Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2006, 40788-40867 [05-13674]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 134 (Thursday, July 14, 2005)]
[Proposed Rules]
[Pages 40788-40867]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-13674]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 484



Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2006; Proposed Rule

Federal Register / Vol. 70, No. 134 / Thursday, July 14, 2005 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 484

[CMS-1301-P]
RIN 0938-AN44


Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2006

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would set 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. We are 
also proposing to implement the revised area labor market Metropolitan 
Statistical Area designations for calendar year 2006.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 6, 
2005.

ADDRESSES: In commenting, please refer to file code CMS-1301-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/regulations/
ecomments. (Attachments should be in Microsoft Word, WordPerfect, or 
Excel; however, we prefer Microsoft Word.)
    2. By mail. You may mail written comments (one original and two 
copies) to the following address ONLY: Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Attention: CMS-1301-
P, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.
    Hubert H. Humphrey Building, Room 445-G, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131. 
Sharon Ventura, (410) 786-1985.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments 
from the public on all issues set forth in this rule to assist us in 
fully considering issues and developing policies. You can assist us by 
referencing the file code CMS-1301-P and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    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. CMS posts all electronic 
comments received before the close of the comment period on its public 
Web site as soon as possible after they have been received. Hard copy 
comments received timely will 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. To schedule an appointment to view public comments, phone 1-800-
743-3951.

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]

A. Statutory Background

    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 the 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)(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)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the home health applicable 
increase percentage as specified in the statute.
    Section 1895(b)(4) of the Act governs the payment computation. 
Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act require the 
standard prospective payment amount 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.

[[Page 40789]]

    On December 8, 2003, the Congress enacted the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-
173). This legislation affected how we make updates to HH payment 
rates.
    Section 701 of the MMA changed the yearly update cycle of the HH 
PPS rates from that of a fiscal year to a calendar year update cycle 
for 2004 and any subsequent year. Generally, section 701(a) of the MMA 
changed the references in the statute to refer to the calendar year for 
2004 and any subsequent year. The changes resulted in updates to the HH 
PPS rates described as ``fiscal year'' updates for 2002 and 2003 and as 
``calendar year'' updates for 2004 and any subsequent year (section 
1895(b)(3)(B)(i) of the Act. Beginning on January 1, 2005, HH PPS will 
now be updated on a calendar year update cycle.
    In addition to changing the update cycle for HH PPS rates, section 
701 of the MMA made adjustments to the home health applicable increase 
percentage for 2004, 2005, and 2006. Specifically, section 701(a)(2)(D) 
of the MMA left unchanged the home health market basket update for the 
last calendar year quarter of 2003 and the first calendar year quarter 
of 2004 (section 1895(b)(3)(B)(ii)(II) of the Act). Furthermore, 
section 701(b)(4) of the MMA set the home health applicable percentage 
increase for the last 3 quarters of 2004 as the home health market 
basket (3.1 percent) minus 0.8 percentage point (section 
1895(b)(3)(B)(ii)(III) of the Act). We implemented this provision 
through Pub. 100-20, One Time Notification, Transmittal 59, issued 
February 20, 2004. Section 701(b)(4) of the MMA also provided that 
updates for CY 2005 and CY 2006 will equal the applicable home health 
market basket percentage increase minus 0.8 percentage point. Lastly, 
section 701(b)(3) of the MMA revised the statute to provide that HH PPS 
rates for CY 2007 and any subsequent year will be updated by that 
year's home health market basket percentage increase (section 
1895(b)(3)(B)(ii)(IV) of the Act).

B. Updates

    On July 3, 2000, we published a final rule (65 FR 41128) in the 
Federal Register to implement the HH PPS legislation. That final rule 
established requirements for the new PPS for HHAs as required by 
section 4603 of the BBA, and 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 PPS for HHAs, consolidated billing requirements, 
and a number of other related changes. The 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.
    On October 22, 2004, we published a final rule (69 FR 62124), which 
set 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. As part of that final rule, we rebased 
and revised the home health market basket to ensure it continues to 
adequately reflect the price changes of efficiently providing home 
health services. In addition, we revised the fixed dollar loss ratio, 
which is used in the calculation of outlier payments. That final rule 
was also the first update of the HH PPS rates on a calendar year update 
cycle. HH PPS was moved to a calendar year update cycle as a result the 
MMA.

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, adjusted for case mix 
and wage index. For episodes with four or fewer visits, Medicare pays 
on the basis of a national per-visit amount by discipline, referred to 
as a low utilization payment adjustment (LUPA). Medicare also adjusts 
the 60-day episode payment for certain intervening events that give 
rise to a partial episode payment adjustment (PEP adjustment) or a 
significant change in condition adjustment (SCIC). For certain cases 
that exceed a specific cost threshold, an outlier adjustment may also 
be available. For a complete and full description of the HH PPS as 
required by the BBA and as amended by OCESAA and BBRA, see the July 3, 
2000 HH PPS final rule (65 FR 41128).

II. Provisions of the Proposed Regulations

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS OF THE PROPOSED REGULATIONS'' at the beginning 
of your comments.]

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. As set forth in 42 CFR 484.220, we 
adjust the national standardized 60-day episode rate by a case mix 
grouping and a wage index value based on the site of service for the 
beneficiary. The proposed CY 2006 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. In the October 22, 2004 final rule, we rebased and revised the 
home health market basket, resulting in a labor related share of 76.775 
percent and a non-labor portion of 23.225 percent (69 FR 62126). 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. As the home 
health market basket was rebased and revised last year, we are not 
proposing to rebase it for CY 2006.
    As required by section 1895(b)(3)(B) of the Act, we have updated 
the HH PPS rates annually in a separate Federal Register document. 
Section 484.225 sets forth the specific percentage update for fiscal 
years 2001 through 2008. As amended by section 701 of the MMA, Sec.  
484.225(f) sets the CY 2006 unadjusted national prospective 60-day 
episode payment rate equal to the rate from the previous calendar year 
(CY 2005), increased by the applicable home health market basket minus 
0.8 percentage point.
    For CY 2006, we are proposing to 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 CY 2006, we are proposing to 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 as 
discussed in section II.D of this proposed rule (not including any 
reclassifications under section 1886(d)(8)(B)) of the Act.
    As discussed in the July 3, 2000 HH PPS final rule, for episodes 
with four or fewer visits, Medicare pays the national per-visit amount 
by discipline, referred to as a LUPA. We update the national per-visit 
amounts by discipline annually by the applicable home health market

[[Page 40790]]

basket percentage. We adjust the national per-visit amount by the 
appropriate wage index based on the site of service for the beneficiary 
as set forth in Sec.  484.230. We propose to adjust the labor portion 
of the updated national per-visit amounts by discipline used to 
calculate the LUPA by the most recent pre-floor and pre-reclassified 
hospital wage index, as discussed in section II.D of this proposed 
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 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.
    We may also adjust the 60-day case-mix and wage-adjusted episode 
payment based on the information submitted on the claim to reflect the 
following:
     A low utilization payment provided on a per-visit basis as 
set forth in Sec.  484.205(c) and Sec.  484.230.
     A partial episode payment adjustment as set forth in Sec.  
484.205(d) and Sec.  484.235.
     A significant change in condition adjustment as set forth 
in Sec.  484.205(e) and Sec.  484.237.
     An outlier payment as set forth in Sec.  484.205(f) and 
Sec.  484.240.
    This proposed rule reflects the proposed updated CY 2006 rates that 
would be effective January 1, 2006.

B. Proposed CY 2006 Update to the Home Health Market Basket Index

    Section 1895(b)(3)(B) of the Act, as amended by section 701 of the 
MMA, requires for CY 2006 that the standard prospective payment amounts 
be increased by a factor equal to the applicable home health market 
basket update minus 0.8 percentage point.
     Proposed CY 2006 Adjustments
    In calculating the annual update for the CY 2006 60-day episode 
rates, we are proposing to first look at the CY 2005 rates as a 
starting point. The CY 2005 national 60-day episode rate, as published 
in the Federal Register (69 FR 62124) is $2,264.28.
    In order to calculate the CY 2006 national 60-day episode rate, we 
are proposing to multiply the CY 2005 national 60-day episode rate 
($2,264.28) by the proposed estimated home health market basket update 
of 3.3 percent for CY 2006 minus 0.8 percentage point.
    We would increase the CY 2005 60-day episode payment rate by the 
proposed estimated home health market basket update (3.3 percent) minus 
0.8 percentage point ($2,264.28 x 2.5 percent) to yield the proposed 
updated CY 2006 national 60-day episode rate ($2,320.89) (see Table 1 
below).

    Table 1.--Proposed National 60-Day Episode Amounts Updated by the
 Proposed Estimated Home Health Market Basket Update for CY 2006, Minus
 0.8 Percentage Point, Before Case-Mix Adjustment, Wage Index Adjustment
 Based on the Site of Service for the Beneficiary or Applicable Payment
                               Adjustment
------------------------------------------------------------------------
                                    Multiply by the
                                        proposed
                                     estimated home    Proposed CY 2006
 Total prospective payment amount    health market     updated national
  per 60-day episode for CY 2005     basket update      60-day episode
                                     (3.3 percent)           rate
                                       minus 0.8
                                    percentage point
------------------------------------------------------------------------
$2,264.28........................              1.025           $2,320.89
------------------------------------------------------------------------

National Per-visit Amounts Used to Pay LUPAs and Compute Imputed Costs 
Used in Outlier Calculations
    As discussed previously in this proposed rule, the policies 
governing the LUPAs and outlier calculations set forth in the July 3, 
2000 HH PPS final rule will continue during CY 2006. In calculating the 
annual update for the CY 2006 national per-visit amounts we use to pay 
LUPAs and to compute the imputed costs in outlier calculations, we are 
proposing to look again at the CY 2005 rates as a starting point. We 
then are proposing to multiply those amounts by the proposed estimated 
home health market basket update minus 0.8 percentage point for CY 2006 
to yield the updated per-visit amounts for each home health discipline 
for CY 2006 (see Table 2 below).

    Table 2.--Proposed National Per-Visit Amounts for LUPAs and Outlier Calculations Updated by the Proposed
Estimated Home Health Market Basket Update for CY 2006, Minus 0.8 Percentage Point, Before Wage Index Adjustment
                                Based on the Site of Service for the Beneficiary
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                                                                         Multiply by the
                                                    Final per-visit    proposed estimated    Proposed per-visit
                                                   amount per 60-day   home health market    payment amount per
           Home health discipline type               episode for CY   basket (3.3 percent)    discipline for CY
                                                     2005 for LUPAs   minus 0.8 percentage     2006 for LUPAs
                                                                              point
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Home Health Aide.................................             $44.76                 1.025                $45.88
Medical Social Services..........................             158.45                 1.025                162.41
Occupational Therapy.............................             108.81                 1.025                111.53
Physical Therapy.................................             108.08                 1.025                110.78
Skilled Nursing..................................              98.85                 1.025                101.32
Speech-Language Pathology........................             117.44                 1.025                120.38
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[[Page 40791]]

C. Outliers and the Fixed Dollar Loss Ratio

    Outlier payments are payments made in addition to regular 60-day 
case-mix and wage-adjusted episode payments for episodes that incur 
unusually large costs due to patient home health care needs. Outlier 
payments are made for episodes for which the estimated cost exceeds a 
threshold amount. The episode's estimated cost is the sum of the 
national wage-adjusted per-visit payment amounts for all visits 
delivered during the episode. The outlier threshold for each case-mix 
group, PEP adjustment, or total SCIC adjustment is defined as the 60-
day episode payment amount, PEP adjustment, or total SCIC adjustment 
for that group plus a fixed dollar loss amount. Both components of the 
outlier threshold are wage-adjusted.
    The wage-adjusted fixed dollar loss (FDL) amount represents the 
amount of loss that an agency must bear before an episode becomes 
eligible for outlier payments. The FDL is computed by multiplying the 
wage-adjusted 60-day episode payment amount by the fixed dollar loss 
ratio, which is a proportion expressed in terms of the national 
standardized episode payment amount. The outlier payment is defined to 
be a proportion of the wage-adjusted estimated costs beyond the wage-
adjusted threshold. The proportion of additional costs paid as outlier 
payments is referred to as the loss-sharing ratio.
    Section 1895(b)(5) of the Act requires that estimated total outlier 
payments are no more than 5 percent of total estimated HH PPS payments. 
In response to the concerns about potential financial losses that might 
result from unusually expensive cases expressed in comments to the 
October 28, 1999 proposed rule (64 FR 58133), the July 2000 final rule 
set the target for estimated outlier payments at the 5 percent level. 
The fixed dollar loss ratio and the loss-sharing ratio were then 
selected so that estimated total outlier payments would meet the 5 
percent target.
    For a given level of outlier payments, there is a trade-off between 
the values selected for the fixed dollar loss ratio and the loss-
sharing ratio. A high fixed dollar loss ratio reduces the number of 
episodes that can receive outlier payments, but makes it possible to 
select a higher loss-sharing ratio and, therefore, increase outlier 
payments for outlier episodes. Alternatively, a lower fixed dollar loss 
ratio means that more episodes can qualify for outlier payments, but 
outlier payments per episode must be lower. As a result of public 
comments on the October 28, 1999 proposed rule, in our July 2000 final 
rule, we made the decision to attempt to cover a relatively high 
proportion of the costs of outlier cases for the most expensive 
episodes that would qualify for outlier payments within the 5 percent 
constraint.
    In the July 2000 final rule, we chose a value of 0.80 for the loss-
sharing ratio, which preserves incentives for agencies to attempt to 
provide care efficiently for outlier cases. A loss-sharing ratio of 
0.80 was also consistent with the loss-sharing ratios used in other 
Medicare PPS outlier policies. Furthermore, we estimated the value of 
the fixed dollar loss ratio that would yield estimated total outlier 
payments that were 5 percent of total home health PPS payments. The 
resulting value for the fixed dollar loss ratio, for the July 2000 
final rule, was 1.13.
    Our CY 2005 update to the HH PPS rates (69 FR 62124) changed the 
fixed dollar loss ratio from the original 1.13 to 0.70 to allow 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. We stated in that CY 2005 update that we planned to continue 
to monitor the outlier expenditures on a yearly basis and to make 
adjustments as necessary (69 FR 62129). To do so, we planned on using 
the best Medicare data available at the time of publication. For the CY 
2005 update, we used CY 2003 home health claims data. At this time, we 
do not have sufficient data to propose any update to the FDL ratio for 
the CY 2006 update to the HH PPS rates. However, depending on the 
availability of more recent data at the time of publication of the HH 
PPS rate update for CY 2006 final rule, we may, if necessary, implement 
an update to the FDL ratio for the CY 2006 update to the HH PPS rates. 
If so, we plan on using the same methodology performed in updating to 
the current FDL ratio described in the June 2, 2004 proposed rule using 
any more recent available data.

D. Hospital Wage Index

1. Revised OMB Definition for Geographical Statistical Areas
    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 (76.775 percent; see (60 FR 62126)) of the HH PPS rates 
based on the geographic area in which the beneficiary received home 
health services as discussed in section II. A of this proposed rule. 
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 acknowledged in our October 22, 2004 final rule that, on June 6, 
2003, the OMB issued an OMB Bulletin (No. 03-04) announcing revised 
definitions for Metropolitan Statistical Areas (MSAs), new definitions 
for Micropolitan Statistical Areas and Combined Statistical Areas, and 
guidance on using the statistical definitions. A copy of the Bulletin 
may be obtained at the following Internet address: https://
www.whitehouse.gov/omb/bulletins/b03-04.html. At that time, we did not 
propose to apply these new definitions known as Core-Based Statistical 
Areas (CBSAs). After further analysis, we are proposing to use the OMB-
revised definitions to adjust the proposed CY 2006 HH PPS payment 
rates. The Hospital Inpatient PPS (IPPS) is applying these revised 
definitions as discussed in the August 11, 2004 IPPS final rule (68 FR 
49207).
    a. Background. 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 are proposing to use 
the pre-floor and pre-reclassified hospital wage index data to adjust 
the labor portion of the HH PPS rates based on the geographic area in 
which the beneficiary receives the home health services. We believe the 
use of the pre-floor and pre-reclassified hospital wage index data 
results in the appropriate adjustment to the labor portion of the costs 
as required by statute. For this proposed CY 2006 update to the home 
health payment rates, we propose to continue to use the most recent 
pre-floor and pre-reclassified hospital wage index available at the 
time of publication. See Addenda A and B of this proposed rule, 
respectively, for the proposed rural and urban hospital wage indices 
using the new MSA designations. For HH PPS rates addressed in this 
proposed rule, we are using preliminary 2006 pre-floor and pre-
reclassified hospital wage index data. We will incorporate updated 
hospital wage index data for the 2006 pre-floor and pre-reclassified 
hospital wage index to be used in the final rule

[[Page 40792]]

for the CY 2006 HH PPS update (not including any reclassifications 
under section 1886(d)(8)(B) of the Act).
    As implemented under the HH PPS in the July 3, 2000 HH PPS final 
rule, each HHA's labor market is determined based on definitions of 
MSAs issued by OMB. In general, an urban area is defined as an MSA or 
New England County Metropolitan Area (NECMA) as defined by OMB. Under 
Sec.  412.62(f)(1)(iii), a rural area is defined as any area outside of 
the urban area. The urban and rural area geographic classifications are 
defined in Sec.  412.62(f)(1)(ii) and (f)(1)(iii), respectively, and 
have been used under HH PPS since it was implemented.
    Under the HH PPS, the wage index value used is based upon the 
location of the beneficiary's home. As has been our longstanding 
practice, any area not included in an MSA (urban area) is considered to 
be nonurban (Sec.  412.64(b)(1)(ii)(C)) and receives the statewide 
rural wage index value (see, for example (65 FR 41173)).
    Currently, the MSA definitions are used under other prospective 
payment systems such as the inpatient rehabilitation facility PPS (IRF 
PPS), the inpatient psychiatric facility PPS (IPF PPS), the skilled 
nursing facility PPS (SNF PPS), and Medicare payment for hospice care. 
In the August 11, 2004 IPPS final rule (69 FR 49206 through 49034), 
revised labor market area definitions were adopted under Sec.  
412.64(b), which were effective October 1, 2004 for acute care 
hospitals. The new standards, CBSAs, were announced by OMB in late 2000 
and are discussed in greater detail below.
    As indicated above, we are proposing to implement the designations 
and definitions published by OMB. Details can be found in the June 6, 
2003 OMB Bulletin (No. 03-04). In this proposed rule, we will address 
the new OMB definitions and their application to the home health wage 
index used by HH PPS. We are also proposing to revise Sec.  484.202 
(Definitions) to reflect those new designations and definitions. As we 
use the hospital inpatient wage data as the basis for determining the 
wage index used by HH PPS, we are generally adopting the same approach 
as taken by the hospital inpatient prospective payment system (IPPS). 
The changes in the hospital wage index based on the new OMB definitions 
are discussed in the inpatient prospective payment system (IPPS) 
proposed rule published in the Federal Register on May 18, 2004 (69 FR 
28196) as well as in the IPPS final rule published on August 11, 2004 
(69 FR 48916).
    b. Current Labor Market Areas Based on MSAs. As noted above, we 
currently define labor market areas based on the definitions of 
Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New 
England County Metropolitan Areas (NECMAs) issued by the OMB. The OMB 
also designates Consolidated MSAs (CMSAs). A CMSA is a metropolitan 
area with a population of one million or more, comprising two or more 
PMSAs (identified by their separate economic and social character). For 
the purposes of the wage index, we use the PMSAs rather than the CMSAs 
because they allow a more precise breakdown of labor costs. If a 
metropolitan area is not designated as part of a PMSA, we use the 
applicable MSA. These different designations use counties as the 
building blocks upon which they are based. Hospitals are assigned to 
either an MSA, PMSA, or NECMA based on whether the county in which the 
hospital is located is part of that area. All of the counties in a 
State outside a designated MSA, PMSA, or NECMA are designated rural. 
For the purposes of calculating the wage index, we combine all of the 
counties in a State outside a designated MSA, PMSA, or NECMA together 
to calculate the statewide rural wage index for each state.
    c. Core-Based Statistical Areas. The OMB reviews its Metropolitan 
Area (MA) definitions preceding each decennial census. As discussed in 
the August 11, 2004 IPPS final rule (69 FR 49207), in the Fall of 1998, 
the OMB chartered the Metropolitan Area Standards Review Committee to 
examine the MA standards and develop recommendations for possible 
changes to those standards. Three notices related to the review of the 
standards, providing an opportunity for public comment on the 
recommendations of the Committee, were published in the Federal 
Register on the following dates: December 21, 1998 (63 FR 70526); 
October 20, 1999 (64 FR 56628); and August 22, 2000 (65 FR 51060).
    In the December 27, 2000 Federal Register (65 FR 82228 through 
82238), OMB announced its new standards. In that notice, the OMB 
defines a Core-Based Statistical Area (CBSA), beginning in 2003, as ``a 
geographic entity associated with at least one core of 10,000 or more 
population, plus adjacent territory that has a high degree of social 
and economic integration with the core as measured by commuting ties.'' 
The standards designate and define two categories of CBSAs: 
Metropolitan Statistical Areas (MSAs) and Micropolitan Statistical 
Areas (65 FR 82235).
    According to the OMB, MSAs are based on urbanized areas of 50,000 
or more population, and Micropolitan Statistical Areas (referred to in 
further discussion as Micropolitan Areas) are based on urban clusters 
of at least 10,000 population but less than 50,000 population. Counties 
that do not fall within CBSAs (either MSAs or Micropolitan Areas) are 
deemed ``Outside CBSAs.'' In the past, the OMB defined MSAs around 
areas with a minimum core population of 50,000, and smaller areas were 
``Outside MSAs.''
    On June 6, 2003, OMB announced the new CBSAs, comprised of MSAs and 
the new Micropolitan Areas based on Census 2000 data. (A copy of the 
announcement may be obtained at the following Internet address: https://
www.whitehouse.gov/omb/bulletins/fy04/b04-03.html.) The new CBSA 
designations recognize 49 new (urban) MSAs and 565 new Micropolitan 
Areas, and revise the composition of many of the existing (urban) MSAs. 
There are 1,090 counties in MSAs under these new CBSA designations 
compared with 848 counties in the previous MSAs. Of these 1,090 
counties, 737 are in the same MSA as they were before the changes, 65 
are in different MSAs, and 288 were not previously designated to any 
MSA. There are 674 counties in Micropolitan Areas. Of these, 41 were 
previously in an MSA, while 633 were not previously designated to an 
MSA. There are five counties that previously were designated to a MSA 
but are no longer designated to either an MSA or a new Micropolitan 
Area: Carter County, KY; St. James Parish, LA; Kane County, UT; 
Culpepper County, VA; and King George County, VA. For a more detailed 
discussion of the new CBSAs, refer to the August 11, 2004 IPPS final 
rule (67 FR 49026 through 49034).
    d. Proposed Revision to the HH PPS Labor Market Areas. In its June 
6, 2003 announcement, OMB cautioned that these new definitions ``should 
not be used to develop and implement Federal, State, and local 
nonstatistical programs and policies without full consideration of the 
effects of using these definitions for such purposes. These areas 
should not serve as a general-purpose geographic framework for 
nonstatistical activities, and they may or may not be suitable for use 
in program funding formulas.''
    In the HH PPS update for CY 2005 proposed rule (69 FR 31260, June 
2, 2004), we noted that the recently published IPPS proposed rule for 
FY 2005 had discussed some of the issues associated with using these 
new definitions, and had invited public

[[Page 40793]]

comment on them. Accordingly, we decided to defer proposing any new 
labor market definitions in the home health context at that time, in 
order to allow the public sufficient time and opportunity to consider 
and provide comments on this issue. In that HH PPS proposed rule, we 
also invited all interested parties to provide input on this issue in 
the specific context of the HH PPS. We believe that sufficient time has 
now elapsed for interested parties to consider and react to the new OMB 
definitions and, accordingly, we are now proposing to make the changes 
discussed below.
    We have continued to use MSAs to define labor market areas for 
purposes of the wage index. For the HH PPS, the statute states that the 
Secretary shall establish area 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. We believe MSAs are a reasonable and 
appropriate proxy for developing geographic areas for purposes of 
adjusting for wage differences in HH PPS and for many of the same 
reasons stated in the various IPPS rules over the years where this 
issue has been exhaustively examined. We also note that MSAs have been 
used to define labor market areas for purposes of the wage index for 
many of the other Medicare payment systems (for example, IRF PPS, SNF 
PPS, hospice, and IPF PPS).
    First, historically, Medicare prospective payment systems have used 
MA definitions developed by OMB. For example, in discussing the 
adoption of the MSA designation for the IPPS area labor adjustment, the 
IPPS proposed rule for FY 1985 (49 FR 27426, July 3, 1984) stated:

    [i]n administering a national payment system, we must have a 
national classification system built on clear, objective standards. 
Otherwise the program becomes increasingly difficult to administer 
because the distinction between rural and urban hospitals is 
blurred. We believe that the MSA system is the only one that 
currently meets the requirements for use as a classification system 
in a national payment program. The MSA classification system is a 
statistical standard developed for use by Federal agencies in the 
production, analysis, and publication of data on metropolitan areas. 
The standards have been developed with the aim of producing 
definitions that will be as consistent as possible for all MSAs 
nationwide.

    In addition, in numerous instances, the Congress has recognized 
that the areas developed by OMB may be used for differentiating among 
geographic areas for Medicare payment purposes. For example, in the 
IPPS statutory sections, the Congress defines an ``urban area'' as ``an 
area within a Metropolitan Statistical Area (as defined by the Office 
of Management and Budget) or within such similar area as the Secretary 
has recognized.'' Section 1886(d)(2)(D) of the Act. Similarly, in the 
sections of the statute governing the guidelines to be used by the 
Medicare Geographic Classification Review Board for purposes of 
reclassification, the Congress directed the Secretary to create 
guidelines for ``determining whether the county in which the hospital 
is located should be treated as being a part of a particular [MSA].'' 
Section 1886(d)(10)(A), (D)(i)(II) of the Act. Thus, the Congress has 
accepted and ratified the use of MSAs as an inherently rational manner 
of dividing labor-market areas for purposes of Medicare payments.
    The process used by OMB to develop the MSAs creates geographic 
areas upon characteristics that we believe also generally reflect the 
characteristics of unified labor market areas. For example, the CBSAs 
reflect a core population plus an adjacent territory that reflects a 
high degree of social and economic integration. This integration is 
measured by commuting ties, thus demonstrating that these areas may 
draw workers from the same general areas. In addition, the most recent 
CBSAs reflect the most up-to-date information. OMB reviews its MA 
definitions preceding each decennial census to reflect recent 
population changes and the CBSAs are based on the Census 2000 data. 
Finally, in the context of the IPPS, we have reviewed alternative 
methods for determining geographic areas for purposes of the wage 
index, and in each case, have decided to retain the OMB designations 
rather than replace these designations with alternatives.
    Because we believe that we have broad authority to create labor 
market areas, and because we also believe that OMB's latest MA 
designations accurately reflect the local economies and wage levels of 
the areas in which hospitals are currently located, we are proposing to 
adopt the revised labor market area designations based on OMB's CBSA 
designations.
    Furthermore, when we implemented the wage index adjustment at Sec.  
484.210 under the HH PPS in the July 3, 2000 HH PPS final rule (65 FR 
41213), we stated that an appropriate wage index was to be used to 
adjust for area wage differences. We also explained that in the 
adjustment to the national prospective 60-day episode payment rate, we 
have to account for the geographic differences in wage levels using an 
appropriate wage index based on the site of service of the beneficiary 
(65 FR 41213). Because we believe that OMB's CBSA designations based on 
Census 2000 data reflect the most recent available geographic 
classifications (MA definitions), as noted above we are proposing to 
revise the labor market area definitions used under the HH PPS. 
Specifically, we are proposing to revise the HH PPS labor market 
definitions based on OMB's new CBSA designations (as discussed in 
greater detail below), effective for HH PPS services occurring on or 
after January 1, 2006.
    We note that OMB's new CBSA designations are the same labor market 
area definitions implemented under the IPPS at Sec.  412.64(b), which 
were effective for those hospitals beginning October 1, 2004, as 
discussed in the August 11, 2004 IPPS final rule (69 FR 49026 through 
49034). The similarity between the IPPS and the HH PPS includes the 
adoption in the initial implementation of the HH PPS of the same labor 
market area definitions under the HH PPS that existed under the IPPS at 
that time, as well as the use of acute care hospitals' wage data in 
calculating the HH PPS wage index. Therefore, we believe that proposing 
to revise the HH PPS labor market area definitions based on OMB's CBSA 
designations is consistent with our historical practice of generally 
modeling HH PPS wage index policy after IPPS wage index policy.
    Below, we discuss the composition of the proposed HH PPS labor 
market areas based on OMB's new CBSA designations.
    (1) New England County Metropolitan Areas. NECMAs are currently 
used to define labor market areas in New England, because they are 
county-based designations rather than the 1990 MSA definitions for New 
England, which used minor civil divisions such as cities and towns. 
Under the new CBSA definition, OMB has now defined the MSAs and 
Micropolitan Areas in New England on the basis of counties. OMB also 
established New England City and Town Areas, which are similar to the 
previous New England MSAs. Therefore, to maintain consistency among all 
labor market areas and to maintain these areas on the basis of 
counties, under the HH PPS, we are proposing to use the county-based 
areas for all MSAs in the nation, including those in New England. 
Census 2000 has now defined the New England area based on counties, 
creating a city- and town-based system as an alternative. We believe 
that adopting county-based labor market areas for the entire country,

[[Page 40794]]

except those in New England, would lead to inconsistencies in our 
designations. Adopting county-based labor market areas for the entire 
country provides consistency and stability in Medicare program payment 
because all the labor market areas throughout the country including New 
England, would be defined using the same system (that is, counties) 
rather than different systems in different areas of the county, thus 
minimizing programmatic complexity.
    In addition, we have consistently employed a county-based system 
for New England for precisely that reason: to maintain consistency with 
the labor market definitions used throughout the country. We note that 
this is consistent with the implementation of the CBSA designations 
under the IPPS for New England (see August 11, 2004 (69 FR 49028)). 
Accordingly, under the HH PPS we are proposing to use the New England 
MSAs as determined under the proposed new CBSA-based labor market area 
definitions in defining the proposed revised HH PPS labor market areas.
    (2) Metropolitan Divisions. Under OMB's new CBSA designations, a 
Metropolitan Division is a county or group of counties within a CBSA 
that contains a core population of at least 2.5 million, representing 
an employment center, plus adjacent counties associated with the main 
county or counties through commuting lines. A county qualifies as a 
main county if 65 percent or more of its employed residents work within 
the county and the ratio of the number of jobs located in the county to 
the number of employed residents is at least 0.75. A county qualifies 
as a secondary county if 50 percent or more, but less than 65 percent, 
of its employed residents work within the county and the ratio of the 
number of jobs located in the county to the number of employed 
residents is at least 0.75. After all the main and secondary counties 
are identified and grouped, each additional county that already has 
qualified for inclusion in the MSA falls within the Metropolitan 
Division associated with the main/secondary county or counties with 
which the county at issue has the highest employment interchange 
measure. Counties in a Metropolitan Division must be contiguous (65 FR 
82236). Metropolitan Divisions have been implemented under IPPS (69 FR 
49029).
    As noted above, in the past, OMB designated CMSAs as Metropolitan 
Areas with a population of one million or more and comprised of two or 
more PMSAs. Under the HH PPS, we currently use the PMSAs rather than 
CMSAs to define labor market areas because they comprise a smaller 
geographic area with potentially varying labor costs due to different 
local economies. We believe that CMSAs may be too large an area to 
accurately reflect the local labor costs of all of the individual 
hospitals included in that relatively ``large'' area. Similarly, we 
believe that Metropolitan Divisions under the CBSA designations may be 
too large an area to accurately reflect the local labor costs of all of 
the individual hospitals included in that relatively ``large'' area. 
Further, Metropolitan Divisions represent the closest approximation to 
PMSAs and, therefore, would most accurately maintain our current 
structuring of the HH PPS labor market areas. Therefore, as implemented 
under the IPPS (69 FR 49029), we are proposing to use the Metropolitan 
Divisions where applicable (as described below) under the proposed new 
CBSA-based labor market area definitions.
    In addition to being comparable to the organization of the labor 
market areas under current MSA designations, we believe that proposing 
to use Metropolitan Divisions where applicable (as described below) 
under the HH PPS would result in a more accurate adjustment for the 
variation in local labor market areas. Specifically, if we recognize 
the relatively ``larger'' CBSA that comprises two or more Metropolitan 
Divisions as an independent labor market area for purposes of the wage 
index, it would be too large and would include the data from too many 
hospitals to compute a wage index that would accurately reflect the 
various local labor costs of all of the individual hospitals included 
in that relatively ``large'' CBSA. By proposing to recognize 
Metropolitan Divisions where applicable (as described below) under the 
proposed new CBSA-based labor market area definitions under the HH PPS, 
we believe that the local labor costs would be more accurately 
reflected, thereby resulting in a wage index adjustment that better 
reflects the variation in the local labor costs of the local economies 
served by HHAs in those relatively ``smaller'' areas.
    Under CBSA definitions, there are 11 MSAs containing Metropolitan 
Divisions: Boston; Chicago; Dallas; Detroit; Los Angeles; Miami; New 
York; Philadelphia; San Francisco; Seattle; and Washington, D.C. 
Although these MSAs were also CMSAs under the prior definitions, in 
some cases their areas have been significantly altered.
    Under the current HH PPS MSA designations, Boston was a single 
NECMA. Under the proposed CBSA-based labor market area designations, it 
would be comprised of 4 Metropolitan Divisions. Los Angeles would go 
from 4 PMSAs under the current HH PPS MSA designations to 2 
Metropolitan Divisions under the proposed CBSA-based labor market area 
designations. The New York CMSA would go from 15 PMSAs under the 
current HH PPS MSA designations to only 4 Metropolitan Divisions under 
the proposed CBSA-based labor market area designations. Five PMSAs in 
Connecticut under the current HH PPS MSA designations would become 
separate MSAs under the proposed CBSA-based labor market area 
designations. The number of PMSAs in New Jersey, under the current HH 
PPS MSA designations would go from 5 to 2, with the consolidation of 2 
New Jersey PMSAs (Bergen-Passaic and Jersey City) into the New York-
Wayne-White Plains, NY-NJ Division, under the proposed CBSA-based labor 
market area designations. In San Francisco, under the proposed CBSA-
based labor market area designations, there are only 2 Divisions. 
Currently, there are 6 PMSAs, some of which are now separate MSAs under 
the current HH PPS labor market area designations.
    Under the current HH PPS labor market area designations, 
Cincinnati, Cleveland, Denver, Houston, Milwaukee, Portland, 
Sacramento, and San Juan are all designated as CMSAs, but would no 
longer be designated as CMSAs under the proposed CBSA-based labor 
market area designations. As noted previously, the population threshold 
to be designated a CMSA under the current HH PPS labor market area 
designations is one million. In most of these cases, counties currently 
in a PMSA would become a separate, independent MSA under the proposed 
CBSA-based labor market area designations, leaving only the MSA for the 
core area under the proposed CBSA-based labor market area designations.
    (3) Micropolitan Areas. Under OMB's new CBSA designations, 
Micropolitan Areas are essentially a third area definition comprised 
primarily of what are currently designated as rural areas, but also 
include some or all of areas that are currently designated as an urban 
MSA. As discussed in the August 11, 2004 IPPS final rule (69 FR 49029-
49032), how these areas are treated would have significant impact on 
the calculation and application of the hospital wage index. 
Specifically, whether or not Micropolitan Areas are included as part of 
the respective statewide rural wage indices would affect the value of 
the statewide rural wage index of any State that contains a 
Micropolitan area. A hospital's

[[Page 40795]]

classification as urban or rural affects which hospitals' wage data are 
included in the statewide rural wage index. As discussed in section 
II.D.1.b of this proposed rule, all counties in a State outside a 
designated urban area are combined to calculate the statewide rural 
wage index for each State.
    Micropolitan Areas included as part of the statewide rural labor 
market area would result in an increase to the statewide rural wage 
index because hospitals located in those Micropolitan Areas typically 
have higher labor costs than other rural hospitals in the State. 
Alternatively, as discussed in greater detail below, if Micropolitan 
Areas were recognized as independent labor market areas, because there 
would be so few hospitals in those areas to complete a wage index, the 
wage indices for those areas would become relatively unstable as they 
would change considerably from year to year.
    Currently, we use MSAs to define urban labor market areas and group 
all the hospitals in counties within each State that are not assigned 
to an MSA into a statewide rural labor market area. Therefore, we used 
the terms ``urban'' and ``rural'' wage indices in the past for ease of 
reference. However, the introduction of Micropolitan Areas by OMB 
potentially complicates this terminology because these areas include 
many hospitals that are currently included in the statewide rural labor 
market areas. Thus, the term ``rural'' is now used to describe 
hospitals in counties that are not assigned to either MSA or 
Micropolitan areas.
    We are proposing to treat Micropolitan Areas as rural labor market 
areas under the HH PPS for the reasons outlined below. That is, 
counties that are assigned to a Micropolitan area under the CBSA 
designations would be treated the same as other ``rural'' counties that 
are not assigned to either an MSA (Metropolitan Area) or a Micropolitan 
Area. Therefore, in determining the applicable HH PPS wage index (based 
on IPPS hospital wage index data, as discussed in greater detail below 
in section II.D. of this preamble), we propose that the wage index for 
an HHA servicing a home health beneficiary in a Micropolitan Area under 
the OMB's CBSA designations would be classified as ``rural'' and would 
be assigned the statewide rural wage index for that State.
    In the August 11, 2004 IPPS final rule, (69 FR 49029 through 
49032), we discussed the impact of treating Micropolitan areas as part 
of the statewide rural labor market area instead of treating 
Micropolitan Areas as independent labor market areas for hospitals paid 
under IPPS. As discussed in greater detail in that same final rule, 
Micropolitan Areas encompass smaller populations than MSAs and tend to 
include fewer hospitals per Micropolitan Area.
    As Micropolitan Areas tend to include fewer hospitals, recognizing 
Micropolitan Areas as independent labor market areas would generally 
increase the potential for dramatic shifts in those areas' wage indices 
from one year to the next because a single hospital (or group of 
hospitals) could have a disproportionate effect on the wage index of 
the area. Dramatic shifts in an area's wage index from year to year are 
problematic because they result in the instability of payment levels 
from year to year, which makes fiscal planning difficult. Therefore, in 
order to minimize the potential instability in payment levels from year 
to year, we believe it would be appropriate to treat Micropolitan Areas 
as part of the statewide rural labor market area under HH PPS.
    Consistent with the treatment of these areas under the IPPS, we are 
proposing that Micropolitan Areas be considered a part of the statewide 
rural labor market area. Accordingly, we are proposing that the HH PPS 
statewide rural wage index would be determined using acute-care IPPS 
hospital wage data from hospitals located in non-MSA areas and that the 
statewide rural wage index would be assigned to home health episodes of 
care for beneficiaries being served in those areas.
    We are proposing to adopt OMB's new labor market designations for 
CY 2006, effective January 1, 2006. In adopting the CBSA designations, 
we identified some geographic areas where there were no hospitals, and 
thus no hospital wage index data on which to base the calculation of 
the CY 2006 HH PPS proposed wage index. In addressing this situation, 
we are proposing approaches that we believe serve as proxies for 
hospital wage data and will provide an appropriate standard that 
accounts for area wage differences.
    The first situation involves rural locations in Massachusetts and 
Puerto Rico. Under the proposed labor market areas, there are no rural 
hospitals in those locations. Because there is no reasonable proxy for 
more recent rural data within those areas, we are proposing to use last 
year's wage index value for rural Massachusetts and rural Puerto Rico.
    The second situation has to do with the urban areas of Hinesville, 
GA (CBSA 25980) and Mansfield, OH (CBSA 31900). Under the proposed new 
labor market areas, there are no urban hospitals within those areas. We 
propose to use all of the urban areas within the State to serve as a 
reasonable proxy for the urban areas without specific hospital wage 
index data in determining the HH PPS wage index. Therefore, in this 
proposed rule, we calculated the urban wage index value for purposes of 
the wage index for these areas without urban hospital data as the 
average wage index for all urban areas within the State. We could not 
apply a similar averaging in rural areas because in the rural areas 
noted above, there is no rural hospital data available for averaging on 
a state-wide basis. We solicit comments on these approaches to 
calculating the wage index values for areas without hospitals for CY 
2006 and subsequent years.
    (4) Implementation of the Proposed Revised Labor Market 
Designation. When the revised labor market areas based on OMB's new 
CBSA designations were adopted under the IPPS beginning on October 1, 
2004, a transition to the new designations was established due to the 
scope and magnitude of the change, in order to mitigate the resulting 
adverse impact on certain hospitals. As discussed in the August 11, 
2004 IPPS final rule (69 FR 49032), during FY 2005, a blend of wage 
indices is calculated for those acute care IPPS hospitals experiencing 
a drop in their wage indices because of the adoption of the new labor 
market areas. Also, as described in that same final rule (69 FR 49032), 
under the IPPS, hospitals that previously had been located in an urban 
MSA but became rural under the new CBSA definitions are assigned the 
wage index value of the urban area to which they belonged previously, 
for 3 years (FYs 2005 through 2007).
    Unlike IPPS and some of the other payment systems where each entity 
uses a single MSA, HHAs may use various wage indices to compute their 
payments based upon the location of the beneficiary. Therefore, we do 
not believe that in the aggregate, HHAs would be impacted negatively by 
the new CBSA designations. While we understand that there are CBSAs 
that decrease based upon the new definitions, there are those that 
would be positively affected. For example, many counties that have been 
included in the rural definitions under the MSA designations are now 
designated as urban areas under the CBSA and would generally receive an 
increase in their wage index. We believe that adjustments made to CBSAs 
because of negative impact would necessitate adjustments to CBSAs that 
are

[[Page 40796]]

positively impacted. Variability and changes in wage indices both 
positively and negatively have occurred under the MSA designations and 
occur as a result of geographic differences. As a result, we propose to 
adopt the CBSA definitions and resulting wage indices without 
transitions. The impact of CBSA designations is discussed in section 
V.B of this proposed rule. In estimating the impact of our proposal, we 
computed the projected expenditures for FY 2006 using geographic areas 
based upon existing MSAs as well as for areas using the new CBSA 
designations. Our impact analysis used the proposed CY 2006 payment 
rates and all of the CY 2003 claims files. In the final rule, we will 
use the best available home health data for CY 2004 in determining the 
potential impact of any change to the MSA designations. We also note 
that, in the past, the OMB has announced MSA changes on an annual basis 
due to population changes, and we have not proposed to transition these 
changes. Therefore, we do not propose transitioning the implementation 
of the new MSA designations.
    We also note that section 505 of the MMA established new section 
1886(d)(13) of the Act. The new section 1886(d)(13) requires that the 
Secretary establish a process to make adjustments to the hospital wage 
index based on commuting patterns of hospital employees. We believe 
that this requirement for an ``out-commuting'' or ``out-migration'' 
adjustment applies specifically to the Hospital Inpatient Prospective 
Payment System. Therefore, we will not be establishing such an 
adjustment for HH PPS.
    As stated previously, we believe that OMB's latest labor market 
designations more accurately reflect the local economics and wage 
levels of the areas in which hospitals are currently located. We 
believe that OMB's CBSA designations based on Census 2000 data reflect 
the most recent available geographic classifications (MA definitions) 
and as a result reflect the relative hospital wage levels in the 
geographic area. As stated previously, since HHAs compete for the same 
staff as hospitals in any geographic area, we believe the hospital wage 
index used by HH PPS reflects the wages that are paid by HHAs.
    To reflect our proposal to use the new OMB labor market areas for 
purposes of the HH PPS wage index, we are proposing to add, in Sec.  
484.202 (Definitions), the following definitions for rural and urban:
    Rural area means, with respect to home health episodes ending on or 
after January 1, 2006, an area defined in Sec.  412.64(b)(1)(ii)(C).
    Urban area means, with respect to home health episodes ending on or 
after January 1, 2006, an area defined in Sec.  412.64(b)(1)(ii)(A) and 
(B).
    To facilitate an understanding of the proposed policies related to 
the proposed changes in the wage index as discussed in section V.B of 
this proposed rule, in addendum C, we are providing a listing of each 
Social Security Administration State and county location code, State 
and county name, existing MSA-based labor market area designation, MSA-
based wage index value, CBSA-based labor market area, and the proposed 
CBSA-based wage index value.

III. 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. 35).

IV. Response to Comments

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

V. Regulatory Impact Analysis

    [If you choose to comment on issues in this section, please include 
the caption ``REGULATORY IMPACT'' at the beginning of your comments.]

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation i