Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2007 and Deficit Reduction Act of 2005 Changes to Medicare Payment for Oxygen Equipment and Capped Rental Durable Medical Equipment; Final Rule, 65884-66006 [06-9068]

Agencies

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

[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Rules and Regulations]
[Pages 65884-66006]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-9068]



[[Page 65883]]

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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 Parts 414 and 484



Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2007 and Deficit Reduction Act of 2005 Changes to 
Medicare Payment for Oxygen Equipment and Capped Rental Durable Medical 
Equipment; Final Rule

Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / 
Rules and Regulations

[[Page 65884]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 414 and 484

[CMS-1304-F]
RIN 0938-AN76


Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2007 and Deficit Reduction Act of 2005 Changes 
to Medicare Payment for Oxygen Equipment and Capped Rental Durable 
Medical Equipment; Final Rule

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth an update to the 60-day national 
episode rates and the national per-visit amounts under the Medicare 
prospective payment system for home health services. In addition, this 
final rule sets forth policy changes related to Medicare payment for 
certain durable medical equipment for the purpose of implementing 
sections 1834(a)(5) and 1834(a)(7) of the Social Security Act, as 
amended by section 5101 of the Deficit Reduction Act of 2005. This 
final rule also responds to public comments on the August 3, 2006, 
proposed rule that pertain to a number of issues including the 
requirement that home health payments are based on the reporting of 
specific quality data by home health agencies.

DATES: Effective Date: These regulations are effective on January 1, 
2007.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131, or 
Sharon Ventura, (410) 786-1985 (for issues related to the home health 
prospective payment system). Doug Brown, (410) 786-0028 (for issues 
related to reporting home health quality data). Alexis Meholic, (410) 
786-2300 (for issues related to payments for oxygen equipment and 
capped rental durable medical equipment).

SUPPLEMENTARY INFORMATION: 

I. Background

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.
    On February 8, 2006, the Congress enacted the Deficit Reduction Act 
(DRA) of 2005 (Pub. L. 109-171). This legislation made additional 
changes to the HH PPS.
    Section 5201 of the DRA changed the CY 2006 update from the 
applicable home health market basket percentage increase minus 0.8 
percentage points to a 0 percent update.
    Section 5201 of the DRA amended section 421(a) of the MMA. The 
amended section 421(a) of the MMA requires, for home health services 
furnished in a rural area (as defined in section 1886(d)(2)(D) of the 
Act) with respect to episodes and visits beginning on or after January 
1, 2006 and before January 1, 2007, that the Secretary increase by 5 
percent the payment amount otherwise made under section 1895 of the 
Act. The statute waives budget neutrality for purposes of this increase 
as it specifically requires that the Secretary not reduce the standard 
prospective payment amount (or amounts) under section 1895 of the Act 
applicable to home health services furnished during a period to offset 
the increase in payments resulting in the application of this section 
of the statute.
    The 0 percent update to the payment rates and the rural add-on 
provisions of the DRA were implemented through Pub. 100-20, One Time 
Notification, Transmittal 211 issued February 10, 2006.
    In addition, section 5201(c) of the DRA amends the statute to add 
section 1895(b)(3)(B)(v) to the Act, requiring HHAs to submit data for 
purposes of measuring health care quality. This requirement is 
applicable for 2007 and each subsequent year. For 2007 and each 
subsequent year, in the case of a HHA that does not submit quality 
data, the home health market basket percentage increase would be 
reduced by 2 percentage points.

B. Updates

1. 2000 Final Rule
    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 a 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 home

[[Page 65885]]

health services, 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.
2. 2005 Final Rule
    On November 9, 2005, we published a final rule (70 FR 68132), 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 services for CY 2006. As part of that final 
rule, we adopted revised area labor market Metropolitan Statistical 
Area designations for CY 2006. In implementing the new area labor 
market designations, we allowed for a 1-year transition period. This 
transition consists of a blend of 50 percent of the new area labor 
market designations' wage index and 50 percent of the previous area 
labor market designations' wage index. In addition, we revised the 
fixed dollar loss ratio, which is used in the calculation of outlier 
payments.

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).

D. Changes in Payment for Oxygen and Oxygen Equipment and Other Durable 
Medical Equipment (Capped Rental Items)

    The Medicare payment rules for durable medical equipment (DME) are 
set forth in section 1834(a) of the Act and 42 CFR part 414, subpart D 
of our regulations. General payment rules for DME are set forth in 
section 1834(a)(1) of the Act and Sec.  414.210 of our regulations, and 
Sec.  414.210 also contains paragraphs relating to maintenance and 
servicing of items and replacement of items. Specific rules for oxygen 
and oxygen equipment are set forth in section 1834(a)(5) of the Act and 
Sec.  414.226 of our regulations, and specific rules for capped rental 
items are set forth in section 1834(a)(7) of the Act and Sec.  414.229 
of our regulations. Rules for determining a period of continuous use 
for the rental of DME are set forth in Sec.  414.230 of our 
regulations. The Medicare payment basis for DME is equal to 80 percent 
of either the lower of the actual charge or the fee schedule amount for 
the item. The beneficiary coinsurance is equal to 20 percent of either 
the lower of the actual charge or the fee schedule amount for the item.
    In accordance with the rules set forth in section 1834(a)(5) of the 
Act and Sec.  414.226 of our regulations, since 1989, suppliers have 
been paid monthly for furnishing oxygen and oxygen equipment to 
Medicare beneficiaries. Suppliers have also been paid an add-on fee for 
furnishing portable oxygen equipment to patients when medically 
necessary. Before the enactment of the DRA, these monthly payments 
continued for the duration of use of the equipment, provided that 
Medicare Part B coverage and eligibility criteria were met. Medicare 
covers three types of oxygen delivery systems: (1) Stationary or 
portable oxygen concentrators, which concentrate oxygen in room air; 
(2) stationary or portable liquid oxygen systems, which use oxygen 
stored as a very cold liquid in cylinders and tanks; and (3) stationary 
or portable gaseous oxygen systems, which administer compressed oxygen 
directly from cylinders. Both liquid and gaseous oxygen systems require 
delivery of oxygen contents.
    Medicare payment for furnishing oxygen and oxygen equipment is made 
on a monthly basis and the fee schedule amounts vary by State. Payment 
for oxygen contents for both stationary and portable equipment is 
included in the fee schedule allowances for stationary equipment. 
Medicare fee schedules for home oxygen equipment are modality neutral; 
meaning that in a given State, there is one fee schedule amount that 
applies to all stationary systems and one fee schedule amount that 
applies to all portable systems.
    Effective January 1, 2006, section 5101(b) of the DRA amended the 
Act at section 1834(a)(5) of the Act, limiting to 36 months the total 
number of continuous months for which Medicare will pay for oxygen 
equipment on a rental basis. At the end of the 36-month period, this 
section mandates that the supplier transfer title to the stationary and 
portable oxygen equipment to the beneficiary. Section 5101(b) of the 
DRA does not, however, limit the number of months for which Medicare 
will pay for oxygen contents for beneficiary-owned stationary or 
portable gaseous or liquid systems, and payment will continue to be 
made as long as the oxygen remains medically necessary. Section 5101(b) 
of the DRA also provides that payment for reasonable and necessary 
maintenance and servicing of beneficiary-owned oxygen equipment will be 
made for parts and labor not covered by a supplier's or manufacturer's 
warranty. In the case of beneficiaries using oxygen equipment on 
December 31, 2005, the 36-month rental period prescribed by the DRA 
begins on January 1, 2006.
    In accordance with the rules set forth in section 1834(a)(7) of the 
Act and Sec.  414.229 of our regulations, before the enactment of the 
DRA, suppliers of capped rental items (that is, other DME not described 
in paragraphs (2) through (6) of section 1834(a) of the Act) were paid 
on a rental or purchase option basis. Payment for most items in the 
capped rental category was made on a monthly rental basis, with rental 
payments being capped at 15 months or 13 months, depending on whether 
the beneficiary chose to continue renting the item or to take over 
ownership of the item through the ``purchase option.'' For all capped 
rental items, the supplier was required to inform the beneficiary of 
his or her purchase option, during the 10th rental month, to enter into 
a purchase agreement under which the supplier would transfer title to 
the item to the beneficiary on the first day after the 13th continuous 
month during which payment was made for the rental of the item. 
Therefore, if the beneficiary chose the purchase option, rental 
payments to the supplier would continue through the 13th month of 
continuous use of the equipment, after which time title to the 
equipment would transfer from the supplier to the beneficiary. Medicare 
would also make payment for any reasonable and necessary repair or 
maintenance and servicing of the equipment following the transfer of 
title. If the beneficiary did not choose the purchase option, rental 
payments would continue through the 15th month of continuous use. In 
these cases, suppliers would maintain title to the equipment but would 
have to continue furnishing the item to the beneficiary as long as 
medical necessity continued. Beginning 6 months after the 15th month of 
continuous use in which payment was made, Medicare would also make 
semi-annual maintenance and servicing payments to suppliers. These 
payments were approximately equal to 10 percent

[[Page 65886]]

of the purchase price for the equipment as determined by the statute. 
Total Medicare payments made through the 13th and 15th months of rental 
equal 105 and 120 percent, respectively, of the purchase price for the 
equipment.
    In the case of power-driven wheelchairs, since 1989 payment has 
also been made on a lump-sum purchase basis at the time that the item 
is initially furnished to the beneficiary if the beneficiary chooses to 
obtain the item in this manner. Most beneficiaries choose to obtain 
power-driven wheelchairs via this lump-sum purchase option.
    Effective for items for which the first rental month occurs on or 
after January 1, 2006, section 5101(a) of the DRA of 2005 amended 
section 1834(a)(7) of the Act, limiting to 13 months the total number 
of continuous months for which Medicare will pay for DME in this 
category. After a 13-month period of continuous use during which rental 
payments are made, the statute requires that the supplier transfer 
title to the equipment to the beneficiary. Beneficiaries may still 
elect to obtain power-driven wheelchairs on a lump-sum purchase 
agreement basis. In all cases, payment for reasonable and necessary 
maintenance and servicing of beneficiary-owned equipment will be made 
for parts and labor not covered by the supplier's or manufacturer's 
warranty.

E. Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA also states that the timelines for these regulations may 
vary but shall not exceed 3 years after publication of the preceding 
proposed or interim final regulation except under exceptional 
circumstances.
    This final rule finalizes provisions set forth in the August 3, 
2006 proposed rule. In addition, this final rule has been published 
within the 3-year time limit imposed by section 902 of the MMA. 
Therefore, we believe that the final rule is in accordance with the 
Congress' intent to ensure timely publication of final regulations.

II. Provisions of the Proposed Regulations

    We published a proposed rule in the Federal Register on August 3, 
2006 (71 FR 44081) that set forth a proposed update to the 60-day 
national episode rates and the national per-visit amounts under the 
Medicare prospective payment system for home health services. In 
addition, that proposed rule set forth proposed policy changes related 
to Medicare payment for certain durable medical equipment for the 
purpose of implementing sections 1834(a)(5) and 1834(a)(7) of the 
Social Security Act, as amended by section 5101 of the Deficit 
Reduction Act of 2005. That proposed rule also invited comments on a 
number of issues including payments based on reporting quality data, 
the adoption of health information technology, as well as how to 
improve data transparency for consumers.

A. National Standardized 60-Day Episode Rate

    The 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 the Medicare HH PPS 
is a national standardized 60-day episode rate. As set forth in Sec.  
484.220, we adjust the national standardized 60-day episode rate by a 
case mix grouping and a wage index value based on the site of service 
for the beneficiary. The proposed CY 2007 HH PPS rates used 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 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 annual percentage update. To 
reflect section 1895(b)(3)(B)(v) of the Act, as added by section 5201 
of the DRA, we proposed to revise Sec.  484.225, paragraph (g) as 
follows:

    (g) For 2007 and subsequent calendar years, the unadjusted 
national rate is equal to the rate for the previous calendar year 
increased by the applicable home health market basket index amount 
unless the HHA has not submitted quality data in which case the 
unadjusted national rate is equal to the rate for the previous 
calendar year increased by the applicable home health market basket 
index amount minus 2 percentage points.

    For CY 2007, we proposed 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 2007, we will 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.F of the August 3, 2006 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 
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 will 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.F of the August 3, 2006 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 Sec.  484.205(b)(2). We 
may base the initial percentage payment on the submission of a request 
for anticipated payment (RAP) and the final percentage payment on the 
submission of the claim for the episode, as discussed in Sec.  409.43. 
The claim for the episode that the HHA submits for the final percentage 
payment determines the total payment amount for the episode and whether 
we make an applicable adjustment to the 60-day case-mix and wage-
adjusted episode payment. The end date of the 60-day episode as 
reported on the claim determines which calendar year rates Medicare 
would use to pay the claim.
    We may also adjust the 60-day case-mix and wage-adjusted episode 
payment based on the information submitted on the claim to reflect the 
following:

[[Page 65887]]

     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.

B. CY 2007 Update to the Home Health Market Basket Index

    Section 1895(b)(3)(B) of the Act, as amended by section 5201 of the 
DRA, requires for CY 2007 that the standard prospective payment amounts 
be increased by a factor equal to the applicable home health market 
basket update. The proposed rule contained a home health market basket 
update of 3.1 percent. Since publication of the proposed rule, we have 
estimated a new home health market basket update of 3.3 percent for CY 
2007.
CY 2007 Adjustments
    In calculating the annual update for the CY 2007 60-day episode 
rates, we first look at the CY 2006 rates as a starting point. The CY 
2006 national 60-day episode rate, as modified by section 5201(a)(4) of 
the DRA (and implemented through Pub. 100-20, One Time Notification, 
Transmittal 211 issued February 10, 2006) is $2,264.28.
    In order to calculate the CY 2007 national 60-day episode rate, we 
multiply the CY 2006 national 60-day episode rate ($2,264.28) by the 
estimated home health market basket update of 3.3 percent for CY 2007. 
The estimated home health market basket percentage increase reflects 
changes over time in the prices of an appropriate mix of goods and 
services included in covered home health services. The estimated home 
health market basket percentage increase is generally used to update 
the HH PPS rates on an annual basis.
    We increase the CY 2006 60-day episode payment rate by the 
estimated home health market basket update (3.3 percent) ($2,264.28 x 
1.033) to yield the updated CY 2007 national 60-day episode rate 
($2,339.00) (see Table 1 below). The CY 2007 HH PPS rates apply to 
episodes ending on or after January 1, 2007, and before January 1, 
2008.

Table 1.--National 60-Day Episode Amounts Updated by the Estimated Home Health Market Basket Update for CY 2007,
                                           Before Case-Mix Adjustment
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                                         Multiply by the Estimated Home
  Total CY 2006 Prospective Payment     Health Market Basket Update (3.3       CY 2007 Updated National 60-Day
      Amount Per 60-day Episode                    Percent)\1\                          Episode Rate
----------------------------------------------------------------------------------------------------------------
                    $2,264.28                               x 1.033                             $2,339.00
----------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
  3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.

National Per-Visit Amounts Used To Pay LUPAs and Compute Imputed Costs 
Used in Outlier Calculations
    As discussed previously in the August 3, 2006 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 2007. In 
calculating the annual update for the CY 2007 national per-visit 
amounts we use to pay LUPAs and to compute the imputed costs in outlier 
calculations, we look again at the CY 2006 rates as a starting point. 
We then multiply those amounts by the estimated home health market 
basket update for CY 2007 (3.3 percent) to yield the updated per-visit 
amounts for each home health discipline for CY 2007 (episodes ending on 
or after January 1, 2007, and before January 1, 2008) (see Table 2 
below).

  Table 2.--National Per-Visit Amounts for LUPAs and Outlier Calculations Updated by the Estimated Home Health
                                        Market Basket Update for CY 2007
----------------------------------------------------------------------------------------------------------------
                                                                             Multiply by the
                                                         Final CY 2006 per-   estimated home   CY 2007 per-visit
              Home health discipline type                visit amounts per    health market      payment amount
                                                           60-day episode      basket (3.3       per discipline
                                                             for LUPAs         percent) \1\        for LUPAs
----------------------------------------------------------------------------------------------------------------
Home Health Aide.......................................             $44.76            x 1.033             $46.24
Medical Social Services................................             158.45            x 1.033             163.68
Occupational Therapy...................................             108.81            x 1.033             112.40
Physical Therapy.......................................             108.08            x 1.033             111.65
Skilled Nursing........................................              98.85            x 1.033             102.11
Speech-Language Pathology..............................             117.44            x 1.033             121.32
----------------------------------------------------------------------------------------------------------------
\1\ The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
  3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.

C. Rural Add-On

    As stated above, section 5201(b) of the DRA requires, for home 
health services furnished in a rural area (as defined in section 
1886(d)(2)(D) of the Act) with respect to episodes and visits beginning 
on or after January 1, 2006 and before January 1, 2007, that the 
Secretary increase by 5 percent the payment amount otherwise made under 
section 1895 of the Act. The statute waives budget neutrality related 
to this provision as it specifically states that the Secretary shall 
not reduce the standard prospective payment amount (or amounts) under 
section 1895 of the Act applicable to home health services furnished 
during a period to offset the increase in payments resulting in the 
application of this section of the statute.
    While the rural add-on primarily affects those episodes paid based 
on CY 2006 rates, it also affects a number of CY 2007 episodes. For 
example, an episode that begins on December 20, 2006 and ends on 
February 17, 2007 for services furnished in a rural area, will be paid 
based on CY 2007 rates because the episode ends on or after January 1, 
2007 and before January 1, 2008; and the

[[Page 65888]]

episode will also receive the rural add-on because the episode begins 
on or after January 1, 2006 and before January 1, 2007.
    The applicable case-mix and wage index adjustment is subsequently 
applied to the 60-day episode amount for the provision of home health 
services where the site of service for the beneficiary is a non-
Metropolitan Statistical Area (MSA). Similarly, the applicable wage 
index adjustment is subsequently applied to the LUPA per-visit amounts 
adjusted for the provision of home health services where the site of 
service for the beneficiary is a non-MSA area. We implemented this 
provision for CY 2006 on February 13, 2006 through Pub. 100-20, One 
Time Notification, Transmittal 211 issued February 10, 2006. The 5 
percent rural add-on is noted in tables 3 and 4 below.

     Table 3.--Payment Amounts for 60-Day Episodes Beginning in CY 2006 and Ending in CY 2007 Updated by the
      Estimated Home Health Market Basket Update for CY 2007 with Rural Add-on, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
                                                                              CY 2007 Payment amount per 60-day
                                                                              episode beginning in CY 2006 and
  CY 2007 Total prospective payment          5 Percent rural add-on         before January 1, 2007 and ending in
      amount per 60-day episode                                                 CY 2007 for a beneficiary who
                                                                                  resides in a non-MSA area
----------------------------------------------------------------------------------------------------------------
                       $2,339                                x 1.05                             $2,455.95
----------------------------------------------------------------------------------------------------------------


  Table 4.--Per-Visit Amounts for Episodes Beginning in CY 2006 and Ending in CY 2007 Updated by the Estimated
                         Home Health Market Basket Update for CY 2007 with Rural Add-on
----------------------------------------------------------------------------------------------------------------
                                                                                               CY 2007 per-visit
                                                                                                 payment amount
                                                                                                 per discipline
                                                                                                   for 60-day
                                                                                                    episodes
                                                         CY 2007 Per-visit  Multiply by the 5   beginning on or
              Home health discipline type                     amounts       percent rural add-  after January 1,
                                                                                    on           in CY 2006 and
                                                                                               ending in CY 2007
                                                                                               for a beneficiary
                                                                                                who resides in a
                                                                                                  non-MSA area
----------------------------------------------------------------------------------------------------------------
Home Health Aide.......................................             $46.24             x 1.05             $48.55
Medical Social Services................................             163.68             x 1.05             171.86
Occupational Therapy...................................             112.40             x 1.05             118.02
Physical Therapy.......................................             111.65             x 1.05             117.23
Skilled Nursing........................................             102.11             x 1.05             107.22
Speech-Language Pathology..............................             121.32             x 1.05             127.39
----------------------------------------------------------------------------------------------------------------

D. Home Health Care Quality Improvement

    Section 5201(c)(2) of the DRA added section 1895(b)(3)(B)(v)(II) to 
the Act, requiring that ``each home health agency shall submit to the 
Secretary such data that the Secretary determines are appropriate for 
the measurement of health care quality. Such data shall be submitted in 
a form and manner, and at a time, specified by the Secretary for 
purposes of this clause.'' In addition, section 1895(b)(3)(B)(v)(I) of 
the Act, as also added by section 5201(c)(2) of the DRA, dictates that 
``for 2007 and each subsequent year, in the case of a home health 
agency that does not submit data to the Secretary in accordance with 
subclause (II) with respect to such a year, the home health market 
basket percentage increase applicable under such clause for such year 
shall be reduced by 2 percentage points.''
    The Omnibus Budget Reconciliation Act of 1987 (OBRA 87) required 
the use of a standardized assessment instrument for quality oversight 
of HHAs. A standardized assessment instrument provides an HHA with a 
uniform mechanism to assess the needs of their patients and provide CMS 
with a uniform mechanism to assess the HHA's ability to adequately 
address those needs. To fulfill the OBRA 87 mandate, CMS required that, 
as part of their comprehensive assessment process, HHAs collect and 
report Outcome and Assessment Information Set (OASIS) data and later 
mandated the submission of this data as a Medicare Condition of 
Participation for home health agencies at 42 CFR 484.20 and 484.55.
    The OASIS data provide consumers and HHAs with ten publicly-
reported home health quality measures which have been endorsed by the 
National Quality Forum (NQF). Reporting this quality data has also 
required the development of several supporting mechanisms such as the 
HAVEN software used to encode and transmit data using a CMS standard 
electronic record layout, edit specifications, and data dictionary. Use 
of the HAVEN software, which includes the OASIS, has become a standard 
practice within HHA operations. These early investments in data 
infrastructure and supporting software that CMS and HHAs have made over 
the past several years in order to create this quality reporting 
structure, have made quality reporting and measurement an important 
component of the HHA industry. The 10 measures are:

(1) Improvement in ambulation/locomotion
(2) Improvement in bathing
(3) Improvement in transferring
(4) Improvement in management of oral medications
(5) Improvement in pain interfering with activity
(6) Acute care hospitalization
(7) Emergent care
(8) Improvement in dyspnea
(9) Improvement in urinary incontinence
(10) Discharge to community

    We proposed to use OASIS data and the 10 quality measures based on 
those data as the appropriate measure of home health quality for CY 
2007. Continuing to use the OASIS instrument minimizes

[[Page 65889]]

the burden to providers and ensures that costs associated with the 
development and testing of a new reporting mechanism are not incurred. 
We believe that the noted 10 quality measures are the most appropriate 
measure of home health quality. Accordingly, for CY 2007, we proposed 
to require that the OASIS data, specifically the 10 quality measures, 
be submitted by HHAs, to meet the requirement that each HHA submit data 
appropriate for the measurement of health care quality, as determined 
by the Secretary.
    Additionally, section 1895(b)(3)(B)(v)(II) of the Act provides the 
Secretary with the discretion to require the submission of the required 
data in a form, manner, and time specified by him. For CY 2007, we 
proposed to consider OASIS data submitted by HHAs to CMS for episodes 
beginning on or after July 1, 2005 and before July 1, 2006 as meeting 
the reporting requirement. This proposed reporting time period would 
allow a full 12 months of data and provides CMS the time necessary to 
analyze and make any necessary payment adjustments to the CY 2007 
payment rates for HHAs that fail to meet the reporting requirement. 
HHAs that met the reporting requirement would be eligible for the full 
home health market basket percentage increase. Using historical data to 
determine a prospective update is also used for hospital pay for 
reporting.
    As discussed in the August 3, 2006 proposed rule, during the next 
few years, we noted that we would be pursuing the development of 
patient level process measures for home health agencies. We also 
proposed to continue to refine the current OASIS tool in response to 
recommendations from a Technical Expert Panel conducted to review the 
data elements that make up the OASIS tool. These process measures would 
refer to specific care practices that are, or are not, followed by the 
home health agency for each patient. An example of this type of measure 
may be: the percentage of patients at risk of falls for whom prevention 
of falls was addressed in the care plan. We expect to introduce these 
additional measures over CY 2008 and CY 2009 so as to complement the 
existing OASIS outcome measures. During the years leading to CY 2010 
payments, we will test and refine these measures to determine if they 
can more accurately reflect the level of quality care being provided at 
HHAs without being overly burdensome with the data collection 
instrument. Some process measures are in the very early stages of 
development. To the extent that evidence-based data are available on 
which to determine the appropriate measure specifications, and adequate 
risk-adjustments are made, we anticipate collecting and reporting these 
measures as part of each agency's home health quality plan. We believe 
that future modifications to the current OASIS tool including reducing 
the number of questions on the tool, refining possible responses, as 
well as adding new process measures will be made. In all cases, we 
anticipate that any future quality measures should be evidence-based, 
clearly linked to improved outcomes, and able to be reliably captured 
with the least burden to the provider. We are also beginning work in 
order to measure patient experience of care (in the form of a patient 
satisfaction survey) in the home health setting.
    We recognize, however, that the conditions of participation (42 CFR 
part 484) that require OASIS submission also provide for exclusions 
from this requirement. Generally, agencies are not subject to the OASIS 
submission requirement, and thus do not receive Medicare payments, for 
patients that are not Medicare beneficiaries or for patients that are 
not receiving Medicare-covered home health services. Under the 
conditions of participation, agencies are excluded from the OASIS 
reporting requirement on individual patients if:
     Those patients are receiving only non-skilled services,
     Neither Medicare nor Medicaid is paying for home health 
care (patients receiving care under a Medicare or Medicaid Managed Care 
Plan are not excluded from the OASIS reporting requirement),
     Those patients are receiving pre- or post-partum services,
     Those patients are under 18 years of age.
    We believe that the rationale behind our proposal to exclude these 
agencies from submitting OASIS data on patients excluded from OASIS 
submission as a condition of participation is equally applicable to 
HHAs for purposes of meeting the DRA quality data reporting 
requirement. If an agency is not submitting OASIS for patients excluded 
from OASIS submission as a condition of participation, we believe that 
the submission of OASIS data for quality measures for Medicare payment 
purposes is also not necessary. Accordingly, we proposed that HHAs 
would not need to submit quality measures for DRA reporting purposes 
for those patients who are excluded from OASIS submission as a 
condition of participation.
    Additionally, we proposed that agencies that are newly certified 
(on or after May 31, 2006 for payments to be made in CY 2007) would be 
excluded from the DRA reporting requirement as data submission and 
analysis would not be possible for an agency certified this late in the 
reporting time period. In future years, agencies that certify on or 
after May 31 of the preceding year involved would be excluded from any 
payment penalty under the DRA for the following calendar year. For 
example, for purposes of determining compliance with the quality data 
reporting requirement for CY 2007, if HHA ``X'' were to enroll in the 
Medicare Program on or before May 30, 2006, CMS would expect HHA ``X'' 
to submit the required quality data (unless covered by another 
exclusion protocol) on or before June 30, 2006 (the end of the 
reporting period for payments effectuated in CY 2007). However, if HHA 
``Y'' was to enroll in the Medicare Program on or after May 31, 2006, 
CMS would automatically exclude HHA ``Y'' from the DRA quality data 
reporting requirements and the agency would be entitled to the full 
market basket increase for CY 2007. We note that these proposed 
exclusions would only affect reporting requirements under the DRA and 
would not otherwise affect the agency's OASIS reporting 
responsibilities under the conditions of participation.
    We proposed to require that all HHAs, unless covered by these 
specific exclusions, meet the reporting requirement, or be subject to a 
2 percent reduction in the home health market basket percentage 
increase in accordance with section 1895(b)(3)(B)(v)(I) of the Act. The 
2 percent reduction would apply to all episodes ending on or before 
December 31, 2007. We provide the reduced payment rates in tables 5, 6, 
7, and 8 below.

[[Page 65890]]



 Table 5.--For HHAs That Do Not Submit the Required Quality Data-- National 60-Day Episode Amount Updated by the
  Estimated Home Health Market Basket Update for CY 2007, Minus 2 Percentage Points, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
                                         Multiply by the estimated home        CY 2007 updated national 60-day
  Total CY 2006 prospective payment     health market basket update (3.3      episode rate for HHAs that do not
      amount per 60-day episode           Percent \1\ minus 2 percent)          submit required quality data
----------------------------------------------------------------------------------------------------------------
                    $2,264.28                               x 1.013                            $2,293.72
----------------------------------------------------------------------------------------------------------------
\1\The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
  3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.


    Table 6--For HHAs That Do Not Submit the Required Quality Data--National Per-Visit Amounts Updated by the
                Estimated Home Health Market Basket Update for CY 2007, Minus 2 Percentage Points
----------------------------------------------------------------------------------------------------------------
                                                                                               CY 2007 per-visit
                                                                             Multiply by the     payment amount
                                                         Final CY 2006 per-   estimated home     per discipline
              Home health discipline type                visit amounts per    health market     for HHAs that do
                                                           60-day episode     basket update        not submit
                                                                             (3.3 percent \1\   required quality
                                                                             minus 2 percent)         data
----------------------------------------------------------------------------------------------------------------
Home Health Aide.......................................             $44.76            x 1.013             $45.34
Medical Social Services................................             158.45            x 1.013             160.51
Occupational Therapy...................................             108.81            x 1.013             110.22
Physical Therapy.......................................             108.08            x 1.013             109.49
Skilled Nursing........................................              98.85            x 1.013             100.14
Speech-Language Pathology..............................             117.44            x 1.013            118.97
----------------------------------------------------------------------------------------------------------------
\1\The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
  3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.


 Table 7.--For HHAs That Do Not Submit the Required Quality Data-- Payment Amount for 60-Day Episodes Beginning
    in CY 2006 and Ending in CY 2007 Updated by the Estimated Home Health Market Basket for CY 2007, Minus 2
                        Percentage Points, with Rural Add-on, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
                                                                              CY 2007 Payment amount per 60-day
                                                                              episode beginning in CY 2006 and
   CY 2007 Updated national 60-day                                           ending in CY 2007 for a beneficiary
  episode rate for HHAs that do not          5 Percent rural add-on           who resides in a non-MSA area for
    submit required quality data                                              HHAs that do not submit required
                                                                                        quality data
----------------------------------------------------------------------------------------------------------------
                    $2,293.72                                x 1.05                             $2,408.41
----------------------------------------------------------------------------------------------------------------


     Table 8--For HHAs That Do Not Submit the Required Quality Data-- Per-Visit Payment Amounts for Episodes
Beginning in CY 2006 and Ending in CY 2007 Updated by the Estimated Home Health Market Basket for CY 2007, Minus
                                     2 Percentage Points, with Rural Add-on
----------------------------------------------------------------------------------------------------------------
                                                                                               CY 2007 Per-visit
                                                                                                payment amounts
                                                                                                  for episodes
                                                                                                beginning in CY
                                                         CY 2007 Per-visit                      2006 and ending
                                                          amounts for HHAs   5 Percent rural    in CY 2007 for a
              Home health discipline type                   that do not           add-on        beneficiary who
                                                          submit required                      resides in a non-
                                                            quality data                       MSA area for HHAs
                                                                                                  that do not
                                                                                                submit required
                                                                                                  quality data
----------------------------------------------------------------------------------------------------------------
Home Health Aide.......................................             $45.34             x 1.05             $47.61
Medical Social Services................................             160.51             x 1.05             168.54
Occupational Therapy...................................             110.22             x 1.05             115.73
Physical Therapy.......................................             109.49             x 1.05             114.96
Skilled Nursing........................................             100.14             x 1.05             105.55
Speech-Language Pathology..............................             118.97             x 1.05             124.92
----------------------------------------------------------------------------------------------------------------

    Section 1895(b)(3)(B)(v)(III) of the Act further requires that the 
``Secretary shall establish procedures for making data submitted under 
subclause (II) available to the public.'' Additionally, the statute 
requires that ``such procedures shall ensure that a home health agency 
has the opportunity to review the data that is to be made public with 
respect to the agency prior to such data being made public.'' To meet 
the requirement for making such data public, we proposed

[[Page 65891]]

to continue to use the CMS Home Health Compare Web site whereby HHAs 
are listed geographically. Currently the 10 proposed quality measures 
are posted on the CMS Home Health Compare Web site. Consumers can 
search for all Medicare-approved home health providers that serve their 
city or zip code and then find the agencies offering the types of 
services they need as well as the required quality measures. See http:/
/www.medicare.gov/HHCompare. HHAs would continue to have access 
(through the Home Health Compare contractor) to its own quality data 
(updated periodically) and we would establish a process by which 
agencies would receive a report before reporting the data publicly.
    Currently, the CMS Home Health Compare Web site does not publicly 
report data when agencies have fewer than 20 episodes of care within a 
reporting period. In light of the DRA requirements, we recognize the 
need to provide the required data to the public and would make these 
statistics available through expansion of the CMS Home Health Compare 
Web site.
    In the July 27, 2005 Medicare Payment Advisory Commission (MedPAC) 
testimony before the U.S. Senate Committee on Finance, MedPAC expressed 
support for the concept of differential payments for Medicare 
providers, which could create incentives to improve quality. To support 
this initiative, MedPAC stated that ``outcome measures from CMS' 
Outcome-based Quality Indicators'' (currently collected through the 
OASIS instrument) ``could form the starter set.'' MedPAC further states 
``* * * the Agency for Healthcare Research and Quality concur(s) that a 
set of these measures is reliable and adequately risk adjusted.''
    The MedPAC testimony recognizes that while the goal of care for 
many home health patients is improving health and functioning, for some 
patients the goal of the HHA is to simply stabilize their conditions 
and prevent further decline. Additionally, the MedPAC testimony 
reflects that measures of structure and process could also be 
considered.
    Various home health outcome measures are now in common use and have 
been studied for some time. A number of these measures have been 
endorsed by the National Quality Forum (NQF) and are evidence-based, 
well accepted, and not unduly burdensome. When determining outcome 
measures that will be most appropriate, it is important to measure 
aspects of care that providers can control and are adequately risk-
adjusted. Home-based care presents particular difficulties for provider 
control because patient conditions are compounded by a variety of home 
environment and support system issues.
    We are currently pursuing the development of patient-level process 
measures for HHAs, as well as refining the current OASIS tool in 
response to recommendations from a Technical Expert Panel conducted to 
review the data elements that make up the OASIS tool. These additional 
measures would complement the existing OASIS outcome measures and would 
assist us in identifying processes of care that lead to improvements 
for certain populations of patients. These process measures are 
currently in the very early stages of development. As we stated 
previously, to the extent that evidence-based data are available on 
which to determine the appropriate measure specifications, and adequate 
risk-adjustments are made, we anticipate collecting and reporting these 
measures as part of our home health quality plan. Possible 
modifications to the current OASIS tool include reducing the number of 
questions on the tool, refining possible responses, as well as adding 
new process measures.
    We solicited comments on how to make the outcome measures more 
useful. We also solicited comments on measures of home health care 
processes for which there is evidence of improved care to 
beneficiaries. In all cases, we noted that measures should be evidence-
based, clearly linked to improved outcomes, and able to be reliably 
captured with the least burden to the provider. We also considered 
measures of patient experience of care in the home health setting, as 
well as efficiency measures, and solicited comment on the use of these 
measures and their importance in the home health setting. In the 
proposed rule, we noted that we would address any changes to the HH PPS 
quality data submission requirement in future rulemaking.
    We also stated our intent to provide guidance on the 
specifications, definitions, and reporting requirements of any 
additional measures through the standard protocol for measure 
development.
    We proposed to revise the regulations at Sec.  484.225 to reflect 
these proposed payment requirements which would require submission of 
quality data. For CY 2007, we will finalize the requirement to use the 
10 OASIS measures as meeting the DRA quality data reporting requirement 
as discussed in section II.D. of the August 3, 2006 proposed rule and 
the regulations at Sec.  484.225.

E. Outliers and 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 FDL 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 FDL 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 FDL ratio and the loss-sharing ratio. A 
high FDL ratio reduces the number of episodes that can receive outlier 
payments, but makes it possible to select a higher loss-sharing ratio 
and, therefore, increase outlier payments for outlier episodes. 
Alternatively, a lower FDL ratio means that more episodes can qualify 
for outlier payments, but outlier payments per episode must 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 do the 
former.

[[Page 65892]]

    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 FDL ratio that would yield estimated total outlier payments that 
were 5 percent of total home health PPS payments. The resulting value 
for the FDL ratio for the July 2000 final rule was 1.13.
    Our CY 2005 update to the HH PPS rates (69 FR 62124) changed the 
FDL 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 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.
    Our CY 2006 update to the HH PPS rates (70 FR 68132) changed the 
FDL ratio from 0.70 to 0.65 to allow even more home health episodes to 
qualify for outlier payments and to better meet the 5 percent target of 
outlier payments to total HH PPS payments. For the CY 2006 update, we 
used CY 2004 home health claims data.
    At the time of publication of the August 3, 2006 proposed rule, we 
did not have more recent data, but we noted that we may update the FDL 
ratio for CY 2007 depending on the availability of more recent data. We 
further noted that if we updated the FDL ratio for the CY 2007 update, 
we would use the same methodology performed in updating the current FDL 
ratio described in the October 22, 2004 final rule. Subsequent to the 
publication of the August 3, 2006 proposed rule, we have now obtained 
more recent data, that is, CY 2005 home health claims data.
    Accordingly for this final rule, we have used the same methodology 
and performed an analysis on the CY 2005 HH PPS analytic data to update 
the FDL ratio for CY 2007. The results of this analysis indicate that 
an FDL ratio of 0.67 is consistent with the existing loss-sharing ratio 
of 0.80 and a projected target percentage of estimated outlier payments 
of 5 percent. Therefore, we are updating the FDL ratio from the current 
0.65 to 0.67 for CY 2007.
    Expressed in terms of a fixed dollar loss amount, an FDL ratio of 
0.67 indicates that providers would absorb approximately $1,567 of 
their costs (before wage adjustment), in addition to their loss-sharing 
portion of the estimated cost in excess of the outlier threshold. This 
fixed dollar loss amount of approximately $1,567 is computed by 
multiplying the standard 60-day episode payment amount (2,339.00) by 
the FDL ratio (0.67). In contrast, using the current FDL ratio (0.65), 
the fixed dollar loss amount would be approximately $1,520 ($2,339.00 x 
0.65)

F. Hospital Wage Index--Revised OMB Definitions 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 the 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 the August 3, 2006 
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 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). In the 
November 9, 2005 final rule, we adopted the OMB-revised definitions and 
implemented a one-year transition policy consisting of a 50/50 blend of 
the MSA-based and the new CBSA-based wage indexes.
    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 proposed 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