Medicare Program; Proposed Hospice Wage Index for Fiscal Year 2009, 24000-24035 [08-1198]

Agencies

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

[Federal Register Volume 73, Number 85 (Thursday, May 1, 2008)]
[Proposed Rules]
[Pages 24000-24035]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1198]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 418

[CMS-1548-P]
RIN 0938-AP14


Medicare Program; Proposed Hospice Wage Index for Fiscal Year 
2009

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule proposes the hospice wage index for fiscal 
year 2009. This proposed rule also proposes to phase-out the Medicare 
hospice budget neutrality adjustment factor and clarify two wage index 
issues, pertaining to the definition of rural and urban areas and to 
multi-campus hospital facilities.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 27, 2008.

ADDRESSES: In commenting, please refer to file code CMS-1548-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the filecode to find the document 
accepting comments.
    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-1548-P, P.O. Box 8012, Baltimore, MD 21244-1850.
    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-1548-P, 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 either of the following addresses:

a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201.

    (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.)

b. 7500 Security Boulevard, Baltimore, MD 21244-1850.

    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Randy Throndset (410) 786-0131 or 
Katie Lucas (410) 786-7723.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by

[[Page 24001]]

referencing the file code CMS-1548-P and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. 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.regulations.gov. Follow the search instructions 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 & 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. General
    1. Hospice Care
    2. Medicare Payment for Hospice Care
    B. Hospice Wage Index
    1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital 
Wage Index)
    2. Changes to Core-Based Statistical Area (CBSA) Designations
    3. Definition of Urban and Rural Areas
    4. Areas Without Hospital Wage Data
    5. CBSA Nomenclature Changes
    6. Hospice Payment Rates
II. Provisions of the Proposed Rule
    A. Clarification of New England Deemed Counties
    B. Wage Data for Multi-Campus Hospitals
    C. FY 2009 Proposed Hospice Wage Index With Phase-Out of the 
Budget Neutrality Adjustment Factor (BNAF)
    1. Background
    2. Areas Without Hospital Wage Data
    3. Phase-Out of the BNAF
    a. Effects of phasing-out the BNAF using the published FY 2008 
Hospice Wage Index Data
    b. Effects of phasing-out the BNAF using the Updated Pre-floor, 
Pre-reclassified Hospital Wage Index Data (FY 2009 proposal)
    D. Summary of the Provisions of the Proposed Rule
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    1. Hospice Size
    2. Geographic Location
    3. Type of Ownership
    4. Hospice Base
    C. Accounting Statement

Part 418--Hospice Care

I. Background

A. General

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

B. Hospice Wage Index

    Our regulations at Sec.  418.306(c) require each hospice's labor 
market to be established using the most current hospital wage data 
available, including any changes by OMB to the Metropolitan Statistical 
Areas (MSAs) definitions. OMB revised the MSA definitions beginning in 
2003 with new designations called the Core Based Statistical Areas 
(CBSAs). For the purposes of the hospice benefit, the term ``MSA-
based'' refers to wage index values and designations based on the 
previous MSA designations before 2003. Conversely, the term ``CBSA-
based'' refers to wage index values and designations based on the OMB 
revised MSA designations in 2003, which now include CBSAs. In the 
August 11, 2004 IPPS final rule (69 FR 48916, 49026), revised labor 
market area definitions were adopted at Sec.  412.64(b), which were 
effective October 1, 2004 for acute care hospitals. CMS also revised 
the labor market areas for hospices using the new OMB standards that 
included CBSAs. In the FY 2006 hospice wage index final rule (70 FR 
45130), we implemented a 1-year transition policy using a 50/50 blend 
of the CBSA-based wage index values and the Metropolitan Statistical 
Area (MSA)-based wage index values for FY 2006. The one-year transition 
policy ended on September 30, 2006. For FY 2007 and FY 2008 we used 
wage index values based on CBSA designations.
    The hospice wage index is used to adjust payment rates for hospice 
agencies under the Medicare program to reflect local differences in 
area wage levels. The original hospice wage index was based on the 1981 
Bureau of Labor Statistics hospital data and had not been updated since 
1983. In 1994, because of disparity in wages from one geographical 
location to another, a committee was formulated to negotiate a wage 
index methodology that could be accepted by the industry and the 
government. This committee, functioning under a process established by 
the Negotiated Rulemaking Act of 1990, was comprised of national 
hospice associations; rural, urban, large and small hospices; multi-
site hospices; consumer groups; and a government representative. On 
April 13, 1995, the Hospice Wage Index Negotiated Rulemaking Committee 
signed an agreement for the methodology to be used for updating the 
hospice wage index.
    In the August 8, 1997 Federal Register (62 FR 42860), we published 
a final rule implementing a new methodology for calculating the hospice 
wage index based on the recommendations of the negotiated rulemaking 
committee. The committee statement was included in the appendix of that 
final rule (62 FR 42883). The hospice wage index is updated annually. 
Our most recent annual update notice published in the Federal Register 
(72 FR 50214) on August 31, 2007 set forth updates to the hospice wage 
index for FY 2008. On October 1, 2007, we published a correction notice 
in the Federal Register (72 FR 55672) to correct technical errors that 
appeared in the August 31, 2007 final rule.

[[Page 24002]]

1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital Wage 
Index)
    As described in the August 8, 1997 hospice wage index final rule 
(62 FR 42860), the pre-floor and pre-reclassified hospital wage index 
is used as the raw wage index for the hospice benefit. These raw wage 
index values are then subject to either a budget neutrality adjustment 
or application of the hospice floor to compute the hospice wage index 
used to determine payments to hospices.
    Pre-floor, pre-reclassified hospital wage index values of 0.8 or 
greater are adjusted by the BNAF. Pre-floor, pre-reclassified hospital 
wage index values below 0.8 are adjusted by the greater of: (1) The 
hospice BNAF; or (2) the hospice floor (which is a 15 percent increase) 
subject to a maximum wage index value of 0.8. For example, if County A 
has a pre-floor, pre-reclassified hospital wage index (raw wage index) 
value of 0.4000, we would perform the following calculations using the 
budget neutrality factor (which for this example is 1.060988) and the 
hospice floor to determine County A's hospice wage index:

Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the BNAF: (0.4000 x 1.060988 = 0.4244)
Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the hospice floor: (0.4000 x 1.15 = 0.4600)

    Based on these calculations, County A's hospice wage index would be 
0.4600.
    As decided upon by the Hospice Wage Index Negotiated Rulemaking 
Committee, budget neutrality means that, in a given year, estimated 
aggregate payments for Medicare hospice services using the updated 
hospice values will equal estimated payments that would have been made 
for these services if the 1983 hospice wage index values had remained 
in effect, after adjusting the payment rates for inflation.
    The BNAF has been computed and applied annually to the labor 
portion of the hospice payment. Currently, the labor portion of the 
payment rates is as follows: for Routine Home Care, 68.71 percent; for 
Continuous Home Care, 68.71 percent; for General Inpatient Care, 64.01 
percent; and for Respite Care, 54.13 percent. The non-labor portion is 
equal to 100 percent minus the labor portion for each level of care. 
Therefore the non-labor portion of the payment rates is as follows: for 
Routine Home Care, 31.29 percent; for Continuous Home Care, 31.29 
percent; for General Inpatient Care, 35.99 percent; and for Respite 
Care, 45.87 percent.
2. Changes to Core-Based Statistical Area (CBSA) Designations
    The annual update to the hospice wage index is published in the 
Federal Register and is based on the most current available hospital 
wage data, as well as any changes by the Office of Management and 
Budget (OMB) to the definitions of MSAs, which now include CBSA 
designations. The August 4, 2005 final rule (70 FR 45130) set forth the 
adoption of the changes discussed in the OMB Bulletin No. 03-04 (June 
6, 2003), which announced revised definitions for Micropolitan 
Statistical Areas and the creation of MSAs and Combined Statistical 
Areas. In adopting the OMB CBSA geographic designations, we provided 
for a 1-year transition with a blended hospice wage index for all 
hospices for FY 2006. For FY 2006, the hospice wage index for each 
provider consisted of a blend of 50 percent of the FY 2006 MSA-based 
hospice wage index and 50 percent of the FY 2006 CBSA-based hospice 
wage index. Fiscal years 2007 and 2008 used the full CBSA-based hospice 
wage index values as discussed in their respective notices or rules (71 
FR 52080 and 72 FR 50214).
3. Definition of Rural and Urban Areas
    Each hospice's labor market is determined based on definitions of 
MSAs issued by OMB. In general, an urban area is defined as an MSA or 
New England County Metropolitan Area (NECMA) as defined by OMB. Under 
Sec.  412.64(b)(1)(ii)(C), a rural area is defined as any area outside 
of the urban area. The urban and rural area geographic classifications 
are defined in Sec.  412.64(b)(1)(ii)(A) through (C), and have been 
used for the Medicare hospice benefit since implementation.
4. Areas Without Hospital Wage Data
    When adopting OMB's new labor market designations in FY 2006, we 
identified some geographic areas where there were no hospitals, and 
thus, no hospital wage index data on which to base the calculation of 
the hospice wage index. Beginning in FY 2006, we adopted a policy to 
use the FY 2005 pre-floor, pre-reclassified hospital wage index value 
for rural areas when no hospital wage data were available. We also 
adopted the policy that for urban labor markets without a hospital from 
which a hospital wage index data could be derived, all of the CBSAs 
within the State would be used to calculate a statewide urban average 
pre-floor, pre-reclassified hospital wage index value to use as a 
reasonable proxy for these areas. Consequently, in the FY 2006 final 
rule, the FY 2007 update notice, and the FY 2008 final rule, we applied 
the average pre-floor, pre-reclassified hospital wage index data from 
all urban areas in that state to urban areas without a hospital. The 
only affected CBSA is 25980, Hinesville-Fort Stewart, Georgia.
    Under the CBSA labor market areas, there are no hospitals in rural 
locations in Massachusetts and Puerto Rico. Since there was no rural 
proxy for more recent rural data within those areas, in the FY 2006 
hospice wage index proposed rule (70 FR 22394, 22398), we proposed 
applying the FY 2005 pre-floor, pre-reclassified hospital wage index 
value to rural areas where no hospital wage data were available. In the 
FY 2006 final rule and in the FY 2007 update notice, we applied the FY 
2005 pre-floor, pre-reclassified hospital wage index data for areas 
lacking hospital wage data in both FY 2006 and FY 2007 for rural 
Massachusetts and rural Puerto Rico.
    In the FY 2008 final rule (72 FR 50214, 50217) we considered 
alternatives to our methodology to update the pre-floor, pre-
reclassified hospital wage index for rural areas without hospital wage 
data. We indicated that we believed that the best imputed proxy for 
rural areas, would: (1) Use pre-floor, pre-reclassified hospital data; 
(2) use the most local data available to impute a rural pre-floor, pre-
reclassified hospital wage index; (3) be easy to evaluate; and, (4) be 
easy to update from year-to-year.
    Therefore, in FY 2008, in cases where there was a rural area 
without rural hospital wage data, we used the average pre-floor, pre-
reclassified hospital wage index data from all contiguous CBSAs to 
represent a reasonable proxy for the rural area. This approach does not 
use rural data, however, the approach uses pre-floor, pre-reclassified 
hospital wage data, is easy to evaluate, is easy to update from year-
to-year, and uses the most local data available. In the FY 2008 rule 
(72 FR at 50217), we noted that in determining an imputed rural pre-
floor, pre-reclassified hospital wage index, we interpret the term 
``contiguous'' to mean sharing a border. For example, in the case of 
Massachusetts, the entire rural area consists of Dukes and Nantucket 
counties. We determined that the borders of Dukes and Nantucket 
counties are contiguous with Barnstable and Bristol counties. Under the 
adopted methodology, the pre-floor, pre-reclassified hospital wage 
index values for the counties of Barnstable (CBSA 12700, Barnstable 
Town, MA) and Bristol (CBSA 39300, Providence-New Bedford-Fall River, 
RI-MA) would be

[[Page 24003]]

averaged resulting in an imputed pre-floor, pre-reclassified rural 
hospital wage index for FY 2008. We noted in the FY 2008 final hospice 
wage index rule that while we believe that this policy could be readily 
applied to other rural areas that lack hospital wage data (possibly due 
to hospitals converting to a different provider type, such as a 
Critical Access Hospital, that does not submit the appropriate wage 
data), if a similar situation arose in the future, we would re-examine 
this policy.
    We also noted that we do not believe that this policy would be 
appropriate for Puerto Rico, as there are sufficient economic 
differences between hospitals in the United States and those in Puerto 
Rico, including the payment of hospitals in Puerto Rico using blended 
Federal/Commonwealth-specific rates. Therefore we believe that a 
separate and distinct policy for Puerto Rico is necessary. Any 
alternative methodology for imputing a pre-floor, pre-reclassified 
hospital wage index for rural Puerto Rico would need to take into 
account the economic differences between hospitals in the United States 
and those in Puerto Rico. Our policy of imputing a rural pre-floor, 
pre-reclassified hospital wage index based on the pre-floor, pre-
reclassified hospital wage index(es) of CBSAs contiguous to the rural 
area in question does not recognize the unique circumstances of Puerto 
Rico. While we have not yet identified an alternative methodology for 
imputing a pre-floor, pre-reclassified hospital wage index for rural 
Puerto Rico, we will continue to evaluate the feasibility of using 
existing hospital wage data and, possibly, wage data from other 
sources. For FY 2008, we used the most recent pre-floor, pre-
reclassified hospital wage index available for Puerto Rico, which is 
0.4047.
5. CBSA Nomenclature Changes
    The Office of Management and Budget (OMB) regularly publishes a 
bulletin that updates the titles of certain CBSAs. In the FY 2008 Final 
Rule (72 FR 50218) we noted that the FY 2008 rule and all subsequent 
hospice wage index rules and notices would incorporate CBSA changes 
from the most recent OMB bulletins. The OMB bulletins may be accessed 
at https://www.whitehouse.gov/omb/bulletins/.
6. Hospice Payment Rates
    Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended 
section 1814(i)(1)(C)(ii) of the Act to establish updates to hospice 
rates for FYs 1998 through 2002. Hospice rates were to be updated by a 
factor equal to the market basket index, minus 1 percentage point. 
However, neither the BBA nor subsequent legislation specified 
alteration to the market basket adjustment to be used to compute 
payment for fiscal years beyond 2002. Payment rates for FYs since 2002 
have been updated according to section 1814(i)(1)(C)(ii)(VII) of the 
Act, which states that the update to the payment rates for subsequent 
fiscal years will be the market basket percentage for the fiscal year. 
It has been longstanding practice to use the inpatient hospital market 
basket as a proxy for a hospice market basket.
    Historically, the rate update has been published through a separate 
administrative instruction issued annually in July to provide adequate 
time to implement system change requirements. Providers determine their 
payments by applying the hospice wage index in this notice to the labor 
portion of the published hospice rates.

II. Provisions of the Proposed Rule

A. Clarification of New England Deemed Counties

    We are taking the opportunity to address the change in the 
designation of ``New England deemed counties,'' which are listed in 
Sec.  412.64(b)(1)(ii)(B). These counties were deemed to be parts of 
urban areas under section 601(g) of the Social Security Amendments of 
1983, yet the OMB designates these counties as rural. In the FY 2008 
Inpatient Prospective Payment System (IPPS) final rule, IPPS adopted 
the OMB designation for the pre-floor, pre-reclassified hospital wage 
index. The counties include Litchfield County, Connecticut; York 
County, Maine; Sagadahoc County, Maine; Merrimack County, New 
Hampshire; and Newport County, Rhode Island. Of these five ``New 
England deemed counties,'' three (York County, Sagadahoc County, and 
Newport County) are also included in metropolitan statistical areas 
defined by OMB and are considered urban under the current IPPS labor 
market area definitions in Sec.  412.64(b)(1)(ii)(A).
    The remaining two, Litchfield County and Merrimack County, are 
geographically located in areas that are considered rural under the 
current IPPS labor market area definitions. However, they have been 
previously deemed urban under the IPPS in certain circumstances as 
discussed below. In the FY 2008 IPPS final rule with comment period (72 
FR 47130, August 22, 2007), Sec.  412.64(b)(1)(ii)(B) was revised such 
that the two ``New England deemed counties'' that are still considered 
rural by OMB (Litchfield County, CT and Merrimack County, NH) are no 
longer considered urban effective for discharges occurring on or after 
October 1, 2007. Therefore, these two counties are considered rural in 
accordance with Sec.  412.64(b)(1)(ii)(C). However, for purposes of 
payment under the IPPS, acute care hospitals located within those areas 
are treated as being reclassified to their deemed urban area effective 
for discharges occurring on or after October 1, 2007 (see 72 FR 47337 
through 47338). We also noted in this discussion that this policy 
change was limited to the ``New England deemed counties'' IPPS 
hospitals only, and that any change to non-IPPS provider wage indexes 
would be addressed in the respective payment system rules. The hospice 
program does not provide for such geographic reclassification as the 
IPPS does, and we are taking this opportunity to clarify treatment of 
``New England deemed counties'' under the hospice program in this 
proposed rule.
    As discussed, our regulations at Sec.  418.306(c) require each 
hospice's labor market to be established using the most current 
hospital wage data available. The original hospice wage index was based 
on the 1981 Bureau of Labor Statistics hospital data. In 1994, a 
committee functioning under a process established by the Negotiated 
Rulemaking Act of 1990, was formed to negotiate a hospice wage index 
methodology that could be accepted by the industry and the government. 
The revised hospice wage index was based on the recommendations of the 
Negotiated Rulemaking Advisory Committee. This committee was 
established to provide advice and make recommendations to the Secretary 
on the hospice wage index used to adjust payment rates for hospices 
under the Medicare program, to reflect local differences in area wage 
levels. The Committee recommended that the revised hospice wage index 
be based on the most current available data for each fiscal year, which 
would be used to construct a pre-floor, pre-reclassified hospital wage 
index under the prospective payment system before adjustments were made 
to take into account the geographic reclassification of hospitals in 
accordance with sections 1886(d)(8)(B) and (d)(10) of the Act, as well 
as each hospice's labor market area as established by OMB. The reason 
the unadjusted hospital wage data were recommended was to avoid further 
reductions in certain rural statewide wage index values that would 
result from reclassification. The recommendations are codified in

[[Page 24004]]

Sec.  418.306(c) of our regulations; however, there is no reference to 
Sec.  412.64.
    In other words, while Sec.  412.64 is not explicitly noted, the 
hospice program has used the urban definition in Sec.  
412.64(b)(1)(ii)(A) and (B), and the rural definition as any area 
outside of an urban area in Sec.  412.64(b)(1)(ii)(C). Historical 
changes to the labor market area/geographic classifications and annual 
updates to the hospice wage index values have been made effective 
October 1 each year. When we established the hospice wage index values 
effective October 1, 2007 through September 30, 2008, we considered the 
``New England deemed counties'' (including Litchfield County, CT and 
Merrimack County, NH) as urban for FY 2008 in accordance with the 
definitions of urban and rural areas in the FY 2008 hospice final rule 
(72 FR 50216). Therefore, Litchfield County was listed as one of the 
constituent counties of urban CBSA 25540 (Hartford-West Hartford-East 
Hartford, CT), and Merrimack County was listed as one of the 
constituent counties of urban CBSA 31700 (Manchester-Nashua, NH) (72 FR 
50236 and 50239, respectively). As noted above, the terms ``rural'' and 
``urban'' areas are defined in IPPS according to the definitions of 
those terms in Sec.  412.64(b)(1)(ii)(A) through (C). Litchfield 
county, CT and Merrimack county, NH are considered rural areas for 
hospital IPPS purposes in accordance with Sec.  412.64. Under this 
proposal, effective October 1, 2008, Litchfield county, CT would no 
longer be considered part of urban CBSA 25540 (Hartford-West Hartford-
East Hartford, CT), and Merrimack County, NH would no longer be 
considered part of urban CBSA 31700 (Manchester-Nashua, NH). Rather, 
these counties would be considered to be rural areas within their 
respective states under the hospice payment system. This proposed 
policy is consistent with our policy of not taking into account IPPS 
geographic reclassifications in determining payments under the hospice 
wage index. We propose to amend Sec.  418.306(c) to cross-reference to 
the definitions of urban and rural in the IPPS regulations in 42 CFR 
part 412 subpart D.

B. Wage Data for Multi-Campus Hospitals

    In the 2007 IPPS final rule, we changed in the way that we treat 
multi-campus hospital wage data in the creation of the pre-floor, pre-
reclassified hospital wage index. The IPPS wage data used to determine 
the proposed FY 2009 hospice wage index values now apportion the wage 
data for multi-campus hospitals located in different labor market areas 
(CBSAs) to the CBSAs where the campuses are located (see 72 FR 47317 
through 47320). Historically, the hospice wage index is derived from 
the pre-floor, pre-reclassified hospital wage index. Consequently, for 
this proposed rule we propose to continue to use the most recent 
available pre-floor, pre-reclassified hospital wage index in computing 
the hospice wage index. The pre-floor, pre-reclassified hospital wage 
index values for the following CBSAs are affected by this change in how 
wage data from multi-campus hospitals are used in the computation of 
the pre-floor, pre-reclassified hospital wage index: Boston-Quincy, MA 
(CBSA 14484), Providence-New Bedford-Falls River, RI-MA (CBSA 39300), 
Chicago-Naperville-Joliet, IL (CBSA 16974) and Lake-County-Kenosha 
County, IL-WI (CBSA 29404).

C. FY 2009 Hospice Wage Index With Phase-Out of the Budget Neutrality 
Adjustment Factor (BNAF)

    [If you choose to comment on issues in this section, please include 
the caption, ``FY 2009 Hospice Wage Index with Phase-out of the Budget 
Neutrality Adjustment Factor (BNAF)'' at the beginning of your 
comments.]
1. Background
    The hospice final rule published in the Federal Register on 
December 16, 1983 (48 FR 56008) provided for adjustment to hospice 
payment rates to reflect differences in area wage levels. We apply the 
appropriate hospice wage index value to the labor portion of the 
hospice payment rates based on the geographic area where hospice care 
was furnished. As noted earlier, each hospice's labor market area is 
based on definitions of Metropolitan Statistical Areas (MSAs) issued by 
the OMB. For FY 2009, we propose to again use a pre-floor, pre-
reclassified hospital wage index based solely on the CBSA designations.
    As noted above, our hospice payment rules utilize the wage 
adjustment factors used by the Secretary for purposes of section 
1886(d)(3)(E) of the Act for hospital wage adjustments. We are 
proposing again to use the pre-floor and pre-reclassified hospital wage 
index data to adjust the labor portion of the hospice payment rates 
based on the geographic area where the beneficiary receives hospice 
care. We believe the use of the pre-floor, pre-reclassified hospital 
wage index data results in the appropriate adjustment to the labor 
portion of the costs. For the FY 2009 update to hospice payment rates, 
we propose to continue to use the most recent pre-floor, pre-
reclassified hospital wage index available at the time of publication.
2. Areas Without Hospital Wage Data
    In adopting the CBSA designations, we identified some geographic 
areas where there are no hospitals, and thus no hospital wage data on 
which to base the calculation of the hospice wage index. These areas 
were described in section I.B.4 of this proposed rule. Beginning in FY 
2006, we adopted a policy that, for urban labor markets without an 
urban hospital from which a pre-floor, pre-reclassified hospital wage 
index can be derived, all of the urban CBSA pre-floor, pre-reclassified 
hospital wage index values within the State would be used to calculate 
a statewide urban average pre-floor, pre-reclassified hospital wage 
index to use as a reasonable proxy for these areas. Currently, the only 
CBSA that would be affected by this policy is CBSA 25980, Hinesville, 
Georgia. We propose to continue this policy for FY 2009.
    Currently, the only rural areas where there are no hospitals from 
which to calculate a pre-floor, pre-reclassified hospital wage index 
are Massachusetts and Puerto Rico. In August 2007 (72 FR 50217) we 
adopted the following methodology for imputing rural pre-floor, pre-
reclassified hospital wage index values for areas where no hospital 
wage data are available as an acceptable proxy. We imputed an average 
pre-floor, pre-reclassified hospital wage index value by averaging the 
pre-floor, pre-reclassified hospital wage index values from contiguous 
CBSAs as a reasonable proxy for rural areas with no hospital wage data 
from which to calculate a pre-floor, pre-reclassified hospital wage 
index. In determining an imputed rural pre-floor, pre-reclassified 
hospital wage index, we define ``contiguous'' as sharing a border. For 
Massachusetts, rural Massachusetts currently consists of Dukes and 
Nantucket Counties. We determined that the borders of Dukes and 
Nantucket counties are ``contiguous'' with Barnstable and Bristol 
counties. We are again proposing to apply this methodology for imputing 
a rural pre-floor, pre-reclassified hospital wage index for those rural 
areas without rural hospital wage data in FY 2009.
    However, as we noted in our final rule at 72 FR 50218, we do not 
believe that this policy is appropriate for Puerto Rico. We noted that 
there are sufficient economic differences between the hospitals in the 
United States and those in Puerto Rico, including the fact that 
hospitals in Puerto Rico are paid on

[[Page 24005]]

blended Federal/Commonwealth-specific rates, to make a separate 
distinct policy for Puerto Rico necessary. For FY 2009, we again 
propose to continue to use the most recent pre-floor, pre-reclassified 
hospital wage index value available for Puerto Rico, which is 0.4047. 
This pre-floor, pre-reclassified hospital wage index value is then 
adjusted upward by the hospice floor in the computing of the proposed 
FY 2009 hospice wage index.
3. Phase-Out of the Budget Neutrality Adjustment Factor (BNAF)
    As noted in section 1.B of this proposed rule, the current hospice 
wage index methodology was developed through a negotiated rule making 
process and implemented in 1997. The rule making committee sought to 
address the inaccuracies in the original Bureau of Labor Statistics 
(BLS)-based hospice wage index, account better for disparities from one 
geographic location to another, and develop a wage index that would be 
as accurate, reliable and equitable as possible. The resulting hospice 
wage index reflects a special adjustment (a BNAF) to ensure payments in 
the aggregate are budget neutral to payments using the original 1983 
hospice wage index. The adjustment, still in place today, results in 
providers currently receiving about 4 percent more in payments than 
they would receive if the adjustment factor were not applied. The 
rationale for maintaining this adjustment is outdated given the time 
that has elapsed since it was put into place and the growth that is 
occurring in the hospice benefit. In this section, we propose to phase-
out this adjustment over 3 years, reducing it by 25 percent in FY 2009, 
by an additional 50 percent for a total of 75 percent in FY 2010, and 
eliminating it completely in FY 2011. We also provide our rationale for 
the phase-out.
    As discussed in section I.B of this proposed rule, the original 
hospice wage index was based on the 1981 Bureau of Labor Statistics 
(BLS) hospital data and had not been updated since 1983. During earlier 
attempts to update the hospice wage index, the hospice industry raised 
concerns over the adverse financial impact of a new wage index on 
individual hospices and a possible overall reduction in Medicare 
payments. Thus, the result was that in the absence of agreement on a 
new wage index, we continued to use a wage index that was clearly 
obsolete for geographically adjusting Medicare hospice payments (see 
``Medicare Program; Notice Containing the Statement Drafted by the 
Committee Established to Negotiate the Wage Index to be Used to Adjust 
Hospice Payment Rates Under Medicare,'' November 29, 1995, 60 FR 
61264).
    Changing to a new but more accurate wage index would result in some 
areas gaining as their wage index value would increase, but in other 
areas seeing declines in payments as their wage index value dropped. In 
1994 we noted that a majority of hospices would have their wage index 
reduced with the new wage index based on using the pre-floor, pre-
reclassified hospital wage index. These reductions would have occurred 
for two key reasons: (1) Hospices were located in areas where the 
original hospice wage index was artificially high due to flaws in the 
1981 BLS data, and (2) hospices were located in areas where wages had 
gone down relative to other geographic areas (see ``Hospice Services 
Under Medicare Program: Intent to Form Negotiated Rulemaking 
Committee,'' October 14, 1994, 59 FR 52130).
    Because of the negative impact to certain areas that was expected 
with the change to a new wage index, a committee was formulated in 
1994, under the process established by the Negotiated Rulemaking Act of 
1990 (Pub. L. 101-648). The Committee was established to negotiate the 
hospice wage index methodology rather than to go through the usual 
rulemaking process. On September 4, 1996, we published a proposed rule 
(61 FR 46579) in which we proposed a methodology to update the hospice 
wage index used to adjust Medicare hospice payment rates.
    In formulating the provisions of that proposed rule, the Committee 
considered criteria in evaluating the available data sources. The need 
for fundamental equity of the wage index; data that reflected actual 
work performed by hospice personnel; compatibility with wage indexes 
used by CMS for other Medicare providers; and availability of the data 
for timely implementation were considered.
    The Committee agreed that the hospice wage index be derived from 
the 1993 hospital cost report data and that these data, prior to 
reclassification, would form the basis for the FY 1997 hospice wage 
index. That is the pre-floor, pre-reclassified hospital wage index 
would not be adjusted to take into account the geographic 
reclassification of hospitals in accordance with sections 1886(d)(8)(B) 
and 1886(d)(10) of the Act. The methodology is codified in Sec.  
418.306(c). The hospice wage index for subsequent years would be based 
on pre-floor, pre-reclassified hospital wage index data for a 
subsequent year.
    The Committee was also concerned that while some hospices would see 
increases, use of the pre-floor, pre-reclassified hospital wage index 
as the wage index for hospices would result in a net reduction in 
aggregate Medicare payments for hospices. As noted above, a majority of 
hospices would have had their wage index lowered by using the new wage 
index because the prior hospice wage indices were based on outdated 
data which were artificially high due to flaws in the 1981 BLS data, 
and because some hospices were located in areas where wages had gone 
down relative to other geographic areas. The reduction in overall 
Medicare payments if a new wage index were adopted was noted in the 
November 29, 1995 final rule (60 FR 61264). Therefore, the Committee 
also decided that, each year in updating the hospice wage index, 
aggregate Medicare payments to hospices would remain budget neutral to 
payments as if the 1983 wage index had been used.
    As decided upon by the Hospice Wage Index Negotiated Rulemaking 
Committee, budget neutrality means that, in a given year, estimated 
aggregate payments for Medicare hospice services using the updated 
hospice values will equal estimated payments that would have been made 
for these services if the 1983 hospice wage index values had remained 
in effect, after adjusting the payment rates for inflations. Being 
budget neutral does not take into account annual market basket updates 
to hospice payment rates. Therefore, although payments to individual 
hospice programs may change each year, the total payments each year to 
hospices would not be affected by using the updated hospice wage index 
because total payments would be budget neutral as if the 1983 wage 
index had been used. To implement this provision a BNAF would be 
computed and applied annually.
    The BNAF is calculated by computing estimated payments using the 
most recent completed year of hospice claims data. The units (days or 
hours) from those claims are multiplied by the updated hospice payment 
rates to calculate estimated payments. The updated hospice wage index 
values are then applied to the labor portion of the payments. For this 
proposed rule, that means estimating payments for FY 2009 using FY 2006 
hospice claims data, and applying the estimated updated FY 2009 hospice 
payment rates (updating the FY 2008 rates by the estimated FY 2009 
market basket update). The proposed FY 2009 hospice wage index values 
are then applied to the labor portion only. The procedure is repeated 
using the

[[Page 24006]]

same claims data and payment rates, but using the 1983 BLS-based wage 
index instead of the updated pre-floor, pre-reclassified hospital wage 
index. The total payments are then compared, and the adjustment 
required to make total payments equal is computed; that adjustment 
factor is the BNAF. In 1998, the BNAF increased all wage index values 
by just over 2 percent.
    All pre-floor, pre-reclassified hospital wage index values of 0.8 
or greater would be adjusted by the BNAF. Also, all pre-floor, pre-
reclassified hospital wage index values below 0.8 would receive the 
greater of the following: (1) A 15-percent increase subject to a 
maximum hospice wage index value of 0.8; or (2) an adjustment by the 
BNAF. All hospice wage index values of 0.8 or greater would be adjusted 
by the BNAF. The BNAF would be calculated and applied annually.
    While the Committee sought to adopt a wage index methodology that 
would be as accurate, reliable, and equitable as possible, the 
Committee also decided to incorporate a BNAF into the calculation of 
the hospice wage index that would otherwise apply in order to mitigate 
adverse financial impacts some hospices would experience through a 
decrease in their wage index value by transitioning to a pre-floor, 
pre-reclassified hospital wage index.
    In the August 8, 1997 final rule (62 FR 42860), we indicated that 
the annual updates of the hospice wage index values would be made in 
accordance with the methodology agreed to by the rulemaking committee. 
We also noted that in the event that if we decide to change this 
methodology by which the hospice wage index is computed, it would be 
reflected in a proposed rule published in the Federal Register. In this 
proposed rule, we now propose to change this methodology.
    In FY 1998, the BNAF was 1.020768; in FY 2008 it was 1.066671. In 
other words, any pre-floor, pre-reclassified hospital wage index value 
greater than 0.8 was increased by over 2 percent in FY 1998 and 
increased by almost 7 percent in FY 2008. In FY 2008, this adjustment 
resulted in hospice providers receiving about 4 percent more in 
payments than they would have received if the BNAF had not been 
applied.
    The negotiating committee also recommended that the transition to 
the new hospice wage index occur over 3 years, from FY 1998 to FY 2001. 
The intent of both the three year transition and the budget neutrality 
adjustment was to mitigate the negative financial impact to many 
hospices resulting from the wage index change. Additionally, the 
committee sought to ensure that access to hospice care was not 
jeopardized as a result of the wage index change.
    We believe that the rationale for maintaining this adjustment is 
outdated for several reasons.
    First, the original purpose of the BNAF was to prevent reductions 
in payments to the majority of hospices whose wage index was based on 
the original hospice wage index which was artificially high due to 
flaws in the 1981 BLS data. While incorporating a BNAF into hospice 
wage indices could be rationalized in 1997 as a way to smooth the 
transition from an old wage index to a new one, since hospices have had 
plenty of time to adjust to the new wage index, it is difficult to 
justify maintaining in perpetuity a BNAF which was in part compensating 
for artificially high data to begin with.
    Second, the new wage index adopted in 1997 resulted in increases in 
wage index values for hospices in certain areas. The BNAF applies to 
hospices in all areas. Thus, hospices in areas that would have had 
increases without the BNAF received an artificial boost in the wage 
index for the past 11 years. We believe that continuation of this 
excess payment can no longer be justified.
    Third, an adjustment factor that is based on 24-year old wage index 
values is contrary to our goal of using a hospice wage index that is as 
accurate, reliable and equitable as possible in accounting for 
geographic variation in wages. We believe that those goals can be 
better achieved by using the pre-floor, pre-reclassified hospital wage 
index, without an outdated BNAF, consistent with other providers. For 
instance, Medicare payments to home health agencies, that utilize a 
similar labor mix, are adjusted by the pre-floor, pre-reclassified 
hospital wage index, without any budget neutrality adjustment. We 
believe that using the unadjusted pre-floor, pre-reclassified hospital 
wage index provides a good measure of area wage differences for both 
these home-based reimbursement systems.
    Fourth, in the 13 years since concerns about the impact of 
switching from an old to a new wage index were voiced, the hospice 
industry and hospice payments have grown substantially. Hospice 
expenditures in 2006 were $9.2 billion, compared to about $2.2 billion 
in 1998, a growth rate of almost 20 percent per year. Aggregate hospice 
expenditures are increasing at a rate of about $1 billion per year. 
MedPAC projects that expenditures will continue to grow at a rate of 9 
percent per year through 2015, outpacing the growth rate of projected 
expenditures for hospitals, skilled nursing facilities, and physician 
and home health services. We believe that this growth in Medicare 
spending for hospice indicates that the original rationale of the BNAF, 
to cushion the impact of using the new wage index, is no longer 
justified. These spending growth figures also indicate that any 
negative financial impact to the hospice industry as a result of 
eliminating the BNAF is no longer present, and thus the need for a 
transitional adjustment has passed.
    Fifth, 13 years ago the industry also voiced concerns about the 
negative financial impact on individual hospices that could occur by 
adopting a new wage index. In August 1994 there were 1,602 hospices; 
currently there are 2,986 hospices. Clearly any negative financial 
impact from adopting a new wage index in 1997 is no longer present, or 
we would not have seen an 86 percent increase in the number of hospices 
since 1994. The number of Medicare-certified hospices has continued to 
increase, with a 26 percent increase in the number of hospice providers 
from 2001 to 2005. This ongoing growth in the industry also suggests 
that phasing out the BNAF would not have a negative impact on access to 
care.
    Therefore for these reasons, we believe that continuing to apply a 
BNAF for the purpose of mitigating any adverse financial impact on 
hospices or negative impact on access to care is no longer necessary. 
We are proposing to phase out the BNAF over a 3-year period, reducing 
the BNAF by 25 percent in FY 2009, by 75 percent in FY 2010, and 
eliminating it in FY 2011. We believe that the proposed 3-year phase-
out period will reduce any adverse financial impact that the industry 
might experience if we eliminated the BNAF in a single year. However, 
depending on the comments received, updated data, and subsequent 
analysis, for the final rule we may determine that a different 
percentage reduction in the BNAF (for any of the years) or a different 
phase-out timeframe would be more appropriate. Specifically, it may be 
determined that a more aggressive phase-out alternative (e.g. a 50 
percent reduction in the BNAF in FY 2009, a 75 percent reduction in the 
BNAF in FY 2010, and elimination of the BNAF in FY 2011) is more 
appropriate. Consequently, we will continue to look at reduction 
percentages and timeframe alternatives for the phase-out of the BNAF 
and, for the final rule, will implement what is determined to be the 
most appropriate option based on the above information. We propose to 
maintain the hospice floor, which offers protection to

[[Page 24007]]

hospices with pre-floor, pre-reclassified hospital wage index values 
less than 0.8.
    We believe that we should have addressed this issue in previous 
years. We believe that using the BNAF has resulted in Medicare spending 
for hospice services in excess of what spending should have been in the 
absence of such an adjustment. However, we are not proposing to reduce 
Medicare payments to hospices for prior years. We are only proposing to 
remove the application of the BNAF on a prospective basis, beginning on 
October 1, 2008.
    Section II.C.3.a below discusses the effects of phasing out the 
BNAF over three years using the data from the published FY 2008 hospice 
wage index; by basing the analysis on this data, our simulations hold 
claims data, the wage index values, and payment rates constant, with 
the only change being the reduction in the BNAF. Section II.C.3.b 
discusses the effects of reducing the BNAF for FY 2009 using the 
proposed FY 2009 hospice wage index.
a. Effects of Phasing-Out the BNAF Using the Published FY 2008 Hospice 
Wage Index
    For this proposed rule, we will use the FY 2008 hospice wage index 
(72 FR 50214, published August 31, 2007) to illustrate the effects of 
phasing out the BNAF over 3 years. This analysis and discussion is for 
illustrative purposes only and does not affect any of the hospice wage 
index values for FY 2008.
    The BNAF that was calculated and applied to the 2007 pre-floor, 
pre-reclassified hospital wage index values was 6.6671 percent. We 
propose reducing the BNAF by 25 percent for FY 2009, by 75 percent for 
FY 2010, and eliminating it altogether for FY 2011 and beyond. A 25 
percent reduction in the BNAF can be accomplished by blending 75 
percent of the FY 2008 hospice wage index that applied the full 6.6671 
percent BNAF with 25 percent of the FY 2008 hospice wage index that 
used no BNAF. This is mathematically equivalent to taking 75 percent of 
the full BNAF value, or multiplying 0.066671 by 0.75, which equals 
0.050003, or 5.0003 percent. The BNAF of 5.0003 percent reflects a 25 
percent reduction in the BNAF. The 25 percent reduction in the BNAF of 
5.0003 percent would be applied to the pre-floor, pre-reclassified 
hospital wage index values of 0.8 or greater used in the published FY 
2008 hospice wage index.
    The hospice floor calculation would still apply to any pre-floor, 
pre-reclassified hospital wage index values less then 0.8. Currently, 
the floor calculation has 4 steps. Pre-floor, pre-reclassified hospital 
wage index values that are less than 0.8 are first multiplied by 1.15; 
second, the minimum of 0.8 or the pre-floor, pre-reclassified hospital 
wage index value times 1.15 is chosen as the preliminary hospice wage 
index value. Third, the pre-floor, pre-reclassified hospital wage index 
value is multiplied by BNAF. Finally, the greater result of either step 
2 or step 3 is chosen as the final hospice wage index value. We propose 
to leave the hospice floor unchanged, noting that steps 3 and 4 will 
become unnecessary once the BNAF is eliminated.
    For the simulations of the BNAF phase-out for FY 2010 and FY 2011, 
we used the same pre-floor, pre-reclassified hospital wage index values 
and claims data as the example above, and simply changed the value of 
the BNAF to reflect either a 75 percent reduction for FY 2010 or a 100 
percent reduction for FY 2011. In both cases we started with the full 
BNAF of 6.6671 percent. We changed the calculation to take 25 percent 
of the full BNAF to reflect a 75 percent reduction for FY 2010, or 
eliminated the BNAF altogether to reflect a 100 percent reduction for 
FY 2011. For FY 2010, the reduced BNAF or the hospice floor was then 
applied to the 2008 pre-floor, pre-reclassified hospital wage index as 
described previously. For FY 2011 and subsequent years, the pre-floor, 
pre-reclassified hospital wage index values would be unadjusted unless 
they are less than 0.8, in which case the hospice floor calculation 
would be applied.
    For our simulations, the calculations of the BNAF are as follows:
 A 75 percent reduction to the BNAF in FY 2010 would be 
0.066671 x 0.25 = 0.016668 or 1.6668 percent
 A 100 percent reduction or elimination of the BNAF in FY 2011 
would be 0.066671 x 0.0 = 0.0 or 0 percent

    We examined the effects of phasing out the BNAF versus using the 
full BNAF of 6.6671 percent on the FY 2008 hospice wage index. The FY 
2009 BNAF reduction of 25 percent resulted in approximately a 1.55 to 
1.57 percent reduction in the hospice wage index value. The FY 2010 
BNAF reduction of 75 percent would result in an estimated additional 
3.12 to 3.13 percent reduction from the FY 2009 hospice wage index 
values. The elimination of the BNAF in FY 2011 would result in an 
estimated final reduction of the FY 2011 hospice wage index values of 
approximately 1.55 to 1.57 percent compared to FY 2010 hospice wage 
index values.
    Those CBSAs whose pre-floor, pre-reclassified hospital wage index 
values had the hospice floor calculation applied prior to the BNAF 
reduction would not be affected by this proposed phase-out of the BNAF. 
These CBSAs, which typically include rural areas, are protected by the 
hospice floor calculation. Additionally, those CBSAs whose hospice wage 
index values were previously 0.8 or greater after the BNAF was applied, 
but which would have values less than 0.8 after the reduced BNAF was 
applied would see a smaller reduction in their hospice wage index 
values since the hospice floor calculation would apply. We have 
estimated the number of CBSAs that would have their pre-floor, pre-
reclassified hospital wage index value eligible for the floor 
calculation after applying the 25, 75, and 100 percent reductions in 
the BNAF. Three CBSAs would be affected by the 25 percent reduction, 12 
would be affected by the 75 percent reduction, and 22 would be affected 
by the 100 percent reduction. Because of the protection given by the 
hospice floor calculation, these CBSAs would see smaller percentage 
decreases in their hospice wage index values than those CBSAs that are 
not eligible for the floor calculation. This will benefit those 
hospices with lower hospice wage index values, which are typically in 
rural areas.
    Finally, the hospice wage index values only apply to the labor 
portion of the payment rates; the labor portion was described in 
Section I.B.1 of this proposed rule. Therefore the estimated reduction 
in payments due to this proposed phase-out of the BNAF would be less 
than the percentage reductions to the hospice wage index values that 
would result from reducing or eliminating the BNAF. In addition, the 
effects of the proposed phase-out of the BNAF could also be mitigated 
by a hospital market basket update in payments, which in FY 2008 was a 
3.3 percent increase in payment rates. We will not have the final 
market basket update for FY 2009 until the summer, but the current 
estimate of the hospital market basket update is expected to be around 
3.0 percent. This update will be communicated through an administrative 
instruction and not through rulemaking. The estimated effects on 
payment described in column 5 of Table 1 in section IV.B of this 
proposed rule include the projected effect of an estimated 3.0 percent 
hospital market basket update. CMS may implement updates to the payment 
rates in future rulemaking.

[[Page 24008]]

b. Effects of Phasing-Out the BNAF Using the Updated Pre-floor, Pre-
reclassified Hospital Wage Index Data (FY 2009 Proposal)
    For FY 2009, we propose updating the hospice wage index using the 
2008 pre-floor, pre-reclassified hospital wage index and the most 
complete claims data available (FY 2006 claims). Using these data, we 
computed a full BNAF of 6.5357 percent. For the first year of the BNAF 
phase-out (FY 2009), the BNAF would be reduced by 25 percent, or 
0.065357 x 0.75 = 0.049018, to 4.9018 percent. This would decrease 
hospice wage index values by approximately 1.53 to 1.54 percent from 
wage index values with the full BNAF applied. As noted in the previous 
discussion on the effects of the BNAF reduction in the published FY 
2008 hospice wage index, those CBSAs which already have pre-floor, pre-
reclassified hospital wage index values that have the hospice floor 
applied prior to implementing a proposed BNAF reduction would be 
completely unaffected by this proposed BNAF reduction. Those CBSAs 
which previously had hospice wage index values above 0.8 after applying 
the full BNAF, but which now are below 0.8 with the 25 percent 
reduction in the BNAF would be less affected by the BNAF reduction than 
those CBSAs which are 0.8 or above after applying the BNAF, as they are 
protected by the hospice floor calculation. Additionally, as mentioned 
in section I.B.1 of this proposed rule, the final hospice wage index is 
only applied to the labor portion of the payment rates, so the actual 
effect on estimated payment would be less than the anticipated 1.53 to 
1.54 percent reduction in the hospice wage index value. Furthermore, 
that effect may be mitigated by a market basket update. As noted 
earlier, the market basket update will not be available until the 
summer, but estimates of the update are at about 3.0 percent.
    Column 3 of Table 1 (section IV of this proposed rule) shows the 
impact of using the most recent wage index data (the 2008 pre-floor, 
pre-reclassified hospital wage index not including any reclassification 
under section 1886(d)(8)(B) of the Act) compared to the 2007 pre-floor, 
pre-reclassified hospital wage index data which was used to derive the 
FY 2008 hospice wage index. Column 4 of Table 1 in Section IV of this 
proposed rule shows the impact of incorporating the 25 percent 
reduction in the BNAF in the proposed FY 2009 hospice wage index along 
with using the most recent wage index data (2008 pre-floor, pre-
reclassified hospital wage index). Finally, column 5 of Table 1 shows 
the combined effects of using the updated pre-floor, pre-reclassified 
hospital wage index, the 25 percent reduced BNAF, and an estimated 
market basket update of 3.0 percent. The proposed FY 2009 rural and 
urban hospice wage indexes can be found in Addenda A and B of this 
proposed rule. The pre-floor, pre-reclassified hospital wage index 
values were adjusted by the 25 percent reduced BNAF or by the hospice 
floor.

D. Summary of the Provisions of the Proposed Rule

     We propose to clarify that the hospice benefit will follow 
the definition of ``urban'' specified in Sec.  412.64(b)(1)(ii)(A) and 
(B), and the rural definition as any area outside of an urban area in 
Sec.  412.64(b)(1)(ii)(C). The regulatory text of Sec.  418.306(c) will 
be amended to reference Sec.  412.64(b)(1)(ii)(A) through (C). This 
affects two New England ``deemed'' counties that meet the OMB 
definition of rural, but were previously counted as urban; these two 
counties would now be considered rural. See section II.A of this 
proposed rule for details.
     As a basis for the hospice wage index, we propose to 
continue to use the pre-floor, pre-reclassified hospital wage index, 
which includes a change to how wage data from multi-campus hospitals 
are apportioned. See section II.B of this proposed rule for more 
details.
     We propose to continue to use a pre-floor, pre-
reclassified hospital wage index based solely on the CBSA designations, 
using the most recent pre-floor and pre-reclassified hospital wage 
index available at the time of publication. See section II.C.1 of this 
proposed rule for details.
     We propose to continue the policy that for urban labor 
markets without an urban hospital from which a pre-floor, pre-
reclassified hospital wage index could be derived, all of the urban 
CBSA pre-floor, pre-reclassified hospital wage index values within the 
State would be used to calculate a statewide urban average pre-floor, 
pre-reclassified hospital wage index to use as a reasonable proxy for 
these areas. See section II.C.2 of this proposed rule for details.
     We propose to continue the policy that we impute an 
average pre-floor, pre-reclassified rural hospital wage index value by 
averaging the pre-floor, pre-reclassified hospital wage index values 
from contiguous CBSAs as a reasonable proxy for rural areas with no 
hospital wage data from which to calculate a pre-floor, pre-
reclassified hospital wage index. See section II.C.2 f of this proposed 
rule or details.
     We propose to continue to utilize the most recent pre-
floor, pre-reclassified hospital wage index value available for Puerto 
Rico. See section II.C.2 of this proposed rule for details.
     We propose to phase-out the hospice BNAF over 3 years, 
reducing it by 25 percent for FY 2009, by 75 percent for FY 2010, and 
eliminating it completely for FY 2011. See sections II.C.3.a and 
II.C.3.b of this proposed rule for details. As stated in section 
II.C.3, based on comments received, updated data, and subsequent 
analysis, for the final rule we may determine that a different 
percentage reduction in the BNAF (for any of the years) or a different 
phase-out timeframe would be more appropriate. Specifically, it may be 
determined that a more aggressive alternative (e.g., a 50 percent 
reduction in the BNAF in FY 2009, a 75 percent reduction in the BNAF in 
FY 2010, and elimination of the BNAF in FY 2011) is more appropriate. 
Consequently, we will continue to look at reduction percentages and 
time period alternatives for the phase-out of the BNAF and, for the 
final rule, will implement what is determined to be the most 
appropriate option based on the above information.
     We propose to continue to maintain the hospice floor 
calculation. See section II.C.3 of this proposed rule for details.
    Addendum A reflects the proposed FY 2009 hospice wage index values 
for urban areas designations. Addendum B reflects the proposed FY 2009 
hospice wage index values for rural areas designations.

III. Collection of Information Requirements

    This document does not impose any information collection and 
recordkeeping requirements. Consequently, it does not need to be 
reviewed by the Office of Management and Budget under the authority of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 35).

IV. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)). We

[[Page 24009]]

estimated the impact on hospices, as a result of the changes to the 
proposed FY 2009 hospice wage index and of reducing the BNAF by 25 
percent. As discussed previously, the methodology for computing the 
hospice wage index was determined through a negotiated rulemaking 
committee and implemented in the August 8, 1997 final rule (62 FR 
42860). This rule proposes updates to the hospice wage index in 
accordance with our regulation but proposes to revise the Negotiated 
Rulemaking Committee methodology of including a BNAF.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits including potential economic, environmental, public health 
and safety effects, distributive impacts, and equity. A regulatory 
impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
We have determined that this proposed rule is an economically 
significant rule under this Executive Order.
    Column 4 of Table 1 shows the combined effects of the proposed 25 
percent reduction in the BNAF and of the updated wage data, comparing 
estimated payments for FY 2009 to estimated payments for FY 2008. We 
estimate that the total hosp