Medicare Program; Home Health Prospective Payment System Refinement and Rate Update for Calendar Year 2008, 49762-49945 [07-4184]

Agencies

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

[Federal Register Volume 72, Number 167 (Wednesday, August 29, 2007)]
[Rules and Regulations]
[Pages 49762-49945]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-4184]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 484



Medicare Program; Home Health Prospective Payment System Refinement and 
Rate Update for Calendar Year 2008; Final Rule

Federal Register / Vol. 72, No. 167 / Wednesday, August 29, 2007 / 
Rules and Regulations

[[Page 49762]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 484

[CMS-1541-FC]
RIN 0938-AO32


Medicare Program; Home Health Prospective Payment System 
Refinement and Rate Update for Calendar Year 2008

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period sets forth an update to 
the 60-day national episode rates and the national per-visit amounts 
under the Medicare prospective payment system for home health services, 
effective on January 1, 2008. As part of this final rule with comment 
period, we are also rebasing and revising the home health market basket 
to ensure it continues to adequately reflect the price changes of 
efficiently providing home health services. This final rule with 
comment period also sets forth the refinements to the payment system. 
In addition, this final rule with comment period establishes new 
quality of care data collection requirements.
    Finally, this final rule with comment period allows for further 
public comment on the 2.71 percent reduction to the home health 
prospective payment system payment rates that are scheduled to occur in 
2011, to account for changes in coding that were not related to an 
underlying change in patient health status (section III.B.6).

DATES: Effective date: These regulations are effective on January 1, 
2008.
    Comment date: We will consider public comments on the provisions in 
section III.B.6 that deal with the 2.71 percent reduction to payment 
rates in 2011. To be assured consideration, comments must be received 
at one of the addresses provided below, no later than 5 p.m. on October 
29, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1541-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1541-FC, P.O. Box 8012, Baltimore, MD 21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1541-FC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-
1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131. 
Sharon Ventura, (410) 786-1985 and Katie Lucas, (410) 786-7723 (for 
general issues). Kathy Walch, (410) 786-7970 (for clinical OASIS 
issues). Doug Brown, (410) 786-0028 (for quality issues). Mollie 
Knight, (410) 786-7948; and Heidi Oumarou, (410) 786-7942 (for market 
basket issues).

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on the 
2.71 percent reduction to the Home Health Prospective Payment System 
(HH PPS) rates for 2011, as set forth in this final rule with comment 
period, to assist us in fully considering this issue and developing 
policies.
    Inspection of Public Comments: All comments received before the 
close of the comment period will be available for viewing by the 
public, including any personally identifiable or confidential business 
information that is included in the comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare and Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Requirements of the Balanced Budget Act of 1997 for 
Establishing the Prospective Payment System for Home Health Services
    B. Deficit Reduction Act of 2005
    C. Updates to the HH PPS
    D. System for Payment of Home Health Services
II. Summary of the Provisions of the CY 2008 Proposed Rule
III. Analysis of and Response to Public Comments on the CY 2008 
Proposed Rule
    A. General Comments on the CY 2008 HH PPS Proposed Rule
    1. Operational Issues
    2. The Schedule for Implementation of the CY 2008 Refinements
    3. Complexity of the System
    B. Case-Mix Model Refinements
    1. General Comments
    2. Later Episodes
    3. Addition of Variables
    4. Addition of Therapy Thresholds

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    5. Determination of Case-Mix Weights
    6. Case-Mix Change Under the HH PPS
    7. Case-Mix Groups
    8. OASIS Reporting and Coding Practices
    C. Payment Adjustments
    1. The Partial Episode Payment (PEP) Adjustment
    2. The Low Utilization Payment Adjustment (LUPA)
    3. The Significant Change in Condition (SCIC) Adjustment
    4. Non-Routine Medical Supplies (NRS)
    D. The Outlier Policy
    E. The Update of the HH PPS Rates
    1. The Home Health Market Basket Update
    2. The Rebasing and Revising of the Home Health Market Basket
    3. Wage Index
    4. Home Health Care Quality Improvement
    5. CY 2008 Payment Updates
IV. Provisions of the Final Rule With Comment Period
V. Collection of Information Requirements
VI. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    C. Accounting Statement
Addendum A. CY 2008 Wage Index for Rural Areas by CBSA; Applicable 
Pre-floor and Pre-reclassified Hospital Wage Index
Addendum B. CY 2008 Wage Index for Urban Areas by CBSA; Applicable 
Pre-floor and Pre-reclassified Hospital Wage Index
Addendum C. Comparison of the CY 2007 HH PPS Wage Index and the CY 
2008 HH PPS Wage Index

I. Background

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

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

B. Deficit Reduction Act of 2005

    On February 8, 2006, the Deficit Reduction Act (DRA) of 2005 (Pub. 
L. 109-171) was enacted. This legislation affected updates to HH 
payment rates for calendar year (CY) 2006. The DRA also required HHAs 
to submit home health care quality data and created a linkage between 
that data and payment beginning in CY 2007.
    Specifically, 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. In addition, section 5201 
of the DRA amends section 421(a) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173, 
enacted on December 8, 2003). The amended section 421(a) of the MMA 
requires that for home health services furnished in a rural area (as 
defined in section 1886(d)(2)(D) of the Act) on or after January 1, 
2006 and before January 1, 2007, that the Secretary increase the 
payment amount otherwise made under section 1895 of the Act for home 
health services by 5 percent. The statute waives budget neutrality for 
purposes of this increase since it specifically states that the 
Secretary must 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 on February 10, 2006.
    In addition, section 5201 of the DRA requires HHAs to submit data 
for purposes of measuring health care quality, and links the quality 
data submission to payment. This requirement is applicable for CY 2007 
and each subsequent year. If an HHA does not submit quality data, the 
home health market basket percentage increase will be reduced 2 
percentage points.

C. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in a separate

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Federal Register document. In those documents, we also incorporated the 
legislative changes to the system required by the statute after the 
BBA, specifically the MMA. On November 9, 2006, we published a final 
rule titled ``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'' (CMS-1304-F) (71 FR 65884) in 
the Federal Register that updated the 60-day national episode rates and 
the national per-visit amounts under the Medicare HH PPS for home 
health services for CY 2007. In addition, the November 2006 final rule 
ended the 1-year transition period that consisted 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. We 
also revised the fixed dollar loss ratio, which is used in the 
calculation of outlier payments. According to section 5201(c)(2) of the 
DRA, this final rule also reduced, by 2 percentage points, the home 
health market basket percentage increase to HHAs that did not submit 
required quality data, as determined by the Secretary.

D. System for Payment of Home Health Services

    Generally, Medicare makes payment under the HH PPS on the basis of 
a national standardized 60-day episode payment rate that is adjusted 
for case-mix and wage index. The national standardized 60-day episode 
payment rate includes the six home health disciplines (skilled nursing, 
home health aide, physical therapy, speech-language pathology, 
occupational therapy, and medical social services) and medical 
supplies. Durable medical equipment covered under home health is paid 
for outside the HH PPS payment. To adjust for case-mix, the HH PPS uses 
an 80-category case-mix classification to assign patients to a home 
health resource group (HHRG). Clinical needs, functional status, and 
service utilization are computed from responses to selected data 
elements in the OASIS assessment instrument.
    For episodes with four or fewer visits, Medicare pays on the basis 
of a national per-visit amount by discipline, referred to as a low 
utilization payment adjustment (LUPA). Medicare also adjusts the 
national standardized 60-day episode payment rate for certain 
intervening events that are subject to a partial episode payment 
adjustment (PEP adjustment) or a significant change in condition 
adjustment (SCIC adjustment). For certain cases that exceed a specific 
cost threshold, an outlier adjustment may also be available.

II. Summary of the Provisions of the CY 2008 Proposed Rule

    We published a proposed rule in the Federal Register on May 4, 2007 
(72 FR 25356) 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 accordance with 
section 1895(b)(3)(B) of the Act, the standard prospective payment 
amounts are to be increased by a factor equal to the applicable home 
health market basket update for those HHAs that submit quality data as 
required by the Secretary. The proposed home health market basket 
update for CY 2008 was 2.9 percent. For HHAs that fail to submit the 
required quality data, the home health market basket update would be 
reduced by 2 percentage points.
    Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the 
Secretary to establish area wage adjustment factors that reflect the 
relative level of wages and wage-related costs applicable to the 
furnishing of home health services and to provide appropriate 
adjustments to the episode payment amounts under the HH PPS to account 
for area wage differences. As set forth in the July 3, 2000 final rule 
(65 FR 41128), the statute provides that the wage adjustment factors 
may be the factors used by the Secretary for the purposes of section 
1886(d)(3)(E) of the Act for hospital wage adjustment factors. In the 
CY 2008 proposed rule (72 FR 25449), we proposed to use the 2008 pre-
floor and pre-reclassified hospital wage index (not including any 
reclassification under section 1886(d)(8)(B) of the Act) to adjust 
rates for CY 2008 and would publish those final wage index values in 
the final rule.
    As part of the CY 2008 proposed rule (72 FR 25435), we also 
proposed to rebase and revise the home health market basket to reflect 
FY 2003 Medicare cost report data, the latest available and most 
complete data on the structure of HHA costs. In the proposed rebased 
and revised home health market basket, the labor-related share was 
77.082 (an increase from the current labor-related share of 76.775). 
The proposed non-labor-related share was 22.918 (a decrease from the 
current non-labor-related share of 23.225). The increase in the 
proposed labor-related share using the FY 2003 home health market 
basket was primarily due to the increase in the benefit cost weight.
    The CY 2008 proposed rule (72 FR 25358) also proposed refinements 
to the payment system. Extensive research was conducted to investigate 
ways to improve the performance of the case-mix model. This research 
was the basis for our proposals to refine the case-mix model. We 
proposed to refine the case-mix model to reflect different resource 
costs for early home health episodes versus later home health episodes 
and to expand the case-mix variables included in the payment model. For 
2008, we proposed a 4-equation case-mix model that recognizes and 
differentiates payment for episodes of care based on whether a patient 
is in what is considered to be an early (1st or 2nd episode in a 
sequence of adjacent episodes) or later (the 3rd episode and beyond in 
a sequence of adjacent episodes) episode of care as well as recognizing 
whether a patient was a high therapy (14 or more therapy visits) or low 
therapy (13 or fewer therapy visits) case. We defined episodes as 
adjacent if they were separated by no more than a 60-day period between 
claims. Analysis of the performance of the case-mix model for later 
episodes revealed two important differences for episodes occurring 
later in the home health treatment compared to earlier episodes: higher 
resource use per episode and a different relationship between clinical 
conditions and resource use. We also proposed that additional variables 
include scores for certain wound and skin conditions; more diagnosis 
groups such as pulmonary, cardiac, and cancer diagnoses; and certain 
secondary diagnoses. The proposed 4-equation model resulted in 153 
case-mix groups.
    In addition, we proposed to replace the current single therapy 
threshold of 10 visits with three therapy thresholds at 6, 14, and 20 
visits. We proposed that payment for additional therapy visits between 
the three thresholds would increase gradually, incorporating a 
declining, rather than a constant, amount per added therapy visit. The 
proposed approach would not reduce total payments to home health 
providers because the payment model would still predict total resource 
cost. We noted that the combined effect of the new therapy thresholds 
and payment gradations was expected to reduce the undesirable emphasis 
in treatment planning on a single therapy visit threshold, and to 
restore the primacy of clinical considerations in treatment planning 
for rehabilitation patients.
    In the May 4, 2007 proposed rule (72 FR 25395), we further proposed 
to make

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an adjustment for case-mix that was not due to a change in the 
underlying health status of the home health users. Section 
1895(b)(3)(B) of the Act requires that in compensating for case-mix 
change, a payment reduction must be applied to the standardized payment 
amount. At the time of publication of the proposed rule, the most 
recent available data, from which to compute an average case-mix 
weight, or case-mix index, under the HH PPS rule, was from 2003. Using 
the 2003 data, the average case-mix weight per episode for initial 
episodes was 1.233. Analysis of a 1-percent sample of initial episodes 
from the 1999-2000 data under the HH IPS revealed an average case-mix 
weight of 1.125. Standardized to the distribution of agency type 
(freestanding proprietary, freestanding not-for-profit, hospital-based, 
government, and skilled nursing facility (SNF)-based) that existed in 
2003 under the HH PPS, the average weight was 1.134. We noted this time 
period is likely not free from anticipatory response to the HH PPS, 
because we published our initial HH PPS proposal on October 28, 1999. 
The increase in the average case-mix using this time period as the 
baseline resulted in an 8.7 percent increase (from 1.134 to 1.233; 
1.233-1.134=0.099; 0.099/1.134=0.087; 0.087x100=8.7 percent). We 
proposed that the 8.7 percent of case-mix change that occurred between 
the 12 months ending September 30, 2000 and the most recent available 
data at the time from 2003 be considered case-mix change unrelated to 
change in health status, also referred to as ``nominal case-mix 
change.'' We proposed to apply this reduction over 3 years at 2.75 
percent per year. Our analysis on the average case-mix under the HH PPS 
using an Abt Associates' case-mix study sample from October 1997 to 
April of 1998 as the baseline revealed an increase in the average case-
mix of 23.3 percent (from 1.0 during October 1997 to April 1998 to 
1.233 in 2003). Because we believed the HHAs response to BBA 
provisions, such as the home health interim payment system (HH IPS) 
during this period, could have produced data from this sample that 
reflected a case-mix in flux, we were not confident that the trend in 
the case-mix index (CMI) between the time of the Abt Associates case-
mix study sample and 2003 data, used in the analysis for the proposed 
rule, reflected only changes in nominal coding practices. Conversely, 
the average case-mix for a sample data set for 12 months ending 
September 30, 2000 (HH IPS baseline) was found to be 1.125, 
standardized to 1.134. Using this time period as the base-line from 
which to measure nominal change in case-mix under the HH PPS, we 
identified an 8.7 percent change (increase) in the average CMI that 
would not be due to a change in the patient health status (1.233, 2003 
rate -1.134, September 2000 baseline = 0.099; 0.099/1.134 = 0.087). 
Consequently, we proposed to account for that 8.7 percent in case-mix 
change, that we considered to be nominal by reducing the national 60-
day episode rate by 2.75 percent, per year, for 3 years (subject to 
change upon analysis of newer, 2005 data for the final rule), beginning 
in CY 2008.
    Additionally, we proposed to modify a number of existing HH PPS 
payment adjustments. Specifically, we proposed modifying the LUPA by 
increasing the payment, by $92.63, for LUPA episodes that occur as the 
only episode or the initial episode during a sequence of adjacent 
episodes. It has been suggested, by the industry, that LUPA payment 
rates do not adequately account for the front-loading of costs in an 
episode. Our analysis showed that these types of LUPAs require longer 
visits, on average, than non-LUPA episodes, and that the longer average 
visit length is due to the start of care visit, when the case is opened 
and the initial assessment takes place. Consequently, these analyses 
indicate that payments for such episodes may not offset the full cost 
of initial visits. We also proposed eliminating the significant change 
in condition (SCIC) payment adjustment. The current SCIC policy allows 
an HHA to adjust payment when a beneficiary experiences a SCIC during 
the 60-day episode that was not envisioned in the original plan of 
care. Because of the apparent difficulty HHAs have in interpreting the 
SCIC policy, their negative margins, the decline in the occurrence of 
SCICs, and the estimated little impact on outlays in eliminating the 
SCIC policy, we proposed to eliminate the SCIC policy.
    In the development of the HH PPS, non-routine medical supplies 
(NRS) were accounted for by attributing $49.62 to the standardized 
episode payment. In the CY 2008 proposed rule (72 FR 25427), we 
proposed to apply a severity adjustment to the NRS portion of the HH 
PPS standardized episode payment. Specifically, we proposed a five-
severity group level approach that we believe would account for NRS 
costs based on measurable conditions, would be feasible to administer, 
and offered HHAs some protection against episodes with extremely high 
NRS costs. Finally, we did not propose to modify the existing Partial 
Episode Payment (PEP) Adjustment. At the time of the proposed rule, our 
analysis did not suggest a more appropriate alternative payment policy. 
However, we solicited the public for suggestions and comments on this 
aspect of the HH PPS for ways to improve the PEP adjustment policy.
    Section 1895(b)(5) of the Act also allows for the provision of an 
addition or adjustment to account for outlier episodes, which are those 
episodes that incur unusually large costs due to patient care needs. 
Under the HH PPS, outlier payments are made for episodes for which the 
estimated cost exceeds a threshold amount. 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. 
Section 1895(b)(5) of the Act requires that the estimated total outlier 
payments may not exceed 5 percent of total estimated HH PPS payments. 
With outlier payments having increased in recent years, and given the 
unknown effects that the proposed refinements may have on outliers, we 
proposed to maintain the FDL ratio of 0.67. We stated, in the proposed 
rule (72 FR 25434), that we believed this would continue to meet the 
statutory requirement of having an outlier payment outlay that does not 
exceed 5 percent of total HH PPS payments, while still providing for an 
adequate number of episodes to qualify for outlier payments. We further 
stated in the proposed rule (72 FR 25434) that we would rely on the 
latest data and best analysis available at the time to estimate outlier 
payments and update the FDL ratio in the final rule if appropriate.
    Finally for CY 2007, we specified 10 OASIS quality measures as 
appropriate for measurements of health care quality. These measures 
were to be submitted by HHAs to meet their statutory requirements to 
submit data for a full increase in their home health market basket 
percentage increase amount. For CY 2008, we proposed to expand the set 
of 10 measures by adding up to 2 National Quality Forum (NQF)-endorsed 
measures. The proposed additional measures for 2008 were as follows:

 Emergent Care for Wound Infection, Deteriorating Wound Status
 Improvement in the Status of Surgical Wounds

    Accordingly, for CY 2008, we proposed to consider the 12 OASIS 
quality measures submitted by HHAs to CMS for episodes beginning on or 
after July 1, 2006 and before July 1, 2007 as meeting the reporting 
requirement for CY 2008.

[[Page 49766]]

III. Analysis of and Responses to Public Comments on the CY 2008 
Proposed Rule

    In response to the publication of the CY 2008 HH PPS proposed rule, 
we received approximately 150 items of correspondence from the public. 
We received numerous comments from various trade associations and major 
organizations. Comments also originated from HHAs, hospitals, other 
providers, suppliers, practitioners, advocacy groups, consulting firms, 
and private citizens. The following discussion, arranged by subject 
area, includes our responses to the comments and, where appropriate, a 
brief summary as to whether or not we are implementing the proposed 
provision or some variation thereof.

A. General Comments on the CY 2008 HH PPS Proposed Rule

1. Operational Issues
    Overall, commenters were pleased with the proposed changes to the 
HH PPS. However, commenters did express concerns over the burden they 
perceived that would be placed on HHAs to accomplish a number of the 
proposed changes.
    Comment: Commenters generally appreciated CMS's plan to 
automatically adjust claims to reflect the actual amount of therapy 
provided versus that initially reported in OASIS item M0826, Therapy 
Need, but two commenters noted that for payment adjustments to be made 
accurately, Medicare's Common Working File (CWF) system must contain 
timely, accurate information. Numerous commenters were concerned that 
the creation of M0110 (Episode Timing) would be burdensome, as agencies 
do not have the information to complete them. The commenters did not 
want to be penalized if M0110 was answered incorrectly, and wanted to 
avoid administrative burden from having to cancel and resubmit final 
claims and Request for Anticipated Payments (RAPs).
    Response: CMS has made efforts over the last several years to 
reduce internal processing delays and ensure that the CWF is updated 
with claim receipts more quickly overall. While new errors may arise 
that delay processing, we will seek to correct them as swiftly as 
possible in light of all the competing demands on our systems.
    The factor that most affects the timeliness and accuracy of the CWF 
is how promptly within the 15 to 27 month timely filing period each 
provider submits its claims. Medicare systems can only process to the 
greatest degree of accuracy based on the information received to date. 
In all instances where we foresee submission or processing lags 
affecting the accuracy of claim payments under the refined system, we 
are designing processes to retrospectively adjust paid claims at the 
point when the delayed information is received. For example, the CWF 
will automatically adjust claims up or down to correct for episode 
timing (early or later, from M0110) and for therapy need (M0826) when 
submitted information is found to be incorrect.
    No cancelling and resubmission on the part of HHAs will be required 
in these instances. Additionally, as the proposed rule noted, providers 
have the option of using a default answer reflecting an early episode 
in M0110 in cases where information about episode sequence is not 
readily available.
    Comment: Most commenters supported the elimination of OASIS item 
M0175 from the case-mix model, as they sometimes found it difficult to 
code accurately. Some commenters thought that we were eliminating M0175 
from the OASIS entirely, and supported that. Several recommended that 
we also stop retrospective M0175 audits. One asked that we keep M0175 
as a case-mix variable, and apply the points to patients who have been 
admitted directly from a hospital.
    Response: We appreciate the support of our decision to eliminate 
M0175 as a case-mix variable. We are not eliminating M0175 from the 
OASIS, as is explained in section III.E.4, but only removing it from 
the case-mix model. The M0175 item's results across the four equations 
were difficult to interpret, and the item's explanatory power (with 
respect to contribution to the R-squared statistic) was small. 
Therefore, M0175 was not included as a case-mix variable in our final 
case-mix model.
    The M0175 item is part of the original HH PPS case-mix model and 
was reflected in the determination of payments under that system. The 
retrospective M0175 audits are still necessary to correct payments that 
were made inappropriately under the original HH PPS. These payment 
corrections have been repeatedly recommended to CMS by HHS's Office of 
Inspector General.
    Comment: One commenter proposed that the timeliness of information 
on Medicare systems would be increased by the removal of the option to 
submit no-RAP LUPA claims. The commenter believes that requiring RAPs 
for all episodes will speed submission of episodes to Medicare.
    Response: The no-RAP LUPA billing mechanism was created as part of 
the original implementation of the HH PPS in response to concerns from 
the home health industry that requiring RAPs for brief LUPA episodes 
presented an administrative burden. Absent consistent feedback 
throughout the home health industry that the benefits of removing this 
billing mechanism would outweigh the costs, we plan to retain the no-
RAP LUPA process. However, we note this billing mechanism is an 
operational issue and we have not received many comments on this issue. 
It should be further noted that requiring the submission of RAPs for 
all episodes will not necessarily speed the submission of those RAPs in 
all cases. RAPs, like no-RAP LUPAs, can also be submitted at any point 
in the timely filing period.
    Comment: One commenter asked whether home health services received 
when a beneficiary is enrolled in a Medicare Advantage (MA) Plan will 
be considered in determining the sequence of adjacent episodes in cases 
where the beneficiary has disenrolled from the MA Plan and resumes his 
or her coverage under the Medicare fee-for-service program.
    Response: Medicare does not typically receive claim-by-claim or 
individual service data on beneficiaries enrolled in MA Plans. As a 
result, the information is not available to determine whether a 
beneficiary has been receiving home health services under the plan or 
for how long. Medicare systems will determine sequences of adjacent 
episodes based on the fee-for-service episode information currently 
housed in the CWF and accessible to Medicare providers through 
eligibility inquiry transactions.
    Comment: A commenter believed that the addition of multiple payment 
tiers based on therapy usage would create a problem concerning 
beneficiary notification of their financial obligation to pay for home 
health services. Many beneficiaries are now enrolled in Medicare 
replacement plans that require a co-pay on the episodic rate. The 
Medicare Conditions of Participation (CoPs) at 42 CFR 484.10 require 
that the HHA notify the patient in advance of his or her liability for 
payment. The commenter believed some consideration needs to be made 
about the obligations of HHAs to meet this requirement as it is 
virtually impossible to calculate the rate and provide notices of the 
changing rate prior to providing service.
    Response: The provisions of this rule apply to Medicare's fee-for-
service HH PPS and do not apply to Medicare Advantage/Medicare Choice 
plans where co-pays for home health services provided under the plan 
may exist. As

[[Page 49767]]

long as the patient meets the Medicare fee-for-service eligibility 
requirements, and the HHA provides covered services that are reasonable 
and necessary based on the patient's plan of care, there would be no 
financial obligation on the part of the patient. However, if the 
patient asks the HHA for services outside the scope of the Medicare 
home health benefit, or the HHA provides non-covered services, the HHA 
would be required to provide the patient with financial liability 
information via the Advanced Beneficiary Notification (ABN). The 
multiple payment tiers (that is, multiple therapy thresholds) would not 
affect the determination of the patient's financial liability. That 
liability would be outside the scope of the Medicare home health 
benefit, and would be determined between the HHA and the patient. This 
comment is beyond the scope of this final rule with comment period, 
which deals with payment under HH PPS to fee-for-service HHAs.
    Comment: Several commenters wrote that smaller, rural agencies are 
particularly disadvantaged by the changes in the proposed rule. They 
were concerned that the proposed changes will limit the ability of 
agencies to survive or compete, which could limit access for patients. 
This may impact rural patients more than urban patients.
    Another commenter noted that CMS derives resource costs by 
weighting each minute reported on the claim by the national average 
labor market hourly rate for the discipline, and summing the total. The 
commenter believed that it is not realistic to attribute the same 
resource cost to rural beneficiaries as to urban beneficiaries, who 
have more social programs available to them. Additionally, this method 
does not account for the significant travel costs associated with rural 
beneficiaries. The commenter added that this is why there has 
periodically been a rural add-on.
    Response: Our impact tables show that rural agencies, on average, 
will experience a modest reduction in total payments between 2007 and 
2008--less than 2 percent. Factors in the reduction are discussed in 
section VI.B. These include the small reduction in the average case-mix 
weight in 2008 among rural agencies, the impact of the wage index, and 
several other factors discussed in that section. The offsetting 
positive effect of the annual payment update offsets most of the total 
negative effect of the changes.
    Medicare prices are adjusted for the cost differences among 
different locations. Although we use standardized national average 
resource cost estimates for developing the relative case-mix weights, 
the pricing procedure applied after accounting for standardized 
resource costs adjusts for geographic differences in cost levels. We 
have no data to effectively evaluate the comments on the disadvantages 
attributed to rurally residing beneficiaries.
    Comment: A commenter suggested raising the RAP to 75 percent of the 
base rate. Another commenter noted that the proposed rule is silent on 
the need to increase the RAP, even though program abuse of the RAP has 
not materialized. This commenter proposed that the RAP be increased to 
80/20 for all providers who have participated in the HH PPS since its 
inception, and noted that CMS would retain the right to reduce this 
level for abuse of the RAP. The commenter further proposed that less 
established providers could operate under current RAP rules until they 
had a 5 year record of responsible Medicare performance.
    Response: Before HH PPS implementation, HHAs were accustomed to 
billing Medicare on a 30-day cycle or receiving periodic interim 
payments. The change to a 60-day episode of care under HH PPS, combined 
with concerns over delays due to claims processing times, documentation 
requirements, and medical review, led us to address agency cash flow 
concerns in our 1999 HH PPS proposed rule. At that time, we proposed a 
split percentage payment to ensure that agencies have adequate cash 
flow to maintain quality services to beneficiaries. In 2000, we 
implemented the RAP which paid 60 percent up front for an initial 
episode, as we recognized that some administrative costs were front-
loaded; the remaining 40 percent would be paid after submission of the 
final claim. We allowed a RAP of 50 percent for a subsequent episode, 
with the remaining 50 percent paid upon receipt of the final claim.
    We expect agencies to follow normal business practices with regard 
to financing their operations. The current RAP percentage splits are 
reasonable given the RAP's purpose, therefore, we do not see a need to 
increase them. Moreover, we believe our current process protects 
against abuse, as an agency's RAP may be reduced or withheld when 
protecting Medicare program integrity warrants this action.
    Comment: Two commenters wrote that they are unable to make 
meaningful public comment because CMS has not released the impact file 
that would enable modeling of the proposed changes. Agencies are unable 
to plan operationally and financially for these changes.
    Response: We do not agree that agencies are unable to plan 
operationally and financially for these changes. We worked with a 
large, 20-percent sample of 2005 claims, which would not permit us to 
produce accurate summaries at the agency level for many agencies, which 
would be required for a file of the type mentioned by the commenter. 
Our proposed rule impact table provided average case-mix weights for 
agencies to use as estimates, according to the detailed subgroup to 
which they belong. Consistent with resources available, we opted to 
provide a simple preliminary grouper to assist agencies in 
understanding the impacts. We also provided preliminary grouper logic 
(``pseudocode'') for software developers assisting some agencies to 
evaluate the impacts.
    Comment: A number of commenters noted that home health agencies 
provide quality care that saves Medicare money in hospital or other 
inpatient facility benefits. Several commenters expressed concern that 
the proposed changes do not consider today's health picture, with an 
aging population, a wave of baby boomers entering retirement, a 
shortage of nurses, high fuel costs, and the cost of technological 
advances such as telehealth and physician's portal.
    Response: The goal of the refinements in this regulation is to pay 
as accurately as possible given the case-mix of patients in home health 
agencies today. We appreciate the broad context referenced in this 
comment, and will continue to work with the home health industry and 
the public to understand and anticipate changes that affect proper 
pricing of home health services.
    Comment: A commenter suggested that we revise the regulation 
requiring that orders and plans of care for home health patients be 
signed by a physician. Another commenter asked that the CoPs be changed 
to allow therapists, in addition to nurses, to open a case, as it could 
improve the ability to accurately project therapy requirements for 
patients.
    Response: We appreciate these comments, but note that this 
regulation updates the HH PPS payment rates and does not change any of 
the CoPs. Sections 1814(a)(2)(c) and 1835(a)(2)(A)(ii) of the Act 
require that orders and plans of care be established and periodically 
reviewed by a physician. The CoP dictating the physician signature 
requirements on the plan of care is detailed in 42 CFR 484.18(b) and 
(c).
    Moreover, in 42 CFR 484.55(a)(1), agencies are required to have a 
registered nurse conduct an initial assessment. We note, however in 42

[[Page 49768]]

CFR 484.55(a)(2), the home health CoP regulations state that ``when 
rehabilitation therapy service * * * is the only service ordered by the 
physician, and if the need for that service establishes program 
eligibility, the initial assessment visit may be made by the 
appropriate rehabilitation skilled professional.''
    Comment: A commenter noted that CMS currently uses salary 
information to estimate the costs of a visit, and does not include 
overhead costs. This method assumes indirect costs are proportional to 
direct costs. The commenter believes this assumption may be incorrect, 
and suggested examining cost report data to see if further review 
provides better data on overhead costs. This information could be 
combined with claims information about home health charges to better 
assess labor costs. These two sources of information could be used to 
compute the per-visit discipline costs for different types of episodes.
    Response: CMS' methodology does assume that overhead costs are 
proportional to direct labor costs. We will continue to consider the 
appropriate role of cost reports in understanding potential 
improvements to our methodology. At this time, we believe the role is 
limited, as demonstrated by the limitations on cost report reliability 
pertaining to the derivation of cost-to-charge ratios for the analysis 
of NRS payments. We urge agencies to put more resources into accurately 
completing the cost reports for future use in payment refinements.
    Comment: A commenter suggested that the recommendations from the 
two Technical Expert Panel (TEP) meetings be shared with the industry, 
and that the industry be allowed to provide feedback, as these affected 
the development of the proposed rule.
    Response: The TEP was administered by Abt Associates. The panel was 
not asked for, nor did it produce, consensus recommendations. Abt 
Associates used TEP participants as a sounding board about differing 
aspects of the research approach and the refinements emerging from it 
at the time of the TEP meeting.
    Comment: A commenter asked that we provide detailed technical 
specifications and grouper software with issuance of the final rule.
    Response: We intend to issue detailed specifications and a grouper 
software package as soon as possible after the issuance of this rule.
    Comment: A commenter noted that there was an error in Table 5 
posted to CMS' Web Site.
    Response: Table 5 was originally posted with an error, but was 
replaced with a corrected version. The correct version was promptly 
posted on the CMS Web site.
    Comment: Regarding dual eligibles, a commenter suggested that CMS 
improve the alignment of HHRGs and Medicare coverage guidelines for 
homebound status and medical necessity, particularly for cases that 
receive coverage under ``Assessment and Observation'' or ``Management 
and Evaluation of the Care Plan'' guidelines. Improved alignment of the 
payment system and coverage rules is critical to addressing ongoing 
disputes between state Medicaid agencies and the Medicare program 
regarding Third Party Liability.
    Response: These comments are outside the scope of this regulation; 
however, we will take them under consideration when evaluating the need 
for additional guidance on Medicare coverage guidelines.
    Comment: A commenter is concerned that the proposed HH PPS 
refinements place emphasis on therapy and would support a system that 
provides for the utilization of restorative nursing as a substitution 
for therapist visits. The expansion of this type of service utilization 
will ultimately provide better patient outcomes and address the growing 
demand for restorative services.
    Response: The proposed refinements were developed within the 
disciplines covered by the home health benefit. A specialty of 
restorative nursing is not recognized within those disciplines. 
Moreover, we do not have evidence about effects on patient outcomes 
from implementing the commenter's proposal.
    Comment: A commenter believed it is important for CMS to align 
regulatory and reimbursement decisions so that they reflect the needs 
of patients as outlined by the Institute of Medicine. The commenter 
stated that the proposed regulation signals a change in which the home 
health industry would be asked to move from its current focus on acute 
and rehabilitative services to the provisions of more long-term care 
services of the type offered prior to HH PPS implementation. The 
commenter asked CMS to clarify whether it prefers Medicare home health 
services to emphasize more sophisticated treatments or whether it 
expects home health services to be used solely for long-term care and/
or custodial services, which have traditionally been the purview of 
Medicaid.
    Response: We disagree that the proposals signal a shift away from 
acute and rehabilitative services. The proposals recognize that a 
minority of patients have an extended period of incapacitation and need 
for medically necessary nursing or rehabilitative or assistive 
services, while they continue to meet the homebound requirement. 
Agencies are expected to apply the statutory eligibility and coverage 
criteria.
    Comment: A commenter questioned whether the increase seen in costs 
of late episodes is due to end-of-life care given to patients who did 
not want hospice care.
    Response: We appreciate the comment. We note, however, our analysis 
did not focus on whether or not the patient had a terminal illness.
2. The Schedule for Implementation of the CY 2008 Refinements
    In the May 4, 2007 proposed rule, we proposed to implement the 
finalized updates and refinements on January 1, 2008. However, we did 
recognize that there may be operational considerations, affecting CMS 
or the industry, which could necessitate an implementation schedule 
that results in certain refinements becoming effective on different 
dates (a split-implementation). We solicited the public for suggestions 
and comments on this matter.
    Comment: Several commenters expressed concern about the amount of 
time available for providers to make any necessary changes to their 
billing systems and administrative processes between the publication of 
this rule and the implementation date of episodes beginning on January 
1, 2008. They were concerned about the administrative burden, and that 
CMS does not have a contingency plan to facilitate interim payments to 
HHAs that are unable to bill Medicare under the revised HH PPS. A 
contingency payment arrangement would ensure that no provider is 
presented with a significant cash flow problem because of the tight 
timeframe involved. Several commenters suggested we convene an ongoing 
series of implementation meetings including Medicare contractors, the 
home health community, and the vendors who support the home health 
industry to reduce the likelihood of delays and errors. One commenter 
asks for additional resources to help providers cope with this major 
change. Another asked that we not follow a split-implementation plan.
    Response: While the changes described by this rule are significant, 
their overall impact on provider billing practices are far less 
extensive than those required for the initial implementation of HH PPS. 
We also anticipate the time period between the issuance of this final 
rule with comment

[[Page 49769]]

period and the implementation date will be longer than the period that 
was available between publication of the final rule on July 3, 2000, 
and initial implementation of the HH PPS on October 1, 2000. CMS 
expects to issue final implementing instructions and educational 
materials about the case-mix refinement changes as soon as it is 
feasible after finalization of the proposals contained in this final 
rule with comment period. We also plan to conduct outreach through 
industry associations and representatives of software companies that 
serve home health agencies to facilitate this transition.
    CMS plans to conduct calls with vendors, hold OASIS training, and 
continue the use of the home health Open Door Forums (ODFs) as 
mechanisms to provide information to HHAs regarding implementation. 
Regarding cash flow issues and contingency plans, CMS is taking steps, 
internally, to test systems changes before implementation. We do not 
feel that the vulnerabilities that existed when we moved from a cost-
based system to a prospective payment system exist today in moving to a 
refined HH PPS system. Consequently, we do not feel it is necessary to 
create an elaborate contingency plan as was needed for the 
implementation of the HH PPS.
    Comment: Several commenters expressed that an implementation date 
of January 1, 2008 be delayed because the HH PPS reform changes are 
significant, and providers will have to educate all of their employees 
on the changes in addition to working closely with the vendors to 
initiate complex IT changes. Because as providers, they must also 
implement the changes throughout the organization, to both clinical and 
financial staff, the commenters suggested that CMS delay the 
implementation date to October 1, 2008 to allow ample time for 
providers to make all the necessary adjustments. The commenters also 
requested that CMS release of the home health CoPs coincide with the 
implementation of HH PPS refinement requirements to ease the burden of 
staff training. It was also suggested that the implementation be linked 
to future ICD-9-CM coding manuals.
    Response: We recognize that the changes described in this rule are 
significant. However, the overall impact on provider billing practices 
is far less significant than the impact resulting from the initial 
implementation of the HH PPS when we were moving from a reasonable 
cost-based system to that of a prospective payment system. And as 
mentioned previously, there is more time between the issuance of this 
rule and the effective date (January 1, 2008) than there was for the 
initial implementation of the HH PPS. Consequently, we believe that 
there will be sufficient time for agencies and their vendors to make 
the changes necessary to implement the system on January 1, 2008. 
Regarding the home health CoPs, these are on a separate track from our 
home health payment regulations, and will be implemented through a 
separate rule-making process.
    While we recognize that implementing the updates and refinements of 
this rule is an ambitious task, we believe that it is in the best 
interest of the industry, CMS, and home health recipients to implement 
a finalized set of refinements without further delay and without a 
split-implementation. The refinements will work together to improve the 
accuracy and appropriateness of the HH PPS, which has not undergone 
major refinements since its inception in October of 2000. Updates to 
the HH PPS are not linked, specifically, to coding manuals, and thus 
there would be no advantage to delaying implementation to any future 
coding manual update. CMS will make every effort to communicate the 
instructions necessary for HHAs to implement all of the changes to the 
HH PPS, in a timely manner so that implementation of these changes 
occurs as smoothly as possible.
    Comment: Several commenters expressed that the comment period was 
too brief to afford providers enough time to understand the proposed 
changes and assess the impact that the changes will have on their 
businesses.
    Response: We provided the 60-day comment period from the date of 
display, with the 60-day period for comments ending on June 26, 2007. 
We acknowledge that in the publication of the May 4, 2007 proposed 
rule, the comment period was incorrectly listed as closing on July 3, 
2007. The correct date for the close of the comment period was June 26, 
2007. Recognizing the implication of this incorrect date, CMS alerted 
the public to the correct date through listserves, open door forums, 
and the publication of a correction notice on May 11, 2007 (72 FR 
26867). We believe the comment period, as corrected, provided adequate 
time for commenters to review the proposals and assess their options.
    Comment: Several commenters questioned the listing of an earlier 
deadline on the internet for submission of public comments, June 26, 
2007, rather than the deadline published in the Federal Register, July 
3, 2007.
    Response: We recognize that there was an inadvertent technical 
error in the May 4, 2007 proposed rule in that July 3, 2007 was 
incorrectly noted as the close of the comment period. Subsequent to 
that publication, a correction notice was published on May 11, 2007 (72 
FR 26867), noting that error and correctly stating that the end of the 
comment period for the HH PPS proposed rule was June 26, 2007 and not 
July 3, 2007.
    We believe we made reasonable efforts to quickly alert the public 
to the error such that adequate time to comment on the proposed rule 
was provided.
3. Complexity of the System
    In general, our goal for the proposed refinements was to ensure 
that the home health payment system continues to produce appropriate 
compensation for providers while creating opportunities for home health 
agencies to manage home health care efficiently. We also believe it is 
important in any refinement to maintain an appropriate degree of 
operational efficiency.
    Comment: Several commenters stated that the goal of ``operational 
simplicity'' is not achieved by the proposed refinements. One commenter 
stated that the proposed system is twice as complex as the current 
system, thus making it more difficult for providers to understand how 
it works. Moreover, the commenter stated it will make it more difficult 
for providers to manage the level of services provided for each HHRG 
with the payment for that HHRG.
    Response: We acknowledge the proposed refined system is more 
complex than the current system. The proposed refinements to the 
current system represent an attempt to pay more accurately for the 
range and intensity of home health services that are provided to our 
beneficiaries.
    The proposed refinements are derived from the concepts that form 
the basis of the current payment approach. We agree that any 
refinements to the system will take time and training to learn. CMS has 
conducted extensive outreach regarding the proposed refinements. We 
have posted a Fact Sheet which summarizes the proposed changes on our 
home health Web site to assist agencies in understanding the 
differences between the current system and the proposed refinements. We 
have developed and posted an Excel toy grouper, which allows agencies 
to see the effect of the new proposal on their payments (see ``Toy 
Grouper'' on the CMS Home Health Web site at: https://www.cms.hhs.gov/
center/hha.asp). We have posted the draft pseudocode for

[[Page 49770]]

the HHRG grouper software at the same Web site address. We also 
continue to plan for additional training and outreach.
    We have also developed claims processing procedures to reduce the 
amount of administrative burden associated with using a more complex 
case-mix model. For example, providers do not have to determine whether 
an episode is early (the initial episode in a sequence of adjacent 
episodes or the next adjacent episode, if any) or later (all adjacent 
episodes beyond the second episode) if they choose not to. Information 
from Medicare systems will be used during claims processing to 
automatically address this issue. We will also relieve providers of the 
responsibility for resubmitting a claim if the number of therapy visits 
delivered during an episode is more than or less than the number 
originally forecasted on the OASIS.
    Comment: A commenter stated that the Excel toy grouper did not 
allow for enough digits in the ICD-9 codes to effectively capture the 
degree of change needed. The commenter also noted that each case had to 
be added individually, which resulted in increased entering time; the 
results were confusing to the commenter.
    Response: We believe that the requirement that the ICD-9 codes be 
entered exactly as they appear in the proposed rule and the current 
grouper documentation does not negate the usefulness of the Excel toy 
grouper. The instructions imbedded in the Excel toy grouper specify the 
requirements for entering the ICD-9 codes. We provided the Excel toy 
grouper as a courtesy to allow users to more easily calculate the 
proposed new CY 2008 HHRGs and resulting payments rather than having 
only the grouper pseudocode for analysis. Moreover, the majority of 
feedback from commenters regarding the Excel toy grouper indicated that 
the tool is helpful and easy to use.

B. Case-Mix Model Refinements

    In the proposed rule, we proposed to refine the case-mix model to 
reflect different resource costs for early home health episodes versus 
later home health episodes and to expand the case-mix variables 
included in the payment model. We proposed additional variables 
including scores for certain wound and skin conditions; more diagnosis 
groups such as pulmonary, cardiac, and cancer diagnoses; and certain 
secondary diagnoses. We also proposed to replace the current single 
therapy threshold of 10 visits with three therapy thresholds (6, 14, 
and 20 visits). In addition, we proposed that payment for therapy 
episodes would increase gradually between the first and third therapy 
thresholds. For a complete description of the proposed case-mix 
refinements model and the underlying research, we refer readers to the 
CY 2008 HH PPS proposed rule (72 FR 25358-25420) published on May 4, 
2007.
1. General Comments
    Comment: A commenter wrote that an industry analysis of 2006 HH PPS 
data using the proposed case-mix model showed a decline in 
reimbursement for specific populations with congestive heart failure 
(CHF), chronic obstructive pulmonary disease (COPD), ulcers, diabetes, 
orthopedic diagnoses, and neurological diagnoses. Given these findings, 
the commenter asked how the proposed case-mix refinement could improve 
reimbursement. The commenter suggested that CMS use more current 
diagnosis data so as not to skew the results, and score secondary 
diagnoses. Other commenters echoed the concern that the refinement was 
based on ``old'' data. A couple of commenters noted that there has been 
a philosophical change to front-load visits in home health which has 
not been captured by the data.
    Response: We are unable to specifically address the industry 
analysis mentioned above without more detailed information on their 
analysis. We note the proposed case-mix model pays for more diagnoses 
than under the current HH PPS model, including recognition of point-
bearing diagnoses for heart disease and COPD. Agencies will continue to 
receive points to the extent that patients have certain conditions or 
diagnoses (for example, ulcers, diabetes, orthopedic diagnoses, and 
neurological diagnoses). Agencies can also receive points for secondary 
diagnoses, thereby accounting for multiple co-morbidities. Also, the 
proposed case-mix model allows points for some resource intensive 
interactions. Furthermore, agencies will be receiving improved 
reimbursement for supplies, particularly those related to ulcers or 
wounds. We believed the model as proposed would better align agency 
costs with payments.
    We further note that the proposed refinement research was based 
upon data files created from a 20-percent sample of claims data 
collected between 2001 and 2004. OASIS data was further linked to 
claims and cost reports. However for this final rule with comment 
period, we used more recent data, claims processed from 2005, with the 
associated OASIS data. Therefore, this final rule with comm