Medicare Program; Hospice Wage Index for Fiscal Year 2006, 45130-45247 [05-15290]

Agencies

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

[Federal Register Volume 70, Number 149 (Thursday, August 4, 2005)]
[Rules and Regulations]
[Pages 45130-45247]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-15290]



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Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 418



Medicare Program; Hospice Wage Index for Fiscal Year 2006; Final Rule

Federal Register / Vol. 70, No. 149 / Thursday, August 4, 2005 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 418

[CMS-1286-F]
RIN 0938-AN89


Medicare Program; Hospice Wage Index for Fiscal Year 2006

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth the hospice wage index for fiscal 
year 2006 and identifies the revised labor market and metropolitan core 
based statistical areas. In addition, this final rule responds to 
public comments and implements provisions of sections 408 and 946 of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003.

DATES: These regulations are effective on October 1, 2005.

FOR FURTHER INFORMATION CONTACT: Terri Deutsch, (410) 786-9462.

SUPPLEMENTARY INFORMATION:

I. Background

A. General

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

B. Hospice Wage Index

    The hospice wage index is used to adjust payment rates for hospice 
agencies under the Medicare program to reflect local differences in 
area wage levels. The original hospice wage index was based on the 1981 
Bureau of Labor Statistics hospital data and had not been updated since 
1983. In 1994, because of disparity in wages from one geographical 
location to another, a committee was formulated to negotiate a wage 
index methodology that could be accepted by the industry and the 
government. This committee, functioning under a process established by 
the Negotiated Rulemaking Act of 1990, was comprised of national 
hospice associations; rural, urban, large, and small hospices; 
multisite hospices; consumer groups; and a government representative. 
On April 13, 1995, the Hospice Wage Index Negotiated Rulemaking 
Committee signed an agreement for the methodology to be used for 
updating the hospice wage index.
    In the August 8, 1997 Federal Register (62 FR 42860), we published 
a final rule implementing a new methodology for calculating the hospice 
wage index based on the recommendations of the negotiated rulemaking 
committee. The committee statement was included in the appendix of that 
final rule (62 FR 42883).
    The annual update to the hospice wage index is published in the 
Federal Register and is based on the most current available hospital 
wage data, as well as any changes by the Office of Management and 
Budget (OMB) to the definitions of Metropolitan Statistical Areas 
(MSAs). Raw wage index values (inpatient hospital pre-floor and pre-
reclassified wage index values) as described in the August 8, 1997 
hospice wage index final rule are subject to either a budget neutrality 
adjustment or application of the wage index floor. Raw wage index 
values of 0.8 or greater are adjusted by the budget neutrality 
adjustment factor. Budget neutrality means that, in a given year, 
estimated aggregate payments for Medicare hospice services using the 
updated wage index values will equal estimated payments that would have 
been made for these services if the 1983 wage index values had remained 
in effect. To achieve this budget neutrality, the raw wage index is 
multiplied by a budget neutrality adjustment factor. The budget 
neutrality adjustment factor is calculated by comparing what we would 
have paid using current rates and the 1983 wage index to what would be 
paid using current rates and new wage index. The budget neutrality 
adjustment factor is computed and applied annually. For the FY 2006 
hospice wage index, the FY 2005 hospice payment rate was used in the 
budget neutrality adjustment factor calculation.
    Raw wage index values below 0.8 are adjusted by the greater of: (1) 
The hospice budget neutrality adjustment factor; or (2) the hospice 
wage index floor (a 15 percent increase) subject to a maximum wage 
index value of 0.8. For example, County A has a prefloor, pre-
reclassified hospital wage index (raw wage index value) of 0.4000. We 
would perform the following calculations using the budget neutrality 
factor and the hospice wage index floor to determine County A's hospice 
wage index: (Raw wage index value below 0.8 x budget neutrality 
adjustment factor) = 0.4000 (1.060988) = 0.4244 (Raw wage index value 
below 0.8 x hospice wage index floor) = 0.400 (1.15) = 0.4600. Based on 
these calculations, County A's hospice wage index would be 0.4600.

C. Hospice Provisions of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003

    On December 8, 2003, the Congress enacted the Medicare Prescription 
Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-
173). This legislation provided for the following provisions affecting 
hospice services:
     Section 408, Recognition of Attending Nurse Practitioners 
as Attending Physicians to Serve Hospice Patients.
     Section 512, Coverage of Hospice Consultation Services.
     Section 946, Authorizing Use of Arrangements to Provide 
Core Hospice Services in Certain Circumstances.
    Section 408 of the MMA amended sections 1861(dd)(3)(B) and 
1814(a)(7) of the Act to add nurse practitioners (NPs) to the 
definition of an attending physician for beneficiaries who have elected 
the hospice benefit. In other words, if a beneficiary's primary care 
provider before the determination of the

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terminal illness and election of the hospice benefit is an NP, the NP 
can remain as the attending physician, if the beneficiary chooses, 
after a hospice election. If the beneficiary does not have an attending 
physician or NP at the time of the terminal diagnosis, the beneficiary 
may choose to designate either a physician or an NP as his or her 
attending physician when electing the hospice benefit. Section 408 of 
the MMA was implemented through an administrative issuance (Change 
Request (CR) 3226, Transmittals 22 and 304, September 24, 2004).
    Section 512 of the MMA provides for a one-time evaluation and 
consultation to Medicare beneficiaries who have been determined to have 
a 6-month prognosis if the disease runs its normal course, and who 
require the expertise of the medical director or physician employed by 
a hospice in order to be able to make end-of-life decisions. This 
provision was implemented in the CY 2005 Physician Fee Schedule final 
rule published in the November 15, 2004 Federal Register (69 FR 66335) 
and is incorporated in our regulations at Sec.  418.205 and Sec.  
418.304(d).
    Section 946(a) of the MMA allows a hospice program ``in 
extraordinary, exigent, or other non-routine circumstances, such as 
unanticipated period of high patient loads, staffing shortages due to 
illness or other events, or temporary travel of a patient outside a 
hospice program's service area, * * * `` to enter into arrangements 
with another hospice program to provide services to beneficiaries. 
Section 946(b) of the MMA provides that ``in the case of hospice care 
provided by a hospice program under arrangement under section 
1861(dd)(5)(D) made by another hospice program, the hospice program 
that made the arrangements shall bill and be paid for the hospice 
care.'' In section II.B.2 of this proposed rule, we discuss our 
proposal to revise the regulations to implement payment for hospice 
services made under arrangements. We have addressed implementation of 
section 946(a) of the MMA in the proposed rule entitled ``Medicare and 
Medicaid Programs; Hospice Conditions of Participation'' published in 
the May 27, 2005 Federal Register (70 FR 30840).

II. Provisions of the Proposed Regulations and Analysis of and 
Responses to Public Comments

    In the April 29, 2005 Federal Register (70 FR 22394), we published 
a proposed rule that set forth the proposed FY 2006 hospice wage index, 
including changes to the Medicare hospice wage index proposed as a 
result of OMB revised definitions of geographical statistical areas, 
and proposed implementation of several provisions of the MMA. In this 
section of the final rule, we will discuss these proposals, the public 
comments received, and our responses. We note receipt of approximately 
80 timely items of correspondence that raised 8 issues.

A. Changes to the Hospice Wage Index for FY 2006

1. Revised OMB Definition for Geographical Statistical Areas
    As required by Sec.  418.306(c), each hospice's labor market is 
established using the most current hospital wage data available, 
including any changes to the MSA definitions issued by OMB. In the 
September 4, 1996 hospice wage index proposed rule (61 FR 46579), we 
explained that the MSA definitions were issued by OMB on December 28, 
1992, based on the 1990 census, and updated by OMB based on the 
decennial census. In accordance with our regulations, any changes to 
the MSA definitions would be announced in the Federal Register.
    In the August 27, 2004 Federal Register (69 FR 52710), we published 
a notice with respect to the hospice wage index for FY 2005. In that 
notice, we noted that on June 6, 2003, OMB issued OMB Bulletin No. 03-
04 announcing revised definitions for 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.) In addition, we noted 
that we would not address the new OMB definitions because the wage data 
used to calculate the FY 2005 hospice wage index (FY 2004 hospital wage 
data) did not reflect revisions based on the new definitions. We 
indicated that the new OMB definitions would be addressed in the FY 
2006 wage index update.
a. Background
    In general, under the 1990-based definitions used for the hospital 
wage index, we define an urban area as a Metropolitan Statistical Area 
(MSA) or New England County Metropolitan Area (NECMA). A rural area is 
defined as any area outside of the urban area. Any area not included in 
an MSA is considered to be nonurban and receives the statewide rural 
rate.
    In accordance with our regulations for hospice payment, we base the 
hospice wage index on the most current hospital wage data available. 
Similar to the hospital wage index, we use the MSAs to define labor 
market areas. Section 1814(i)(2)(D) of the Act requires Medicare to pay 
for hospice services based on the geographic location where the service 
is furnished. The wage index value used is based upon the location of 
the beneficiary's home for routine home care and continuous home care 
and the location of the hospice agency for general inpatient and 
respite care.
    In the April 29, 2005 proposed rule, we addressed the new OMB 
definitions and their application to the hospice wage index. Since our 
regulations require the use of the acute care hospital inpatient 
prospective payment system (IPPS) wage data as the basis for 
determining the hospice wage index, we provided a summary of the 
revised geographical statistical areas adopted in the FY 2005 IPPS 
final rule. (For a more detailed discussion of the changes in the 
hospital wage index based on the new OMB definitions see the FY 2005 
IPPS proposed and final rules published May 18, 2004 (69 FR 28196) and 
August 11, 2004 (69 FR 48916).)
b. Current Labor Market Areas Based on MSAs Used in the FY 2004 
Hospital Wage Index
    In the FY 2005 IPPS final rule, we described the hospital wage 
index methodology in place before adoption of the new OMB definitions 
(CBSAs). We stated that, ``the [hospital] wage index is calculated and 
assigned to hospitals on the basis of the labor market area in which 
the hospital is located.'' In addition, the IPPS final rule (69 FR 
49026) provided the following as the current (before FY 2005) 
definition of the hospital labor markets:

    * * * areas based on the definitions of Metropolitan Statistical 
Areas (MSAs), Primary MSAs (PMSAs), and New England County 
Metropolitan Areas (NECMAs) issued by OMB. OMB also designates 
Consolidated MSAs (CMSAs). * * * For purposes of the hospital wage 
index, we use the PMSAs rather than 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. Therefore, 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. For purposes of the 
IPPS wage index, we combine all of the counties in a State outside a 
designated MSA, PMSA, or NECMA together to calculate a statewide 
rural wage index.

c. Core-Based Statistical Areas
    In the December 27, 2000 Federal Register (65 FR 82228 through 
82238), OMB announced its new standards and in that notice, OMB defined 
a Core-

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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: MSAs and 
Micropolitan Statistical Areas (65 FR 82235).
    According to 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 CBSA (either MSA or Micropolitan Areas) are 
deemed ``Outside CBSAs.'' In the past, OMB defined MSAs around areas 
with a minimum core population of 50,000, and smaller areas were 
``Outside MSAs.''
    In its June 6, 2003 bulletin, OMB announced the new CBSAs, 
comprised of MSAs and the new Micropolitan Areas based on Census 2000 
data. The new CBSA designations recognize 49 new (urban) MSAs and 565 
new Micropolitan Areas, and revised 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.
d. Revised Labor Market Areas
    As discussed in the FY 2005 IPPS final rule (69 FR 49027), 
alternatives to the use of MSAs for the purpose of establishing labor 
market areas for the Medicare hospital wage index were examined. In the 
May 27, 1994, IPPS proposed rule (59 FR 27724), the latest research 
concerning possible future refinements to the labor market areas was 
presented. In the June 2, 1995 IPPS proposed rule (60 FR 29219), it was 
noted that the public comments on the May 27, 1994 proposals reflected 
no consensus on the choice for new labor market areas. Many hospitals 
expressed dissatisfaction with all of the potential alternatives to the 
OMB-based labor market areas. In addition, consulted associations did 
not suggest ideas or alternatives for future research. Consequently, 
MSAs have continued to be used to define labor market areas for 
purposes of the wage index by many Medicare payment systems.
(1) New England County Metropolitan Areas
    NECMAs are currently used in the hospice wage index to define labor 
markets areas in New England, ``* * * because these are county-based 
designations rather than the 1990 MSA definitions for New England which 
used minor civil divisions such as cities and towns'' (69 FR 28250). 
Under the CBSA definition, ``OMB has 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'' (69 FR 28250). Therefore, to maintain consistency in the 
definition of labor market areas between New England and the rest of 
the country, IPPS decided to use the New England MSAs under the new 
CBSA definition.
(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. For the IPPS wage indices before FY 2005, 
where the PMSAs were used, rather than CMSAs, to define labor market 
areas for the FY 2005 hospital wage index, we adopted metropolitan 
divisions rather than CBSAs as the building blocks for labor market 
areas. As with PMSAs, where they exist, these Metropolitan Divisions 
``* * * comprise a smaller geographic area with potentially varying 
labor costs due to different local economies.'' (69 FR 28250)
(3) Micropolitan Areas
    The FY 2005 IPPS final rule noted the following regarding the use 
of Micropolitan Areas to define labor markets (69 FR 49029):

    One of the major issues with respect to the new definitions is 
whether to use Micropolitan Areas to define labor market areas for 
the purpose of the IPPS wage index. * * *
    Because we currently use MSAs to define urban labor market areas 
and we group all the hospitals in counties within each State that 
are not assigned to an MSA together into a statewide rural labor 
market area, we have used the terms ``urban'' and ``rural'' wage 
indexes in the past for ease of reference. However, the introduction 
of Micropolitan Areas complicates this terminology because these 
areas include so many hospitals that are currently included in the 
statewide rural labor market areas * * * We use the term ``rural'' 
hospitals to describe hospitals in counties that are not assigned to 
either an MSA or a Micropolitan Area * * * hospitals in Micropolitan 
Areas are included in the statewide rural labor market areas.
2. Annual Update to the Hospice Wage Index
a. Background
    Section 418.306(c) of the regulations requires that we issue 
annually in the Federal Register, hospice wage index based on our most 
current available hospital wage data, including any changes to the 
definitions of MSAs.
    Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended 
section 1814(i)(1)(C)(ii) of the Act to establish updates to hospice 
rates for FYs 1998 through 2002. Hospice rates were to be updated by a 
factor equal to the hospital market basket index, minus 1 percentage 
point. However, neither the BBA nor subsequent legislation specified 
the hospital market basket adjustment to be used to compute payment for 
FY 2006. Therefore, payment rates for FY 2006 will be updated according 
to section 1814(i)(1)(C)(ii)(VII) of the Act, which specifies that the 
update to the payment rates after FY 2002 will be the hospital market 
basket percentage increase for the fiscal year. This rate update will 
be implemented via administrative issuance to provide adequate time to 
implement system change requirements and is not part of this final 
rule.
    We note that we did not propose any modifications to the hospice 
wage index methodology as described in the 1997 final rule. In 
accordance with the our regulations and the agreement signed with other 
members of the Hospice Wage Index Negotiated Rulemaking Committee, we 
will continue to use the most current hospital data available to adjust 
for area wage differences. As noted above, payment rates for each of 
the four levels of care (routine home care, continuous home care, 
respite care, and general inpatient care) are adjusted annually based 
upon the hospital market basket for that year and are promulgated 
administratively to allow for sufficient time for system changes and 
provider notification.
    The payment rates are divided into the labor and nonlabor portions. 
The appropriate wage index value is applied to the labor portion of the 
hospice rate based on the geographic area in which the beneficiary 
resides when receiving routine home care or continuous home care. The 
appropriate wage index value is applied to the labor portion of the 
hospice rate based on the geographic

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area of the hospice agency for beneficiaries receiving general 
inpatient or respite level of care.
    We use the previous fiscal year's hospital wage index data to 
calculate the hospice wage index values. For FY 2006 proposed and final 
hospice wage index, we used the FY 2005 hospital pre-floor and pre-
reclassified hospital wage data. This means that the hospital wage data 
used for the hospice wage index is not adjusted to take into account 
any geographic reclassification of hospitals including those in 
accordance with section 1886(d)(8)(B) or 1886(d)(10) of the Act. We 
also do not take into account reclassifications in accordance with 
section 508 of the MMA or the out-migration adjustment for hospitals 
(section 505 of the MMA). All hospice wage index values for FY 2006 are 
adjusted by either the FY 2006 budget neutrality adjustment factor or 
the wage index floor adjustment. This means, that for wage index values 
0.8 or greater, the value is multiplied by the budget neutrality 
adjustment factor. For wage index values that are below 0.8, either the 
budget neutrality adjustment factor or the wage index floor, not to 
exceed 0.8, is applied. In other words, the floor adjustment is the 
greater of the raw wage index value multiplied by the proposed budget 
neutrality adjustment factor or the raw wage index value for that area 
is multiplied by 15 percent subject to a maximum value of 0.8. Budget 
neutrality means that, in a given year, estimated aggregate payments 
for Medicare hospice services using the updated wage index will equal 
estimated payments that would have been made for the same services if 
the wage index adopted for hospices in 1983 had remained in effect. For 
a detailed discussion of the methodology used to compute the hospice 
wage index see the September 4, 1996 proposed rule (61 FR 46579) and 
the August 8, 1997 final rule (62 FR 42860).
    Comment: We received a number of comments that the methodology used 
to compute the wage index values were not valid. One commenter 
indicated that the FY 2006 wage index values were computed only on the 
basis of CBSA data. Several commenters noted that the hospice 
methodology did not provide for fluctuations in wage index values. One 
commenter stated, ``* * * the regulatory intent of the movement to more 
`refined' geographic areas under CBSA was to produce a more local wage 
index so as to reduce reliance on [hospital] geographic 
reclassification as a means of redressing inappropriate payment 
levels.'' Another commenter stated if wage index changes ``were the 
result of an unbiased methodology * * * aggregate impacts should even 
out * * *'' The commenter also asserts that hospital cost report 
changes, ``as well as methodology nuances in the hospital wage index 
methodology, mask the true changes in wages * * *''
    Response: As stated previously, the CBSA designations define the 
geographic locations from which the hospital wage data are used to 
compute the hospice wage index. As discussed in previous hospice 
proposed and final rules and wage index notices, the hospice wage 
values are developed in accordance with Sec.  418.306(c) of the 
regulations. A negotiated rulemaking process was used to update the 
hospice wage index in response to the recognition that the then 
existing wage index was not satisfactory. Industry and consumer 
representatives were willing to work towards developing a consensus, 
based on the mutual recognition that there were opportunities for 
compromising among various interests, and, the concomitant recognition 
that the acceptability of the resulting wage index would be enhanced by 
information-sharing in the context of negotiation. A hospice negotiated 
rulemaking committee comprised of representatives of national hospice 
associations; rural, urban, large, and small hospices; multisite 
hospices; consumer groups; and government agents was established. The 
committee reached consensus on a hospice wage index that resulted in 
the methodology in our regulations. A proposed rule was published in 
the Federal Register on September 4, 1996 with the final rule published 
in the Federal Register on August 8, 1997. The committee decisions are 
as follows:
     The annual wage index would be based on the most currently 
available data used to construct a wage index for hospitals under the 
prospective payment system, before adjustments are made to geographic 
reclassification of hospitals in accordance with sections 1886(d)(8)(B) 
and (d)(10) of the Act.
     Each hospice labor market area would be established by the 
MSA definitions issued by and periodically updated by the OMB. Any 
changes to the MSA definitions would be effective annually.
     Each year in updating the wage index, aggregate Medicare 
payments to hospices would remain the same, using the revised wage 
index as if the 1983 wage index had not been updated. This means that 
although payments to hospices may change each year, overall Medicare 
payments to hospices would not be affected by updating the wage index.
     To ensure budget neutrality, an adjustment would be made 
to the payments that would otherwise be made to individual hospices. 
The amount of the budget neutrality adjustment would be determined by 
computing the amount of hospice payments that would have resulted from 
the hospice payment methodology using the 1983 hospice wage index. Then 
computing the expenditures using the updated hospital wage index data. 
To ensure that overall Medicare payments to hospices would not be 
affected by updating the wage index, a budget neutrality adjustment 
factor is calculated each year.
     A wage index floor would be developed in order to maintain 
viability of the hospice programs in rural and other locations with low 
hospital wage index values. For areas below 0.8 either the budget 
neutrality adjustment factor or the floor (15 percent) not to exceed 
0.8 would be used.
    As discussed in the April 29, 2005 proposed rule, we did not 
propose to change the methodology used in computing the hospice wage 
index and that any changes to the methodology would be addressed in 
future rulemaking.
    We also believe that we are consistent in complying with 
regulations and the recommendations of the negotiated rulemaking 
committee in our calculations. This includes utilizing the OMB changes, 
which reflect geographic variations. In addition, the hospice wage 
index methodology provides mechanisms to augment the hospital wage 
index data. The budget neutrality adjustment factor accounts for a more 
than 6 percent increase above the hospital wage index for values 
greater than or equal to 0.8. Values below 0.8 are increased by the 
hospice wage index floor.
    We are unable to address the comments on the calculation of the 
hospital wage index. However, we can address these comments as they 
pertain to the hospice wage index. We do agree with commenters that in 
adopting the 2000-based CBSA designations, some hospices will now be 
assigned to a different geographic area than under the old 1990-based 
designations. Such reassignment could result in a hospice receiving a 
wage index value lower than what it would have received had the 1990-
based designations remained in effect for the foreseeable future. This 
might be the case, for example, if a high wage hospital has been 
redesignated from a certain hospice's labor market area to another 
neighboring labor market area, thus depriving its previous labor market 
area of the wages associated with such a high-wage hospital. We believe

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that such changes, because they result from the most recent census 
data, are proper. These changes merely reflect how the boundaries of 
various labor market areas should be drawn in order to reflect the most 
recent population and commuting data obtained from the 2000 census. 
Indeed, just as the boundaries of the OMB labor market areas may change 
every 10 years to reflect the most recent population data, the wages 
paid by hospitals located in specific labor market areas also will 
likely vary on a year-to-year basis. This type of fluctuation is wholly 
appropriate because it reflects the regional economic environment of a 
specific labor market area and reflects our intent in instituting wage 
indexing
b. Implementation of the Revised Labor Market Designations
    For the hospice payment system, Sec.  418.306(c) requires that the 
hospice wage index be ``based on the most current available CMS 
hospital wage index, including any changes to the definitions of 
Metropolitan Statistical Areas.'' We continue to believe MSAs are a 
reasonable and appropriate proxy for developing geographic areas for 
purposes of adjusting for wage differences in hospice. We also note 
that MSAs are used to define labor market areas for purposes of the 
wage index for many of the other Medicare payment systems (for example, 
long-term care hospital (LTCH) PPS, inpatient rehabilitation facility 
(IRF) PPS, home health agency (HHA) PPS, skilled nursing facility (SNF) 
PPS, outpatient (OPPS) and inpatient psychiatric facility (IPF) PPS).
    First, historically, Medicare prospective payment systems have used 
metropolitan area (MA) definitions developed by OMB. For example, in 
adopting the MSA designation for the IPPS area labor adjustment, the 
Secretary 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 consistent as possible for all MSAs 
nationwide (49 FR 27426).

    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 section, section 1886(d)(2)(D) of the Act, 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.'' Similarly, 
in the sections of the statute governing the guidelines to be used by 
the Medicare Geographic Classification Review Board for purposes of 
reclassification, sections 1886(d)(10)(A) and (D)(i)(II) of the Act, 
the Congress directed the Secretary to create guidelines for 
``determining whether the county in which the hospital is located 
should be treated as being part of a particular [MSA].'' Thus, the 
Congress has accepted and ratified the use of MSAs as an inherently 
rational manner of dividing up labor-market areas for purposes of 
Medicare payments.
    The process used by OMB to develop the MSAs creates geographic 
areas that are based upon characteristics 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. 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 inpatient prospective payment system, we 
have reviewed alternative methods for determining geographic areas for 
purposes of the wage index, and in each case, have determined to remain 
with the OMB designations rather than replace these designations with 
alternatives.
    As stated previously, Sec.  418.306(c) requires the hospice wage 
index to reflect changes to the definitions of MSA. Therefore, we 
proposed adopting the revised labor market area designations based on 
OMB's CBSA designations. For the FY 2006 hospice wage index proposed 
rule, we proposed to adopt the CBSA designations as finalized in the FY 
2005 IPPS final rule (69 FR 49032). We believe that OMB's CBSA 
designations, based on Census 2000 data, reflect the most recent 
available geographic classifications (MA definitions). As noted, we did 
not propose to change the methodology used in computing the wage index, 
and that any changes to the methodology would be addressed in future 
rulemaking.
    As discussed in the FY 2005 IPPS final rule (69 FR 49032), when the 
IPPS adopted the revised labor market areas based on OMB's new CBSA 
designations on October 1, 2004, IPPS established a transition to the 
new designations to mitigate the resulting adverse impact on certain 
hospitals. Section 1814(i)(1)(A) of the Act requires hospice payment to 
be based on ``costs which are reasonable and related to the cost of 
providing hospice care or which are based on such other tests of 
reasonableness the Secretary may prescribe in regulations * * *'' Our 
regulations at Sec.  418.306(c) require us to issue annually in the 
Federal Register ``a hospice wage index based on the most current 
available CMS hospital data wage data, including any changes to the 
definitions of Metropolitan Statistical Areas.'' In the proposed rule 
we stated that it appeared that this language would not seem to permit 
us to establish a transition to the new CBSA designations. Unlike IPPS 
and other payment systems where each entity uses a single MSA (CBSA), 
hospice agencies may use various wage indices to compute their 
payments, based upon the location of the beneficiary for routine and 
continuous home care or the MSA (CBSA) for the location of the agency 
for respite and general inpatient care. The methodology for applying 
the budget neutrality adjustment factor to the hospital wage data 
results in over a 6.0 percent increase from the wage data. The 
application of the hospice floor (a 15.0 percent maximum) to wage index 
values below 0.8 is used to leverage areas where there are 
significantly low wage index values. Moreover, we did not believe that 
in the aggregate, hospice agencies would be impacted negatively by the 
new CBSA designations. The existing methodology of computing the 
hospice wage index, the annual calculation of the hospice payment rates 
based upon the market basket index, and the variability of CBSAs that 
may be attributed to different hospice agencies we believed would be 
are sufficient to mitigate adverse effects on individual hospice 
agencies. We acknowledged that some CBSAs will experience decrease 
payments based upon the new definitions. However, there are those that 
are 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 based on labor market areas, 
and will generally receive an increase in

[[Page 45135]]

their wage index. We also indicated that if adjustments were to be made 
to CBSAs because of negative impact, adjustments would also need to be 
made to CBSAs that are 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 proposed adopting the CBSA definitions and resulting wage 
indices without transitions. However, we received numerous public 
comments in disagreement and found them persuasive enough to undertake 
further analysis which is described in this regulation.
    In adopting the CBSA designations, we identified rural labor market 
areas where there were no rural hospitals and thus no FY 2005 hospital 
wage index data on which to base the calculation of the FY 2006 hospice 
wage index. Since there was no reasonable proxy for more recent rural 
hospital data within Massachusetts, we proposed to use the pre-floor, 
pre-reclassified hospital wage index data for FY 2005 and apply the FY 
2006 proposed budget neutrality factor. If in the future there are 
rural areas without hospital wage index data from which a hospice wage 
index can be derived, we also proposed to use a comparable methodology 
to derive a wage index. Similarly, if we encounter an urban labor 
market without an urban hospital from which a hospital wage index can 
be derived, we proposed to use all of the urban areas within the State 
as a reasonable proxy for computing a hospice wage index. In these 
circumstances we would calculate the urban wage index value for areas 
without urban hospital data as the average wage index for all urban 
areas within the State. We are not able to apply a similar averaging in 
rural areas, because there would be no rural hospital wage data 
available for averaging on a statewide basis.
    We note that in the proposed rule, a wage index value of 0.8 had 
been incorrectly placed in the tables representing the CBSA wage index 
value for Puerto Rico. In computing the CBSA wage index value for this 
final rule we identified that there were no IPPS hospitals and thus no 
hospital wage index data on which to base calculations of the FY 2006 
hospice wage index for rural Puerto Rico. As noted above, in the 
discussion of a comparable situation in Massachusetts, we applied the 
same methodology of using the FY 2005 pre-floor, pre-reclassified 
hospital wage index data to derive a FY 2006 wage index for rural 
Puerto Rico under the CBSA designations.
    Comment: One commenter noted that a more reasonable proxy for 
determining the wage index for rural areas where there are no hospitals 
is to use data submitted by critical access hospitals.
    Response: As discussed in the proposed rule as well as above, since 
there is no reasonable proxy for more recent rural data within 
Massachusetts and Puerto Rico, we used the FY 2005 pre-floor, pre-
reclassified hospital wage index data to derive a wage index. Since the 
hospital wage data used in the FY 2006 hospice wage index represents 
the most recent data available, we believe that this is the most 
appropriate proxy to use. We intend to use a comparable methodology for 
hospice wage index updates if there are no hospital data to derive a 
wage index in subsequent years. Similarly, if there are urban areas 
without hospital wage index data, we believe that it is reasonable to 
use an average of all of the urban areas within the State as a 
reasonable proxy.
    Since critical access hospitals (CAHs) are not part of the IPPS, 
there is no wage data from the CAHs reflected in the pre-floor, pre-
reclassified hospital wage data used to calculate the hospice wage 
index. As a result, we believe that our proposed methodology can be 
used as a reasonable proxy for areas that have no hospital wage data to 
calculate the area's wage index.
    Comment: We received a number of comments indicating that the 
adoption of the CBSA designations would negatively impact hospice 
agencies due to wage indices being lower than those received in FY 
2005. While specific counties, States, areas and hospice providers were 
cited by the commenters, we are summarizing the comments without 
addressing the specific areas. Commenters cited the movement from MSAs 
to CBSAs as resulting in a decrease in wage index values. One commenter 
stated that over 80 percent of all counties would experience a wage 
index decrease due to the new CBSA designations. These commenters were 
concerned about the impact of these decreases on access to hospice 
care. Several commenters suggested that CMS should ensure that any 
decreases in wage index values should not exceed 2 to 5 percent 
annually. Two commenters disagreed with our statement that in the 
aggregate, hospice agencies would not be negatively impacted. Several 
commenters also expressed concerns with significant swings in the wage 
index values that are often hard to predict. Some commenters asserted 
that more patients would be hospitalized due to the decrease in wage 
index values.
    Response: We appreciate the detailed concerns sent by commenters 
regarding the impact of implementing the CBSA designations on their 
geographic locations or their hospice agency. While these comments only 
addressed the negative impact on commenters' geographic areas or 
hospices, we note that there are a number of geographic locations and 
hospice providers that will be positively impacted upon implementation 
of the CBSA designations.
    As noted above, the hospice wage index is computed annually based 
on the most recent hospital wage data. For the FY 2006 hospice wage 
index, we use the FY 2005 hospital wage data. We also indicated above 
that a budget neutrality adjustment factor is computed annually. Either 
the budget neutrality adjustment factor or the wage index floor is 
applied to the hospital wage data. This results in an adjustment of 6 
to 15 percent above the hospital wage data. We acknowledge that the FY 
2006 budget neutrality adjustment factor computed for this final rule 
is lower than that computed for the proposed rule. We attribute this to 
the use of FY 2004 claims processed through March 2005 for computations 
used in this final rule, in contrast with FY 2003 claims processed 
through June 2004 for computations used in the April 29 proposed rule. 
However, the variability of the budget neutrality adjustment factor in 
previous years is unrelated to the adoption of the CBSA designations. 
We provide the following chart to demonstrate this phenomenon.

----------------------------------------------------------------------------------------------------------------
                                                                            Budget neutrality  Budget neutrality
                 FY regulatory document                  Total expenditure      adjustment         adjustment
                                                                               factor--MSA        factor--CBSA
----------------------------------------------------------------------------------------------------------------
2006 Final Rule........................................     $7,079,595,000           1.060339           1.060988
2006 Proposed Rule.....................................      6,086,726,005           1.064435           1.063479
2005 Notice............................................      5,873,005,000           1.065819                N/A
2004 Notice............................................      3,775,993,000           1.061238                N/A

[[Page 45136]]

 
2003 Notice............................................      3,684,027,000           1.063422                N/A
----------------------------------------------------------------------------------------------------------------

    We recognize that there are areas which will experience a decrease 
in their wage index, but there are also areas which will experience an 
increase. However, as noted by one commenter, variability in wage index 
values occurs each year and has been noted in the hospice wage index 
notices issued annually. While the hospice payment rates are increased 
each year based upon the hospital market basket, the wage index values 
are adjusted based upon the hospital wage data, which may increase or 
decrease. We do not believe that under a prospective payment system, 
wage index values can be assured to increase on an annual basis.
    We disagree that the annual fluctuations are not predictable. Since 
the hospice wage index utilizes the previous year's hospital wage index 
data, it is possible for hospice agencies to review the hospital wage 
index values approximately 1 year before the hospice implements the 
values. We appreciate the comments stating that additional time was 
required for hospice providers to make changes as a result of the new 
designations. However, the adoption of the new CBSA designations has 
been a possibility for over 3 years. In the 1997 hospice wage index 
final rule, we indicated that any changes made by the OMB to the MSA 
designations would be used in calculating the hospice wage index. The 
OMB released its new designations on June 6, 2003. The FY 2005 hospice 
wage index notice indicated that we would be addressing the CBSA 
designations in FY 2006. We believe that this sequence of events 
provided ample time for hospices to become aware of the impending 
changes. While some commenters believed changes to the wage index 
values would result in a risk to access to hospice care, we were not 
provided with any empirical data to support their assumption as to 
whether the reduction was due to the CBSA designations or due to past 
with decreases. We believe that access may in fact improve with the 
increase in wage index values that some areas will experience as a 
result of the CBSA designations.
    We received no suggestions on how the change impacts on access and 
on the financial stability of hospice providers could or should be 
measured. We believe that while in theory this type of measurement 
seems plausible, in reality it would be difficult to do a provider 
level analysis when the site of service is variable and often changes. 
As noted in the April 29, 2005 proposed rule, we did not propose to 
change the methodology used in computing the wage index, and that any 
changes to the methodology would be addressed in future rulemaking.
    We reiterate that, in the aggregate, hospice agencies would not be 
negatively impacted. As discussed above, this final rule only reflects 
the impact of the wage index values on individual hospices, and does 
not reflect total payments for FY 2006. This means that any payment 
projections in this final rule reflect only the change in the wage 
index and does not reflect any changes that incorporate the FY 2006 
payment rates. We also discussed that the FY 2006 payment rates would 
actually increase as a result of the market basket increase and that 
the increased payment rates would be promulgated through administrative 
issuance. We believe that this payment increase, which is not subject 
to the budget neutrality requirement, will offset, in the aggregate, 
any decreases that may occur as a result of the adoption of the CBSA 
designations.
    Comment: We received comments arguing that the implementation of 
the CBSA designations would result in an overall reduction in 
reimbursement. Many commenters stated that due to hospice providers 
facing higher operating costs, CMS should change the rates. Others 
commented that CMS should ensure that rates do not decrease from one 
year to the next.
    Response: While there are counties that will experience a decrease 
in their wage index, overall reimbursement will also reflect the 
payment increase based upon the full market basket. The FY 2006 payment 
rates will be promulgated through administrative issuance.
    Section 1814(i)(1)(C)(ii)(VII) of the Act stipulates that the 
payment rates are to be increased annually by the market basket 
percentage increase. Since the annual payment rate increase is 
promulgated through administrative issuance, hospice providers can 
generally anticipate that their payment rates will be increased. It is 
only the wage component of the FY 2006 payment rates that are subject 
to the wage indices in this final rule.
    Comment: We received many comments requesting that hospices assume 
the wage index value of an adjacent county with a higher wage index. 
One commenter indicated that wage area adjustments should accurately 
reflect wage level differences among areas throughout the nation. The 
same commenter stated that wage areas ``must recognize the realities of 
labor markets'' and that area borders ``are somewhat arbitrary.''
    Response: While specific counties were addressed in the comments, 
we have summarized the content without addressing specific counties and 
requests. On June 6, 2003 the OMB published the new MSA designations (A 
copy of the Bulleting may be obtained at the following internet 
address: https://www.whitehouse.gov/omb/bulletins/b03-04.html.). We 
noted in the August 27, 2004 Federal Register (69 FR 52710), that we 
would be addressing the CBSA designations in the FY 2006 wage index 
update. In that rule we also indicated that OMB had issued the new 
designations. In the FY 2005 proposed rule we indicated that the MSA 
designations as well as the CBSA designations are determined by OMB. 
The OMB reviews its MA definitions preceding each decennial census to 
reflect recent population changes. We also indicated in the proposed 
rule, that we believed that OMB's CBSA designations reflect the most 
recent available geographic classifications and were a reasonable and 
appropriate way to define geographic areas for purposes of wage index 
values. Consequently, we do not believe that the commenter is correct 
in the assertion that area borders are arbitrary, since the OMB has 
defined those borders for the CBSA based on specifically defined 
criteria, as they did for the MSAs.
    While the new designations do negatively impact some hospice 
providers, there are other hospice providers who will be positively 
impacted. Wage index values may fluctuate from year to year based on 
the hospital wage data. Claims used may also fluctuate based upon 
volume and distribution of the payments across providers. As a result, 
wage index values can increase or decrease from year to year, 
regardless if the CBSA designations are adopted.
    As indicated in the discussions above, geographic differences are 
reflected in the wage index values. Wage index values are adjusted 
nationally to all

[[Page 45137]]

MSA values by applying a budget neutrality adjustment factor, which for 
FY 2006 is 1.060988, based on CBSA designation, for those hospices with 
a wage index value greater than or equal to 0.8 and either the budget 
neutrality adjustment factor or the hospice floor of up to 15 percent 
for hospices with a wage index value of less than 0.8.
    Comment: We received many comments that recommend various revisions 
to the proposed labor market definition. Many of these focused on 
specific situations, particularly in those areas in which large MSAs 
were divided into smaller MSAs under the new definition. Some 
commenters suggested that counties should be reclassified as area 
hospitals have been. Others suggested that counties maintain their 
current MSA designation. Some commenters suggested that counties 
receive wage index values comparable to an adjacent CBSA with a higher 
wage index value. Some of the commenters suggested that an appeal 
mechanism be initiated to allow hospices to appeal their 
classifications. Several commenters suggested that a rural floor be 
adopted for areas with low wage index values that are lower than values 
applied to hospitals in rural areas. Several argued that the Secretary 
has broad latitude to address wage index inequities.
    Response: While specific counties were cited in the comments, we 
are responding in general and are not addressing specific counties. As 
noted above, sections 1886(d)(10) and 1886(d)(8)(B) of the Act provide 
for a process by which hospitals may request to be reclassified into 
another geographic area. The statute does not include hospices. Our 
view is that we have no authority to move hospice providers from one 
CBSA to another CBSA designation or to allow hospice agencies to select 
the CBSA designation based upon which designation represents the 
majority of their patients. We believe that this request would require 
a statutory amendment. Our view is that while we do not have the 
authority to reclassify hospice providers into different geographic 
areas, the statute does provide the Secretary with broad authority to 
establish a payment methodology for hospice and as stated above, the 
negotiated rulemaking committee recommended the use of the OMB labor 
market areas for purposes of the wage index. We continue, for reasons 
discussed above, to believe those definitions to be appropriate.
    As noted above hospitals are the only entities that have statutory 
authority to request a geographic reclassification. Providing a 
mechanism of appeal without the authority to reclassify a hospice 
provider would not accord any resolution. We believe that a change in 
the statute would be required in order to implement an appeal process.
    Comment: One commenter indicated ``Because reimbursement is 
calculated according to the residence of the patient, a hospice may 
redirect its marketing efforts to patients living in a county with a 
more favorable wage index * * *''
    Response: While the commenter indicated that this `` * * * lack of 
parity in wage index in contiguous areas could create better access for 
some * * * and more limited access for others,'' this exemplifies the 
difficulty in determining a wage index that would satisfy all hospice 
providers. Furthermore, establishing a national wage index, as 
suggested by one commenter, would not reflect the unique economic 
environment of various geographic areas. As noted, we did not propose 
to change the methodology used in computing the wage index, and that 
any changes to the methodology would be addressed in future rulemaking.
    Comment: We received many comments requesting that the adoption of 
the CBSA designations should be phased in for those areas that will 
experience a decrease in their wage index. One commenter suggested a 1-
year transition period. Several commenters suggested a 3-year 
transition period. Other commenters suggested a transition for an 
unspecified period of time. One commenter suggested that the same hold-
harmless methodology employed by the IPPS in FY 2005 be employed for 
the FY 2006 hospice wage index. A few commenters indicated that CMS is 
incorrect in their interpretation of the regulatory language in Sec.  
418.306(c).
    In addition to the transitioning timeframes for implementing the 
adoption of the CBSA designations, some commenters offered suggestions 
for blending rates. One commenter recommended that the CBSA wage index 
values be implemented if greater than the MSA values. Another commenter 
recommended that 50 percent of the CBSA value and 50 percent of the MSA 
value be blended for 1 year. A commenter recommended that 50 percent of 
the FY 2005 MSA and 50 percent of the FY 2006 CBSA value be blended and 
phased-in over a 2 to 3 year period. Another commenter suggested that a 
hospice with more than a 2 percent decrease in the wage index be 
provided with a 2 to 3 year transition of a blended rate while another 
commenter suggested that the threshold be 1 percent. Several commenters 
recommended other blended percentages of MSA and CBSA values while 
others recommended varying blends with the MSA wage index portion 
greater than the CBSA value.
    Response: We have been persuaded by some of the commenters that 
argue Sec.  418.306(c) has been incorrectly interpreted. A transition 
period had been employed for the initial implementation of the 
methodology developed by the negotiated rulemaking committee. The 
regulatory language that addressed the adoption of any changes to the 
MSA definitions by the OMB did not include that a transition period was 
or was not to be employed when MSA definitions changed. This language 
was proposed and remained unchanged in the August 8, 1997 final rule. 
As indicated in the FY 2006 proposed rule, we were not proposing to 
change the methodology for calculating the hospice wage index overall 
and would address any changes in the methodology in future rulemaking. 
Since we did not propose changing the methodology, we are not amending 
the regulatory language in Sec.  418.306(c).
    However, we received a number of comments concerning the proposed 
implementation of the CBSA designations and the belief that its 
implementation would negatively impact hospice providers. We considered 
these comments in detail and conducted additional analysis regarding 
the impact of implementing the CBSA designations.
    To determine the effect of adopting the CBSA designations on 
providers, we analyzed providers based on their current MSA designation 
to determine the impact on adopting the CBSA designations. We 
determined that most providers will experience less than a 5.0 percent 
change in their wage index values under the CBSA designations. One 
hundred thirty hospices, representing 5.0 percent of the 2,583 hospice 
providers will experience a decrease of 5.0 percent or greater when 
adopting the CBSA designations. Seventy-three of the 969 rural hospices 
and 57 of the 1,614 urban hospices will experience a decrease of 5.0 
percent or more as a result of the migration from MSA to CBSA.
    Likewise 97 hospice providers representing 3.8 percent of the 2,583 
hospices will experience an increase of 5.0 percent or more when we 
adopt the CBSA designations. Seventy-four of the 969 rural hospice 
providers and 23 of the 1,614 urban hospice providers will experience 
an increase of 5.0 percent or greater.

[[Page 45138]]

    As shown below, the majority of providers will experience an 
increase or decrease ranging from 0 to 1.0 percent. Of the 2,583 
hospice providers (of which 1,614 were designated urban and 969 as 
rural under the MSA designations), 998 of the urban providers and 310 
of the rural providers will experience an increase of approximately 1.0 
percent under the CBSA designations. A decrease of approximately 1.0 
percent will be experienced by 294 rural providers and 275 of the urban 
providers.
    The increase and decrease in the wage index appears to be primarily 
attributed to the change from urban to rural designations under the 
CBSAs. In other words, providers that were designated as urban under 
the MSA designations, who are now classified as rural under the CBSA 
designations, generally will experience a decrease in their wage index. 
Providers designated as rural under the MSA designations, that are 
classified as urban under the CBSA designations generally will 
experience an increase in their wage index. A rural hospice may 
experience a decrease in its wage index if a high-wage hospital in its 
rural area is redesignated as urban under the CBSA designation. Since 
the high-wage hospital would no longer be in the same area as the rural 
hospice, the hospital's wage data would not be used in calculating the 
rural rate.
    Next, the State county codes were analyzed to determine if the 
observations by provider were consistent to the findings by geographic 
area. Our findings were similar to that discussed above. Of the 3,273 
counties, 287 (8.8 percent) are anticipated to experience a 5.0 percent 
or greater decrease. Of the 3,273 counties, 222 rural counties (6.8 
percent) and 65 urban counties (2.0 percent) are anticipated to 
experience a 5.0 percent or greater decrease in their wage index. Of 
the 3,273 counties, 252 counties (7.7 percent) are anticipated to 
experience a 5.0 percent or greater increase in their wage index. Of 
these 252 counties, 229 rural counties (7.0 percent) and 23 urban 
counties (0.7 percent) are anticipated to experience an increase in 
their wage index.
    As a result of numerous public comments and based on our subsequent 
analysis, we evaluated different options which could mitigate the 
effects of OMB's new designation system while remaining budget neutral 
to the 1983 wage index methodology and to what we would pay had we 
fully implemented the CBSA designations. We determined that a blended 
wage index comprised of 50 percent of the wage index that counties 
would have received had the MSA designations remained in effect and 50 
percent of the wage index that counties will receive under the CBSA 
designations was the most equitable option. This blending would take 
place after the budget neutrality adjustment factor was applied to the 
MSA and the CBSA wage index. As the MSA and the CBSA wage index values 
used budget neutrality adjustment factors (1.060339 and 1.060988, 
respectively), the computed wage index for all areas contains a unique 
budget neutrality adjustment.
    The charts below describe the difference by hospice providers and 
by counties based upon full implementation of the wage index under the 
CBSA designations (Before Adjustment) and upon implementation of the 
blended wage (After Adjustment). The blended wage index centers most 
providers and counties within the range of less than 5.0 percent 
increase or decrease in their wage index. We believe that this will 
mitigate any wide fluctuations in wage index values. We are 
implementing this blended wage index as a one-time only transition for 
FY 2006. We will be using the CBSA designations in future rulemaking in 
accordance with Sec.  418.306(c) and the methodology established by the 
negotiated rulemaking committee. Any changes in the methodology for 
calculating the hospice wage index values will be discussed in future 
rulemaking.
    This computation for only FY 2006 allows us to be budget neutral to 
1983 as well as to what would have occurred had this computation not 
been done. We believe that this is in compliance with our regulations 
at Sec.  418.306(c), since we have computed a wage index using the 
latest MSA designations and we are not proposing a longer term 
transition in adopting the CBSA designations. Subsequent wage index 
computations for FY 2007 and after will be computed solely on the CBSA 
designations. Any departure from this methodology will be discussed in 
future rulemaking.

----------------------------------------------------------------------------------------------------------------
                                                       Before adjustment                 After adjustment
                                               ------------------------------------------------------------