Medicare Program; Hospice Wage Index for Fiscal Year 2009, 46464-46522 [E8-17795]

Agencies

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

[Federal Register Volume 73, Number 154 (Friday, August 8, 2008)]
[Rules and Regulations]
[Pages 46464-46522]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-17795]



[[Page 46463]]

-----------------------------------------------------------------------

Part IV





Department of Health and Human Services





-----------------------------------------------------------------------



 Centers for Medicare & Medicaid Services



-----------------------------------------------------------------------



42 CFR Part 418



 Medicare Program; Hospice Wage Index for Fiscal Year 2009; Final Rule

Federal Register / Vol. 73, No. 154 / Friday, August 8, 2008 / Rules 
and Regulations

[[Page 46464]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 418

[CMS-1548-F]
RIN 0938-AP14


Medicare Program; Hospice Wage Index for Fiscal Year 2009

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule sets forth the hospice wage index for fiscal 
year 2009. In addition, this final rule finalizes the policy to phase 
out the Medicare hospice budget neutrality adjustment factor, and 
clarifies two wage index issues pertaining to the definition of rural 
and urban areas and multi-campus hospital facilities.

DATES: Effective Dates: These regulations are effective on October 1, 
2008.

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

SUPPLEMENTARY INFORMATION:

I. Background

A. General

1. Hospice Care
    Hospice care is an approach to treatment that recognizes that the 
impending death of an individual warrants a change in the focus from 
curative care to palliative care for relief of pain and for symptom 
management. The goal of hospice care is to help terminally ill 
individuals continue life with minimal disruption to normal activities 
while remaining primarily in the home environment. A hospice uses an 
interdisciplinary approach to deliver medical, 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 the Office of Management and Budget 
(OMB) to the Metropolitan Statistical Areas (MSAs) definitions, which 
have been superseded by the Core Based Statistical Areas (CBSAs).
    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, the Hospice Wage Index Negotiated Rulemaking 
Committee was formulated to negotiate a wage index methodology to be 
used for updating the hospice wage index. This Committee, functioning 
under a process established by the Negotiated Rulemaking Act of 1990, 
signed an agreement for the methodology to be used for updating the 
hospice wage index on April 13, 1995.
    On August 8, 1997, we published in the Federal Register a final 
rule (62 FR 42860) 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 final rule (72 FR 50214) published in the Federal Register on 
August 31, 2007, set forth updates to the hospice wage index for fiscal 
year (FY) 2008.
1. Raw Wage Index Values (Raw 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.
    Raw pre-floor, pre-reclassified hospital wage index values of 0.8 
or greater are adjusted by the Budget Neutrality Adjustment Factor 
(BNAF). Raw 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.
    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.
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 OMB to the definitions of 
MSAs, which now include CBSA designations.
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 
42 CFR 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 no 
hospital wage index data on which to base the calculation of the 
hospice wage index. Beginning in FY 2006, we adopted a

[[Page 46465]]

policy to use the FY 2005 raw pre-floor, pre-reclassified hospital wage 
index value for rural areas when no hospital wage data were available. 
Under the CBSA labor market areas, there are no hospitals in rural 
locations in Massachusetts and Puerto Rico. We also adopted the policy 
that for urban labor markets without a hospital from which hospital 
wage index data could be derived, all of the CBSAs within the State 
would be used to calculate a statewide urban average raw pre-floor, 
pre-reclassified hospital wage index value to use as a reasonable proxy 
for these areas. The only affected CBSA is 25980, Hinesville-Fort 
Stewart, Georgia.
    In the FY 2008 final rule (72 FR 50214, 50217), in cases where 
there was a rural area without rural hospital wage data, we used the 
average raw 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 
raw pre-floor, pre-reclassified hospital wage data, and is easy to 
evaluate, 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 raw 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 raw 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) were averaged, resulting in 
an imputed raw pre-floor, pre-reclassified rural hospital wage index 
for FY 2008.
    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 raw 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. While we have not yet identified an 
alternative methodology for imputing a raw 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 raw 
pre-floor, pre-reclassified hospital wage index available for Puerto 
Rico, which is 0.4047.
5. CBSA Nomenclature Changes
    The 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
    Payment rates 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 FYs since 2002 will be the market basket percentage 
for the fiscal year. According to section 1814(i)(1)(C) of the Act, 
hospices are 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 the summer to provide 
adequate time to implement system change requirements. Providers 
determine their payments by applying the hospice wage index in this 
final rule to the labor portion of the published hospice rates.
Requirements for Issuance of Regulations
    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the OMB, 
to establish and publish timelines for the publication of Medicare 
final regulations based on the previous publication of a Medicare 
proposed or interim final regulation. Section 902 of the MMA also 
states that the timelines for these regulations may vary but shall not 
exceed 3 years after publication of the preceding proposed or interim 
final regulation except under exceptional circumstances.
    This final rule finalizes provisions proposed in the May 1, 2008 
proposed rule. In addition, this final rule has been published within 
the 3-year time limit imposed by section 902 of the MMA. Therefore, we 
believe that the final rule is in accordance with the Congress' intent 
to ensure timely publication of final regulations.

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

    On May 1, 2008, we published a proposed rule in the Federal 
Register (73 FR 24000) that set forth the proposed hospice wage index 
for FY 2009. We received 540 timely items of correspondence. The 
following is a summary of each of the proposals followed by our 
responses to these public comments.

A. Clarification of New England Deemed Counties

    In the May 1, 2008 proposed rule, we proposed to amend Sec.  
418.306(c) to cross-reference to the definitions of urban and rural in 
the Inpatient Prospective Payment System (IPPS) regulations in 42 CFR 
Part 412 subpart D. In that proposed rule, we addressed the IPPS 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 part of 
urban areas under section 601(g) of the Social Security Amendments of 
1983. However, under the OMB geographic definitions, these counties 
were considered rural. In the FY 2008 IPPS final rule, CMS adopted a 
change that resulted in these counties no longer being ``deemed'' 
urban. 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 included in metropolitan statistical areas defined 
by OMB and are therefore urban under the current IPPS labor market area 
definitions in Sec.  412.64(b)(1)(ii)(A). The remaining two counties, 
Litchfield County and Merrimack County, are geographically located in 
areas that are rural under the current IPPS labor market area 
definitions.
    In the August 22, 2007 FY 2008 IPPS final rule with comment period 
(72 FR 47130), Sec.  412.64(b)(1)(ii)(B) was revised such that the two 
``New England deemed counties'' that are still considered rural under 
the OMB definitions (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

[[Page 46466]]

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 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.
    The recommendations to adjust payments to reflect local differences 
in wages are codified in Sec.  418.306(c) of our regulations; however 
there is no explicit reference to Sec.  412.64 in Sec.  418.306(c). 
Although Sec.  412.64 is not explicitly referred to, the hospice 
program has used the definition of urban in Sec.  412.64(b)(1)(ii)(A) 
and (B), and the definition of rural as any area outside of an urban 
area in Sec.  412.64(b)(1)(ii)(C). We proposed to explicitly refer to 
those provisions in Sec.  412.64 to make it absolutely clear how we 
define urban and rural for purposes of the hospice wage index. We 
received no comments on this proposal and will implement it as 
proposed.
    Litchfield county, CT and Merrimack county, NH are considered rural 
areas for hospital IPPS purposes in accordance with Sec.  412.64. 
Effective October 1, 2008, Litchfield county, CT will no longer be 
considered part of urban CBSA 25540 (Hartford-West Hartford-East 
Hartford, CT), and Merrimack county, NH will no longer be considered 
part of urban CBSA 31700 (Manchester-Nashua, NH). Rather, these 
counties will be considered to be rural areas within their respective 
States under the hospice payment system. When the raw pre-floor, pre-
reclassified hospital wage index was adopted for use in deriving the 
hospice wage, it was decided not to take into account IPPS geographic 
reclassifications. This proposed policy to follow OMB designations of 
rural or urban, rather than considering some counties to be ``deemed'' 
urban, is consistent with our policy of not taking into account IPPS 
geographic reclassifications in determining payments under the hospice 
wage index.
    We received no comments on this proposal, and will implement it as 
proposed without change.

B. Wage Data for Multi-Campus Hospitals

    Historically, under the Medicare hospice benefit, we have 
established hospice wage index values calculated from the raw pre-
floor, pre-reclassified hospital wage data (also called the IPPS wage 
index) without taking into account geographic reclassification under 
sections 1886(d)(8) and (d)(10) of the Act. The wage adjustment 
established under the Medicare hospice benefit is based on the location 
where services are furnished without any reclassification.
    For FY 2009, the data collected from cost reports submitted by 
hospitals for cost reporting periods beginning during FY 2004 were used 
to compute the 2008 raw pre-floor, pre-reclassified hospital wage index 
data without taking into account geographic reclassification under 
sections 1886(d)(8) and (d)(10) of the Act. This 2008 raw pre-floor, 
pre-reclassified hospital wage index was used to derive the applicable 
wage index values for the hospice wage index because these data (FY 
2004) are the most recent complete data (for information on the data 
used to compute the FY 2008 IPPS wage index, refer to the FY 2008 IPPS 
final rule with comment period (72 FR 47308 through 47309, 47315)).
    Beginning in FY 2008, the IPPS apportioned the wage data for multi-
campus hospitals located in different labor market areas (CBSAs) to 
each CBSA where the campuses are located (see the FY 2008 IPPS final 
rule with comment period (72 FR 47317 through 47320)). We are 
continuing to use the raw pre-floor, pre-reclassified hospital wage 
data as a basis to determine the hospice wage index values for FY 2009 
because hospitals and hospices both compete in the same labor markets, 
and therefore, experience similar wage-related costs. We note that the 
use of raw pre-floor, pre-reclassified hospital (IPPS) wage data, used 
to derive the FY 2009 hospice wage index values, reflects the 
application of our policy to use that data to establish the hospice 
wage index. The FY 2009 hospice wage index values presented in this 
final rule were computed consistent with our raw pre-floor, pre-
reclassified hospital (IPPS) wage index policy (that is, our historical 
policy of not taking into account IPPS geographic reclassifications in 
determining payments for hospice). For the FY 2009 Medicare hospice 
benefit, the wage index was computed from IPPS wage data (submitted by 
hospitals for cost reporting periods beginning in FY 2004 (just like 
the FY 2008 IPPS wage index)), which allocated salaries and hours to 
the campuses of two multi-campus hospitals with campuses that are 
located in different labor areas, one in Massachusetts and another in 
Illinois. Thus, the FY 2009 hospice wage index values for the following 
CBSAs are affected by this policy: 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).
    We received no comments on this proposal, and will implement it as 
proposed without change.

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

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 proposed to use a raw 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. Again, we 
proposed to use the raw 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 raw 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 proposed using the most recent raw pre-floor, pre-
reclassified hospital wage index available at the time of publication.
    Comment: A few commenters were unhappy with CMS' use of the raw 
pre-floor, pre-reclassified hospital wage index as the input for the 
hospice wage index, and suggested it is flawed. Some commenters noted 
that the hospital-based wage index has undergone multiple changes over 
the past 10 years and that providers were not invited to provide 
comment for CMS to consider when formalizing these changes. One 
commenter added that the existence of exceptions to the hospital wage 
index system in the form of reclassifications demonstrates the 
unfairness and inadequacy of the hospital-based wage index system.

[[Page 46467]]

    Several commenters mentioned that a 2007 MedPAC report on the 
hospital wage index suggested that CMS repeal the existing hospital 
wage index, and develop a new one. The commenter stated that MedPAC 
recommended that CMS evaluate the use of the revised wage index in 
other Medicare payment systems, which includes hospice. A commenter 
asked CMS to devise a hospice-specific reimbursement system, rather 
than using the hospital-based wage index. Several of these commenters 
offered to work with CMS in reforming the wage index, and recommended 
use of the collaborative negotiated rulemaking process. They suggested 
that CMS use the established wage index methodology, including the 
BNAF, until a viable alternative is found.
    In addition, a commenter wrote that hospices compete in the same 
labor market as hospitals for staff but hospitals do not use the same 
wage index, and that the wage index does not reflect the reality of 
wages in a healthcare community.
    Response: The raw pre-floor, pre-reclassified hospital wage index 
was adopted in 1998 as the wage index from which the hospice wage index 
is derived. The Negotiated Rulemaking Committee considered several wage 
index options: (1) Continuing with Bureau of Labor Statistics data; (2) 
using updated hospital wage data; (3) using hospice-specific data; and 
(4) using data from the physician payment system. The Committee 
determined that the raw pre-floor, pre-reclassified hospital wage index 
was the best option for hospice. The raw pre-floor, pre-reclassified 
hospital wage index is updated annually, and reflects the wages of 
highly skilled hospital workers.
    We agree that the hospital-based wage index has undergone some 
changes in the past 10 years. Those changes were put forward through 
rulemaking, which provided the public an opportunity to provide 
comments. Therefore, we disagree that hospice providers have not had an 
opportunity to comment on hospital wage index changes.
    The reclassification provision provided at section 1886(d)(10) of 
the Act is specific to hospitals. We believe the use of the most recent 
available raw pre-floor and pre-reclassified hospital wage index 
results in the most appropriate adjustment to the labor portion of 
hospice costs as required in 42 CFR 418.306(c). Additionally, use of 
the unadjusted hospital wage data avoids further reductions in certain 
rural statewide wage index values that result from reclassification. We 
also note that the wage index adjustment is based on the geographic 
area where the beneficiary is located, and not where the hospice is 
located.
    We continue to believe that the unadjusted hospital wage index, 
which is updated yearly and is used by many other CMS payments systems 
including home health, appropriately accounts for geographic variances 
in labor costs for hospices. Home health agencies and hospices are 
Medicare's only home-based benefits, and home health agencies and 
hospices share labor pools. In the future, when looking into reforming 
the hospice payment system, we will consider wage index alternatives, 
to include those recommended by MedPAC.
    We are implementing as final the proposal to continue to use the 
raw pre-floor, pre-reclassified hospital wage index.
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 the proposed rule (73 FR 24004). 
Beginning in FY 2006, we adopted a policy that, for urban labor markets 
without an urban hospital from which a raw pre-floor, pre-reclassified 
hospital wage index can be derived, all of the urban CBSA raw pre-
floor, pre-reclassified hospital wage index values within the State 
would be used to calculate a statewide urban average raw 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-Fort Stewart, Georgia. We proposed to 
continue this policy for FY 2009.
    Currently, the only rural areas where there are no hospitals from 
which to calculate a raw pre-floor, pre-reclassified hospital wage 
index are in Massachusetts and Puerto Rico. In August 2007 (72 FR 
50217) we adopted the following methodology for imputing rural raw 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 raw pre-floor, pre-reclassified hospital wage index value by 
averaging the raw 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 raw pre-floor, pre-
reclassified hospital wage index. In determining an imputed rural raw 
pre-floor, pre-reclassified hospital wage index, we define 
``contiguous'' as sharing a border. In the proposed rule, we proposed 
to apply this methodology for imputing a rural raw pre-floor, pre-
reclassified hospital wage index for those rural areas without rural 
hospital wage data in FY 2009. 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 did not receive any comments on 
this proposal, and are implementing it as proposed.
    As we noted in our proposed rule, we do not believe that this 
methodology for imputing a rural raw pre-floor, pre-reclassified 
hospital wage index value 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 blended Federal/Commonwealth-
specific rates, to make a separate distinct policy for Puerto Rico 
necessary.
    We did not receive any comments on this proposal, and are 
implementing it as proposed without change. Therefore, in this final 
rule, for FY 2009, we are continuing to use the most recent raw pre-
floor, pre-reclassified hospital wage index value available for Puerto 
Rico, which is 0.4047. This raw pre-floor, pre-reclassified hospital 
wage index value is then adjusted upward by the hospice floor in the 
computing of the final FY 2009 hospice wage index.
3. Phase Out of the Budget Neutrality Adjustment Factor (BNAF)
    As previously stated, the current hospice wage index methodology 
was developed through a negotiated rulemaking process and implemented 
in 1997. The rulemaking 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, which is still in place today, results in providers 
currently receiving about 4 percent more in payments than they would 
have received if the adjustment factor were not applied. We believe the 
rationale for maintaining this adjustment is outdated, as explained in 
detail below, particularly given the

[[Page 46468]]

amount of time that has elapsed since it was first put into place and 
the continuing growth that is occurring in the hospice benefit. In the 
proposed rule, we proposed 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. Additionally, from a parity perspective, because hospices and 
home health agencies have a similar labor mix, we believe that 
adjusting for geographic variances in both of these Medicare home-based 
benefits with the raw pre-floor and pre-reclassified hospital wage 
index is appropriate.
    The original hospice wage index that was used when the benefit was 
first implemented was based on the 1981 BLS hospital data and had not 
been updated from 1983 until the current raw pre-floor and pre-
reclassified hospital wage index was adopted. During earlier attempts 
to update the original 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 the original 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, more accurate wage index would result in some 
areas gaining as their wage index value would increase, but other areas 
would see 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 that is based on using the raw 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 (the 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. This proposed methodology contained the 
negotiated rule making committee's recommendations.
    In formulating the provisions of that proposed rule, the Committee 
considered criteria in evaluating the available data sources. These 
criteria included 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.
    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 1998 hospice wage 
index. That is the raw 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 raw pre-floor, pre-reclassified hospital wage index data.
    The Committee was also concerned that while some hospices would see 
increases in their payments, use of the raw 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 for 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 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. 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 policy, 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 
final rule, that means estimating payments for FY 2009 using FY 2007 
hospice claims data as of March 2008, and applying the estimated 
updated FY 2009 hospice payment rates (updating the FY 2008 rates by 
the FY 2009 market basket update). The final FY 2009 hospice wage index 
values are then applied to the labor portion only. The procedure is 
repeated using the same claims data and payment rates, but using the 
1983 BLS-based wage index instead of the updated raw 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.
    All raw pre-floor, pre-reclassified hospital wage index values of 
0.8 or greater would be adjusted by the BNAF, which would be calculated 
and applied annually. Also, all raw 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.
    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 raw pre-floor, 
pre-reclassified hospital wage index.

[[Page 46469]]

    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 Committee. We also 
noted that in the event that we decide to change this methodology by 
which the hospice wage index is computed, we would propose to do so in 
the Federal Register. In the May 2008 proposed rule, we proposed to 
change this methodology.
    In FY 1998, the BNAF was 1.020768 and in FY 2008, the BNAF was 
1.066671. Any raw 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 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 3-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 the BNAF 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. Additionally, the BNAF was adopted to 
ensure that aggregate payments made to the hospice industry would not 
be decreased or increased as a result of the wage index change. 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 then 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 not in keeping with 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 raw pre-floor, pre-reclassified hospital 
wage index, without the outdated BNAF, consistent with other providers. 
For instance, Medicare payments to home health agencies, that utilize a 
similar labor mix, are adjusted by the raw pre-floor, pre-reclassified 
hospital wage index without any budget neutrality adjustment. We 
believe that using the raw 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. Aggregate hospice expenditures are increasing at a rate of 
about $1 billion per year. MedPAC reports that expenditures are 
expected 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 3,111 hospices. Clearly any negative financial 
impact from adopting a new wage index in 1997 is no longer present, or 
we would not have seen this growth in the industry. 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.
    Finally, we proposed 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. 
We also proposed to maintain the hospice floor, which offers protection 
to hospices with raw pre-floor, pre-reclassified hospital wage index 
values less than 0.8, noting that the steps in the calculation which 
involve the BNAF will become unnecessary. We are implementing the BNAF 
phase-out as proposed, and maintaining the hospice floor as proposed.
    We received several comments on the phase-out of the BNAF. Specific 
comments and our responses to these comments are as follows:
    Comment: Several commenters disputed CMS' description of the 
purpose of the BNAF in the proposed rule. The commenters stated CMS 
asserted that the purpose was to smooth the transition from an outdated 
BLS-based wage index to the hospital-based wage index in 1998, the 
language in several payment rules suggested that the BNAF was not a 
time-limited adjustment and was to be applied annually, during and 
after the transition to the hospital-based wage index. One comment 
supported keeping the BNAF, stating that a payment reduction for FY 
2009 to FY 2011 is no less disruptive than any payment reduction which 
occurred through the wage index transition in 1997. Another commenter 
stated that the hospice negotiated wage index rule that was finalized 
by CMS in 1997 recognized the need to include a budget neutrality 
adjustment to offset the flaws in the hospital wage index, and 
therefore protect the viability of hospices. The commenter also stated 
that reason remains as valid today as eleven years ago. Another 
commenter said CMS' rationale for phasing out the BNAF suggested that 
eliminating the BNAF would restore fairness to the hospice wage index, 
when in reality no wage index methodology is perfect. Other commenters 
stated that CMS has previously recognized that BNAF protects hospices 
from inadequacies in the hospital wage index, and inadequacies in the 
hospice payment rates. Another commenter stated that the BNAF was put 
into place because of the dramatic changes triggered by

[[Page 46470]]

implementation of the new wage index, so that access to care was 
protected.
    In addition, a commenter asserted that the fundamental reason for 
the BNAF was that no component of the current reimbursement system 
accurately replicates hospice costs. A commenter also indicated that 
CMS stated that hospice payments and providers had increased over the 
past 10 years, and that the hospice wage index methodology is dated. 
The commenter further stated that by those standards, the wage index 
model used by every Medicare provider type would need revision. 
Furthermore, a commenter asked why, other than time passing, is the 
BNAF outdated. Commenters indicated that the rationale for applying the 
BNAF originally is still valid.
    Response: We continue to believe that the hospice wage index 
negotiating committee intended the BNAF to mitigate the negative 
financial impact of the 1998 hospice wage index change. We continue to 
believe that because of the growth in the industry and the amount of 
time that has passed since the transition, the rationale for 
maintaining the BNAF is no longer justified. In addition, from a parity 
perspective, we believe that an raw pre-floor, pre-reclassified 
hospital wage index is appropriate for use in adjusting rates for 
geographic variances in both of our home-based benefits, hospice and 
home health. Nothing in our data analysis has shown us that hospice 
labor costs differ substantially from home health labor costs. 
Therefore, we believe we can no longer justify the 6 percent increase 
in the hospice wage index, which results from the BNAF. We agree with 
the commenter that BNAF was put into place so that beneficiary access 
to hospice care would be protected. We believe the Committee was 
primarily concerned about those areas of the country that would see 
their payments reduced as a result of the wage index change. The 
Committee was concerned that the payment reductions might affect the 
viability of hospices in these areas, thus ultimately risking access to 
care. The Committee intended that aggregate payments to hospices not be 
reduced as a result of the wage index change. We do not believe that 
the Committee foresaw the amount of growth in the number of new 
hospices that would occur over the following decade. While we agree 
with the commenter that our regulations describe that the BNAF be 
applied during and after the transition to the new wage index, we 
continue to believe that those decisions were made as part of the 
negotiations to address transitional issues, and do not negate our 
ability to make future policy changes. We believe that our regulations, 
the negotiating committee statement, and the negotiating committee 
workgroup notes support these beliefs. We also believe that given the 
current industry climate, it is appropriate that a policy change now 
occur.
    The decision to transition from the BLS-based wage index to the 
hospital-based wage index was a long process. In the October 14, 1994, 
proposed rule (59 FR 52130), we noted that both CMS (formally HCFA) and 
industry projections indicated that most hospices would have their wage 
indices lowered if a new wage index were based on unadjusted hospital 
data. The preamble of the final rule stated that, ``During the 
discussions preliminary to developing a new wage index, the industry 
voiced concerns over the adverse financial impact of a new wage index 
on individual hospices and a possible reduction in overall Medicare 
hospice care payments'' (59 FR 52130). There were also concerns that 
access to hospice care could be affected. We noted that as a result of 
the impact of the lower payments to hospices in the aggregate, the new 
wage index would have to be at least budget neutral (59 FR 52131). The 
Committee Statement of April 13, 1995, which was published in a notice 
on November 29, 1995 (60 FR 61265), said that we would apply a factor 
to achieve budget neutrality, and noted that budget neutrality meant 
that aggregate Medicare hospice payments using the new hospital-based 
wage index would have to equal estimated payments that would have been 
made under the original hospice wage index.
    We do not believe that the Committee foresaw the tremendous growth 
in the industry. As a result of this growth, the surge of new entrants 
into the industry over the past 10 years has benefited from this 
adjustment. We continue to believe that the committee adopted the BNAF 
to help existing hospices transition to the 1998 wage index change, and 
did not expect that the BNAF would result in these payment increases to 
new providers in perpetuity. Impact analysis performed by participants 
in the negotiating process showed pockets of the country where the 
migration to the new hospital wage index would result in wage index 
values decreasing nearly 30 percent. The committee was clearly 
concerned about hospice viability in those areas of the country, with a 
corresponding concern about access to care. We continue to believe that 
the unique BNAF methodology, coupled with the 3-year transition period, 
served to address those transitional concerns. It also continues to be 
our belief that because of the growth in the number of hospices, and 
the growth in the beneficiaries served that has occurred during the 
last decade, the committee's goal to ensure that access to hospice care 
not be reduced as a result of the wage index change has been achieved. 
Therefore, we believe that this unique methodology for achieving budget 
neutrality has served its purpose and is no longer necessary to be 
continued.
    We disagree with the commenters who wrote that the BNAF was 
intended to offset flaws in the hospital wage index or address 
inadequacy of the hospice payment rates. None of our hospice 
regulations or notices from 1994 to 1998 which deal with the transition 
to a new wage index indicated that the BNAF was put into place because 
of flaws in the hospital-based wage index, rate inadequacies, or 
because of any inaccurate replication of hospice costs under the 
current reimbursement system. We continue to believe, as the Committee 
did, that the raw pre-floor, pre-reclassified hospital wage index is 
currently the best choice for use in deriving the hospice wage index.
    We agree with the commenter that the language in the August 8, 1997 
final rule indicated that the BNAF would be applied during and after 
the transition period (62 FR 42862), however this language did not 
imply that the BNAF could not be changed or eliminated. That same final 
rule also included a provision for us to change the wage index 
methodology, through notice and comment rulemaking (62 FR 42863).
    In our rationale for the BNAF phase-out, we noted the increase in 
payments and in the number of providers to show that the hospice 
industry was growing. Growth such as this, rather than industry 
contraction, typically occurs in a favorable business climate. The 
presence of a favorable business climate suggests that concerns about 
the financial impact of changing to a new wage index had passed. 
Finally, we did not state that all hospice wage index methodology was 
outdated, but only that the BNAF was outdated, and we continue to 
believe that is the case.
    Given that the impact of the BNAF phase-out is relatively small 
(1.1 percent payment reduction for FY 2009), and is being offset by a 
3.6 percent market basket update, we do not feel that the phase-out 
will be disruptive to the hospice industry. However, we will monitor 
the impact as the phase-out occurs.
    Comment: A commenter wrote that CMS justified phasing out the BNAF 
in part because the combination of increases in the wage index in 
certain

[[Page 46471]]

areas with the BNAF led to an artificial boost in the wage index for 
the past 11 years, which CMS concluded was an excess payment. The 
commenter also stated that CMS said that if there had been no wage 
index change in 1997, the total payments to hospices would be greater 
than the payments that will be made if the proposal is implemented. The 
commenter concludes that there is no excess spending triggered by the 
BNAF, but instead there is an unauthorized reduction under the CMS 
proposal.
    Another commenter felt that CMS is singling out the BNAF because 
some hospices benefited more from it than others. The commenter also 
suggested that CMS change the methodology for the limited number of 
hospices that benefited unduly from the ``artificial boost'' given by 
the BNAF.
    In addition, a commenter stated that CMS had indicated one reason 
for the BNAF phase-out was because the growth in hospice expenditures 
indicates that any negative financial impact from the transition to the 
hospital-based wage index in 1998 was no longer present. The commenter 
indicated that CMS assumed this growth in spending was excess spending, 
and that CMS had put forward no evidence that there was excess spending 
in hospice versus appropriate increases in spending.
    Response: We continue to believe that applying the BNAF to the raw 
hospital-based wage index does not, as accurately as possible, account 
for geographic variances in hospice labor costs. When the hospice 
industry changed from the BLS-based wage index to the raw pre-floor, 
pre-reclassified hospital wage index, it began using more accurate, 
more current data which are updated annually. When that transition 
occurred, there were hospices whose wage index value increased, but 
many hospices saw their wage index value decrease. This is because the 
BLS-based wage index values, which were applied to hospice payments, 
were artificially high in some areas of the country. The Committee 
itself acknowledged that the BLS data were ``inaccurate and outdated'' 
in its Committee Statement (62 FR 42883). The hospital-based wage index 
was considered more accurate, even though its wage index values were 
lower for many hospices. Therefore before the transition to the 
hospital-based wage index, many hospices were receiving payments that 
were inflated due to the artificially high BLS-based wage index.
    In addition, the BNAF was put into place to mitigate the adverse 
financial impact to hospice providers of changing wage indices, since 
the change would lead to a reduction in payments, which could threaten 
access to care. However, as we previously described in the comment 
above, the BNAF has been applied not only to those hospices that were 
in existence at the time of the wage index change, but also to those 
new hospices that were established after 1998. We continue to believe 
that these new entrants have received an artificial boost to their 
payments as a result of the BNAF, which was not the intent of the 
negotiating committee.
    The commenter is correct that if the hospice industry had not 
adopted the hospital-based wage index, but had remained with the BLS-
based data, each year's total Medicare hospice payments would be higher 
than they will be when the BNAF is phased out. However, as noted above, 
because of the inaccuracy and outdatedness of the BLS-based wage data, 
those payments would also be inaccurate, and CMS must do its best to 
ensure the accuracy of Medicare payments.
    The commenter correctly noted that we feel that the growth in 
hospice expenditures indicates that the need to mitigate any adverse 
financial impact from the change to a hospital-based wage index has 
passed. However we did not assume that this growth was due to excess 
spending associated with the BNAF. We recognize that many factors 
contribute to expected and appropriate growth in spending, including 
increased numbers of Medicare beneficiaries eligible for hospice care; 
increased awareness of the benefit by beneficiaries, their families, 
and physicians; some longer lengths of stay; etc.
    We believe that the growth in Medicare hospice expenditures 
indicates the overall good financial health of the hospice industry and 
that this further demonstrates that the BNAF has outlived its 
usefulness and is no longer appropriate. As stated previously, we 
believe that given the current industry climate, it is appropriate that 
a policy change to phase out the BNAF be implemented.
    Comment: A commenter wrote that CMS had justified the BNAF phase-
out by noting that there had been an 86 percent increase in growth in 
the number of hospices. The commenter maintained that growth in the 
number of hospice providers does not demonstrate that hospices can 
absorb the payment reduction triggered by the BNAF phase-out. The 
commenter also stated that CMS does not know the financial status of 
those hospices or the level of demand for their services.
    Several commenters stated that CMS has concluded that the growth in 
the hospice benefit was due to the BNAF, thereby justifying its 
elimination. The commenters noted a number of factors that have 
contributed to the hospice industry's growth, including an increased 
number of beneficiaries using the benefit, longer lengths of stay, 
increased acceptance of hospices for end-of-life care by the physician 
and patient/family communities, changes in the mix of patients using 
hospice, and educational efforts by providers and by CMS to 
beneficiaries and health care providers.
    Several commenters felt that the proposed BNAF reduction is a 
reaction to increasing hospice reimbursements overall. Another 
commenter stated that hospice is a small portion of all Medicare 
spending.
    Response: We appreciate these comments. As we indicated in our 
responses, the FY 2009 financial impact of the BNAF phase-out is no 
more than a 1.1 percent reduction in payments. Therefore, with a 3.6 
percent market basket update factor for FY 2009, we do not believe that 
there will be a significant adverse effect on the new providers, or on 
long-standing providers. We agree that demand for hospice services is 
growing as the U.S. population ages, and as the baby boomer generation 
begins to be eligible for Medicare.
    We disagree with the commenter's suggestion that CMS does not know 
the financial status of hospices. In fact, the Medicare Payment 
Advisory Commission (MedPAC) has performed extensive analysis on 
various aspects of hospice financial performance and utilization trends 
over the last few years, including an assessment of growth trends in 
the hospice industry. We believe that both the growth in hospice 
expenditures and the growth in the number of hospices are indicators of 
financial stability in the industry, especially given the growth surge 
in the number of for-profit providers. MedPAC noted that hospice care 
has changed considerably since the benefit's implementation. In 1983 
most providers were nonprofits affiliated with religious or community 
organizations, but now for-profit hospices constitute the majority of 
providers and the vast majority of new entrants into the program since 
2000 (MedPAC, p. 206). In 1998, for-profit providers comprised 26.9 
percent of the industry (63 FR 53456), while in 2007, for-profits 
comprised 51 percent (MedPAC, p. 216). The growth in not-for-profit 
hospices since 1998 has remained relatively flat.

[[Page 46472]]

    MedPAC has also provided some information about the financial 
health of hospices, particular those who are new entrants into the 
market. MedPAC noted that hospices that began participating in the 
market in 2000 or after had consistently and substantially higher 
margins than those participating in Medicare before 2000. In addition, 
these higher margins are consistent with the growth in the number of 
for-profit providers (MedPAC, p. 223-224). Therefore, we do not believe 
that the newer entrants will be more affected by the BNAF reduction 
than older hospices.
    We disagree with the comment that we asserted that the growth in 
the hospice industry was due to the BNAF or that the BNAF reduction is 
a reaction to the growth in hospice reimbursements. However, the 
commenters correctly noted several factors that have contributed to 
industry growth. We indicated that the BNAF phase-out was not a 
reaction to that growth--in the proposed rule, rather we stated that 
the BNAF was put in place to mitigate any adverse financial impact that 
individual hospices might experience as a result of transitioning to 
the new hospital-based wage index in 1998. We note that industries do 
not typically expand and grow during times of financial adversity; 
often there is industry contraction instead. We stated that the growth 
in the industry is an indication that any adverse financial effects of 
transitioning to a new wage index had ended.
    We agree that relative to all Medicare spending, hospice spending 
is a small portion accounting for an expected 2.3 percent of spending 
overall in FY 2009. However, we estimate that hospice spending will 
more than double in the next 10 years. The growth in hospice spending 
has outpaced the rate of growth for other Medicare provider types. 
Furthermore, CMS has a responsibility to safeguard trust fund dollars 
by paying accurately and appropriately for all Medicare services. 
Finally, we disagree with the commenter that the proposed reduction in 
the BNAF is simply a reaction to increasing hospice reimbursements. 
Rather, as we have stated in the previous responses, we believe that 
the purpose of the BNAF was to mitigate the negative financial impact 
of a 1998 wage index change. We believe this mitigation for the 
transition to a ``new'' wage index is no longer necessary. We also 
believe that phasing out the BNAF places both Medicare home-based 
benefits on a more equal footing in terms of recruiting staff.
    Comment: A commenter stated that cutting hospice payments 
disregards the significant, collaborative progress made in the Medicare 
hospice program over the last decade. A few commenters stated that CMS 
circumvented Congress by going through rulemaking to propose and 
possibly finalize a BNAF phase-out. Several commenters suggested CMS 
should use negotiated rulemaking to refine payment policy such as the 
BNAF. Another commenter stated that the wage index calculation is not 
and never has been intended to be used as a method to form payment 
policy. This commenter stated that role historically has been reserved 
for Congress. Another commenter stated that the BNAF phase-out was an 
administrative proposal put forward in the President's budget, and 
therefore should be enacted by Congress rather than effectuated through 
CMS rulemaking. Another commenter stated that the Secretary of the 
Department of Health and Human Services is required to propose reforms 
to the wage index calculations. One commenter stated that the proposed 
rulemaking process administratively circumvented the legislative intent 
to maintain and ensure adequate hospice funding levels.
    Response: We appreciate these comments, but respectfully disagree 
with the commenters. The BNAF was put into place through use of a 
Negotiated Rulemaking Committee. We recognized that the wage index 
methodology, including the BNAF, could be changed when we included the 
following statement in Section IV (B) of the August 8, 1997 Final Rule 
entitled ``Medicare Program; Hospice Wage Index'' (62 FR 42863):

    The annual updates will update the hospice wage index values 
according to the methodology agreed to by the rulemaking committee 
and implemented by this final rule. In the event that we decide to 
change the methodology by which the wage index is computed, this 
will be reflected in a proposed rule published in the Federal 
Register.

    The ``we'' in this paragraph refers to CMS (formally HCFA), which 
published the final rule in 1997. It is clear from this statement that 
the wage index methodology, including the BNAF, is subject to changes 
by CMS, and that any such changes do not have to go through neg