cannot 
be obtained from any other quality measure in the program. The Home 
Health Care Survey is part of a family of CAHPS[supreg] surveys that 
ask patients to report on and rate their experiences with health care. 
The HHCAHPS survey developed by the Agency for Healthcare Research and 
Quality (AHRQ), which is part of the Department of Health and Human 
Services, presents home health patients with a set of standardized 
questions about their home health care providers and 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.
    AHRQ developed the HHCAHPS survey with the assistance of many 
entities (for example, government agencies, professional stakeholders, 
consumer groups and other key individuals and organizations involved in 
home health care). The HHCAHPS survey was designed to measure and 
assess the experiences of those persons receiving home health care with 
the following three goals in mind:
    <bullet> To produce comparable data on patients' perspectives of 
care that allow objective and meaningful comparisons between home 
health agencies on domains that are important to consumers;
    <bullet> To create incentives for agencies to improve their quality 
of care through public reporting of survey results; and
    <bullet> To hold health care providers accountable by informing the 
public about the providers' quality of care (http://www.homehealthcahps.org).
    These three goals support Section 1861(o)(8) of the Act, which 
requires any Medicare participating HHA to ``meet [] such additional 
requirements * * * as the Secretary finds necessary for the effective 
and efficient operation of the program.''
    The development process for the survey began in 2006 and included a 
public call for measures, review of the existing literature, consumer 
input, stakeholder input, public response to Federal Register notices, 
and a field test conducted by AHRQ. AHRQ conducted this field test to 
validate the length and content of the HHCAHPS survey. CMS submitted 
the survey to the National Quality Forum (NQF) for consideration and 
endorsement via their consensus process. NQF endorsement represents the 
consensus opinion of many healthcare providers, consumer groups, 
professional organizations, health care purchasers, Federal agencies 
and research and quality organizations. The survey received NQF 
endorsement on March 31, 2009.
    The HHCAHPS survey includes 34 questions that cover topics such as 
specific types of care provided by home health providers, communication 
with providers, interactions with the HHA, and global ratings of the 
agency. For public reporting purposes, CMS will utilize composite 
measures and global ratings of care. Each composite measure consists of 
four or more questions that ask about one of the following related 
topics:
    <bullet> Patient care;
    <bullet> Communications between providers and patients;
    <bullet> Specific care issues (medications, home safety and pain).

There are also two global ratings; the first rating asks the patient to 
assess the care given by the HHA's care providers, and the second asks 
the patient about his/her willingness to recommend the HHA to family 
and friends.
    We are proposing two options for administering the HHCAHPS survey. 
The agency can choose to administer the existing HHCAHPS survey, or the 
HHA can integrate additional questions within the HHCAHPS survey. If an 
agency chooses to implement an integrated survey, the core questions 
from the HHCAHPS survey (questions 1 through 25) must be placed before 
any specific/supplemental questions that the HHA wishes to add to the 
survey. Questions 26 through 34 (the ``About You'' survey questions) 
must be administered as a unit--although they may be placed either 
before or after any supplemental questions that the HHA wishes to add 
to the HHCAHPS survey. If no HHA-specific questions are to be added to 
the HHCAHPS survey, the ``About You'' questions should follow the core 
questions (numbered 1 through 25) on the HHCAHPS survey.
    The survey is currently available in both English and Spanish. HHAs 
and their survey vendors will not be permitted to translate the HHCAHPS 
survey into any other languages on their own. However, CMS will provide 
additional translations of the survey over time. The Web site https://www.homehealthcahps.org will provide information about the subsequent 
availability of additional translations. CMS also solicits user 
suggestions for any additional language translations. Such suggestions 
should be submitted online to the HHCAHPS Survey Coordination Team, at 
<a href="/cdn-cgi/l/email-protection#ffb7b7bcbeb7afacbf8d8b96d1908d98"><span class="__cf_email__" data-cfemail="4f07070c0e071f1c0f3d3b2661203d28">[email protected]</span></a>. HHAs interested in learning about the survey are 
encouraged to view the HHCAHPS survey Web site, at https://

[[Page 40962]]

www.homehealthcahps.org. Agencies can also call toll-free 1-866-354-
0985, or send an e-mail to the HHCAHPS Survey Coordination Team at 
<a href="/cdn-cgi/l/email-protection#c38b8b80828b939083b1b7aaedacb1a4"><span class="__cf_email__" data-cfemail="c981818a8881999a89bbbda0e7a6bbae">[email protected]</span></a> for more information.
    The following types of home health care patients will be considered 
eligible to participate in the HHCAHPS survey:
    <bullet> Current or discharged patients who had at least one home 
health visit at any time during the sample month;
    <bullet> Patients who were at least 18 years of age at any time 
during the sample period, and are believed to be alive;
    <bullet> Patients who received at least two visits from HHA 
personnel during a 60-day look-back period (Note that the 60-day look-
back period is defined as the 60-day period prior to and including the 
last day in the sample month.);
    <bullet> Patients who have not been selected for the monthly sample 
during any month in the current quarter or during the 5 months 
immediately prior to the sample month;
    <bullet> Patients who are not currently receiving hospice care;
    <bullet> Patients who do not have routine ``maternity'' care as the 
primary reason for receiving home health care; and
    <bullet> Patients who have not requested ``no publicity status.''
    CMS has modeled HHCAHPS after the Hospital CAHPS survey where both 
the CAHPS and clinical data are collected for both Medicare and non-
Medicare patients to get a complete picture of hospital quality. Since 
HHCAHPS data used to develop case-mix collection of data for HHCAHPS 
are not carried out under the auspices of section 4602(e) of the BBA, 
such collections are not subject to the OASIS limitation to Medicare 
and Medicaid patients only, set out under section 704(a) of the MMA. To 
collect and submit HHCAHPS data to CMS, Medicare-certified agencies 
will need to contract with an approved HHCAHPS survey vendor. 
Interested vendors can now apply to become approved HHCAHPS vendors. 
The application process is delineated online at https://www.homehealthcahps.org. Vendors will also be required to attend 
training conducted by CMS and the HHCAHPS Survey Coordination Team. 
HHAs that are interested in participating in the HHCAHPS survey may do 
so on a voluntary basis for the remaining months of 2009. Such agencies 
must select a vendor from the list of HHCAHPS approved survey vendors. 
This listing will be available on the Web site https://www.homehealthcahps.org during the summer of 2009.
    CMS proposes that beginning in the first quarter of CY 2010, all 
Medicare-certified HHAs shall begin to collect the CAHPS[reg] Home 
Health Care (HHCAHPS) survey data in accordance with the Protocols and 
Guidelines Manual located on the HHCAHPS Web site https://www.homehealthcahps.org. HHAs shall contract with approved HHCAHPS 
survey vendors that are posted on https://www.homehealthcahps.org to 
conduct the survey on behalf of HHAs. CMS proposes that participating 
home health agencies conduct a dry run of the survey for at least one 
month in the first quarter of 2010 (January, and/or February, and/or 
March 2010), and submit the dry run data to the Home Health 
CAHPS[supreg] Data Center by 11:59 p.m. EST on June 23, 2010. The dry 
run data would not be publicly reported on the Home Health Compare. 
This dry run would provide an opportunity for vendors and HHAs to 
acquire first-hand experience with data collection, including sampling 
and data submission to the Home Health CAHPS[supreg] Data Center, with 
no public reporting of the results. CMS proposes that all Medicare-
certified HHAs continuously collect HHCAHPS survey data every quarter 
beginning in the second quarter (April, May and June) of 2010, and 
submit these data for the second quarter of 2010 to the Home Health 
CAHPS[supreg] Data Center by 11:59 p.m. EST on September 22, 2010. CMS 
proposes that these data submission deadlines are firm; that is, there 
will be no late submissions allowed.
    The Medicare-certified HHAs will need to provide their respective 
survey vendors with information about their survey-eligible patients 
(either current or discharged) every month in accordance with the 
Protocols and Guidelines Manual posted on https://www.homehealthcahps.org. The details about selecting the HHA sample are 
delineated in the Protocols and Guidelines manual on the Web site 
https://www.homehealthcahps.org. It is proposed that the HHCAHPS survey 
data be submitted and analyzed quarterly, and that the sample selection 
and data collection occur on a monthly basis. HHAs should target 300 
HHCAHPS survey completes annually. Smaller agencies that are unable to 
reach 300 survey completes by sampling should survey all HHCAHPS 
eligible patients. For reasons of statistical precision, a target 
minimum of 300 or more completed Home Health CAHPS surveys has been set 
for each home health agency. 300 completes is based on a reliability 
target of 0.8 or higher. We propose that survey vendors initiate the 
survey for each monthly sample within three weeks after the end of the 
sample month. All data collection for each monthly sample would have to 
be completed within six weeks (42 days) after data collection began. 
CMS has approved three modes of the survey to be used: Mail only, 
telephone only, and mail with telephone follow-up (the ``mixed mode''). 
We are proposing that for mail-only and mixed-mode surveys, data 
collection for a monthly sample would have to end six weeks after the 
first questionnaire was mailed. For telephone-only surveys, data 
collection would have to end six weeks following the first telephone 
attempt.
    CMS is aware that there is a wide variation in the size of 
Medicare-certified HHAs. CMS proposes that the requirement to collect 
HHCAHPS survey data be waived for agencies that serve fewer than 60 
HHCAHPS eligible patients annually. We are proposing this threshold 
amount in order to exempt agencies that serve a very small home health 
eligible population. These agencies serve, on average, 5 or fewer 
patients per month. The HHCAHPS eligible, unduplicated patient counts 
for the period of October 1 through September 30 for a given year would 
be used to determine if the HHA would have to participate in the 
HHCAHPS survey in the next calendar year. If a Medicare-certified HHA 
had fewer than 60 eligible, unduplicated HHCAHPS eligible patients for 
the period October 1 through September 30, then they would be excluded 
from the HHCAHPS requirement for the next calendar year. For example, 
if a small HHA had 85 patients in the period October 1, 2008 through 
September 30, 2009, and 45 of the patients were routine maternity 
patients, then there would only be 40 HHCAHPS eligible patients. This 
agency would therefore not be required to participate in the HHCAHPS 
survey. Alternatively, if a small HHA had 85 patients for the period 
October 1, 2008 through September 30, 2009, and 70 of these patients 
were eligible to participate in the HHCAHPS survey (i.e., because they: 
(1) Were 65 years or older; (2) were recently discharged from the 
hospital to their homes; (3) were not receiving hospice care; (4) were 
not designated as ``no publicity'' patients; and (5) had received at 
least two home health visits) this agency would be required to 
participate in the HHCAHPS survey. Only Medicare-certified HHAs with 
fewer than 60 eligible, unduplicated patients for the period October 1, 
2008 through September 30, 2009 would submit their patient counts to 
the HHCAHPS Data Center by Wednesday, January 13, 2010.
    We also propose that newly Medicare-certified HHAs (that is, those 
certified on or after January 1, 2010 for payments

[[Page 40963]]

to be made in CY 2011) be excluded from the HHCAHPS survey reporting 
requirement, as data submission and analysis would not be possible for 
an agency so late in the reporting period. In future years, agencies 
that first certify on or after January 1 of the preceding year would be 
excluded from any payment penalty for reporting purposes in the 
following CY. We note that this exclusion for new HHAs pertains only to 
the HHCAHPS survey reporting requirement.
    CMS strongly recommends that HHAs participating in the HHCAHPS 
survey promptly review the required Data Submission Summary Reports 
that are delineated in the Protocols and Guidelines Manual posted on 
https://www.homehealthcahps.org. These reports will enable the HHA to 
ensure that its survey vendor has submitted their data on time, and 
that the data have been accepted/received by the Home Health 
CAHPS[supreg] Data Center.
    CMS anticipates first reporting HHCAHPS survey data in early 2011 
on Home Health Compare. The HHCAHPS survey data would be updated 
quarterly. HHAs would be provided a preview of the data each quarter 
before it was reported on Home Health Compare.
    CMS proposes that vendors and HHAs be required to participate in 
HHCAHPS survey oversight activities to ensure compliance with HHCAHPS 
survey protocols, guidelines and survey requirements. The purpose of 
the oversight activities is to ensure that HHAs and approved survey 
vendors follow the Protocols and Guidelines Manual. It is proposed that 
all approved survey vendors develop a Quality Assurance Plan (QAP) for 
survey administration in accordance with the Protocols and Guidelines 
Manual. The QAP should include the following:
    <bullet> Organizational chart;
    <bullet> Work plan for survey implementation;
    <bullet> Description of survey procedures and quality controls;
    <bullet> Quality assurance oversight of on-site work and of all 
subcontractors work; and
    <bullet> Confidentiality/Privacy and Security procedures in 
accordance with the Health Insurance Portability and Accountability Act 
(HIPAA).
    As part of the oversight activities the HHCAHPS Survey Coordination 
Team would conduct on-site visits or conference calls. The HHCAHPS 
Survey Coordination Team would review the survey vendor's survey 
systems, and will assess administration protocols based on the 
Protocols and Guidelines Manual posted on https://www.homehealthcahps.org. All materials relevant to survey 
administration would be subject to review. The proposed systems and 
program review would include, but not be limited to: (a) Survey 
management and data systems; (b) printing and mailing materials and 
facilities; (c) data receipt, entry and storage facilities; and (d) 
written documentation of survey processes. Organizations would be given 
a defined time period in which to correct any problems and provide 
follow-up documentation of corrections for review. Survey vendors will 
be subject to follow-up site visits as needed.
    CMS strongly recommends that all HHAs participating in the HHCAHPS 
survey regularly check the Web site, https://www.homehealthcahps.org 
for program updates and information.
    As mandated in current law, all HHAs, unless covered by specific 
exclusions, will continue to be required to meet the quality reporting 
requirements or be subject to a 2 percent reduction in the home health 
market basket percentage increase in accordance with section 
1895(b)(3)(B)(v)(I) of the Act. A reconsideration and appeals process 
is being developed for HHAs who fail to meet the HHCAHPS reporting 
requirements. These procedures would be outlined in the HH PPS proposed 
rule for CY 2011 in which we are proposing that the HHCAHPS survey 
would be linked to home health payment, as a requirement under the 
regulation requiring the reporting of quality data.
3. Home Health Wage Index
    Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the 
Secretary to establish area wage adjustment factors that reflect the 
relative level of wages and wage-related costs applicable to the 
furnishing of home health services and to provide appropriate 
adjustments to the episode payment amounts under the HH PPS to account 
for area wage differences. As discussed previously, we apply the 
appropriate wage index value to the labor portion (77.082 percent) 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). Generally, we determine 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 the appropriate 
adjustment to the labor portion of the costs as required by statute.
    In the November 9, 2005 final rule for CY 2006 (70 FR 68132), we 
adopted revised labor market area definitions based on Core-Based 
Statistical Areas (CBSAs). At the time, we noted that these were the 
same labor market area definitions (based on OMB's new CBSA 
designations) implemented under the Hospital Inpatient Prospective 
Payment System (IPPS). In adopting the CBSA designations, we identified 
some geographic areas where there are no hospitals and, thus, no 
hospital wage data on which to base the calculation of the home health 
wage index. We continue to use the methodology discussed in the 
November 9, 2006 final rule for CY 2007 (71 FR 65884) to address the 
geographic areas that lack hospital wage data on which to base the 
calculation of their home health wage index. For rural areas that do 
not have IPPS hospitals, we use the average wage index from all 
contiguous CBSAs as a reasonable proxy. This methodology is used to 
calculate the wage index for rural Massachusetts. However, we could not 
apply this methodology to rural Puerto Rico 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. The only urban area without IPPS hospital 
wage data is Hinesville-Fort Stewart, Georgia (CBSA 25980).
    On November 20, 2008, OMB issued Bulletin No. 09-01 located at Web 
address http://www.whitehouse.gov/omb/bulletins/fy2009/09-01.pdf. This 
bulletin highlights three geographic areas that were previously 
classified as Micropolitan Statistical Areas but now qualify as 
Metropolitan Statistical Areas. The three areas are (1) CBSA 16020, 
Cape Girardeau-Jackson, MO-IL (this includes Alexander County in 
Illinois and Bollinger and Cape Girardeau Counties in Missouri); (2) 
CBSA 31740, Manhattan, KS (this includes Geary, Pottawatomie, and Riley 
Counties in Kansas); and (3) CBSA 31860, Mankato-North Mankato, MN 
(this includes Blue Earth and Nicollet Counties in Minnesota). These 
three new CBSAs and their associated wage index values are shown in 
Addendum B.

[[Page 40964]]

4. Proposed CY 2010 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 final rule published July 3, 2000 in the Federal 
Register (65 FR 41128), the unit of payment under the Medicare HH PPS 
is a national standardized 60-day episode 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. 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 2010 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. We multiply the national 60-day episode rate 
by the patient's applicable case-mix weight. We divide the case-mix 
adjusted amount into a labor and non-labor portion. We multiply the 
labor portion by the applicable wage index based on the site of service 
of the beneficiary. We 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, we update the 
HH PPS rates annually in a separate Federal Register document. The HH 
PPS regulations at 42 CFR 484.225 set forth the specific annual 
percentage update. In accordance with Sec.  484.225(i), in the case of 
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 taken into account in computing 
the prospective payment amount for a subsequent calendar year.
    For CY 2010, we will 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 
update the national per-visit rates by discipline annually by the 
applicable home health market basket percentage. We 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 will 
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, as discussed in the CY 2008 HH PPS final rule with 
comment period. We are also updating the LUPA add-on payment amount and 
the NRS conversion factor by the applicable home health market basket 
update of 2.2 percent for CY 2010.
    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:
    <bullet> A low utilization payment provided on a per-visit basis as 
set forth in Sec.  484.205(c) and Sec.  484.230.
    <bullet> A partial episode payment adjustment as set forth in Sec.  
484.205(d) and Sec.  484.235.
    <bullet> An outlier payment as set forth in Sec.  484.205(e) and 
Sec.  484.240.
b. Proposed Updated CY 2010 National Standardized 60-Day Episode 
Payment Rate
    In calculating the annual update for the CY 2010 national 
standardized 60-day episode payment rates, we first look at the CY 2009 
rates as a starting point. The CY 2009 national standardized 60-day 
episode payment rate is $2,271.92.
    As previously discussed in section II.B., ``Outlier Policy'', of 
this proposed rule, in our proposed policy of targeting outlier 
payments to be approximately 2.5 percent of total HH PPS payments in CY 
2010, we are proposing to return 2.5 percent back into the HH PPS 
rates, to include the national standardized 60-day episode payment 
rate. As such, to calculate the proposed CY 2010 national standardized 
60-day episode payment rate, we first increase the CY 2009 national 
standardized 60-day episode payment rate ($2,271.92) to adjust for the 
5 percent originally set aside for outlier payments. We then reduce 
that adjusted payment amount by 2.5 percent, the proposed target 
percentage of outlier payments as a percentage of total HH PPS payment. 
Next, we update by the current proposed CY 2010 home health market 
basket update percentage of 2.2 percent.
    As previously discussed in Section II.C., ``Case-Mix Measurement 
Analysis'', of this proposed rule, our updated analysis of the change 
in case-mix not due to an underlying change in patient health status 
reveals additional increase in nominal change in case-mix. However, we 
are maintaining our existing policy to reduce rates by 2.75 percent in 
CY 2010. Consequently, to calculate the proposed CY 2010 national 
standardized 60-day episode payment rate, we then reduce the rate by 
2.75 percent, for a proposed updated CY 2010 national standardized 60-
day episode payment rate of $2,325.79. The proposed updated CY 2010 
national standardized 60-day episode payment rate for an HHA that 
submits the required quality data is shown in Table 2. The proposed 
updated CY 2010 national standardized 60-day episode payment rate for 
an HHA that does not submit the required quality data (home health 
market basket update of 2.2 percent is reduced by 2 percent) is shown 
in Table 3.

[[Page 40965]]



 Table 2--Proposed National Standardized 60-Day Episode Payment Rate Updated by the Proposed Home Health Market
 Basket Update for CY 2010, Before Case-Mix Adjustment and Wage Adjustment Based on the Site of Service for the
                                                   Beneficiary
----------------------------------------------------------------------------------------------------------------
                      Adjusted to
                       return the                         Multiply by the                       Proposed CY 2010
 CY 2009 National    outlier funds,      Adjusted to       proposed home      Reduce by 2.75        National
 Standardized 60-  that paid for the   account for the     health market       percent for      Standardized 60-
   Day Episode        original 5%       proposed 2.5%      basket update    nominal change in     Day Episode
   Payment Rate        target for       outlier policy   (2.2 percent) \1\       case-mix         Payment Rate
                    outlier payments
----------------------------------------------------------------------------------------------------------------
      $2,271.92             / 0.95            x 0.975            x 1.022           x 0.9725          $2,317.47
----------------------------------------------------------------------------------------------------------------
\1\ The proposed estimated home health market basket update of 2.2 percent for CY 2010 is based on Global
  Insight Inc., 1st Qtr 2009 forecast with historical data through 4th Qtr 2008.


  Table 3--For HHAs That Do Not Submit the Required Quality Data; Proposed National Standardized 60-Day Episode
  Payment Rate Updated by the Proposed Home Health Market Basket Update for CY 2010, Before Case-Mix Adjustment
                      and Wage Adjustment Based on the Site of Service for the Beneficiary
----------------------------------------------------------------------------------------------------------------
                                                          Multiply by the                       Proposed CY 2010
                      Adjusted to                          proposed home                            National
  Total CY 2009        return the        Adjusted to       health market      Reduce by 2.75    Standardized 60-
     National        outlier funds,    account for the     basket update       percent for        Day Episode
 Standardized 60-  that paid for the    proposed 2.5%     (2.2 percent)\1\  nominal change in   Payment Rate for
   Day Episode        original 5%       outlier policy    minus 2 percent        case-mix       HHAs That Do Not
   Payment Rate        target for                        for a 0.2 percent                      Submit Required
                        outliers                               update                             Quality Data
----------------------------------------------------------------------------------------------------------------
      $2,271.92             / 0.95            x 0.975            x 1.002           x 0.9725          $2,272.12
----------------------------------------------------------------------------------------------------------------
\1\ The proposed estimated home health market basket update of 2.2 percent for CY 2010 is based on Global
  Insight Inc., 1st Qtr 2009 forecast with historical data through 4th Qtr 2008.

c. Proposed National Per-Visit Rates Used To Pay LUPAs and Compute 
Imputed Costs Used in Outlier Calculations
    In calculating the proposed CY 2010 national per-visit rates used 
to calculate payments for LUPA episodes and to compute the imputed 
costs in outlier calculations, we start with the CY 2009 national per-
visit rates. We first adjust the CY 2009 national per-visit rates to 
adjust for the 5 percent originally set aside for outlier payments. We 
then reduce those national per-visit rates by 2.5 percent, the proposed 
target percentage of outlier payments as a percentage of total HH PPS 
payment. Next we update by the by the current proposed CY 2010 home 
health market basket update percentage of 2.2 percent. National per-
visit rates are not subject to the 2.75 percent reduction related to 
the nominal increase in case-mix because they are per-visit rates and 
hence not case-mix adjusted. The proposed CY 2010 national per-visit 
rates per discipline are shown in Table 4. The six home health 
disciplines are Home Health Aide (HH aide), Medical Social Services 
(MSS), Occupational Therapy (OT), Physical Therapy (PT), Skilled 
Nursing (SN), and Speech Language Therapy (SLP).

   Table 4--Proposed National Per-Visit Rates for LUPAs (Not Including the LUPA Add-On Payment Amount for a Beneficiary's Only Episode or the Initial
Episode in a Sequence of Adjacent Episodes) and Outlier Calculations Updated by the Proposed CY 2010 Home Health Market Basket Update, Before Wage Index
                                                                       Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    For HHAs that DO submit      For HHAs that DO NOT
                                                                                                   the required quality data      submit the required
                                                                                                 ----------------------------        quality data
                                                                                                                             ---------------------------
                                                                       Adjusted to                                             Multiply by
                                                        CY 2009 Per-   return the                                             the proposed
                                                            Visit        outlier     Adjusted to   Multiply by  CY 2010 per-   home health  CY 2010 per-
                                                         Amounts Per   funds that    account for  the proposed      visit        market         visit
              Home Health Discipline Type                  60-Day     paid for the  the proposed   home health     payment       basket        payment
                                                         Episode for   original 5%  2.5% outlier     market      amount for    update (2.2   amount for
                                                            LUPAs      target for      policy        basket     HHAs that DO   percent)\1\  HHAs that DO
                                                                         outlier                   update (2.2   submit the      minus 2     NOT submit
                                                                        payments                  percent) \1\    required    percent, for  the required
                                                                                                                quality data      a 0.2     quality data
                                                                                                                                 percent
                                                                                                                                 update
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide......................................       $48.89        / 0.95       x 0.975       x 1.022        $51.28       x 1.002        $50.28
Medical Social Services...............................       173.05        / 0.95       x 0.975       x 1.022        181.51       x 1.002        177.96
Occupational Therapy..................................       118.83        / 0.95       x 0.975       x 1.022        124.64       x 1.002        122.20
Physical Therapy......................................       118.04        / 0.95       x 0.975       x 1.022        123.81       x 1.002        121.39
Skilled Nursing.......................................       107.95        / 0.95       x 0.975       x 1.022        113.23       x 1.002        111.01
Speech-Language Pathology.............................       128.26        / 0.95       x 0.975       x 1.022        134.53       x 1.002        131.90
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The proposed estimated home health market basket update of 2.2 percent for CY 2010 is based on Global Insight Inc., 1st Qtr 2009 forecast with
  historical data through 4th Qtr 2008.


[[Page 40966]]

d. Proposed 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. As previously discussed, we are proposing to 
return 2.5 percent back into the HH PPS rates, to include the LUPA add-
on payment amount, as a result of our proposed policy to target outlier 
payments to be approximately 2.5 percent of total HH PPS payments in CY 
2010. As such, we first adjust the CY 2009 LUPA add-on payment amount 
to adjust for the 5 percent originally set aside for outlier payments. 
We then reduce that amount by 2.5 percent, the proposed target 
percentage of outlier payments as a percentage of total HH PPS payment. 
Next we update by the current proposed CY 2010 home health market 
basket update percentage of 2.2 percent. The LUPA add-on payment amount 
is not subject to the 2.75 percent reduction related to the nominal 
increase in case-mix because it is an add-on to the per-visit rates 
which are not case-mix adjusted. The proposed CY 2010 LUPA add-on 
payment amount is shown in Table 5 below. Just as the standardized 60-
day episode rate and the per-visit rates paid to HHAs that do not 
submit the required quality are reduced by 2 percent, the additional 
LUPA payment should be reduced by 2 percent also. In neither the CY 
2008 nor the CY 2009 HH PPS rulemaking did we include such an 
adjustment to the LUPA add-on payment amount. For CY 2010, we propose 
that the add-on to the LUPA payment to HHAs that submit the required 
quality data would be updated by the home health market basket update. 
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 home health 
market basket update minus two percent.

                                                  Table 5--Proposed CY 2010 LUPA Add-On Payment Amounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     For HHAs that DO submit the required      For HHAs that DO NOT submit the required
 CY 2009 LUPA add-on                                                             quality data                                quality data
   payment amount      Adjusted to return                        ---------------------------------------------------------------------------------------
 adjusted to return    the outlier funds,    Adjusted to account                                                 Multiply by the      Proposed CY 2010
 the outlier funds,     that paid for the     for the proposed       Multiply by the      Proposed CY 2010    proposed home health   LUPA add-on payment
  that paid for the    original 5% target    2.5% outlier policy  proposed home health   LUPA add-on payment  market basket update  amount for HHAs that
 original 5% target       for outliers                            market basket update  amount for HHAs that    (2.2 percent) \1\       DO NOT submit
    for outliers                                                    (2.2 percent)\1\     DO submit required   minus 2 percent, for    required quality
                                                                                            quality data      a 0.2 percent update          data
--------------------------------------------------------------------------------------------------------------------------------------------------------
           $90.48                / 0.95               x 0.975               x 1.022                $94.90               x 1.002                $93.05
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The proposed estimated home health market basket update of 2.2 percent for CY 2010 is based on Global Insight Inc., 1st Qtr 2009 forecast with
  historical data through 4th Qtr 2008.

e. Proposed Non-Routine Medical Supply Conversion Factor Update
    Payments for non-routine medical supplies (NRS) are computed by 
multiplying the relative weight for a particular severity level by the 
NRS conversion factor. We first adjust the CY 2009 NRS conversion 
factor ($52.39) to adjust for the 5 percent originally set aside for 
outlier payments. We then reduce that amount by 2.5 percent, the 
proposed target percentage of outlier payments as a percentage of total 
HH PPS payment. Next we update by the current proposed CY 2010 home 
health market basket update percentage of 2.2 percent. Finally, we then 
reduce that adjusted payment amount by 2.75, to account for the 
increase in nominal case-mix. The proposed CY 2010 NRS conversion 
factor is shown in Table 6a below. The NRS conversion factor for CY 
2009 was $52.39. Consequently, for CY 2010, the proposed NRS conversion 
factor would be $53.44.

       Table 6a--Proposed CY 2010 NRS Conversion Factor for HHAs that DO Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                      Adjusted to
                       return the                         Multiply by the                       Proposed CY 2010
                     outlier funds,      Adjusted to       proposed home      Reduce by 2.75     NRS conversion
   CY 2009 NRS     that paid for the   account for the     health market       percent for      factor for HHAs
conversion factor     original 5%       proposed 2.5%      basket update    nominal change in    that do submit
                       target for       outlier policy     (2.2 percent)         case-mix         the required
                    outlier payments                                                              quality data
----------------------------------------------------------------------------------------------------------------
         $52.39             / 0.95            x 0.975            x 1.022           x 0.9725             $53.44
----------------------------------------------------------------------------------------------------------------

    The proposed payment amounts, using the above computed proposed CY 
2010 NRS conversion factor ($53.44), for the various severity levels 
based on the proposed updated conversion factor are calculated in Table 
6b.

                            Table 6b--Relative Weights for the 6-Severity NRS System
----------------------------------------------------------------------------------------------------------------
                                                                                     Relative      Proposed NRS
                Severity level                          Points (scoring)              weight      payment amount
----------------------------------------------------------------------------------------------------------------
1.............................................  0...............................          0.2698          $14.42
2.............................................  1 to 14.........................          0.9742           52.06
3.............................................  15 to 27........................          2.6712          142.75
4.............................................  28 to 48........................          3.9686          212.08
5.............................................  49 to 98........................          6.1198          327.04

[[Page 40967]]

 
6.............................................  99+.............................         10.5254          562.48
----------------------------------------------------------------------------------------------------------------

    For HHAs that do not submit the required quality data, we again 
begin with the CY 2009 NRs conversion factor. We first adjust the CY 
2009 NRS conversion factor ($52.39) to adjust for the 5 percent 
originally set aside for outlier payments. We then reduce that amount 
by 2.5 percent, the proposed target percentage of outlier payments as a 
percentage of total HH PPS payment. Next we update by the current 
proposed CY 2010 home health market basket update percentage of 2.2 
percent minus 2 percent) for a 0.002 percent update. Finally, we then 
reduce that adjusted payment amount by 2.75, to account for the 
increase in nominal case-mix. The proposed CY 2010 NRS conversion 
factor is shown in Table 7a below.5

     Table 7a--Proposed CY 2010 NRS Conversion Factor for HHAs That DO NOT Submit the Required Quality Data
----------------------------------------------------------------------------------------------------------------
                      Adjusted to                         Multiply by the
                       return the                          proposed home                        Proposed CY 2010
                     outlier funds,      Adjusted to       health market      Reduce by 2.75     NRS conversion
   CY 2009 NRS     that paid for the   account for the     basket update       percent for      factor for HHAs
conversion factor     original 5%       proposed 2.5%      (2.2 percent)    nominal change in    that do submit
                       target for       outlier policy    minus 2 percent        case-mix         the required
                    outlier payments                     for a 0.25 update                        quality data
----------------------------------------------------------------------------------------------------------------
         $52.39             / 0.95            x 0.975            x 1.002           x 0.9725             $52.39
----------------------------------------------------------------------------------------------------------------

    The proposed payment amounts for the various severity levels based 
on the proposed updated conversions factor, for HHAs that do not submit 
quality data, are calculated in Table 7b, below.

             Table 7b--Relative Weights for the 6-Severity for HHAs That Do Not Submit Quality Data
----------------------------------------------------------------------------------------------------------------
                                                    Points                                         Proposed NRS
                Severity level                     scoring)              Relative weight          payment amount
----------------------------------------------------------------------------------------------------------------
1............................................               0   0.2698..........................          $14.13
2............................................         1 to 14   0.9742..........................           51.04
3............................................        15 to 27   2.6712..........................          139.94
4............................................        28 to 48   3.9686..........................          207.91
5............................................        49 to 98   6.1198..........................          320.62
6............................................             99+   10.5254.........................          551.43
----------------------------------------------------------------------------------------------------------------

D. OASIS Issues

1. HIPPS Code Reporting
    We would first like to clarify our policy regarding the submission 
of the Health Insurance Prospective Payment System (HIPPS) code to CMS 
via the OASIS. Sec.  484.250 requires HHAs to submit to CMS the OASIS 
data described in Sec.  484.55(b)(1) and Sec.  484.55(d)(1) in order 
for CMS to administer the payment rate methodologies. Also, as 
described in Sec.  484.20, HHAs must electronically report all OASIS 
data collected in accordance with Sec.  484.55 as a condition of 
participation, and HHAs must encode and electronically transmit the 
completed OASIS assessment to CMS in the standard data format as 
described in Sec.  484.20(d). For those OASIS assessments required for 
payment, the standard format which is electronically transmitted by the 
HHA to CMS includes a HIPPS code, generated by grouper software at the 
HHA. When an HHA electronically transmits OASIS assessments to CMS (via 
the State agency), the CMS OASIS submission system performs a 
validation check of the transmitted OASIS items, including the 
submitted HIPPS code. If the CMS OASIS submission system validation 
determines that the submitted HIPPS code is in error, it informs HHAs 
of that error via the Final Validation Report which is returned to HHA. 
The Final Validation Report will include the valid, CMS OASIS 
submission system calculated HIPPS code. We have become aware of a 
proliferation of incidents where the HIPPS code submitted to CMS on the 
OASIS does not match the HIPPS code which is calculated by the CMS 
OASIS submission system. The HH PPS Grouper Software, which is used by 
the CMS OASIS submission system in its validation, is the official 
grouping software of the HH PPS, and thus the HIPPS code produced by 
the CMS OASIS submission system is the HIPPS code that should 
ultimately be billed on the claim. Consequently, in the interest of 
accurate coding and billing, we propose that the HHA be required to 
ensure that the HIPPS code billed on the claim is consistent with that 
which CMS' OASIS submission system calculated. In the case where the 
Final Validation Report returns to the HHA a HIPPS code which is 
different than the HIPPS code submitted to CMS by the HHA on the OASIS, 
the HHA must ensure that the HIPPS code from the Final Validation 
report is the HIPPS code reported on the bill.

[[Page 40968]]

2. OASIS Submission as a ``Condition of Payment''
    Section 484.20 requires that HHAs must electronically report to CMS 
(via the State agency or OASIS contractor) all OASIS data collected in 
accordance with Sec.  484.55 as a condition of participation. 
Additionally, Sec.  484.250 requires that HHAs must submit to CMS the 
OASIS data described at Sec.  484.55(b)(1) and (d)(1) in order for CMS 
to administer the payment rate methodologies. Building on the above 
clarification for HHAs to ensure the HIPPS code reported on the bill is 
consistent with that which CMS' OASIS submission system calculated, and 
in order to be consistent with Sec.  484.250, we are proposing to 
require the electronic reporting of OASIS to CMS as a condition of 
payment in Sec.  484.210. Currently, as a requirement for pay for 
reporting, HHAs are required to submit quality data (that being OASIS 
data) in order to receive the full home health market basket update to 
the rates. The burden associated with the requirement for the HHA to 
submit the OASIS is currently accounted for under OMB<greek-i> 0938-
0761. Making OASIS submission a condition for payment is consistent 
with both OASIS submissions being a condition of participation and a 
requirement to receive full market basket updates under pay for 
reporting. As such, we are proposing to revise Sec.  484.210 ``Data 
used for the calculation of the national prospective 60-day episode 
payment'' to reflect this requirement.

E. Qualifications for Coverage as They Relate to Skilled Services 
Requirements

    To qualify for Medicare coverage of home health services a Medicare 
beneficiary must meet each of the following requirements as stipulated 
in Sec.  409.42: Be confined to the home or an institution that is not 
a hospital, SNF, or nursing facility as defined in sections 1861(e)(1), 
1819(a)(1) or 1919 of Act; be under the care of a physician as 
described in Sec.  409.42(b); be under a plan of care that meets the 
requirements specified in Sec.  409.43; the care must be furnished by 
or under arrangements made by a participating HHA, and the beneficiary 
must be in need of skilled services as described in Sec.  409.42(c). 
Subsection 409.42(c) of our regulations requires that the beneficiary 
need at least one of the following services as certified by a physician 
in accordance with Sec.  424.22: Intermittent skilled nursing services 
and the need for skilled services which meet the criteria in Sec.  
409.32; Physical therapy which meets the requirements of Sec.  
409.44(c), Speech-language pathology which meets the requirements of 
Sec.  409.44(c); or have a continuing need for occupational therapy 
that meets the requirements of Sec.  409.44(c), subject to the 
limitations described in Sec.  409.42(c)(4).
Basis for Revisions to Sec.  409.42(c)(1), 409.44(b), and Sec.  424.22
    In recent years, MedPAC, the HHS Office of the Inspector General 
(OIG), and Medicaid State agencies suggested the need for CMS to 
clarify the Medicare home health coverage criteria regarding the 
skilled services specified at Sec.  409.42. In their March 2004 report 
(http://www.medpac.gov/documents/Mar04_Entire_reportv3.pdf), MedPAC 
reported that the Medicare eligibility criteria for the home health 
benefits leaves a great deal open to interpretation, describing a 
particular concern with the lack of clarity regarding the Medicare home 
health skilled nursing services requirement. In their Memorandum Report 
dated February 5, 2009 titled ``Medicaid and Medicare Home Health 
Payments for Skilled Nursing and Home Health Aide Services'' (http://oig.hhs.gov/oei/reports/oei-07-06-00641.pdf), the OIG also stated that 
Medicare coverage policy regarding skilled nursing services lacked 
clarity. The OIG indicated that our payment methodology might be prone 
to error. HHAs were unclear about which skilled nursing services were 
covered by Medicare's home health benefit. Further, Medicaid State 
agencies have also communicated to CMS their concerns that HHAs find it 
difficult to accurately determine when services provided to dually 
Medicare and Medicaid eligible individuals (``dual eligibles'') meet 
the Medicare coverage criteria, especially the requirements for needing 
skilled nursing care on an intermittent basis. State Medicaid agencies 
have communicated to CMS that this ambiguity is resulting in some HHAs 
routinely submitting all claims for dual-eligible persons with chronic 
care needs to their State Medicaid agencies for payment. State Medicaid 
agencies and CMS are concerned about this practice, referencing the 
requirement under the Social Security Act that Medicaid must be the 
payer of last resort. State agencies have told CMS that some of these 
claims would have been covered and paid by Medicare if they were 
submitted for payment. Other State agencies have used Medicaid post 
payment reviews to identify claims they believe should have been paid 
by another payer (e.g., Medicare).
    In 2006, CMS and certain Medicaid State Agencies embarked on an 
educational initiative to improve the ability of HHAs, State Agencies, 
and CMS contractors to make appropriate coverage decisions, resulting 
in an improved ability by HHAs to identify the appropriate payer for 
services provided, ultimately improving HHA billing accuracy.
    As part of its provider education program, CMS focused on 
clarifying Sec.  409.42 ``Beneficiary qualifications for coverage of 
services''. During the course of the training, it became apparent that 
confusion existed among certain Medicaid State Agencies and HHAs 
regarding under what circumstances the overall management and 
evaluation of a care plan would constitute a skilled service. HHAs 
asked what underlying conditions, complications, or circumstances would 
require a patient otherwise receiving unskilled services to need care 
plan management and evaluation by a registered nurse, thus rendering 
such care skilled. CMS therefore ensured that the training provided a 
particular focus on the requirement that a beneficiary be in need of 
skilled services. CMS provided comprehensive guidance to clarify that 
in the home health setting, management and evaluation of a patient care 
plan is considered a reasonable and necessary skilled service only when 
underlying conditions or complications are such that only a registered 
nurse can ensure that essential non-skilled care is achieving its 
purpose. Another area of confusion that surfaced during the training 
was when the need for patient education services constitutes skilled 
services in the home health setting. HHAs questioned which specific 
sorts of educational services would render the education a skilled 
service in the home health setting.
    To address the concerns identified by OIG, MedPAC, State Medicaid 
agencies and the clarity concerns home health agencies communicated to 
CMS during the 2006 training, we propose to revise Sec.  409.42(c)(1) 
to further clarify that in order for services to be considered skilled 
in the home health setting, certain limitations (discussed below) would 
apply. We believe these revisions would assist HHAs in their 
determination of home health eligibility and will enable HHAs to more 
accurately bill for their dual eligible population.
Proposed Revisions to Sec.  409.42(c)(1)
    To clarify what constitutes skilled services in the home health 
setting, we are proposing the following revision to Sec.  409.42. We 
propose to add a qualifying instruction to Sec.  409.42(c)(1) to 
explain that intermittent skilled nursing services

[[Page 40969]]

meeting the criteria for skilled services and the need for skilled 
services found in Sec.  409.32 (with examples in Sec.  409.33 (a) and 
(b)) are subject to certain limitations in the home health setting. We 
propose to describe the limitations in two new paragraphs, Sec.  
409.42(c)(1)(i) and Sec.  409.42(c)(1)(ii).
Proposed New Paragraph Sec.  409.42(c)(1)(i)
    Our policy at Sec.  409.33(a)(1) describes that the development, 
management, and evaluation of a patient's care plan based on 
physician's orders constitute skilled services when, because of the 
patient's physical or medical condition, oversight by technical or 
professional personnel is needed to promote recovery and ensure medical 
safety. The examples described in Sec.  409.33(a)(1)(ii) further 
describe that when the patient's overall condition supports a finding 
that recovery and safety can be ensured only if the total care is 
planned, managed, and evaluated by technical or professional personnel, 
it is appropriate to infer that skilled services are being provided.
    We propose in Sec.  409.42(c)(1)(i) that in the home health 
setting, management and evaluation of a patient care plan is considered 
a reasonable and necessary skilled service only when underlying 
conditions or complications are such that only a registered nurse can 
ensure that essential non-skilled care is achieving its purpose.
    Further, in Sec.  409.42(c)(1)(i) we also propose to clarify that 
to be considered a skilled service, the complexity of the necessary 
unskilled services that are a necessary part of the medical treatment 
must require the involvement of licensed nurses to promote the 
patient's recovery and medical safety in view of the overall condition. 
Where nursing visits are not needed to observe and assess the effects 
of the nonskilled services being provided to treat the illness or 
injury, skilled nursing care would not be considered reasonable and 
necessary, and the management and evaluation of the care plan would not 
be considered a skilled service.
    Additionally, we propose to further clarify in Sec.  
409.42(c)(1)(i) that in some cases, the condition of the patient may 
require that a service that would normally be considered unskilled be 
classified as a skilled nursing service given a patient's unique 
circumstances. This would occur when the patient's underlying condition 
or complication required that only a registered nurse could ensure that 
essential non-skilled care was achieving its purpose. The registered 
nurse would ensure that services were safely and effectively performed. 
However, any individual service would not be deemed a skilled nursing 
service merely because it was performed by or under the supervision of 
a licensed nurse. Where a service can be safely and effectively 
performed (or self administered) by the average non-medical person 
without the direct supervision of a nurse, the service cannot be 
regarded as a skilled service although a nurse actually provided the 
service.
Proposed New Paragraph Sec.  409.42(c)(1)(ii)
    Additionally, we also propose a new Sec.  409.42(c)(1)(ii), which 
would clarify when patient education services as described in Sec.  
409.33(a)(3) constituted skilled services in the home health setting. 
Current Sec.  409.32(a)(3) states that patient education services are 
skilled services if the use of technical or professional personnel is 
necessary to teach patient self-maintenance. However, to address the 
concerns and lack of clarity surrounding when education services are 
skilled services as described above, we are proposing to add a new 
paragraph, Sec.  409.42(c)(1)(ii). In the home health setting, skilled 
education services would be deemed to no longer be needed when it 
became apparent, after a reasonable period of time, that the patient, 
family, or caregiver could not or would not be trained. Further 
teaching and training would cease to be reasonable and necessary in 
this case, and would cease to be considered a skilled service. 
Notwithstanding that the teaching or training was unsuccessful, the 
services for teaching and training would be considered to be reasonable 
and necessary prior to the point that it became apparent that the 
teaching or training was unsuccessful, as long as such services were 
appropriate to the patient's illness, functional loss, or injury.
Proposed Change to Sec.  409.44(b)
    We are proposing to revise the introductory material at Sec.  
409.44(b)(1), to refer to the newly proposed limitations of skilled 
services in the home health benefit at Sec.  409.42(c)(1)(i) and 
409.42(c)(1)(ii). The clauses under the revised paragraphs (i) through 
(iv) would remain unchanged.
Proposed Revision to Sec.  424.22(a)(1)(i) and Sec.  424.22(b)(2)
    We also propose to revise Sec.  424.22(a)(1)(i) and Sec.  
424.22(b)(2) to require a written narrative of clinical justification 
on the physician certification and recertification for the targeted 
condition where the patient's overall condition supports a finding that 
recovery and safety could be ensured only if the care was planned, 
managed, and evaluated by a registered nurse. We believe that this 
revision would address HHAs' questions regarding the specific 
circumstances which would necessitate the need for skilled management 
and evaluation of the care plan. Additionally, we believe this 
requirement would be an important step in enhancing the physician 
accountability and involvement in the patient's plan of care.
    As we described above, many Medicaid State Agencies and HHAs 
contend that there is confusion as to when overall management and 
evaluation of a care plan constitute a skilled service. They questioned 
what specific beneficiary underlying conditions, or complications or 
circumstances would warrant a patient who was receiving unskilled 
services to need care plan management and evaluation by a registered 
nurse, thus rendering the care skilled. To clarify for home health 
agencies what specific circumstances would necessitate the involvement 
of a registered nurse in the development, management, and evaluation of 
a patient's care plan when only unskilled services are being provided, 
we propose additions to the home health certification content 
requirements as described at Sec.  424.22(a)(i) and recertification 
content requirements at Sec.  424.22(b)(2). Specifically, when a 
patient's underlying condition or complication requires exclusively 
that a registered nurse ensure that essential non-skilled care is 
achieving its purpose, and necessitates a registered nurse be involved 
in the development, management, and evaluation of a patient's care 
plan, we propose to require the physician include a written narrative 
on the certification and recertification describing the physician's 
clinical justification of this need.
    In the Physician Fee Schedule proposed rule published in the July 
7, 2008 Federal Register (73 FR 38578), we solicited comments asking 
the industry to suggest options to enhance contact between the 
physician and the patient. In that solicitation of comments, we 
described policy options that we had been considering such as a review 
of the RVUs associated with the certification and recertification of 
the HH plan of care (POC), and that we were considering proposing new 
requirements, for example, a requirement for ``direct'' patient contact 
with the physician, to ensure more active physician involvement in the

[[Page 40970]]

certification and recertification of the HH POC.
    As a result of this solicitation, some commenters suggested that 
CMS establish documentation expectations associated with the 
certification and recertification of the need for Medicare home health 
services. We are continuing to consider policy options to enhance the 
physician-patient interaction in the home health setting. We believe 
that the commenters' suggestion that CMS establish documentation 
expectations associated with the certification and recertification, 
such as our proposed clinical justification narrative requirement, may 
be a first step in achieving this goal.
    Finally, we believe that this new requirement would increase 
physician accountability and oversight of the certification and 
recertification of home health services and plan of care by focusing 
attention on the physician's responsibility to set out the clinical 
basis for this skilled need as indicated in the patient's medical 
record.
    This brief narrative could be written or typed on the certification 
form itself. We do not believe that this brief narrative should be 
allowed as an attachment to the certification form because an 
attachment could easily be prepared by someone other than the 
physician, and what we are seeking is more direct involvement on part 
of the physician. We seek comments on whether this proposed requirement 
would increase physician engagement in the certification and 
recertification process, and clarify industry confusion associated with 
when a patient's condition would require the need for a registered 
nurse to oversee the patient's care plan, thus rendering such ``skilled 
care'' under our payment system.

F. OASIS for Significant Change in Condition: No Longer Associated With 
Payment

    We propose to remove an obsolete reference to ``new case-mix 
assignments'' as a result of significant changes in a patient's 
condition that appears in 42 CFR 484 subpart E at Sec.  
484.55(d)(1)(ii). The significant change in condition (SCIC), as it 
relates to new case-mix assignments affecting payment, was an element 
of the HH PPS at the time of its first implementation in fiscal year 
2000. However, as part of the HH PPS payment refinements implemented in 
CY 2008, we eliminated the SCIC policy, and the assignment of 
subsequent case-mix assignments under the HH PPS. However, it should be 
noted that it was not the SCIC payment policy that required the HHA to 
perform the assessment, but rather the significant change in the 
patient's condition. We are not proposing to change that requirement. 
An HHA would still be required to perform an assessment in the event 
that a patient experienced a significant change in condition. The 
proposed modification is only that a new case-mix assignment is no 
longer associated with this assessment.
    In addition, we propose to revise Sec.  484.250 to delete an 
obsolete reference to Sec.  484.237. Sec.  484.237 referred to the SCIC 
payment policy and was removed in the CY 2008 HH PPS final rule (72 FR 
49879).

G. Proposed Payment Safeguards for Home Health Agencies

    The provisions contained in this section are designed to: (1) 
Improve our ability to verify that home health agencies (HHAs) meet 
minimum enrollment criteria; (2) ensure that HHAs that are changing 
ownership meet and continue to meet the Conditions of Participation for 
HHAs found in 42 CFR Part 484; and (3) improve the quality of care that 
Medicare beneficiaries receive from HHAs.
1. Program Integrity Concerns Involving Home Health Agencies (HHAs)
    The fraudulent business practices of certain HHAs continue to cost 
the Medicare program millions of dollars nationwide. This issue was 
discussed in a recent report issued by the Government Accountability 
Office (GAO) entitled ``Improvements Needed to Address Improper 
Payments in Home Health'' (GAO-09-185). This report, discussed in more 
detail below, concluded, in part, that ``In the absence of greater 
prevention, detection, and enforcement efforts, the Medicare home 
health benefit will continue to be a ready target for fraud and 
abuse.''
    The problem has been especially acute in, though by no means 
limited to, the States of Texas and California. In Los Angeles County 
in California, for instance, the amount of money for which HHAs in that 
county billed Medicare between Fiscal Years 2003 and 2006 rose from 
$569 million to $921 million--an increase of 62 percent, and one that 
was not accompanied by a similar increase in the county's Medicare 
beneficiary population. There has also been an abnormal proliferation 
of HHAs in California as a whole. Between October 2002 and May 2007, 
the number of HHAs in the State rose by 25 percent--again, without a 
concomitant upswing in the number of Medicare beneficiaries in 
California. This suggests that there may also be an increase in 
improper billing. HHA proliferation has been an even bigger problem in 
Texas. Between October 2002 and October 2006, the number of HHAs in the 
State doubled, while--during this same period--the number of HHAs in 
Harris County, Texas (which includes the city of Houston) increased by 
almost 150 percent. As with California, these figures are out of all 
proportion with any increase in the beneficiary population or demand 
for HHA services in Texas or Harris County.
    The aforementioned GAO report expressed similar concerns. It noted 
that, nationwide, ``spending on the Medicare home health benefit grew 
about 44 percent from 2002 through 2006, despite an increase of just 
less than 17 percent in the number of beneficiaries using the benefit 
during that 5-year period.'' The report also noted discrepancies in 
States other than Texas and California. To illustrate, between 2002 and 
2006, the number of HHAs that billed Medicare rose in Florida by 100 
percent, in Michigan by 62 percent, in Illinois by 59 percent, in Ohio 
by 42 percent, in Arizona by 32 percent, and in the District of 
Columbia by 67 percent. However, the increases in the number of Part A 
beneficiaries who used HHA services in these six jurisdictions were as 
follows: Florida--28 percent; Michigan--19 percent; Illinois--23 
percent; Ohio--14 percent; Arizona--4 percent; and the District of 
Columbia--2 percent.
    The disparity in many jurisdictions between the increase in the 
number of HHAs and the rise in the number of beneficiaries is so 
overwhelming that it cannot be attributed solely to an aging populace. 
The fact that, as shown above, between 2002 and 2006, the number of 
HHAs in Arizona rose at a rate 8 times greater than the number of Part 
A beneficiaries that use HHA services--and that the rate was an 
astounding 33 times greater in Washington, DC--must raise serious 
questions as to the legitimacy of some of these entities.
    The GAO report also outlined a number of instances of allegedly 
fraudulent activities on the part of HHAs. In a particularly glaring 
example in Houston, Texas, the GAO noted the following: ``One PSC 
(Program Safeguard Contractor) interviewed 670 Houston beneficiaries 
who had the most severe clinical rating and who were patients of HHAs 
identified by the PSC as having aberrant billing patterns. The PSC 
found 91 percent of claims for these beneficiaries to be in error. 
Nearly 50 percent of the beneficiaries were not homebound and therefore 
were not eligible to receive any Medicare home health services. The 
investigators also found that while 39 percent of the

[[Page 40971]]

beneficiaries they interviewed were eligible for the benefit, their 
clinical severity had been exaggerated. The PSC concluded that only 9 
percent of claims for the 670 beneficiaries were properly coded. In 
addition, the PSC found that other home health beneficiaries it 
interviewed were not homebound; for instance, some were mowing their 
lawns when investigators came to interview them.''
    Of particular concern to CMS is that the problems discussed above 
have been seen with HHAs on a far greater scale than with any other 
type of certified provider. The dramatic rise in the number of HHAs in 
relation to the increase in Medicare beneficiaries has not been even 
remotely duplicated with other Part A entities. In sum, the relative 
level of potentially fraudulent behavior among HHAs exceeds that of 
other certified provider types, and it is for this reason that CMS 
needs to take additional steps to ensure that only legitimate, bona 
fide HHAs remain enrolled in the Medicare program.
2. Prohibition on Sharing of Practice Location
    In 2008, we determined that a number of HHAs had enrolled or 
attempted to enroll into the Medicare program using the same practice 
location or base of operations listed in Section 4 of their respective 
Medicare provider enrollment applications. In one case, a business 
attempted to enroll more than twenty different HHAs with the same 
Section 4 practice location as the base of operations.
    We believe that allowing HHAs to share practice locations, 
operations, and other aspects of the provider's operations (for 
example, patient and financial records) in this manner constitutes a 
significant risk to the Medicare program. To allow an HHA to share its 
Section 4 practice location or base of operations with another 
Medicare-enrolled HHA or supplier limits the ability of CMS, a State 
survey agency, or an accreditation organization to ensure that each HHA 
meets the Conditions of Participation specified at 42 CFR part 484. 
Indeed, pursuant to Section 1866(j)(1)(A) of the Act, the Secretary is 
required to establish by regulation a process for the enrollment of 
providers and suppliers into the Medicare program. However, the sharing 
of HHA practice locations or bases of operations listed in Section 4 of 
the Medicare provider enrollment application hinders CMS's ability to 
properly enroll HHAs into Medicare because of the extreme difficulty in 
determining which site is in operation at a particular time, and which 
provider has control over the space, staff, equipment, etc. We do not 
believe that legitimate HHA providers share Section 4 practice 
locations or bases of operations with another Medicare-enrolled HHA or 
supplier.
    At Sec.  489.19, we are proposing a provision that would prohibit 
an HHA from sharing, leasing, or subleasing its practice location or 
base of operations listed in Section 4 of its Medicare provider 
enrollment application with or to another Medicare-enrolled HHA or 
supplier. We believe that this provision is consistent with existing 
provisions found in Sec.  410.33(g)(15), which established limitations 
on the sharing of space (that is, a practice location) by independent 
diagnostic testing facilities (IDTF).
    At Sec.  489.12(a)(5), we are proposing to allow CMS to refuse to 
enter into a provider agreement with a prospective HHA if we 
determined, under proposed 42 CFR 489.19, that the HHA was sharing, 
leasing, or subleasing its practice location or base of operations 
listed in Section 4 of its Medicare provider enrollment application 
with or to another Medicare-enrolled HHA or supplier.
    At Sec.  424.530(a)(8), we are proposing to allow a Medicare 
contractor, including a Regional Home Health Intermediary or A/B MAC, 
to deny Medicare billing privileges to an HHA if it determined, under 
proposed 42 CFR 489.19, that the HHA was sharing, leasing, or 
subleasing its practice location or base of operations listed in 
Section 4 of its Medicare provider enrollment application with or to 
another Medicare-enrolled HHA or supplier.
    At Sec.  424.535(a)(11), we are proposing to allow a Medicare 
contractor, including a Regional Home Health Intermediary or A/B MAC, 
to revoke the Medicare billing privileges of an HHA that it determined, 
under proposed 42 CFR 489.19, was sharing, leasing, or subleasing its 
practice location or base of operations listed in Section 4 of its 
Medicare provider enrollment application with or to another Medicare-
enrolled HHA or supplier.
    We are, nevertheless, soliciting comments on whether there are 
legitimate business reasons for a Medicare-enrolled HHA to share space 
with another Medicare-enrolled HHA or supplier when there is common 
ownership. We are also soliciting comments on whether there are 
legitimate business reasons for a Medicare-enrolled HHA to be co-
located with another Medicare-enrolled HHA or supplier when there is no 
common ownership. In addition, we are soliciting comments on whether 
there are legitimate business reasons for a Medicare-enrolled HHA to 
engage in leasing or subleasing arrangements with a Medicare-enrolled 
supplier when there is common ownership.
3. Sale or Transfer of Ownership Within 3 Years of Enrollment
    We have recently found instances where owners of a HHA, some of 
which were working in concert with brokers or organizations operating 
``turn-key'' businesses, have enrolled or have attempted to enroll in 
the Medicare program for the specific purpose of selling the Medicare 
billing privileges and the Medicare provider agreement of their HHA to 
a third-party. In this scenario, the buyer or seller of the HHA 
typically would notify Medicare of the sale or change of ownership via 
the Medicare enrollment application (CMS-855A) after the billing 
privileges have been transferred when the HHA is sold.
    Current CMS policy recommends surveys when there is a change of 
ownership. However, surveys in cases of a change of ownership do not 
occur with the frequency that they do when providers initially enroll 
in Medicare. Consequently, there are instances in which a change of 
ownership takes place yet the new owner does not undergo a survey, in 
which case Medicare cannot conclusively ascertain whether the business, 
under new ownership, meets the Conditions of Participation under 42 CFR 
part 484. This serves as an incentive for certain prospective providers 
to enroll in the Medicare program with the sole purpose of transferring 
Medicare billing privileges and the associated provider agreement when 
the business is sold.
    This is problematic for two reasons. First, the prospective 
provider has minimal incentive for ensuring quality care for its 
patients after it is enrolled because its exclusive objective for 
participating in Medicare in the first place is to sell the business 
shortly after receiving Medicare billing privileges. In other words, 
the provider, aware that it may be able to sell the business without 
the HHA having to undergo a survey, may have little motivation to 
ensure that it is in compliance with the Conditions of Participation 
under 42 CFR part 484, since it intends on selling the business in any 
event. Medicare beneficiaries, therefore, may receive inadequate 
services as a result of this activity. Second, without the protection 
that a survey provides, the HHA may attempt to bill Medicare for these 
insufficient services. These circumstances increase the risk for an HHA 
to submit inappropriate and potentially fraudulent

[[Page 40972]]

claims to Medicare, which places the Medicare Trust Funds at risk.
    We further note that 42 CFR 424.550(a) states that a provider or 
supplier ``is prohibited from selling its Medicare billing number or 
privileges to any individual or entity, or allowing another individual 
or entity to use its Medicare billing number.'' We believe that the 
``turn-key'' scenarios described in this subsection 2 fall within the 
general intent and purview of this provision, in that the broker may 
focus more on the selling of the HHA's billing privileges, rather than 
of the HHA itself. Nevertheless, while the provisions of 42 CFR Sec.  
424.550(a) and (b) were designed to prohibit this type of practice, we 
cannot realistically enforce the prohibitions on the sale, including an 
asset sale or stock transfer, or transfer of billing privileges, unless 
we can confirm the nature of the financial arrangements involved 
therein.
    We recognize that the issue of a potential lack of a survey in HHA 
ownership changes exists with respect to other types of providers and 
certified suppliers. Yet there are several reasons as to why this 
concern is more acute with HHAs than with other provider types. First, 
and as already outlined in subsection 1, the level of fraud in the HHA 
sector appears to be more prevalent than with other provider 
categories. Second, CMS has not seen the types of turn-key arrangements 
described above with any type of provider or certified supplier other 
than HHAs. It is the combination of these two factors that, in our 
view, make it necessary for us to focus the proposed provisions below 
on HHAs, rather than on provider types with whom our concerns are not 
nearly as acute. We stress that CMS in the past has undertaken a number 
of enrollment initiatives to ensure that only eligible and qualified 
providers and suppliers obtain and maintain Medicare billing 
privileges; specifically, CMS promulgated rules to address fraud and 
abuse and quality of care concerns for IDTFs (in 42 CFR 410.33(g)) as 
well as suppliers of durable medical equipment, prosthetics, orthotics 
and supplies (DMEPOS) (42 CFR 424.57(c)). We therefore believe, for the 
reasons just stated, that a similar approach is warranted here with 
respect to HHAs. With that said, and in view of the aforementioned 
schemes that appear to be designed to subvert Medicare's existing 
statutory and regulatory authorities related to enrollment and State 
survey procedures, we maintain that additional tools are needed to 
address this program vulnerability.
    At 42 CFR 424.550(b)(1), we are proposing that an HHA undergoing an 
ownership change (including asset sales and stock transfers) must 
obtain an initial State survey or accreditation by an approved 
accreditation organization if the change takes place within 36 months 
after the effective date of the HHA's enrollment in Medicare. This 
means that any change of ownership that occurs during the 36 months 
following an initial enrollment would not result in the transfer of the 
HHA's provider agreement and Medicare billing privileges to the new 
owner. The new owner of the existing HHA would instead be required to 
enroll in the Medicare program as a new provider under the provisions 
of Sec.  424.510 and obtain an initial State survey or accreditation by 
an approved accreditation organization. This is to ensure that the HHA 
under new ownership remains in compliance with the Conditions of 
Participation in 42 CFR part 484. We believe that this will help deter 
turn-key entities from purchasing HHAs for the sole purpose of selling 
them, in that the facility will be unable to undergo a change of 
ownership within the above-referenced 36-month period without the HHA 
being subject to a State survey.
    We further believe that 36 months is an appropriate period of time 
for which to apply this requirement. It is long enough to ensure that a 
newly-enrolled HHA is serious about furnishing quality services to 
Medicare beneficiaries and is not merely looking to sell the HHA's 
Medicare billing privileges at the earliest possible moment. 
Conversely, a 36-month timeframe is, in our view, not so extensive as 
to greatly hinder the ability of a bonafide HHA to sell its business 
after the HHA has been operational and providing legitimate Medicare 
services for a reasonable period of time. While we do recognize that 
some legitimate, newly-enrolling HHAs may be inconvenienced by their 
inability to utilize, for a certain amount of time, the change of 
ownership provisions in 42 CFR 489.18, we also stress that the 
aforementioned survey requirement will, to a substantial extent, 
benefit legitimate members of the HHA provider community, in that it 
will help ensure that unqualified HHAs are no longer in the Medicare 
program. This will, for bonafide HHAs, reduce competition from less 
than legitimate HHAs and, on a larger level, help protect the Medicare 
Trust Funds.
    Finally, if adopted, we believe that any change of ownership 
(including asset sales or stock transfers) that is pending a Medicare 
contractor's review and approval at the time this rule becomes 
effective, would be subject to this provision.
4. Home Health Agency Reactivations of Medicare Billing Privileges
    In order to help address CMS' concerns about potentially 
inappropriate activity by HHAs, an additional tool that we therefore 
believe is necessary to help stem this behavior involves enhanced 
safeguards for use as part of the reactivation process identified in 
Sec.  424.540(a).
    To ensure that HHAs whose Medicare billing privileges have been 
deactivated for 12 months of non-billing and who seek to reactivate 
these privileges are still in compliance with the Conditions of 
Participation in 42 CFR part 484, we propose to revise Sec.  
424.540(b)(3) from its current form, ``Reactivation of Medicare billing 
privileges does not require a new certification of the provider or 
supplier by the State survey agency or the establishment of a new 
provider agreement'' to ``With the exception of home health agencies, 
reactivation of Medicare billing privileges does not require a new 
certification of the provider or supplier by the State survey agency or 
the establishment of a new provider agreement.'' We are also proposing 
to add Sec.  424.540(b)(3)(i), which states that any HHA whose Medicare 
billing privileges are deactivated under the provisions found in Sec.  
424.540(a) are also required to obtain an initial State survey or 
accreditation by an approved accreditation organization before its 
Medicare billing privileges can be reactivated.
    As already explained, CMS remains concerned about the excessive 
level of potentially inappropriate activity in the HHA arena. To this 
end, CMS believes that the proposed provisions outlined in this 
subsection will, for reasons already identified, help address the 
concerns outlined in the aforementioned GAO report by ensuring that 
HHAs are in constant and verifiable compliance with the HHA Conditions 
of Participation found in 42 CFR part 484, and that only qualified and 
legitimate home health providers are enrolled in Medicare.

H. Physician Certification and Recertification of the Home Health Plan 
of Care

a. Background
    Sections 1814(a)(2)(C) and 1835(a)(2)(A) of the Act require that a 
plan for furnishing home health services be established and 
periodically reviewed by a physician in order for Medicare payments for 
those services to be made. Our regulations at Sec.  409.43(e)

[[Page 40973]]

specifically states that a home health plan of care (HH POC) must be 
reviewed, signed, and dated by the physician who reviews the POC (as 
specified in Sec.  409.42(b)) in consultation with agency clinical 
staff at least every 60 days (or more frequently as specified in Sec.  
409.43(e)(1). Additionally, Sec.  424.22(b) states that a 
recertification is required at least every 60 days, preferably at the 
time the plan is reviewed, and must be signed by the physician who 
reviews the home health POC. These schedules, for the review of the POC 
and the recertification, coordinate well with the 60-day episode 
payment unit under the HH PPS. In implementing the statutory 
requirement as well as these regulations, we believed that these 
requirements would encourage enhanced physician involvement in the HH 
POC and patient management, and would include more direct ``in-person'' 
patient encounters (as logistically feasible).
    Currently, physicians are paid for both the certification and 
recertification of the HH POC under HCPCS codes G0180 and G0179, 
respectively. The basis for the payment amounts of these physician 
services is the relative resources in RVUs required to furnish these 
services. We believe physician involvement is very important in 
maintaining quality of care under the HH PPS.
    In the HH PPS proposed rule published in the October 28, 1999 
Federal Register (64 FR 58196), we had proposed to require the 
physician to certify the case-mix weight/home health resource group 
(HHRG) as part of the required physician certification of the POC. This 
reflected our belief that the physician should be more involved in the 
decentralized delivery of home health services. However, in the final 
rule published in the July 3, 2000 Federal Register (65 FR 41163), we 
did not finalize that proposal and decided to focus our attention on 
physician certification and education in order to better involve the 
physician in the delivery of home health services.
b. Solicitation of Comments
    It has come to our attention that physician involvement in the 
certification and recertification of HH POC varies greatly. While some 
physicians have direct contact with their patients in the delivery of 
home health services, we believe that a significant number of 
physicians provide only a brief, albeit thorough, review of the HH POC, 
without any direct contact with the patient. We continue to believe 
that active involvement of the physician, including ``in-person'' 
contact with the patient, during the certification and recertification 
of the HH POC is essential for the delivery of high quality HH 
services.
    In the Physician Fee Schedule proposed rule published in the July 
7, 2008 Federal Register (73 FR 38578), we mentioned several options to 
enhance direct contact between the physician and the patient. First, we 
considered a review of the RVUs associated with the certification and 
recertification of the HH POC. As a result of that review, the payment 
amounts to physicians could be reduced based on a more accurate 
determination of the actual RVUs required to provide these services. We 
also considered proposing new requirements; for example, a requirement 
for ``direct'' patient contact with the physician, to ensure more 
active physician involvement in the certification and recertification 
of the HH POC. We specifically solicited comments on these policy 
options. The following is a summary of the comments and our responses 
as published in the Physician Fee Schedule final rule published in the 
November 19, 2008 Federal Register (73 FR 69855).
    Most commenters suggested that we leave our current policies and 
payment to physicians unchanged, at least until further analysis is 
completed. To that end, it was suggested that we continue to study the 
role of the physician in home care and determine which factors enhance 
a physician's ability to conduct oversight activities, ensure 
appropriateness of care, and work collaboratively with HHAs without 
further burdening Medicare beneficiaries. Commenters urged CMS to 
engage with industry organizations that represent the physicians that 
furnish these services, to determine goals and assess options. 
Commenters further suggested that goals and options could include 
revising the procedure codes used for billing, assessing the current 
RVUs, and establishing documentation expectations.
    Some commenters suggested that payments to physicians for 
certifying and recertifying HH POCs should be restructured to provide 
incentives for greater physician involvement, to include personally 
seeing the patients. Specifically, some commenters suggested adding 
different payments for the varying levels of physician involvement in 
the certification and recertification of HH POCs. Other commenters 
urged CMS to consider how home telehealth can be employed to a greater 
degree to increase input of clinical information directly to physicians 
in lieu of face-to-face contact.
    Other commenters suggested that we actively support amending the 
Medicare statute to allow nurse practitioners (NPs) to certify and 
recertify HH POCs. Some commenters suggested that we actively support 
demonstrations and legislative proposals to build on the concept of 
merging home care with primary care under a single care management 
entity for persons in the advanced stages of chronic illnesses. Other 
commenters suggested that payment to medical directors should be 
restored to HHAs, along with requirements for their education and a 
definition of their role, and that we consider reimbursement for a 
planning teleconference between the physician and home health 
personnel.
    In the November 19, 2008 final rule, we expressed our appreciation 
for the comments and responded that we would continue to analyze and 
consider the comments and suggestions in future rulemaking. 
Additionally, as a result of comments received on the above physician 
rule, as it relates to physician-patient contact, we are considering 
the possibility of requiring physicians to make phone calls to patients 
at various times over the course of home health treatment (prior to 
recertifications), as a means to promote that physician-patient contact 
and to help ensure the delivery of high quality HH services to our 
beneficiaries.
    In this HH PPS proposed rule for CY 2010, we are specifically 
soliciting additional comments on this topic.

I. Routine Medical Supplies

    HHAs have expressed to the HHS Office of the Inspector General 
(OIG) some confusion regarding routine medical supplies and how we 
account for the cost of those supplies. Therefore, we would like to 
reiterate our policy regarding routine medical supplies and how they 
are reimbursed under the HH PPS.
    Section 1895(b)(1) states that ``all services covered and paid on a 
reasonable cost basis under the Medicare home health benefit as of the 
date of the enactment of this section, including medical supplies, 
shall be paid for on the basis of a prospective payment amount * * *''. 
The cost of routine medical supplies was included in the average cost 
per visit amounts derived from the audit sample. These average cost per 
visit amounts were used to calculate the initial HH PPS rates published 
in the July 3, 2000 HH PPS final rule (FR 65 41184). Because 
reimbursement for routine medical supplies is bundled into the HH PPS 
60-

[[Page 40974]]

day episode rate and the per-visit rates, HHAs may not bill separately 
for routine supplies.
    As noted in Chapter 7--Home Health Services of the Medicare Benefit 
Policy Manual (Pub. L. 100-02), sections 50.4.1.2 and 50.4.1.3, routine 
supplies are supplies that are customarily used in small quantities 
during the course of most home care visits. They are usually included 
in the staff's supplies and not designated for a specific patient. 
Routine supplies would not include those supplies that are specifically 
ordered by the physician or are essential to HHA personnel in order to 
effectuate the plan of care. Examples of supplies which are usually 
considered routine include, but are not limited to:
A. Dressings and Skin Care
    <bullet> Swabs, alcohol preps, and skin prep pads;
    <bullet> Tape removal pads;
    <bullet> Cotton balls;
    <bullet> Adhesive and paper tape;
    <bullet> Nonsterile applicators; and
    <bullet> 4x4's.
B. Infection Control Protection
    <bullet> Nonsterile gloves;
    <bullet> Aprons;
    <bullet> Masks; and
    <bullet> Gowns.
C. Blood Drawing Supplies
    <bullet> Specimen containers.
D. Incontinence Supplies
    <bullet> Incontinence briefs and Chux covered in the normal course 
of a visit. For example, if a home health aide in the course of a 
bathing visit to a patient determines the patient requires an 
incontinence brief change, the incontinence brief in this example would 
be covered as a routine medical supply.
E. Other
    <bullet> Thermometers; and
    <bullet> Tongue depressors.
    There are occasions when the supplies listed in the above examples 
would be considered non-routine and thus would be considered a billable 
supply, i.e., if they are required in quantity, for recurring need, and 
are included in the plan of care. Examples include, but are not limited 
to, tape, and 4x4s for major dressings.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information (COI) requirement is 
submitted to the Office of Management and Budget (OMB) for review and 
approval. In order to fairly evaluate whether an information collection 
should be approved by OMB, section 3506(c)(2)(A) of the Paperwork 
Reduction Act of 1995 requires that we solicit comment on the following 
issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):

A. ICRs Regarding the Requirements for Home Health Services

    Section 424.22 proposes that if a patient's underlying condition or 
complication required a registered nurse to ensure that essential non-
skilled care was achieving its purpose, and necessitated a registered 
nurse be involved in the development, management, and evaluation of a 
patient's care plan, the physician would include a written narrative 
describing the clinical justification of this need.
    The burden associated with this requirement would be the time and 
effort put forth by the physician to include the written narrative. We 
estimate it would take one physician approximately 5 minutes to meet 
this requirement. We estimate the frequency of such a situation to 
occur in about 5 percent of episodes (or about 345,600 episodes a 
year); therefore, the total annual burden associated with this 
requirement would be 28,800 hours for CY 2010.

B. ICRs Regarding Deactivation of Medicare Billing Privileges

    In the proposed Sec.  424.540(b)(3)(i), an HHA whose Medicare 
billing privileges are deactivated under the provisions found in 
424.540(a) must obtain an initial State survey or accreditation by an 
approved accreditation organization before its Medicare billing 
privilege can be reactivated.
    The burden associated with this requirement would be the time and 
effort put forth by the HHA to obtain a State survey or accreditation. 
We estimate it would take the prospective provider/owner 60 hours to 
obtain a State survey or accreditation. We estimate that there would be 
2,000 such occurrences annually; therefore, the total annual burden 
associated with this requirement would be 120,000 hours.

C. ICRs Regarding Prohibition Against Sale or Transfer of Billing 
Privileges

    At Sec.  424.550(b)(1) we propose that an HHA undergoing an 
ownership change would have to obtain an initial State survey or 
accreditation by an approved accreditation organization if the change 
takes place within 36 months after the effective date of the HHA's 
participation in Medicare. Between April 2008 and April 2009, 
approximately 2,000 Medicare-enrolled HHAs--or 22.5 percent of the 
9,000 total number of HHAs enrolled in Medicare--underwent a change of 
ownership. Naturally, the magnitude of the ownership changes varied by 
HHA, but the fact that almost one-quarter of all Medicare-enrolled HHAs 
changed ownership in some form within the past year is, for the reasons 
outlined in the preamble to this proposed rule, significant.
    It is also important to note that of the 2,000 ownership changes, 
approximately 20 percent occurred in Texas, another 20 percent in 
Florida, and 14 percent in California, meaning that over one-half of 
all changes in ownership occurred in three States. Though it is 
possible that, if this provision was implemented, the number of total 
annual ownership changes would decrease, we will assume that the figure 
of 2,000 would remain constant. The burden associated with the proposed 
requirement in Sec.  424.550(b)(1) would be twofold. First, the HHA 
would need to complete and submit a Medicare enrollment application 
(paper or electronic) as an initial applicant. This can be done 
electronically via the Internet-Based Provider Enrollment, Chain and 
Ownership System (PECOS) or by using the paper CMS-855 enrollment 
application. The estimated burden of completing the entire application 
as a new enrollee is 3 hours. Thus, the estimated annual burden for the 
approximately 2,000 HHAs that will change ownership would be 6,000 
hours. Second, the provider would need to undergo a survey (or obtain 
accreditation in lieu of a survey) and perform administrative 
activities associated therewith. We estimate that the total hourly 
burden to the HHA for said activities would be 60 hours, for an annual 
burden of 120,000 hours (2,000 HHAs x 60 hours). Therefore, we estimate 
that the total annual burden of compliance with Sec.  424.550(b)(1) 
would be 126,000 hours (120,000 hours + 6,000 hours).

D. ICRs Regarding Patient Assessment Data

    Section 484.210 would require an HHA to submit to CMS the OASIS 
data

[[Page 40975]]

described at Sec.  484.55(b)(1) and (d)(1) in order for CMS to 
administer the payment rate methodologies described in Sec. Sec.  
484.215, 484.230 and 484.235.
    The burden associated with this is the time and effort put forth by 
the HHA to submit the OASIS data. This burden is currently accounted 
for under OMB<greek-i> 0938-0761.

----------------------------------------------------------------------------------------------------------------
                                                           Number of                             Total annual
             OMB No.                 Requirements         respondents        Burden hours        burden hours
----------------------------------------------------------------------------------------------------------------
None............................              424.22             345,600                1/12              28,800
None............................    424.540(a)(3)(i)               2,000                  60             120,000
None............................       424.550(b)(1)               2,000                  63             126,000
0938-0761.......................             484.210                 N/A                 N/A                 N/A
----------------------------------------------------------------------------------------------------------------

    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-1560-P. Fax: (202) 395-6974; or E-mail: <a href="/cdn-cgi/l/email-protection#5e11170c1f012d2b3c33372d2d3731301e31333c703b312e70393128"><span class="__cf_email__" data-cfemail="551a1c07140a262037383c26263c3a3b153a38377b303a257b323a23">[email protected]</span></a>.

E. ICRs Regarding Annual Update of the Unadjusted National Prospective 
60-Day Episode Payment Rate

    Section 484.225(i) requires the submission of quality measures as 
specified by the Secretary. As part of this requirement, each HHA 
sponsoring a Home Health Care CAHPS (HHCAHPS) Survey must prepare and 
submit to its survey vendor a file containing patient data on patients 
served the preceding month that will be used by the survey vendor to 
select the sample and field the survey. This file (essentially the 
sampling frame) for most home health agencies can be generated from 
existing databases with minimal effort. For some small HHAs, 
preparation of a monthly sample frame may require more time. However, 
data elements needed on the sample frame will be kept at a minimum to 
reduce the burden on all HHAs.
    The burden associated with this requirement is the time and effort 
put forth by the HHA to prepare and submit the file containing patient 
data on patients. The survey instrument and procedures for completing 
the instrument are designed to minimize burden on all respondents. No 
significant burden is expected for small agencies beyond providing 
their contracted vendor with a monthly file of patients served.
    Initially, we estimate it would take one HHA 5 hours for the first 
month to meet this requirement. The subsequent monthly burden is 
estimated to be 30 minutes per HHA. We estimate approximately 7,000 
HHAs would be submitting this data annually. Based on that number, the 
burden associated with the first month is estimated at 35,000 hours. 
The burden would decrease to 2,100 for subsequent months. Therefore, 
the total annual burden for the first year would total 58,100.
    The burden associated with the home health patient's submission of 
the HHCAHPS survey is currently pending OMB approval (CMS-10275/
OMB<greek-i> 0938-NEW). Once OMB approval has been obtained, CMS will 
revise the package to include the burden on the HHAs as discussed 
above.

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993 as further amended) the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) 
and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866(as amended by Executive Order 13258) directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year). We estimate that this rulemaking is ``economically 
significant'' as measured by the $100 million threshold and hence also 
a major rule under the Congressional Review Act. Accordingly, we have 
prepared a Regulatory Impact Analysis, that to the best of our ability, 
presents the costs and benefits of the rulemaking.
1. HHA Provisions Regarding Co-Mingling, Ownership Changes, and 
Reactivation of Billing Privileges
    We believe that our proposals regarding: (1) The prohibition 
against co-mingling, (2) HHA changes of ownership, and (3) the 
reactivation of HHA billing privileges would have minimal budgetary 
impact, as the total number of entities that will be effected each year 
would be small. Moreover, we believe that these changes are necessary 
to ensure that currently enrolled and prospective HHAs are billing for 
the services provided and are in compliance with the conditions of 
participation in 42 CFR part 484, and all other Medicare requirements.
    As for the issue of beneficiary access, the number of affected HHAs 
is such that we do not believe that beneficiaries would be adversely 
impacted by the proposed provisions. To the contrary, any reduction in 
the number of enrolled HHAs that would result from the implementation 
of these proposed provisions would be more than offset by the assurance 
that those HHAs that cannot meet Medicare requirements and quality 
standards are no longer in the program.
    We are unable to determine the exact extent to which currently 
enrolled and prospective HHAs would be able to meet the requirements 
outlined in the proposed provisions. In addition, as a result of a 
dearth of quantifiable data, we cannot effectively derive an estimate 
of the monetary impacts of these provisions. Accordingly, we are 
seeking public comment so that the public may provide any data 
available that provides

[[Page 40976]]

a calculable impact or any alternative to the proposed provisions.
1. CY 2010 Update
    The update set forth in this proposed rule applies to Medicare 
payments under HH PPS in CY 2010. Accordingly, the following analysis 
describes the impact in CY 2010 only. We estimate that the net impact 
of the proposals in this rule, including a 2.75 percent reduction to 
the national standardized 60-day episode payment rates and the NRS 
conversion factor to account for the case-mix change adjustment, is 
approximately $100 million in CY 2010 savings. The estimated $100 
million impact reflects the distributional effects of an updated wage 
index (-$10 million) as well as the 2.2 percent home health market 
basket increase (an additional $390 million in CY 2010 expenditures 
attributable only to the CY 2010 home health market basket), and the 
2.75 percent decrease (-$480 million for the third year of a 4-year 
phase-in) to the HH PPS national standardized 60-day episode rate to 
account for the case-mix change adjustment under the HH PPS. The $100 
million is reflected in column 5 of Table 8 as a 0.86 percent decrease 
in expenditures when comparing the current CY 2009 system to the CY 
2010 system. If the Secretary were to impose a 6.89 percent decrease to 
the national standardized 60-day episode rates and the NRS conversion 
factor in CY 2010, to account for the increase in nominal case-mix, the 
impact would be an estimated decrease in payments to HHAs of 4.9 
percent (column 3 of Table 8) or $1,220 million. Similarly, if the 
Secretary were to impose a 3.51 percent decrease to the national 
standardized 60-day episode rates and the NRS conversion factor in CY 
2010, to account for the increase in nominal case-mix, the impact would 
be an estimated decrease in payments to HHAs of 1.6 percent (column 4 
of table 8) or $590 million. For comparison purposes, estimated impacts 
that take these alternative percentage reductions (6.89 percent and 
3.51 percent) into account can be found in columns 3 and 4 of Table 8 
in Section VI.B. of this rule.
    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 $7 million to $34.5 million in any 1 year. For the purposes 
of the RFA, approximately 75 percent of HHAs are considered to 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. Excluding HHAs in areas of the country where high and suspect 
outlier payments exist, this proposed rule is estimated to have an 
overall positive effect upon small entities (see section IB.B 
``Anticipated Effects'', of this proposed rule, for supporting 
analysis).
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis, if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. This proposed rule 
applies to home health agencies. Therefore, the Secretary has 
determined that this proposed rule will not have a significant economic 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of about 
$100 million or more in 1995 dollars, updated for inflation. That 
threshold is currently approximately $133 million in 2009. 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 $133 
million or more.
    Executive Order 13132 established 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.

B. Anticipated Effects

    This proposed rule sets forth updates to the HH PPS rates contained 
in the CY 2009 notice (73 FR 65351, November 3, 2008). 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 2007. 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 BBA, the BBRA, the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000, the MMA, the 
DRA, or new statutory provisions. Although these changes may not be 
specific to the HH PPS, the nature of the Medicare program is such that 
the changes may interact, and the complexity of the interaction of 
these changes could make it difficult to predict accurately the full 
scope of the impact upon HHAs.
    Table 8 represents how home health agency revenues are likely to be 
affected by the policy changes described 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 2007. Column one of this table classifies HHAs according to a number 
of characteristics including provider type, geographic region, and 
urban versus rural location.
    For the purposes of analyzing impacts on payments, we performed 
three simulations and compared them to each other. Based on our 
assumption that outliers, as a percentage of total HH PPS payments, 
will be no more than 5 percent in CY 2009, the 2009 baseline, for the 
purposes of these simulations, we assumed that the full 5 percent 
outlay for outliers will be paid under our policy in 2009 of a 0.89 FDL 
ratio. As described in section III.A. of this proposed rule, given our 
proposed policies of a 0.67 FDL ratio and a 10 percent cap on outlier 
payments, we would return 2.5 percent back into the national 
standardized 60-day episode payment rates, the national per-visit 
rates, the LUPA add-on payment amount, and the NRS conversion factor, 
and then estimate outlier payments to be approximately 2.5 percent of 
total HH PPS payments in CY 2010. All three

[[Page 40977]]

simulations use a CBSA-based wage index reported on the 2007 claims to 
determine the appropriate wage index.
    The first simulation estimates CY 2009 payments under the current 
system (to include the 2009 wage index). The second simulation 
estimates CY 2009 payments under the current system, but with the 2010 
wage index. The second simulation produces an estimate of what total 
payments using the sample data would have been in CY 2009 without any 
of the proposed provisions in this rule, except for that of the 2010 
wage index. The third simulation estimates CY 2010 payments with the 
2010 wage index, incorporating our maintaining of the 2.75 percent 
reduction to the HH PPS rates, as well as all the proposed provisions 
of this rule.
    These simulations demonstrate the effects of: A new 2010 wage 
index, a 2.75 percent reduction to account for the increase in nominal 
case-mix, a 2.2 percent market basket update, a 2.5 percent increase to 
account for a new outlier target of 2.5 percent, a 0.67 FDL ratio, and 
a 10 percent cap on outlier payments. Specifically, the second column 
of Table 8 shows the percent change due to the effects of the 2010 wage 
index. The third and fourth columns are for comparison purposes, and 
show the percent change due to the combined effects of the 2010 wage 
index, an alternative 6.89 percent reduction (column 3) or an 
alternative 3.51 percent reduction (column 4) to the rates to account 
for the increase in nominal case-mix, the 2.2 percent home health 
market basket update, the 2.5 percent increase to the HH PPS rates to 
account for an approximate 2.5 percent target for outliers as a 
percentage of total HH PPS payments, a 0.67 FDL ratio, and a 10 percent 
outlier cap. The fifth column of Table 8 shows the percent change due 
to the combined effects of the 2010 wage index, our maintaining of a 
2.75 percent reductions to the rates to account for the increase in 
nominal case-mix, the 2.2 percent home health market basket update, the 
2.5 percent increase to the HH PPS rates to account for an approximate 
2.5 percent target for outliers as a percentage of total HH PPS 
payments, a 0.67 FDL ratio, and a 10 percent outlier cap.
    The overall percentage change, for all HHAs, in estimated total 
payments from CY 2009 to CY 2010 is a decrease of approximately 0.86 
percent. Rural HHAs, however, are estimated to see an increase in 
payments from CY 2009 to CY 2010 of about 3.45 percent. On the other 
hand, urban HHAs are expected to see a decrease of approximately 1.64 
percent in payments from CY 2009 to CY 2010.
    Voluntary non-profit HHAs (3.52 percent), facility-based HHAs (3.90 
percent), and government owned HHAs (3.11 percent) are estimated to see 
an increase in the percentage change in estimated total payments from 
CY 2009 to CY 2010. Proprietary and freestanding HHAs, on the other 
hand, are estimated to see decreases of 3.14 percent and 1.73 percent, 
respectively, in estimated total payments from CY 2009 to CY 2010. 
Freestanding HHAs, broken out, show that voluntary non-profit and 
governmental HHAs are estimated to see increases of 3.22 percent and 
2.63 percent, respectively, in estimated total payments from CY 2009 to 
CY 2010.
    HHAs in the North and Midwest regions are expected to experience a 
percentage change increase in the estimated total payments from CY 2009 
to CY 2010 of 3.79 percent and 3.67 percent, respectively. HHAs in the 
South and West regions of the country are estimated to experience 
decreases in the percentage change in estimated total payments from CY 
2009 to CY 2010 of 4.01 percent and 1.52 percent. We believe that the 
major contributors to the estimated decreases in payments in these 
areas of the country are those with high and suspect outlier payments.
    Breaking this down even further, it is estimated that New England, 
Mid Atlantic, East South Central, East North Central, and West North 
Central area HHAs are all expected to experience increases in their 
payments in CY 2010 ranging from just over 2 percent to almost 5 
percent. Conversely, South Atlantic and Pacific HHAs are expected to 
experience decreases, 11.68 percent and 2.90 percent respectively, in 
the percentage change in estimated total payments from CY 2009 to CY 
2010. Again, we believe that the major contributors to the estimated 
decreases in payments in these areas of the country are those with high 
and suspect outlier payments.
    Larger HHAs (those with 200 or more Medicare home health initial 
episodes per year) are estimated to experience an increase in payments 
from CY 2009 to CY 2010 of approximately 2.44 percent. Mid-size to 
small agencies are expected to see a decrease in their payments in CY 
2010, ranging from 1.77 percent to 15.93 percent. However, we believe 
that the major contributors to the estimated decreases in payments for 
mid-size to small agencies are those agencies in areas of the country 
with high and suspect outlier payments. Consequently, we have provided 
a more detailed discussion, and analysis in Table 9 below, that 
demonstrates where, in the country, these estimated large decreases for 
mid-size to small agencies are occurring.

                                                             Table 8--Impact by Agency Type
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Comparisons
                                                             -------------------------------------------------------------------------------------------
                                                                                 (For comparison purposes)  (For comparison purposes)
                                                                Percent change       Impact of CY 2010          Impact of CY 2010
                                                                  due to the     proposed policies \1\  (w/ proposed policies \1\  (w/
                            Group                               effects of the   alternative 6.89  percent  alternative 3.51  percent  Impact of CY 2010
                                                                 updated wage      reduction in  place of     reduction in  place of   proposed policies
                                                                  index only         the proposed  2.75         the proposed  2.75       \1\ (percent)
                                                                  (percent)          percent reduction)         percent reduction)
                                                                                         (percent)                  (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility:
    Free-Standing/Other Vol/NP..............................              -0.01                      -0.89                       2.47               3.22
    Free-Standing/Other Proprietary.........................              -0.05                      -7.25                      -4.00              -3.27
    Free-Standing/Other Government..........................              -0.32                      -1.49                       1.88               2.63
    Facility-Based Vol/NP...................................              -0.12                      -0.22                       3.19               3.96
    Facility-Based Proprietary..............................              -0.22                      -0.57                       2.89               3.66
    Facility-Based Government...............................              -0.27                      -0.56                       2.88               3.65
        Subtotal: Freestanding..............................              -0.05                      -5.74                      -2.46              -1.73
        Subtotal: Facility-based............................              -0.15                      -0.29                       3.13               3.90
        Subtotal: Vol/PNP...................................              -0.06                      -0.62                       2.76               3.52

[[Page 40978]]

 
        Subtotal: Proprietary...............................              -0.05                      -7.12                      -3.87              -3.14
        Subtotal: Government................................              -0.30                      -1.05                       2.35               3.11
                                                             -------------------------------------------------------------------------------------------
            Total...........................................              -0.06                      -4.90                      -1.60              -0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of Facility: (Rural * Only)
    Free-Standing/Other Vol/NP..............................              -0.50                      -0.61                       2.83               3.60
    Free-Standing/Other Proprietary.........................              -0.14                      -0.98                       2.51               3.29
    Free-Standing/Other Government..........................              -0.58                      -0.52                       2.88               3.63
    Facility-Based Vol/NP...................................              -0.44                      -0.52                       2.91               3.68
    Facility-Based Proprietary..............................              -0.62                      -1.30                       2.16               2.93
    Facility-Based Government...............................              -0.42                      -0.47                       2.97               3.74
Type of Facility: (Urban * Only)
    Free-Standing/Other Vol/NP..............................               0.06                      -0.93                       2.41               3.16
    Free-Standing/Other Proprietary.........................              -0.03                      -8.11                      -4.89              -4.17
    Free-Standing/Other Government..........................              -0.04                      -2.58                       0.76               1.51
    Facility-Based Vol/NP...................................              -0.04                      -0.14                       3.27               4.03
    Facility-Based Proprietary..............................               0.03                      -0.10                       3.35               4.13
    Facility-Based Government...............................              -0.03                      -0.71                       2.75               3.52
Type of Facility: (Urban* or Rural*)
    Rural...................................................              -0.31                      -0.79                       2.67               3.45
    Urban...................................................              -0.02                      -5.64                      -2.37              -1.64
                                                             -------------------------------------------------------------------------------------------
            Total...........................................              -0.06                      -4.90                      -1.60              -0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility Location: Region*
    North...................................................               0.05                      -0.30                       3.04               3.79
    South...................................................              -0.05                      -7.95                      -4.73              -4.01
    Midwest.................................................              -0.23                      -0.57                       2.89               3.67
    West....................................................              -0.08                      -5.55                      -2.26              -1.52
    Outlying................................................               0.37                       0.21                       3.68               4.46
                                                             -------------------------------------------------------------------------------------------
            Total...........................................              -0.06                      -4.90                      -1.60              -0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility Location: Area of the Country
    New England.............................................               0.53                       0.75                       4.13               4.88
    Mid Atlantic............................................              -0.21                      -0.87                       2.44               3.19
    South Atlantic..........................................               0.27                     -15.29                     -12.34             -11.68
    East South Central......................................              -0.23                      -0.57                       2.94               3.72
    West South Central......................................              -0.29                      -3.71                      -0.34               0.41
    East North Central......................................              -0.27                      -0.62                       2.85               3.62
    West North Central......................................              -0.07                      -0.37                       3.08               3.85
    Mountain................................................               0.33                      -2.05                       1.33               2.09
    Pacific.................................................              -0.23                      -6.88                      -3.63              -2.90
    Outlying................................................               0.37                       0.21                       3.68               4.46
                                                             -------------------------------------------------------------------------------------------
            Total...........................................              -0.06                      -4.90                      -1.60              -0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility Size: (Number of First Episodes)
    < 19....................................................               0.12                     -19.43                     -16.57             -15.93
    20 to 49................................................               0.03                     -15.28                     -12.29             -11.62
    50 to 99................................................              -0.04                     -12.79                      -9.72              -9.04
    100 to 199..............................................              -0.13                      -5.79                      -2.51              -1.77
    200 or More.............................................              -0.07                      -1.70                       1.69               2.44
                                                             -------------------------------------------------------------------------------------------
            Total...........................................              -0.06                      -4.90                      -1.60              -0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Based on a 20% sample of CY 2007 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 40979]]

 
\1\ Percent change due to the effects of the update wage index, the 2.2% home health market basket update, the 2.75% reduction to the national
  standardized episode rates, the national per-visit rates, the LUPA add-on payment amount, and the NRS conversion factor for nominal increase in case-
  mix, the 2.5% increase in the rates due to the new approximate 2.5% target for outliers as a percentage of total HH PPS payments, a 0.67 FDL ratio,
  and a 10% outlier cap.

    Given the overall large negative impact observed by smaller 
agencies, we performed more detailed analysis targeted at identifying 
where the large negative impacts were occurring. Table 9 below presents 
the results of the regional analysis for small agencies. Column 1, of 
Table 9, shows the regional and agency size classifications similar to 
those in Table 8. In column 2 we repeat the overall impacts (from Table 
8) for those classifications. In columns 3 through 7, we drill down in 
our analysis, looking at those classifications by the size of the 
agency (as defined by the number of first episodes). It is clear from 
this analysis that, for smaller agencies, the vast majority of the 
negative impact is occurring in areas of the country (such as the South 
and South Atlantic) where there exist high and suspect outlier 
payments. Specifically, in columns 3, 4, and 5 of Table 9, for the 
South Atlantic area of the country (which includes Miami-Dade, 
Florida), the negative percentage impacts in payment ranging from 
around 40 percent to just over 53 percent are evidence that it is the 
high and suspect outlier payments in areas such as this, that are 
skewing the results of the overall impact analysis. Estimated impacts 
for small agencies in the South (negative impacts ranging around 15 
percent to 22 percent) and the Pacific (negative impacts ranging from 
around 11 percent to 17 percent) areas of the country, reflect similar 
results. Conversely, small HHAs in most other parts of the country are 
estimated to see increases in payments in CY 2010, ranging from 0.20 
percent to almost 4.5 percent. Consequently, we believe that small HHAs 
without high and suspect outlier payments, on average, will see a 
positive impact on their payments in CY 2010. We do not believe there 
would be any significant impact on beneficiaries, as a result of the 
provisions of this rule. Areas where negative impacts have been 
estimated for HHAs, are primarily urban, and thus we believe that 
beneficiaries have a reasonable pool of HHAs from which to receive home 
health services.

                                          Table 9--Small Agency Impacts
----------------------------------------------------------------------------------------------------------------
                                                           Comparison of 2009-2010 Changes
                                   -----------------------------------------------------------------------------
               Group                                 < 20        20-49        50-99       100-199    200 or more
                                      Overall      episodes     episodes     episodes     episodes     episodes
                                     (percent)    (percent)    (percent)    (percent)    (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
                                    Facility Location: Region of the Country
----------------------------------------------------------------------------------------------------------------
North.............................         3.79         0.20         3.05         3.06         3.70         3.83
South.............................        -4.01       -21.93       -17.44       -14.71        -3.67         1.29
Midwest...........................         3.67         2.63         3.45         3.52         3.79         3.75
West..............................        -1.52        -5.67       -10.21        -9.16        -3.78         1.98
Outlying..........................         4.46         4.48         4.41         4.86         4.40         4.44
                                   -----------------------------------------------------------------------------
    Total.........................        -0.86       -15.93       -11.62        -9.04        -1.77         2.44
----------------------------------------------------------------------------------------------------------------
                            Facility Location: Region of the Country (Census Region)
----------------------------------------------------------------------------------------------------------------
New England.......................         4.88        -3.21         3.53         4.79         4.05         5.04
Mid Atlantic......................         3.19         3.94         2.59         1.42         3.30         3.21
South Atlantic....................       -11.68       -53.28       -45.86       -40.50       -16.47        -0.59
East South Central................         3.72         4.11         2.30         3.90         3.24         3.79
West South Central................         0.41        -5.64        -2.55        -1.26         1.67         2.27
East North Central................         3.62         2.45         3.21         3.61         3.88         3.69
West North Central................         3.85         4.05         4.69         3.17         3.46         3.99
Mountain..........................         2.09         1.59        -1.38         1.52         1.80         2.99
Pacific...........................        -2.90       -11.37       -16.68       -13.11        -6.55         1.65
Outlying..........................         4.46         4.48         4.41         4.86         4.40         4.44
                                   -----------------------------------------------------------------------------
    Total.........................        -0.86       -15.93       -11.62        -9.04        -1.77         2.44
----------------------------------------------------------------------------------------------------------------
                                    Facility Size (Number of First Episodes)
----------------------------------------------------------------------------------------------------------------
< 19 episodes.....................       -15.93       -15.93  ...........  ...........  ...........  ...........
20 to 49..........................       -11.62  ...........       -11.62  ...........  ...........  ...........
50 to 99..........................        -9.04  ...........  ...........        -9.04  ...........  ...........
100 to 199........................        -1.77  ...........  ...........  ...........        -1.77  ...........
200 or More.......................         2.44  ...........  ...........  ...........  ...........         2.44
                                   -----------------------------------------------------------------------------
    Total.........................        -0.86       -15.93       -11.62        -9.04        -1.77         2.44
----------------------------------------------------------------------------------------------------------------
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 40980]]

C. Accounting Statement and Table

    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement showing 
the classification of the expenditures associated with the provisions 
of this proposed rule.
    Table 10, below 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 based on the best available data. The 
expenditures are classified as a transfer to the Federal Government of 
$100 million.

       Table 10--Accounting Statement: Classification of Estimated
   Expenditures, From the 2009 HH PPS Calendar Year to the 2010 HH PPS
                              Calendar Year
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  Negative transfer--Estimated
                                          decrease in expenditures: $100
                                          million.
From Whom To Whom......................  Federal Government to HH
                                          Providers.
------------------------------------------------------------------------

D. Conclusion
    In conclusion, we estimate that the net impact of the proposals in 
this rule, including a 2.75 percent reduction to the national 
standardized 60-day episode rates and the NRS conversion factor to 
account for the case-mix change adjustment, is approximately $100 
million in CY 2010 savings. The $100 million impact reflects the 
distributional effects of an updated wage index (-$10 million) as well 
as the 2.2 percent home health market basket increase (an additional 
$390 million in CY 2010 expenditures attributable only to the CY 2010 
home health market basket), and the 2.75 percent decrease (-$480 
million for the third year of a 4-year phase-in) to the national 
standardized 60-day episode rates and the NRS conversion factor to 
account for the case-mix change adjustment under the HH PPS. This 
analysis above, together with the remainder of this preamble, provides 
a Regulatory Impact Analysis.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

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.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes 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).

    2. Section 409.42 is amended as follows:
    A. Revising paragraph (c)(1).
    B. Adding paragraph (c)(1)(i) and (c)(1)(ii)
    The revisions and additions read as follows:


Sec.  409.42  Beneficiary qualifications for coverage of services.

* * * * *
    (c) * * *
    (1) Intermittent skilled nursing services that meet the criteria 
for skilled services and the need for skilled services found in Sec.  
409.32. (Also see Sec.  409.33(a) and (b) for a description of examples 
of skilled nursing and rehabilitation services.) These criteria are 
subject to the following limitations in the home health setting:
    (i) In the home health setting, management and evaluation of a 
patient care plan is considered a reasonable and necessary skilled 
service only when underlying conditions or complications are such that 
only a registered nurse can ensure that essential non-skilled care is 
achieving its purpose. To be considered a skilled service, the 
complexity of the necessary unskilled services that are a necessary 
part of the medical treatment must require the involvement of licensed 
nurses to promote the patient's recovery and medical safety in view of 
the overall condition. Where nursing visits are not needed to observe 
and assess the effects of the non-skilled services being provided to 
treat the illness or injury, skilled nursing care would not be 
considered reasonable and necessary, and the management and evaluation 
of the care plan would not be considered a skilled service. In some 
cases, the condition of the patient may cause a service that would 
originally be considered unskilled to be considered a skilled nursing 
service. This would occur when the patient's underlying condition or 
complication requires that only a registered nurse can ensure that 
essential non-skilled care is achieving its purpose. The registered 
nurse is ensuring that service is safely and effectively performed. 
However, a service is not considered a skilled nursing service merely 
because it is performed by or under the supervision of a licensed 
nurse. Where a service can be safely and effectively performed (or self 
administered) by non-licensed staff without the direct supervision of a 
nurse, the service cannot be regarded as a skilled service even if a 
nurse actually provides the service.
    (ii) In the home health setting, skilled education services are no 
longer needed if it becomes apparent, after a reasonable period of 
time, that the patient, family, or caregiver could not or would not be 
trained. Further teaching and training would cease to be reasonable and 
necessary in this case, and would cease to be considered a skilled 
service. Notwithstanding that the teaching or training was 
unsuccessful, the services for teaching and training would be 
considered to be reasonable and necessary prior to the point that it 
became apparent that the teaching or training was unsuccessful, as long 
as such services were appropriate to the patient's illness, functional 
loss, or injury.
* * * * *
    3. Section 409.43 is amended by revising paragraph (e)(1)(ii) to 
read as follows:


Sec.  409.43  Plan of care requirements.

* * * * *
    (e) * * *
    (1) * * *
    (ii) Significant change in condition; or
* * * * *
    4. Section 409.44 is amended by revising the introductory paragraph 
of (b)(1) to read as follows:

[[Page 40981]]

Sec.  409.44  Skilled services requirements.

* * * * *
    (b) * * *
    (1) Skilled nursing care consists of those services that must, 
under State law, be performed by a registered nurse, or practical 
(vocational) nurse, as defined in Sec.  484.4 of this chapter, meet the 
criteria for skilled nursing services specified in Sec.  409.32, and 
meet the qualifications for coverage of skilled services specified in 
Sec.  409.42(c). See Sec.  409.33(a) and (b) for a description of 
skilled nursing services and examples of them.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    5. 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).

    6. Section 424.22 is amended as follows:
    A. Revising paragraph (a)(1)(i);
    B. Revising paragraph (b)(2).


Sec.  424.22  Requirements for home health services.

    (a) * * *
    (1) * * *
    (i) The individual needs or needed intermittent skilled nursing 
care, or physical or speech therapy, or (for the period from July 
through November 30, 1981) occupational therapy. If a patient's 
underlying condition or complication requires a registered nurse to 
ensure that essential non-skilled care is achieving its purpose, and 
necessitates a registered nurse be involved in the development, 
management, and evaluation of a patient's care plan, the physician will 
include a written narrative describing the clinical justification of 
this need.
* * * * *
    (b) * * *
    (2) Content and basis of recertification. The recertification 
statement must indicate the continuing need for services and estimate 
how much longer the services will be required. Need for occupational 
therapy may be the basis for continuing services that were initiated 
because the individual needed skilled nursing care or physical therapy 
or speech therapy. If a patient's underlying condition or complication 
requires a registered nurse to ensure that essential non-skilled care 
is achieving its purpose, and necessitates a registered nurse be 
involved in the development, management, and evaluation of a patient's 
care plan, the physician will include a written narrative describing 
the clinical justification of this need.
* * * * *
    7. Section 424.530 is amended by adding paragraph (a)(8) to read as 
follows:


Sec.  424.530  Denial of enrollment in the Medicare program.

    (a) * * *
    (8) A prospective HHA is determined, under 42 CFR Sec.  489.19, to 
be sharing, leasing, or subleasing its practice location or base of 
operations identified in Section 4 of its Medicare provider enrollment 
application with or to another Medicare-enrolled HHA or supplier.
* * * * *
    8. Section 424.535 is amended by adding paragraph (a)(11) to read 
as follows:


Sec.  424.535  Revocation of enrollment and billing privileges in the 
Medicare program.

    (a) * * *
    (11) An HHA is determined, under 42 CFR Sec.  489.19, to be 
sharing, leasing, or subleasing its practice location or base of 
operations identified in Section 4 of its Medicare provider enrollment 
application with or to another Medicare-enrolled HHA or supplier.
* * * * *
    9. Section 424.540 is amended by revising paragraph
    (b)(3) to read as follows:


Sec.  424.540  Deactivation of Medicare billing privileges.

* * * * *
    (b) * * *
    (3) With the exception of home health agencies, reactivation of 
Medicare billing privileges does not require a new certification of the 
provider or supplier by the State survey agency or the establishment of 
a new provider agreement.
    (i) An HHA whose Medicare billing privileges are deactivated under 
the provisions found at 42 CFR 424.540(a) must obtain an initial State 
survey or accreditation by an approved accreditation organization 
before its Medicare billing privileges can be reactivated.
    (ii) [Reserved]
* * * * *
    10. Section 424.550 is amended by adding paragraphs (b)(1) and (2) 
to read as follows:


Sec.  424.550  Prohibitions on the sale or transfer of billing 
privileges.

* * * * *
    (b) * * *
    (1) If an owner of a home health agency sells (including asset 
sales or stock transfers), transfers or relinquishes ownership of the 
HHA within 36 months after the effective date of the HHA's enrollment 
in Medicare, the provider agreement and Medicare billing privileges do 
not convey to the new owner. The prospective provider/owner of the HHA 
must instead:
    (i) Enroll in the Medicare program as a new HHA under the 
provisions of Sec.  424.510, and
    (ii) Obtain a State survey or an accreditation from an approved 
accreditation organization.
    (2) [Reserved]
* * * * *

PART 484--HOME HEALTH SERVICES

    11. 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 C--Furnishing of Services

    12. Section 484.55 is amended by revising paragraph (d)(1)(ii) to 
read as follows:


Sec.  484.55  Condition of participation: Comprehensive assessment of 
patients.

* * * * *
    (d) * * *
    (1) * * *
    (ii) Significant change in condition; or
* * * * *

Subpart E--Prospective Payment System for Home Health Agencies

    13. Section 484.210 is amended by revising paragraph (e) to read as 
follows:


Sec.  484.210  Data used for the calculation of the national 
prospective 60-day episode payment.

* * * * *
    (e) OASIS assessment data and other data that account for the 
relative resource utilization for different HHA Medicare patient case-
mix. An HHA must submit to CMS the OASIS data described at Sec.  
484.55(b)(1) and (d)(1) in order for CMS to administer the payment rate 
methodologies described in Sec. Sec.  484.215, 484.230 and 484.235.
    14. Revising Sec.  484.250 to read as follows:


Sec.  484.250  Patient assessment data.

    An HHA must submit to CMS the OASIS data described at Sec.  
484.55(b)(1) and (d)(1) in order for CMS to administer the payment rate 
methodologies described in Sec. Sec.  484.215, 484.230, and 484.235.

[[Page 40982]]

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    15. The authority citation for part 489 continues to read as 
follows:

    Authority:  Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 
1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 
1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh).
    16. Section 489.12 is amended by adding paragraph (a)(5) to read as 
follows:


Sec.  489.12  Decision to deny an agreement.

    (a) * * *
    (5) A prospective HHA is determined to be sharing, leasing, or 
subleasing its practice location or base of operations identified in 
Section 4 of its Medicare provider enrollment application with or to 
another Medicare enrolled HHA or supplier in violation of the HHA space 
sharing prohibition set forth in Sec.  489.19.
* * * * *
    17. Adding a new Sec.  489.19 to read as follows:


Sec.  489.19  Prohibition on Space Sharing.

    An HHA is prohibited from engaging in the following space sharing 
and/or leasing arrangements:
    (a) Sharing its practice location or base of operations identified 
in Section 4 of its Medicare provider enrollment application with 
another Medicare-enrolled HHA or supplier; or
    (b) Leasing or subleasing its practice location or base of 
operations identified in Section 4 of its Medicare provider enrollment 
application to another Medicare-enrolled HHA or supplier.

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

    Dated: May 28, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 17, 2009.
Kathleen Sebelius,
Secretary.

    Note:  The following addenda will not be published in the Code 
of Federal Regulations.

BILLING CODE 13-01-00-D

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[FR Doc. E9-18587 Filed 7-30-09; 4:15 pm]

    Editorial Note: Federal Register proposed rule document E9-
18587, originally published at pages 39436 to 39496 in the issue of 
Thursday, August 6, 2009, included incorrect tables from pages 39471 
to 39496. This document, along with the correct tables, is being 
republished in its entirety.

[FR Doc. R9-18587 Filed 8-12-09; 8:45 am]
BILLING CODE 13-01-00-C


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