[Federal Register Volume 66, Number 126 (Friday, June 29, 2001)]
[Notices]
[Pages 34687-34693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16384]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

[HCFA-1147-NC]
RIN 0938-AK51


Medicare Program; Update to the Prospective Payment System for 
Home Health Agencies for FY 2002

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Notice with comment period.

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SUMMARY: This notice with comment period sets forth an update to the 
60-day national episode rates and the national per-visit amounts under 
the Medicare prospective payment system for home health agencies.

DATES: Effective Date: The rate updates in this notice with comment 
period are effective on October 1, 2001.
    Comment Period: We will consider comments if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on August 
28, 2001.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: HCFA-1147-NC, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    To ensure that mailed comments are received in time for us to 
consider them, please allow for possible delays in delivering them.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
 Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244.

    Comments mailed to the above addresses may be delayed and received 
too late for us to consider them.
    Because of staff and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code HCFA-1147-NC. Comments received timely will be available 
for public inspection as they are received, generally beginning 
appropriately 3 weeks after publication of a document, in Room C5-12-08 
of the headquarters Health Care Financing Administration, 7500 Security 
Blvd., Baltimore, MD, on Monday through Friday of each week from 8:30 
to 5 p.m. (phone: (410) 786-7197).

FOR FURTHER INFORMATION CONTACT:

Bob Wardwell (Project Manager), (410) 786-3254.
Susan Levy (Policy), (410) 786-9364.

SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal 
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    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office.

I. Background; Recent Legislation on Payment to Home Health 
Agencies

A. Balanced Budget Act of 1997

    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. Until the implementation of a home 
health prospective payment system (HH PPS) on October 1, 2000, home 
health agencies (HHAs) received payment under a cost-based 
reimbursement system. Section 4603 of the BBA governed the development 
of HH PPS.
    Section 4603(a) of the BBA provides the authority for the 
development of a PPS for all Medicare-covered home health services 
provided under a plan of care that were paid on a reasonable cost basis 
by adding section 1895, entitled ``Prospective Payment For Home Health 
Services,'' to the Social Security Act (the Act).
    Section 1895(b)(1) of the Act requires the Secretary to establish a 
PPS for all costs of home health services paid under Medicare.
    Section 1895(b)(2) of the Act requires the Secretary in defining a 
prospective payment amount to consider an appropriate unit of service 
and the number, type, and duration of visits furnished within that 
unit, potential changes in the mix of services provided within that 
unit and their cost, and a general system design that provides for 
continued access to quality services.
    Section 1895(b)(3)(A) of the Act requires that (1) the computation 
of a standard prospective payment amount include all costs of 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)(C) of the Act requires the Secretary to reduce 
the prospective payment amounts if the

[[Page 34688]]

Secretary accounts for an addition or adjustment to the payment amount 
made in the case of outlier payments.
    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 adjustment factor 
that explains a significant amount of the variation in cost 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 the 
furnishing of home health services in a geographic area compared to the 
national average applicable level. These wage-adjustment factors may be 
the factors used by the Secretary for the different area wage levels 
for purposes of section 1886(d)(3)(E) of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
grant additions or adjustments to the payment amount otherwise made in 
the case of outliers because of unusual variations in the type or 
amount of medically necessary care. Total outlier payments in a given 
fiscal year cannot exceed 5 percent of total payments projected or 
estimated.
    Section 1895(b)(6) of the Act provides for the proration of 
prospective payment amounts between the HHAs involved in the case of a 
patient electing to transfer or receive services from another HHA 
within the period covered by the prospective payment amount.
    Section 1895(d) of the Act limits review of certain aspects of the 
HH PPS. Specifically, there is no administrative or judicial review 
under sections 1869 or 1878 of the Act, or otherwise, of the following:
    <bullet> The establishment of the transition period under section 
1895(b)(1) of the Act.
    <bullet> The definition and application of payment units under 
section 1895(b)(2) of the Act.
    <bullet> The computation of initial standard prospective amounts 
under section 1895(b)(3)(A) of the Act (including the reduction 
described in section 1895(b)(3)(A)(ii) of the Act).
    <bullet> The establishment of the adjustment for outliers under 
section 1895(b)(3)(C) of the Act.
    <bullet> The establishment of case-mix and area wage adjustments 
under section 1895(b)(4) of the Act.
    <bullet> The establishment of any adjustments for outliers under 
section 1895(b)(5) of the Act.
    Section 4603(b) of the BBA amends section 1815(e)(2) of the Act by 
eliminating periodic interim payments for HHAs effective October 1, 
2000.
    Section 4603(c) of the BBA sets forth the following conforming 
amendments:
    <bullet> Section 1814(b)(1) of the Act is amended to indicate that 
payments under Part A will also be made under section 1895 of the Act.
    <bullet> Section 1833(a)(2)(A) of the Act is amended to require 
that home health services, other than a covered osteoporosis drug, are 
paid under HH PPS.
    <bullet> Section 1833(a)(2) of the Act is amended by adding a new 
subparagraph (G) regarding payment of Part B services at section 
1861(s)(10)(A) of the Act.
    <bullet> Section 1842(b)(6)(F) is added to the Act and section 
1832(a)(1) of the Act is amended to include a reference to section 
1842(b)(6)(F) of the Act, both governing the consolidated billing 
requirements.

B. Omnibus Consolidated and Emergency Supplemental Appropriations Act 
for FY 1999

    On October 21, 1998, the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act for FY 1999 (OCESAA), Pub. L. 105-277, 
was enacted.
    Section 5101(c) of the OCESAA amends section 1895(a) of the Act by 
removing the transition into the HH PPS by cost-reporting periods and 
requiring all HHAs to be paid under HH PPS effective upon the 
implementation date of the system.
    Section 5101(c) of the OCESAA also modifies the effective date of 
the budget-neutrality targets for HH PPS by amending section 
1895(b)(3)(A)(ii) of the Act. Section 1895(b)(3)(A) of the Act, as 
amended, requires that the standard prospective payment limitation 
amounts be budget neutral.
    Section 5101(d)(2) of the OCESAA also modifies the statutory 
provisions dealing with the home health market basket percentage 
increase. For FY 2002 or FY 2003, sections 1895(b)(3)(B)(i) and 
(b)(3)(B)(ii) of the Act, as modified, require that the standard 
prospective payment amounts be increased by a factor equal to the home 
health market basket minus 1.1 percentage points. In addition, for any 
subsequent fiscal years, the statute requires the rates to be increased 
by the applicable home health market basket index change.
    Section 5101(c)(2) of the OCESAA amends section 4603(d) of the BBA 
by changing the effective date language for the HH PPS and the other 
changes made by section 4603 of the BBA. Section 4603(d) of the BBA now 
provides that ``Except as otherwise provided, the amendments made by 
this section shall apply to portions of cost reporting periods 
occurring on or after October 1, 2000.'' This change required all HHAs 
to be paid under HH PPS effective October 1, 2000.

C. Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999

    Section 305 of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999 (BBRA), Pub. L. 106-113, refines the 
consolidated billing requirements under HH PPS. The BBRA excludes 
durable medical equipment (DME) from the home health consolidated 
billing requirements.
    Section 306 of BBRA amends the statute to provide a technical 
correction clarifying the applicable market basket increase for HH PPS 
in each of FY 2002 and FY 2003. The technical correction clarifies that 
the update in HH PPS in FY 2002 and FY 2003 will be the home health 
market basket minus 1.1 percentage points.

D. Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000

    Section 501 of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA), Pub. L. 106-554, sets 
forth a 1 year additional delay in application of the 15 percent 
reduction on payment limits for home health services. This section also 
amends section 302(C) of the BBRA to now require a Report to Congress 
by the Comptroller General of the United States no later than April 1, 
2002 on the 15 percent reduction issue.
    Section 502 of the BIPA sets forth a special rule for payment for 
FY 2001 based on adjustment of the published prospective payment 
amounts. This special payment rule has the effect of restoring the 
market basket reduction already incorporated into the HH PPS rates. The 
adjustment provides the effect of a full market basket adjustment to 
the HH PPS rates for FY 2001. The statute also requires paying episodes 
and national per-visit amounts for low utilization payment adjustments 
(LUPAs) ending on or after April 1, 2001 and before October 1, 2001 an 
additional 2.2 percent.
    Section 508 of the BIPA also requires, for home health services 
furnished in a rural area (as defined in section 1886(d)(2)(D) of the 
Act) on or after April 1, 2001 and before April 1, 2003, that the 
Secretary increase the payment amount otherwise made under section 1895 
of the Act for the services by 10 percent. The statute waives budget

[[Page 34689]]

neutrality for purposes of this increase since it specifically states 
that the Secretary not reduce the standard prospective payment amount 
(or amounts) under section 1895 of the Act applicable to home health 
services furnished during a period to offset the increase in payments 
resulting in the application of this section of the statute.

II. Provisions of This Notice With Comment Period

A. National Standardized 60-Day Episode Rate

    Medicare HH PPS has been effective since October 1, 2000. As set 
forth in the final rule published July 3, 2000 in the Federal Register 
(65 FR 41128), the unit of payment under Medicare HH PPS is a national 
standardized 60-day episode rate. The standardized 60-day episode rate 
for FY 2001 published in the final rule in Table 5 (65 FR 41184) was 
$2,115.30. As discussed in the budget neutrality analysis in the July 
3, 2000 final rule, phasing in all patients to HH PPS at the October 1, 
2000 effective date for all HHAs created an anomaly in terms of 
increasing the projected number of episodes in the first year of HH 
PPS. Because all patients who were already under a home health plan of 
care at the beginning of FY 2001 were deemed to have started a new 
episode on October 1, 2000, more episodes are projected to occur during 
the first year compared to what would have been projected otherwise. As 
discussed in the July 3, 2000 final rule accounting for the anomaly of 
the first year of PPS, the rates for FY 2001 would have been $79 higher 
if the anomaly did not exist.
    As set forth in the July 3, 2000 final rule at 42 CFR 484.220, we 
adjust the national standardized 60-day episode rate by case-mix and 
wage index based on the site of service for the beneficiary. The FY 
2002 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 July 3, 2000 final rule. 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 applicable adjustments.
    For FY 2002, we use again the design and case-mix methodology 
described in section III.G of the HH PPS July 3, 2000 final rule (65 FR 
41192 through 41203). For FY 2002, we base the wage index adjustment to 
the labor portion of the PPS rates on the most recent pre-floor and 
pre-reclassified hospital wage index available at the time of 
publication of this notice, which is discussed in section II.D of this 
notice with comment period.
    As discussed in the July 3, 2000 home health PPS final rule, for 
episodes with four or fewer visits, Medicare pays the national per-
visit amount by discipline, referred to as a low utilization payment 
adjustment (LUPA). We update the national per-visit amounts by 
discipline annually by the applicable home health market basket. We 
adjust the national per-visit amount by the appropriate wage index 
based on the site of service for the beneficiary as set forth in 
Sec. 484.230. We adjust the labor portion of the updated national per-
visit amounts by discipline used to calculate the LUPA by the most 
recent pre-floor and pre-reclassified hospital wage index available at 
the time of publication of this notice, as discussed in section II.D of 
this notice with comment period.
    As outlined in the July 3, 2000 HH PPS final rule, Medicare pays 
the 60-day case-mix and wage adjusted episode payment on a split 
percentage payment approach. The split percentage payment approach 
includes an initial percentage payment and a final percentage payment 
as set forth in Sec. 484.205(b)(1) and (b)(2). We may base the initial 
percentage payment on the submission of a request for anticipated 
payment and the final percentage payment on the submission of the claim 
for the episode, as discussed in regulations 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 the rate level at which Medicare will pay the claim 
for the fiscal period.
    As discussed in the HH PPS July 3, 2000 final rule, we may 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> A significant change in condition adjustment as set forth 
in Sec. 484.205(e) and Sec. 484.237.
    <bullet> An outlier payment as set forth in Sec. 484.205(f) and 
Sec. 484.240.
    This notice with comment period reflects the updated FY 2002 rates 
that are effective October 1, 2001.

B. Update to the Home Health Market Basket Index

    Section 1895(b)(3)(B)(ii) of the Act requires the standard 
prospective payment amounts to be increased by a factor equal to the 
home health market basket minus 1.1 percentage points for FY 2002. This 
has been codified in regulations in Sec. 484.225.

<bullet> FY 2001 Adjustments

    As discussed in section I.D of this notice with comment period, 
section 502 of the BIPA sets forth a special rule for payment for FY 
2001 based on adjusted prospective payment amounts. The adjustment 
provides the effect of a full market basket adjustment to the PPS rates 
for FY 2001. Section 502 of the BIPA specifically states, 
``Notwithstanding the amendments made by subsection (a), for purposes 
of making payments under section 1895(b) of the Act (42 U.S.C. 
1395fff(b)) for home health services for FY 2001, the Secretary of 
Health and Human Services shall--(A) with respect to episodes and 
visits ending on or after October 1, 2000, and before April 1, 2001, 
use the final standardized and budget neutral prospective payment 
amounts for 60 day episodes and standardized average per-visit amounts 
for FY 2001 as published by the Secretary in the July 3, 2000 Federal 
Register (65 FR 41128-41214); and (B) with respect to episodes and 
visits ending on or after April 1, 2001, and before October 1, 2001, 
use these amounts increased by 2.2 percent.'' Thus, the statute 
requires paying episodes and national per-visit amounts for LUPAs 
ending on or after April 1, 2001 and before October 1, 2001 by an 
additional 2.2 percent. Due to this legislation, during FY 2001 
Medicare pays $2,115.30 for episodes ending on or before March 31, 2001 
and Medicare pays $2,161.84 (= $2,115.30 * 1.022) for episodes ending 
on or after April 1, 2001 and before October 1, 2001, prior to any 
applicable adjustment. We implemented this provision on April 1, 2001 
through the HCFA Program Memorandum, ``Restoration of Full Home Health 
Market Basket Update for Home Health Services for Fiscal Year 2001 and 
Temporary 10 Percent Payment Increase for Home Health Services 
Furnished in a Rural Area for 24 Months Under the Home Health 
Prospective Payment System (HH PPS)'' (Transmittal A-01-06, issued 
January 16, 2001).

[[Page 34690]]

<bullet> FY 2002 Adjustments

    In calculating the annual update for the FY 2002 60-day episode 
rates, we first looked at the FY 2001 rates as a starting point. We 
took into account two factors in determining the starting point for the 
FY 2001 rates: section 502 of the BIPA, enacted mid-FY 2001, that 
restored the full market basket for FY 2001; and the first-year anomaly 
associated with increased payments at the start-up of HH PPS. In 
determining the starting point for the annual update for FY 2002, we 
adjusted the standardized 60-day episode rate for FY 2001 to offset the 
anomaly of the first year of PPS ($2,115.30 + $79 = $2,194.30). We then 
divide that amount by 1 minus 1.1 percent ($2,194.30/(1-0.011)) to 
restore the full market basket. This yields the starting point for the 
FY 2001 rates with the full market basket adjustment for FY 2001 
required to calculate the update for FY 2002.
    The annual update for FY 2002 is the home health market basket 
minus 1.1 percentage points as defined in section 1895(b)(3)(B)(ii) of 
the Act. The home health market basket increase for FY 2002 is 3.6 
percent. In order to calculate the updated FY 2002 rates, we multiplied 
the FY 2001 amount that we restored to the full market basket by 1 plus 
the home health market basket minus 1.1 percentage points (1+0.036 - 
0.011 = 1.025) to yield the updated national 60-day episode amount for 
FY 2002 ($2,274.17).

 National 60-Day Episode Amounts Updated by the Home Health Market Basket Minus 1.1% for FY 2002 Prior to Case-
  Mix Adjustment, Wage Index Adjustment Based on the Site of Service for the Beneficiary or Applicable Payment
                                                   Adjustment
----------------------------------------------------------------------------------------------------------------
     Total standardized
 prospective payment amount
 per 60-day episode for FY
 2001 ($2,115.30) published                                                              Final updated 60-day
  in July 3, 2000 Federal       Restore to full Market     Multiply by 1 plus the HH  episode payment amount for
  Register plus additional              Basket             Market Basket minus 1.1%             FY 2002
       $79 to offset
  implementation of first
        year of PPS
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                $2,194.30                   /(1-0.011)                      x1.025                   $2,274.17
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<bullet> National Per-Visit Amounts Used to Pay LUPAs and Compute 
Imputed Costs Used in Outlier Calculations

    As discussed previously in this notice with comment period, the 
policies governing the LUPAs and outlier calculations set forth in the 
July 3, 2000 HH PPS final rule will continue during FY 2002. In 
calculating the annual update for the FY 2002 national per-visit 
amounts we use to pay LUPAs and to compute the imputed costs in outlier 
calculations, we again looked at the FY 2001 rates as a starting point. 
We used the same methodology that we used to restore the 60-day episode 
rate to the full market basket for FY 2001 to restore the national per-
visit amounts to calculate the LUPAs and to impute costs in the outlier 
calculations. We then multiplied those amounts by 1 plus the home 
health market basket minus 1.1 percentage points to yield the updated 
per-visit amounts for each home health discipline for FY 2002. (See 
table below.)

 National Per-Visit Amounts for LUPAs and Outlier Calculations Updated by the Home Health Market Basket Minus 1.1% for FY 2002 Prior to Wage Adjustment
                                  Based on the Site of Service for the Beneficiary or the Applicable Payment Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Final standardized per-
                                                       visit amounts per 60-                                                     Final standardized per-
                                                      day episode for FY 2001   Restore to full Market  Multiply by 1 plus Home    visit payment amount
             Home Health Discipline type               for LUPAs published in           Basket            Health Market Basket    per discipline for FY
                                                        July 3, 2000 Federal                                   minus 1.1%             2002 for LUPAs
                                                              Register
--------------------------------------------------------------------------------------------------------------------------------------------------------
Home Health Aide....................................                  $ 43.37               /(1-0.011)                   x1.025                  $ 44.95
Medical Social Services.............................                   153.55               /(1-0.011)                   x1.025                   159.14
Occupational Therapy................................                   105.44               /(1-0.011)                   x1.025                   109.28
Physical Therapy....................................                   104.74               /(1-0.011)                   x1.025                   108.55
Skilled Nursing.....................................                    95.79               /(1-0.011)                   x1.025                    99.28
Speech-Language Pathology...........................                   113.81               /(1-0.011)                   x1.025                   117.95
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Rural Add-On as Required by the BIPA

    Section 508 of the BIPA requires, for home health services 
furnished in a rural area (as defined in section 1886(d)(2)(D) of the 
Act) on or after April 1, 2001 and before April 1, 2003, that the 
Secretary increase the payment amount otherwise made under section 1895 
of the Act for services by 10 percent. The statute waives budget 
neutrality related to this provision as it specifically states that the 
Secretary shall not reduce the standard prospective payment amount (or 
amounts) under section 1895 of the Act applicable to home health 
services furnished during a period to offset the increase in payments 
resulting in the application of this section of the statute. Section 
508 provides for payment for the national standardized episode amounts 
and LUPA national per-visit amounts for the entire FY 2002 by an 
additional 10 percent for home health services furnished in rural areas 
where the site of service for the beneficiary is a non-MSA area. The 
applicable case-mix and wage index adjustment is subsequently applied 
to the 60-day episode amount for the provision of home health services 
where the site of service is the non-MSA area of the beneficiary. 
Similarly, the applicable wage index adjustment is subsequently applied 
to the LUPA per-visit amounts

[[Page 34691]]

adjusted for the provision of home health services where the site of 
service for the beneficiary is a non-MSA area. We implemented this 
provision for FY 2001 on April 1, 2001 through the HCFA Program 
Memorandum, ``Restoration of Full Home Health Market Basket Update for 
Home Health Services for Fiscal Year 2001 and Temporary 10 Percent 
Payment Increase for Home Health Services Furnished in a Rural Area for 
24 Months Under the Home Health Prospective Payment System (HH PPS)'' 
(Transmittal A-01-06 issued January 16, 2001). (See FY 2002 add-on 
noted in tables below:)

 FY 2002 Rural Add-On to 60-Day Episode Payment Amounts for Beneficiaries Who Reside in a Non-MSA Area Prior to
    Case-Mix Adjustment, Wage Index Adjustment Based on the Site of Service of the Beneficiary, or Applicable
                                               Payment Adjustment
----------------------------------------------------------------------------------------------------------------
                                                                                           Final payment amount
                                                                                          per 60-day episode for
  Payment amount per 60-day episode for FY                                                    FY 2002 for a
                    2002                                      10% add-on                 beneficiary who resides
                                                                                            in a rural non-MSA
                                                                                                  area.
----------------------------------------------------------------------------------------------------------------
$2,274.17...................................  x1.10                                                    $2,501.59
----------------------------------------------------------------------------------------------------------------


   FY 2002 Rural Add-On to LUPA Per-Visit Amounts Prior to Wage Adjustment Based on the Site of Service of the
                   Beneficiary Who Resides in a Non-MSA Area or Payment Applicable Adjustment
----------------------------------------------------------------------------------------------------------------
                                                                                          Final per-visit amount
                                 Final per-visit payment                                 per 60-day episodes for
                                    amount per 60-day                                    FY 2002 for LUPAs for a
  Home health discipline type      episodes for FY 2002             10% add-on           payment beneficiary who
                                        for LUPAs                                          resides in a non-MSA
                                                                                                   area
----------------------------------------------------------------------------------------------------------------
Home Health Aide...............                   $44.95  x1.10                                           $49.45
Medical Social Services........                   159.14  x1.10                                           175.05
Occupational Therapy...........                   109.28  x1.10                                           120.21
Physical Therapy...............                   108.55  x1.10                                           119.41
Skilled Nursing................                    99.28  x1.10                                           109.21
Speech-Language Pathology......                   117.95  x1.10                                           129.75
----------------------------------------------------------------------------------------------------------------

D. Hospital 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 HH PPS to account for 
area wage differences. We apply the appropriate wage index value to the 
labor portion of the HH PPS rates based on the geographic area in which 
the beneficiary received home health services. 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).
    As discussed previously and set forth in the July 3, 2000 final 
rule, the statute provides that the wage adjustment factors may be the 
factors used by the Secretary for purposes of section 1886(d)(3)(E) of 
the Act for hospital wage adjustment factors. Again, as discussed in 
the July 3, 2000 final rule, we used the most recent pre-floor and pre-
reclassified hospital wage index available at the time of publication 
of this notice to adjust the labor portion of the HH PPS rates based on 
the geographic area in which the beneficiary receives the home health 
services. We believe the use of the most recent available pre-floor and 
pre-reclassified hospital wage index data results in the appropriate 
adjustment to the labor portion of the costs as required by statute. 
(See addenda A and B of this notice with comment period, respectively, 
for the rural and urban hospital wage indexes.)

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a notice such as this take effect. We can waive this 
procedure, however, if we find good cause that a notice-and-comment 
procedure is impracticable, unnecessary, or contrary to the public 
interest and incorporates a statement of finding and its reasons in the 
notice issued.
    We believe it is unnecessary to undertake proposed notice and 
comment rulemaking as the statute requires annual updates to the HH PPS 
rates, the methodologies used to update the rate have been previously 
subject to public comment, and this notice reflects the application of 
previously established methodologies. Further, the new rural add-on and 
adjustments to FY 2001 HH PPS rates that were required by the BIPA 
prior to this required annual update for the FY 2002 PPS rates are 
dictated by statute and do not require an exercise of discretion. 
Therefore, for good cause, we waive prior notice and comment 
procedures. As indicated previously, we are, however, providing a 60-
day comment period for public comment.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, 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

[[Page 34692]]

this preamble, and, if we proceed with a subsequent document, we will 
respond to the major comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 19, 1980 Public Law 
96-354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). The update 
set forth in this notice applies to Medicare payments under HH PPS in 
FY 2002. Accordingly, the analysis that follows describes the impact in 
FY 2002 only. We estimate that there will be an additional $350 million 
in FY 2002 expenditures attributable to the FY 2002 market basket 
increase of 2.5 percent.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a MSA and has fewer 
than 50 beds. We have determined that this notice with comment period 
will not have a significant economic impact on the operations of a 
substantial number of small rural hospitals.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $10 
million or less annually. For purposes of the RFA, we consider most 
HHAs to be small entities. Individuals and States are not included in 
the definition of a small entity. As stated above, this notice with 
comment period provides an update to all HHAs for FY 2002 as required 
by statute. This notice with comment period reflects the statutory 
update to the HH PPS rates published in the July 3, 2000 final rule as 
amended by the BIPA of 2000, but will have a significant positive 
effect upon small entities.
    Section 202 of the Unfunded Mandate Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million. We believe this notice with comment period 
will not mandate expenditures in that amount.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this notice under the threshold criteria 
of Executive Order 13132, Federalism. We have determined that this 
notice would not have substantial direct effects on the rights, roles, 
and responsibilities of States.

B. Anticipated Effects

    In accordance with the requirements of section 1895(b)(3) of the 
Act, we publish an update for each subsequent fiscal year that will 
provide an update to the payment rates. Section 1895(b)(3) of the Act 
requires us, for FY 2002, to increase the prospective payment amounts 
by the home health market basket increase minus 1.1 percentage points. 
The home health market basket increase for FY 2002 is 3.6 percent. 
Taking into account the provisions of section 1895(b)(3) of the Act, 
the increase for FY 2002 is 2.5 percent (that is, 3.6 percent-1.1 
percent). This notice with comment period is confined to implementing 
the home health market basket increase for FY 2002. For the sake of 
clarity, we have also included the amounts as increased by the rural 
add-on provision under section 508 of the BIPA. We implemented the 
rural add-on amounts for FY 2002, effective on April 1, 2001 through 
the HCFA Program Memorandum, ``Restoration of Full Home Health Market 
Basket Update for Home Health Services for Fiscal Year 2001 and 
Temporary 10 Percent Payment Increase for Home Health Services 
Furnished in a Rural Area for 24 Months Under the Home Health 
Prospective Payment System (HH PPS)'' (Transmittal A-01-06, issued 
January 16, 2001). Section 508 of the BIPA provides a 10 percent rural 
add-on for home health services furnished to beneficiaries whose site 
of service is a rural area (non-MSA) for 24 months beginning with 
episodes ending on or after April 1, 2001 and before April 1, 2003.
1. Effects on the Medicare Program
    This notice with comment period merely provides a percentage update 
to all Medicare HHAs. Therefore, we have not furnished any impact 
tables. We increase the payment to each Medicare HHA equally by the 
home health market basket update for FY 2002, as required by statute. 
There is no differential impact among provider types. The impact is in 
the aggregate. We estimate that there will be an additional $350 
million in FY 2002 expenditures attributable to the FY 2002 market 
basket increase of 2.5 percent. Thus, the anticipated expenditures 
outlined in this notice exceed the $100 million annual threshold for a 
major rule as defined in Title 5, U.S.C., section 804(2).
    As discussed previously, several sections of the BIPA impact the 
estimated Medicare home health expenditures in FY 2002. Section 501 of 
the BIPA sets forth an additional 1-year delay in application of the 
15-percent reduction. The delay of the 15-percent reduction for 1 year 
results in an additional $890 million in estimated Medicare home health 
expenditures in FY 2002. Section 502 of the BIPA restores the full home 
health market basket update for FY 2001. We estimate that there will be 
an additional $170 million in FY 2002 expenditures due to the 
restoration of the full home health market basket in FY 2001. Section 
508 of the BIPA requires a 10-percent payment increase to the episode 
and per-visit payment amounts under the HH PPS for Medicare home health 
services furnished in a rural area for a 24-month period. The 10-
percent rural add-on provides an additional payment for Medicare home 
health services that are provided where the site of service of the 
beneficiary is a rural area. The 10-percent rural add-on increases 
estimated Medicare home health expenditures by $310 million in FY 2002. 
(Source: President's Fiscal 2002 Budget) (See tables below.)

[[Page 34693]]



----------------------------------------------------------------------------------------------------------------
   Provision of Medicare, Medicaid, and SCHIP Benefits       Additional FY 2002 Medicare Home Health Estimated
      Improvement and Protection Act of 2000 (BIPA)                Expenditures Due to the BIPA Provision
----------------------------------------------------------------------------------------------------------------
Section 501--additional year delay of 15-percent           $890 million.
 reduction.
Section 502--restoration of full home health market        $170 million.
 basket in FY 2001.
Section 508--10-percent rural add-on for Medicare home     $310 million.
 health services furnished in a rural area.
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                              Additional FY 2002 Medicare Home Health Estimated
FY 2002 Update to Home Health PPS Rates Required by the Act   Expenditures Due to Annual Update Required by Law
----------------------------------------------------------------------------------------------------------------
Section 1895(b)(3)(B) of the Act requires HH PPS rates       $350 million.
 increased by home health market basket minus 1.1
 percentage points in FY 2002 (2.5% increase).
----------------------------------------------------------------------------------------------------------------

2. Effects on Providers
    This notice with comment period will have a positive effect on 
providers of Medicare home health services by increasing their rate of 
Medicare payment. We do not anticipate specific effects on other 
providers. This notice with comment period reflects the statutorily 
required annual update to the HH PPS rates published in the July 3, 
2000 final rule. Also, as discussed above, this notice with comment 
period provides an update to all Medicare HHAs. We do not believe there 
is a differential impact due to the consistent and aggregate nature of 
the update.

C. Alternatives Considered

    As discussed in section II, this notice with comment period 
reflects an annual update to the HH PPS rates as required by statute. 
Due to the lack of discretion provided in the statutory requirements 
governing this notice with comment period, we believe the statute 
provides no latitude for alternatives other than the approach set forth 
in this notice reflecting the FY 2002 annual update to the HH PPS 
rates. Also, as discussed in section II for clarification, this notice 
addresses the 10 percent rural add-on required under section 508 of the 
BIPA for home health services furnished to beneficiaries who reside in 
a rural non-MSA area. Other than the positive effect of the market 
basket increase, this notice with comment will not have a significant 
economic impact nor will it impose an additional burden on small 
entities. When a regulation or notice imposes additional burden on 
small entities, we are required under the RFA to examine alternatives 
for reducing burden. Since this notice with comment period will not 
impose an additional burden, we have not examined alternatives.

D. Conclusion

    We have examined the economic impact of this notice with comment 
period on small entities and have determined that the economic impact 
is positive, significant, and that all HHAs will be affected. To the 
extent that small rural hospitals are affiliated with HHAs, the impact 
on these facilities will also be positive. Finally, we have determined 
that the economic effects described above are largely the result of the 
BIPA provisions which this notice serves to announce.
    We continue to analyze the appropriateness and accuracy of payments 
for differing case mixes. In the fall of 2001, we intend to undertake a 
re-evaluation of the OASIS reporting system's utility in ensuring more 
accurate and equitable PPS payments.
    In accordance with the provisions of notice with comment Executive 
Order 12866, this was reviewed by the Office of Management and Budget.

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

    Dated: March 15, 2001.
Michael McMullan,
Acting Deputy Administrator, Health Care Financing Administration.
    Dated: April 23, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-16384 Filed 6-28-01; 8:45 am]
BILLING CODE 4120-01-P