Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2010, 40948-41005 [R9-18587]

Agencies

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

[Federal Register Volume 74, Number 155 (Thursday, August 13, 2009)]
[Proposed Rules]
[Pages 40948-41005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: R9-18587]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 409, 424, 484, and 489



Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2010; Proposed Rule; Republication

Federal Register / Vol. 74 , No. 155 / Thursday, August 13, 2009 / 
Proposed Rules

[[Page 40948]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 424, 484, and 489

[CMS-1560-P]
RIN 0938-AP20


Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2010

    Editorial Note:  Federal Register proposed rule document E9-
18587, originally published at pages 39436 to 39496 in the issue of 
Thursday, August 6, 2009, included incorrect tables from pages 39471 
to 39496. This document, along with the correct tables, is being 
republished in its entirety.

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth an update to the Home Health 
Prospective Payment System (HH PPS) rates; the national standardized 
60-day episode rates, the national per-visit rates, the non-routine 
medical supply (NRS) conversion factor, and the low utilization payment 
amount (LUPA) add-on payment amount, under the Medicare prospective 
payment system for home health agencies effective January 1, 2010. In 
addition, this rule proposes a change to the HH PPS outlier policy and 
proposes to require the submission of OASIS data as a condition for 
payment under the HH PPS. Also, this rule proposes payment safeguards 
that would improve our enrollment process, improve the quality of care 
that Medicare beneficiaries receive from HHAs, and reduce the Medicare 
program's vulnerability to fraud. This rule also proposes clarifying 
language to the ``skilled services'' section and Condition of 
Participation (CoP) section of our regulations. This proposed rule also 
clarifies the coverage of routine medical supplies under the HH PPS. We 
are also soliciting comments on: Physician/patient interaction 
associated with the home health plan of care (POC); a Consumer 
Assessment of Healthcare Providers and Systems (CAHPS) Home Health Care 
Survey; the Outcome and Assessment Information Set (OASIS), Version C, 
effective January 1, 2010; proposed pay for reporting measures for use 
in CY 2011; and a number of minor payment-related issues. We are also 
responding to comments received as a result of our solicitation in the 
CY 2008 HH PPS final rule with comment period.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 28, 
2009.

ADDRESSES: In commenting, please refer to file code CMS-1560-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 under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1560-P, P.O. Box 8016, 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 to 
the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1560-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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.

    (Because access to the interior of the Hubert H. Humphrey 
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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 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.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

SUPPLEMENTARY INFORMATION:
    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. EST. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410)786-0131 
(overall HH PPS). Sharon Ventura, (410) 786-1985 (for information 
related to payment rates and wage indexes). James Bossenmeyer, (410) 
786-9317 (for information related to payment safeguards). Doug Brown, 
(410) 786-0028 (for quality issues). Kathleen Walch, (410) 786-7970 
(for skilled services requirements and clinical issues).

Table of Contents

I. Background
    A. Requirements of the Balanced Budget Act of 1997 for 
Establishing the Prospective Payment System for Home Health Services
    B. Deficit Reduction Act of 2005
    C. System for Payment of Home Health Services
    D. Updates to the HH PPS
II. Analysis of and Responses to Comments on the HH PPS Refinement 
and Rate Update for CY 2008
III. Provisions of the Proposed Regulation

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    A. Outlier Policy
    B. Case-Mix Measurement Analysis
    C. Proposed CY 2010 Payment Rate Update
    1. Home Health Market Basket Update
    2. Home Health Care Quality Improvement
    3. Home Health Wage Index
    4. Proposed CY 2010 Payment Update
    a. National Standardized 60-Day Episode Rate
    b. Proposed Updated CY 2010 National Standardized 60-Day Episode 
Payment Rate
    c. Proposed National Per-Visit Rates Used To Pay LUPAs and 
Compute Imputed Costs Used in Outlier Calculations
    d. Proposed LUPA Add-On Payment Amount Update
    e. Proposed Non-Routine Medical Supply Conversion Factor Update
    D. OASIS Issues
    1. HIPPS Code Reporting
    2. OASIS Submission as a Condition for Payment
    E. Qualifications for Coverage as They Relate to Skilled 
Services Requirements
    F. OASIS for Significant Change in Condition No Longer 
Associated With Payment
    G. Proposed Payment Safeguards for Home Health Agencies
    H. Physician Certification and Recertification of the Home 
Health Plan of Care
    I. Routine Medical Supplies
IV. Collection of Information Requirements
    A. ICRs Regarding the Requirements for Home Health Services
    B. ICRs Regarding Deactivation of Medicare Billing Privileges
    C. ICRs Regarding Prohibition Against Sale or Transfer of 
Billing Privileges
    D. ICRs Regarding Patient Assessment Data
V. Response to Comments
VI. Regulatory Impact Analysis

I. Background

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

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) enacted on 
August 5, 1997, significantly changed the way Medicare pays for 
Medicare home health services. Section 4603 of the BBA mandated the 
development of the home health prospective payment system (HH PPS). 
Until the implementation of a HH PPS on October 1, 2000, home health 
agencies (HHAs) received payment under a cost-based reimbursement 
system.
    Section 4603(a) of the BBA mandated the development of a HH PPS for 
all Medicare-covered home health services provided under a plan of care 
(POC) that were paid on a reasonable cost basis by adding section 1895 
of the Social Security Act (the Act), entitled ``Prospective Payment 
For Home Health Services''. Section 1895(b)(1) of the Act requires the 
Secretary to establish a HH PPS for all costs of home health services 
paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires that: (1) The computation 
of a standard prospective payment amount include all costs for home 
health services covered and paid for on a reasonable cost basis and be 
initially based on the most recent audited cost report data available 
to the Secretary, and (2) the prospective payment amounts be 
standardized to eliminate the effects of case-mix and wage levels among 
HHAs.
    Section 1895(b)(3)(B) of the Act addresses the annual update to the 
standard prospective payment amounts by the home health applicable 
percentage increase.
    Section 1895(b)(4) of the Act governs the payment computation. 
Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act require the 
standard prospective payment amount to be adjusted for case-mix and 
geographic differences in wage levels. Section 1895(b)(4)(B) of the Act 
requires the establishment of an appropriate case-mix change adjustment 
factor that adjusts for significant variation in costs among different 
units of services.
    Similarly, section 1895(b)(4)(C) of the Act requires the 
establishment of wage adjustment factors that reflect the relative 
level of wages, and wage-related costs applicable to home health 
services furnished in a geographic area compared to the applicable 
national average level. Pursuant to 1895(b)(4)(c), the wage-adjustment 
factors used by the Secretary may be the factors used under section 
1886(d)(3)(E) of the Act.
    Section 1895(b)(5) of the Act gives the Secretary the option to 
make additions or adjustments to the payment amount otherwise paid in 
the case of outliers because of unusual variations in the type or 
amount of medically necessary care. Total outlier payments in a given 
fiscal year (FY) or year may not exceed 5 percent of total payments 
projected or estimated.
    In accordance with the statute, we published a final rule (65 FR 
41128) in the Federal Register on July 3, 2000, to implement the HH PPS 
legislation. The July 2000 final rule established requirements for the 
new HH PPS for home health services as required by section 4603 of the 
BBA, as subsequently amended by section 5101 of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act (OCESAA) for 
Fiscal Year 1999 (Pub. L. 105-277), enacted on October 21, 1998; and by 
sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), 
enacted on November 29, 1999. The requirements include the 
implementation of a HH PPS for home health services, consolidated 
billing requirements, and a number of other related changes. The HH PPS 
described in that rule replaced the retrospective reasonable cost-based 
system that was used by Medicare for the payment of home health 
services under Part A and Part B. For a complete and full description 
of the HH PPS as required by the BBA, see the July 2000 HH PPS final 
rule (65 FR 41128 through 41214).

B. Deficit Reduction Act of 2005

    On February 8, 2006, the Deficit Reduction Act of 2005 (Pub. L. 
109-171) (DRA) was enacted. Section 5201 of the DRA requires HHAs to 
submit data for purposes of measuring health care quality, and links 
the quality data submission to payment. This requirement is applicable 
for CY 2007 and each subsequent year. If an HHA does not submit quality 
data, the home health market basket percentage increase will be reduced 
2 percentage points. In accordance with the statute, we published a 
final rule (71 FR 65884, 65935) in the Federal Register on November 9, 
2006 to implement the pay-for-reporting requirement of the DRA, 
codified at 42 CFR 484.225(h) and (i).

C. System for Payment of Home Health Services

    Generally, Medicare makes payment under the HH PPS on the basis of 
a national standardized 60-day episode payment rate that is adjusted 
for the applicable case-mix and wage index. The national standardized 
60-day episode rate includes the six home health disciplines (skilled 
nursing, home health aide, physical therapy, speech-language pathology, 
occupational therapy, and medical social services). Payment for non-
routine medical supplies (NRS), is no longer part of the national 
standardized 60-day episode rate and is computed by multiplying the 
relative weight for a particular NRS severity level by the NRS 
conversion factor (See section III.C.4.e). Durable medical equipment 
covered under the home health benefit is paid for outside the HH PPS 
payment. To adjust for case-mix, the HH PPS uses a 153-category case-
mix classification to assign patients to a home health resource group 
(HHRG). Clinical needs, functional status, and service utilization are 
computed from responses to selected data elements in the OASIS 
assessment instrument.
    For episodes with four or fewer visits, Medicare pays on the basis 
of a national

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per-visit rate by discipline; an episode consisting of four or fewer 
visits within a 60-day period receives what is referred to as a low 
utilization payment adjustment (LUPA). Medicare also adjusts the 
national standardized 60-day episode payment rate for certain 
intervening events that are subject to a partial episode payment 
adjustment (PEP adjustment). For certain cases that exceed a specific 
cost threshold, an outlier adjustment may also be available.

D. Corrections

    We published a final rule with comment period in the Federal 
Register on August 29, 2007 (72 FR 49762) that set forth a refinement 
and rate update to the 60-day national episode rates and the national 
per-visit rates under the Medicare prospective payment system for home 
health services for CY 2008. In this final rule with comment period, in 
Table 10B (72 FR 49854), the short description for ICD-9-CM code 250.8x 
& 707.10-707.9 should read ``PRIMARY DIAGNOSIS = 250.8x AND FIRST OTHER 
DIAGNOSIS=707.10-707.9''. Instead of a formal correction notice, we are 
notifying the public of this correction in this proposed rule, and 
subsequent final rule.

E. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in the Federal Register.
    We published a notice in the Federal Register on November 3, 2008 
(73 FR 65351) that set forth the update to the 60-day national episode 
rates and the national per-visit rates under the Medicare prospective 
payment system for home health services for CY 2009.

II. Analysis of and Responses to Comments on the HH PPS Refinement and 
Rate Update for CY 2008

    Our August 29, 2007 final rule with comment period set forth an 
update to the 60-day national episode rates and the national per-visit 
rates under the Medicare prospective payment system for HHAs for CY 
2008. For that final rule, analysis performed on home health claims 
data, from CY 2005, indicated a 12.78 percent increase in the observed 
case-mix since 2000. The case-mix represented the variations in 
conditions of the patient population served by the HHAs. We then 
performed a more detailed analysis on the 12.78 percent increase in 
case-mix to see if any portion of that increase was associated with a 
real change in the actual clinical condition of home health patients. 
CMS examined data on demographics, family support, pre-admission 
location, clinical severity, and non-home health Part A Medicare 
expenditure data to predict the average case-mix weight for 2005. As a 
result of that analysis, CMS recognized that an 11.75 percent increase 
in case-mix was due to changes in coding practices and documentation 
rather than to treatment of more resource-intensive patients.
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, CMS implemented a reduction 
over 4 years in the national standardized 60-day episode payment rates 
and the NRS conversion factor. That reduction was to be taken at 2.75 
percent per year for three years beginning in CY 2008 and at 2.71 
percent for the fourth year in CY 2011. CMS indicated that it would 
continue to monitor for any further increase in case-mix that was not 
related to a change in patient status, and would adjust the percentage 
reductions and/or implement further case-mix change adjustments in the 
future.
    The CY 2008 HH PPS final rule with comment period specifically 
solicited comments on the 2.71 percent reduction that is scheduled to 
occur in 2011. In response, we received approximately 44 items of 
correspondence from the public. Comments originated from trade 
associations, HHAs, hospitals, and health care professionals such as 
physicians, nurses, social workers, and physical and occupational 
therapists. In the HH PPS Rate Update for CY 2009, we stated that we 
would delay our responses to these comments until future rulemaking, 
enabling us to respond more comprehensively as more current data became 
available. The following discussion, arranged by subject area, includes 
our responses to the comments.

A. Payment Reductions in the 4th Year (2011)

    Comment: Commenters requested that CMS release the Abt technical 
report so that the industry could review the data and information 
within it. Without the Abt report, the commenters stated the industry 
would be unable to offer meaningful comments on the case-mix 
reductions.
    Response: The Abt Technical Report was posted online and made 
available to the public on April 30, 2008 at: https://www.cms.hhs.gov/Reports/downloads/Coleman_Final_April_2008.pdf. Although we posted 
the report later than anticipated, we believe that the CY 2008 HH PPS 
final rule with comment period adequately presented information, 
documentation and evidence describing the Abt case-mix study and CMS' 
rationale for the reductions. Accordingly, we believe we have provided 
sufficient time and information to the public to fully review and 
comment upon the rate reductions that will take effect in CY 2011.
    Comment: A commenter suggested that the 4th year cut of 2.71 
percent be eliminated or indefinitely deferred until better data are 
available. Some commenters stated that an additional year of rate cuts 
will place a financial burden on HHAs, and will result in limited 
access to home care, especially in rural areas. These commenters 
further state that limited access may result in more hospitalizations 
and/or care being provided in more costly settings. Commenters also 
stated that imposing a 4th year reduction on HHAs would be detrimental 
and unduly harsh, as many HHAs are already struggling to meet the 
rising costs of providing care, and that the reductions will cause HHAs 
to operate at negative margins and likely close.
    Several commenters suggested alternatives to CMS' approach to 
adjusting for nominal case-mix. For example, one commenter suggested 
spreading the total cuts across a 6-year period rather than a 4-year 
period, enabling CMS to better monitor the impact of the CY 2008 HH PPS 
refinements and CY 2008 and 2009 reductions prior to imposing 
additional reductions.
    Another commenter suggested that CMS withdraw its decision to 
reduce the payment rates until CMS could design and implement a better 
method to analyze changes in the case-mix, based on adjusted final 
claims data that would utilize patient characteristics in the model, as 
well as changes in per-patient annual expenditures, patient clinical, 
functional, and service utilization data, and dynamic factors in the 
Medicare system that impact on the nature of patients served with home 
health care.
    Response: Our continued analysis shows that Medicare nominal case-
mix continues to increase. Therefore, we continue to believe it 
necessary to reduce rates through 2011 to counterbalance the Medicare 
expenditure effects of this nominal increase. We also continue to 
believe that phasing in the reductions over a four year period provides 
fair and ample time for HHAs to prepare for the reductions.
    As more current data become available, we will continue to update 
our case-mix analysis. As discussed in Section III.B. of this proposed 
rule,

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based on analysis of data through 2007, nominal case-mix has further 
increased. We now estimate that the nominal case-mix has grown by an 
estimated 13.56 percent between FY 1999 (the Interim Payment System 
(IPS) baseline period) and 2007, an additional 1.81 percentage points 
above the previously recognized increase. If we were to account for the 
entire 13.56 percent increase in nominal case-mix in one year (taking 
into account that we have already imposed 2.75 percentage reductions in 
CY 2008 and CY 2009), we estimate that the percentage reduction in the 
national standardized 60-day episode payment rates and the NRS 
conversion factor would be 6.89 percent in CY 2010. If we were to 
account for the entire 13.56 percent increase in nominal case-mix over 
two years (taking into account that we have already imposed 2.75 
percentage reductions in CY 2008 and CY 2009), we estimate that the 
percentage reduction in the national standardized 60-day episode 
payment rates and the NRS conversion factor for each of the remaining 
two years (2010 and 2011) would be 3.51 percent per year. As discussed 
in Section II.C. of this proposed rule, we currently plan to move 
forward with the CY 2010 reduction of 2.75 percent, as set forth in the 
CY 2008 final rule. However, we note that, in light of, among other 
things, new policy developments, more recent information, or changed 
circumstances from the time the CY 2008 rule was published, the 
Secretary is also considering making additional changes in the final 
rule to account for the residual increase in nominal case-mix discussed 
above. In such an instance, we would consider accounting for the 
residual increase in nominal case-mix in one year in the final rule, 
which we estimate would result in a 6.89 percent reduction to the 
national standardized 60-day episode payment rates and the NRS 
conversion factor for CY 2010. We are seeking comments on the full 
range of potential nominal case-mix reduction percentages.
    With high projected HH margins and continued growth in the number 
of new HH agencies, we do not believe that the 2.71 percent reduction 
for 2011 will result in decreased access to home health care for 
Medicare beneficiaries. The Medicare Payment Advisory Commission's 
(MedPAC) March 2009 Annual Report states that the home health industry 
margin for 2007 was 16.6 percent and projects that average margins for 
2009, which considers the 2.75 reduction, will be 12.2 percent. MedPAC 
also analyzed the average rate of HH cost growth and found that in most 
years, the rate of actual cost growth in HHAs has been lower than the 
rate of inflation indicated by the home health market basket. MedPAC 
reports that payments for HHAs have exceeded costs for all of the 
period under PPS by a wide margin.
    Also, in their March 2009 report, MedPAC reports a 32 percent 
growth in the number of HH agencies since 2003, stating that the supply 
of agencies continues to increase faster than the growth in the overall 
number of Medicare beneficiaries. We believe that new home health 
providers continue to enter the home health industry because Medicare 
payment levels give them adequate incentive to do so.
    In response to commenters who suggested that we consider 
alternative methods to identify nominal case-mix before we impose the 
CY 2011 reductions, we continue to believe that the Abt model 
adequately identifies nominal case-mix. As we described in our August 
2007 final rule, our enhanced model included variables such as changes 
in the age structure of the home health user population, changes in the 
types of patients being admitted to home health, utilization of 
Medicare Part A services in the 120 days leading up to home health, the 
type of preadmission acute care stays when the patient last had such a 
stay and variables describing living situations. Many of these model 
enhancements addressed suggestions made by the industry in their 
proposed rule comments.

B. General Case-Mix Comments

    Our August 29, 2007 final rule with comment period solicited 
comments only on the 2.71 percent fourth year reduction (72 FR 49762). 
Nevertheless, we received several comments unrelated to the fourth year 
reduction. Because such comments (including comments on outliers, LUPAs 
(Low Utilization Payment Adjustments), OASIS, wage index, operational 
issues, diagnosis coding, HHRGs, and wound care payment) are out of the 
scope of this rulemaking, we are not responding to these comments in 
this proposed rule. However, we are responding to comments on case-mix 
measurement methodology, as we believe such comments are tangentially 
related to the reduction for CY 2011, and because we wish to fully 
address this issue.
    Comment: A commenter stated that the August 27, 2007 final rule 
with comment period was not a ``logical outgrowth'' of the May 4, 2007 
proposed rule. The commenter stated that CMS used a different 
methodology for evaluating case-mix weight scores and changes in 
patient characteristics than had been used in the proposed rule. The 
commenter recommended that CMS engage in another cycle of rulemaking in 
order to provide further opportunity to comment.
    Response: The policy adopted in the August 2007 final rule was a 
policy that adjusted payments in order to account for increases in 
nominal case-mix. This policy was both proposed and finalized. The 
commenter is addressing not the policy of adjusting payments for 
nominal case-mix increases, but rather, how CMS implements this policy; 
that is, the methodology CMS uses for determining the level of nominal 
case-mix increase. While we do not believe we are required to subject 
our exact, final calculations regarding the increase to public comment, 
it is also important to note that our final methodology clearly was an 
outgrowth of the proposed rule. The proposed rule included a detailed 
analysis of various kinds of data, such as an extensive review of the 
content of changes in OASIS instructions, a review of changes in the 
frequencies of severity levels of the case-mix system, and a detailed 
presentation of how OASIS items other than those used for case-mix 
frequently changed little, if at all. We also discussed the pattern of 
change in functional items, showing that for a number of items, some 
changes occurred at the high-functioning end, while the worst-
functioning levels didn't increase in the population. There was a 
similar analysis of wound item changes. Our interpretation of the 
totality of the data was that real case-mix did not materially change 
since the IPS baseline. We also identified a large increase in post-
surgical patients with their traditionally lower case-mix index. 
However, we made an adjustment to our estimate of case-mix change to 
account for the change in the composition of the home health industry 
on account of the exit of some hospital-owned agencies. These details 
enabled the home health industry to analyze our proposed methodology 
and provide comments suggesting specific types of changes in patient 
acuity that could help to explain identified changes in home health 
case-mix. For the final rule, we enhanced our formal estimate of case-
mix change, which we had statistically adjusted to account for change 
in the presence of hospital-owned agencies in the industry, with a 
methodology that statistically adjusted for multiple factors, including 
the types of factors mentioned by commenters. Application of this model 
allowed us to simultaneously ``subtract'' from the

[[Page 40952]]

growth in the national case-mix index the effects of a multitude of 
factors besides the change in hospital-owned agencies. Additionally, in 
the May 4, 2007 proposed rule (72 FR 25395) we indicated that our 
analysis for the final rule would be updated to include 2005 data.
    Specifically, for the final rule, we updated the case-mix index and 
some of the statistical data (e.g., average resources per episode) to 
include 2005 data. We also added analyses focusing on certain types of 
patients, including those mentioned in public comments on the proposal 
(e.g., knee replacement patients). Further, as just discussed in the 
paragraph above, we added results from a multivariate model of case-mix 
that isolated real case-mix change between the HH IPS baseline and 
2005. The newly added data and the model responded to comments that 
cited circumstances of particular types of patients and/or sought 
additional types of evidence. These added data and analyses were made 
in response to the proposed rule comments. The data and information 
added for the final rule, along with the entire array of evidence we 
presented in the proposed and the final rule are the bases for the 
identification of nominal case-mix change.
    Comment: Some commenters focused on the finding that only 8 percent 
of the case-mix change from 2000 to 2005 was real. These commenters 
recommended that CMS start with the assumption that all case-mix change 
is real, and only consider the amount that could be estimated as 
nominal to be unjustified.
    Another commenter pointed to CMS' assertion that ``real'' case-mix 
increased prior to implementation of the HH PPS (prior to September 
2000) and argued that this fact demonstrates that it was unreasonable 
for CMS to assume that none of the change after that point was real.
    Commenters suggested that case-mix has increased due to several 
factors, including earlier discharges from general acute hospitals, PPS 
changes that provided incentives to treat higher-acuity patients, and 
other post-acute care regulations issued by CMS (such as the inpatient 
rehabilitation ``75% Rule''), which diverts more medically complex 
patients to homecare. One commenter urged CMS to defer any adjustment 
for case-mix change and to perform an analysis that accounted for these 
factors.
    Response: The predictive model isolated 8.03 percent of the overall 
12.78 percent increase in case-mix as real, resulting in an 11.75 
percent nominal increase in case-mix. We relied on those results to 
arrive at the nominal case-mix reductions -2.75 percent for 3 years and 
-2.71 percent for the fourth year of the phase-in. (Refer to Section 
III.B. of this proposed rule for an update based on analysis of data 
through 2007.) Thus, our model allowed and presumed some real case-mix 
change. The model data relied on claims data instead of OASIS data 
(with the exception of one variable, which described the patient's 
living situation), to avoid reliance on data which we knew were subject 
to coding changes such as those resulting from educational 
improvements, changes in OASIS instructions, and financial incentives. 
The model takes into account the total change between the baseline and 
the follow-up year (2005) in the sources of patients (hospital, 
inpatient rehabilitation facility, and skilled nursing facility). It 
also takes into account total change in the types of acute hospital 
problems and hospital-recorded comorbidities experienced by patients 
before they entered home health care, total change in living situation, 
and total change in patients' Part A expenditures incurred in the 120 
days leading up to the beginning of each episode (expenditures were 
adjusted for price increases). Length of stay is also accounted for by 
summing the number of inpatient days of various types. Additionally, we 
added analyses focusing on certain types of patients, including those 
mentioned in public comments on the proposal (e.g., knee replacement 
patients).
    Every predictive model has its limitations; however, we believe the 
model and data we used were the best available for the purposes of 
measuring case-mix in an unbiased manner. For example, we relied on 
hospital claims data instead of OASIS data (with the exception of one 
OASIS variable), and enhanced our calculation method to include a 
multivariate approach to case-mix measurement. For those patients who 
were hospitalized before home care, the model included whether the 
hospitalization was surgical or medical, and in many cases the model 
identified the particular, detailed conditions that were responsible 
for that hospital stay. These additions to the model were suggested by 
the industry in comments on the proposed rule.
    Moreover, we again note that the Abt model was not the sole basis 
for the final regulation provision on nominal case-mix change. The 
basis for the final provision was the entire array of evidence we 
presented in the proposed and the final rules. In addition, in the May 
4, 2007, proposed rule (72 FR 25362-25366) we noted data as well as 
commentary from observers indicating that therapy treatment plans were 
sometimes ``padded'' to reach the ten-visit therapy threshold; we 
consider this behavior a component of nominal case-mix change, because 
therapy visits help to determine the case-mix group.
    In response to the comment that CMS should have started with the 
assumption that all case-mix growth was real, and then calculate what 
portion, if any, was nominal, the model did assess real case-mix using 
a variety of Part A claims. We then compared the model's prediction of 
real case-mix with the actual billed case-mix, determining the 
calculated difference to be nominal. The May 4, 2007, proposed rule put 
the case-mix of the Medicare home health population in historical 
perspective. It described the changes affecting the home health benefit 
since the Balanced Budget Act of 1997 and cited MedPAC, GAO and other 
literature findings that the HH IPS had a strong impact on the types of 
patients served. We compared the case-mix index from the Abt Associates 
study sample with the case-mix index of the HH IPS baseline (1999-
2000), a comparison that suggested that changes in real case-mix did 
occur as a result of the HH IPS. Literature findings (GAO, ``Medicare 
Home Health Benefit: Impact of Interim Payment System and Agency 
Closures on Access to Services,'' September 1998, GAO/HEHS-98-238) 
describe an HH IPS incentive to admit many different patients with 
short-term or rehabilitation needs instead of lengthy low skilled care 
needs. We did not rule out that some of the change during that period 
was nominal, in part because the HH PPS proposed rule of 1999 probably 
affected provider behavior.
    Moreover, our analysis of changes in resource use showed that 
resource use stayed below the resource use level of the HH IPS period 
for much of the succeeding five years, casting doubt on the commenters' 
assertion that patient acuity increased. Specifically, after the IPS 
was implemented, we saw a decline in visit use from 73 visits per 
person in 1997 to 42 visits per person in 1999. The number of visits 
further decreased under the HH PPS, decreasing to 37 in 2000, and 31 
for each year 2001 through 2004.
    Comment: A commenter believes that CMS's decision to implement 
these payment reductions is unjustified and flawed for two basic 
reasons: (1) There have been actual changes in the home health 
population; and (2) providers have improved the accuracy of OASIS 
coding. The commenter refers to recently released data by Outcome 
Concept Systems citing the average 2005 adjusted case-mix weight 
nationally and

[[Page 40953]]

in New York was approximately 1.15, not 1.2361, as CMS asserts.
    The commenter believes that the average case-mix weight has changed 
because CMS fails to consider therapy as a patient characteristic and 
because patients' clinical severity has increased. Furthermore, the 
commenter believes that the increase in patients' clinical needs is 
largely due to an inpatient hospital payment system that has created 
incentives for early discharge of patients who require more care. The 
result is a home health population with higher acuity and more intense 
resource needs. The commenter also states that growth in Medicare 
Advantage plans has shifted lower acuity patients out of traditional 
Medicare, leaving higher need and higher cost beneficiaries within the 
traditional Medicare program.
    A commenter stated that current OASIS data show that HHAs are 
admitting increased numbers of beneficiaries with: (1) Comorbidities 
such as diabetes and obesity; (2) abnormalities of gait; (3) wound 
infections; (4) urinary incontinence; and (5) increased cognitive 
function deficits. The accumulative effect of these admissions has 
necessitated increased therapy services which have resulted in higher 
clinical and functional scores in case-mix weights. In addition, the 
commenter believes that physical therapy services were underutilized 
during the HH IPS and at the onset of the HH PPS because of lack of 
clinical knowledge and understanding of best practice standards. The 
delivery of medical services in the home has improved over recent 
years. This is evident by implementation of quality measures and 
outcomes data. Several commenters believe that the increase in average 
case-mix can be attributed fully to an improvement in each agency's 
ability to correctly answer OASIS items and increased emphasis on OASIS 
validity by Quality Improvement Organizations (QIO). Another commenter 
stated that their agency has experienced a change in the percentage of 
orthopedic patients due to changes in regulations for rehabilitation 
hospitals.
    Response: In the May 4, 2007 HH PPS proposed rule, we indicated 
that the analysis of national case-mix would be updated using 2005 data 
in that year's HH PPS final rule, and that the annual adjustments for 
nominal case-mix change would be modified accordingly.
    As we have noted elsewhere, improvements in coding do not represent 
real case-mix changes, which means that the Medicare program arguably 
may have overpaid for some of the services which were provided after 
improvements in OASIS coding were implemented. CMS subsequently 
adjusted the standardized payment amount to compensate for the nominal 
change in case-mix used to pay claims in the years following the 
introduction of the PPS.
    We acknowledge that therapy treatment services were used as a case-
mix characteristic in the case-mix model, in the absence of sufficient 
explanatory power from OASIS data items to model resource use by 
themselves. However, we found a dramatic change in the distribution of 
episodes according to the number of therapy visits between the HH IPS 
baseline period and the early years of the HH PPS period, and the new 
distribution has persisted. We continue to believe that the change in 
this short period is an indication of behavioral change on the part of 
home health agencies, and is not necessarily related to real case-mix 
change. Moreover, the distributional shift occurred in the absence of 
convincing evidence from various OASIS items that patients were 
actually more impaired and sickly. Furthermore, when we took account of 
patient characteristics in the model of real case-mix change, the 
results did not support a large difference in patient acuity.
    We also note that the reporting of more comorbidities by HHAs is 
not clear evidence of change in patient status, as it could be a result 
of improvements in coding training alone. In addition, changes in 
regulations affecting rehabilitation hospitals are represented in the 
case-mix change model by the variables that measure the source of 
admission.
    To the extent that the home health industry has accomplished 
improvements in patient function without adding significant resources 
to the provision of care in home health episodes, we understand this is 
likely attributable to shifts in the service mix provided within the 
episode, as well as improved care practices. Again, however, the 
situation does not necessarily indicate a real change in case-mix.
    Without more detailed information about their analysis, we are 
unable to comment on the implication in the statistic from Outcome 
Concept Systems in New York State (as reported by the commenter) that 
the average case-mix rose only 1.15 as compared to 1.2361 in CMS's 
analysis. The average case-mix is computed from an extremely large 
representative sample of national home health claims data. The 
commenter does not provide information about the method of adjustment, 
the conditions of data-gathering, or the quality or source of the data 
sources used by Outcome Concept Systems.
    Comment: A commenter stated that CMS' review of 20 percent of 
claims (OASIS for 2004-2005) does not reflect the patient 
characteristics in 2007, and it certainly does not reflect those 
receiving services in 2010 and 2011.
    Response: We based our proposals on the latest statistically 
representative data available, and those data were from 2005 at the 
time of the preparation of the final regulation. We will continue to 
update the data as they become available.
    Comment: A commenter stated that CMS should look more closely at 
specific agencies it suspects may be upcoding and then seek financial 
restitution from those that are ultimately deemed to be following this 
practice. Across-the-board cuts of this magnitude are unwarranted at a 
time when the home health industry should be receiving additional 
support to serve an expanding older population.
    Response: As we stated in the CY 2008 HH PPS final rule (72 FR at 
49837), we believe that it is more appropriate to implement a 
nationwide approach to the issue of a case-mix change adjustment. An 
individual agency approach would be administratively burdensome and 
difficult to implement. Policies to address the identity of agencies in 
light of changes to organizational structures and configurations would 
need to be developed. Furthermore, smaller agencies might have 
difficulty in providing accurate measures of real case-mix changes 
because of their small caseloads. Because the nominal increase in case-
mix grew significantly from 2003 to 2005 (8.7 percent to 11.75 
percent), we spread out the schedule of adjustments from 3 years to 4 
years in order to ameliorate the impact that would have been felt by 
HHAs had we decided to account for the entire 11.75 percent increase in 
case-mix over 3 years.
    Comment: A commenter is concerned that CMS has not correctly 
addressed factors measuring the apparent ``creep''. Additionally, the 
commenter states that it was useful to have CMS clarify that they had 
excluded LUPAs from the two measurement bases utilized and that fact 
raises an issue that CMS did not address in the rule. When the original 
HH PPS was proposed (October 1999) and finalized (July 2000), CMS 
asserted that it expected LUPA incidence, as estimated by its 
actuaries, would be five percent. Actual incidence has, since 
implementation, averaged sixteen percent of total reimbursements. Using

[[Page 40954]]

just a five percent rate of occurrence resulted in every original HHRG 
assigned a lower value than if CMS had used, say, a fifteen percent 
rate of incidence. Accordingly, the commenter argues that home health 
agencies were under-compensated by approximately 11 percent for LUPA 
savings.
    Response: While this comment is outside the scope of the topic (the 
4th year reductions) which we solicited comments on, we will briefly 
respond. In the July 2000 final rule (65 FR 41162), we stated that the 
estimate of the percentage of LUPA episodes was an actuarial estimate, 
as were the estimates of incidence of SCICs, PEPs, and outliers. Our 
base episode payment rates are derived using the best data available at 
that time. The commenter is correct that the actual number of LUPA 
episodes is higher than our original estimate. However, while it is 
true that 16 percent of episodes from the 1998 pre-PPS data analysis 
were shown to be LUPA-type episodes (65 FR 41186), we also provided 
reasoning in that discussion as to why we believed actual LUPA 
incidence under the HH PPS would be lower. Granted, the incidence of 
LUPAs did not drop to the level of 5 percent of the total number of 
episodes as was originally estimated, however the average actual 
incidence of LUPAs is, and has always been considerably lower than the 
16 percent suggested by the commenter. In fact, data analysis shows us 
that the incidence of LUPA episodes was first measured at approximately 
15.2 percent of the total number of episodes and has continued to 
decrease under the HH PPS. Specifically, recent analysis of home health 
claims shows that LUPA episodes made up approximately 10.6 percent of 
the total number HH PPS episodes in CY 2007.
    Another important fact that should not be lost, as part of this 
discussion, is that while the incidence of LUPAs is less than 
originally estimated, we note that the average number of home health 
visits provided per episode for non-LUPAs episodes is also lower than 
what we originally estimated (65 FR 41171) when we built the base 
payment rates (21.16 vs 25.5 home health visits). Hence, the national 
standardized 60-day episode payment is currently based on the delivery 
of significantly more home health visits per episode (25.5) than is 
currently being delivered (21.16).
    It is also worth noting that the manner in which the commenter 
appears to arrive at their under-compensation of payment percentage is 
by subtracting the original estimate for LUPA episodes of 5 percent 
from their inaccurate estimate of 16 percent incidence of LUPA 
episodes. In addition to the commenters 16 percent being inaccurate (as 
mentioned above), it is important to point out that even in doing the 
math, an inaccurate 16 percent minus 5 percent actually reflects that 
there is an 11 percentage point difference between the two, not an 11 
percent under-compensation in payment as the commenter suggests. 
Because the incidence of LUPAs is considerably lower than the 16 
percent that the commenter suggests, and the average number of home 
health visits per episode is far less than originally estimated, HHAs 
have not been under-compensated by 11 percent, as the commenter 
suggests.
    Since the inception of the HH PPS, we have monitored home health 
utilization in preparing the refinements to the HH PPS. We have always 
contended that it would not be appropriate to address single aspects of 
the system, as the many pieces/aspects of the system interact and there 
are causes and effects that each has on one another. Consequently, we 
have addressed those issues for which we believed we had adequate 
information, as a result of our analysis in the CY 2008 HH PPS proposed 
and final rules. In doing so, as is generally done in a prospective 
payment system, we decided not to make retroactive adjustments for 
actual utilization that differed from estimates.

III. Provisions of the Proposed Rule

A. Outlier Policy

1. Background
    Section 1895(b)(5) of the Act allows for the provision of an 
addition or adjustment to the regular 60-day case-mix and wage-adjusted 
episode payment amount in the case of episodes that incur unusually 
high costs due to patient home health care needs. This section further 
stipulates that total outlier payments in a given year may not exceed 5 
percent of total projected or estimated HH PPS payments. Section 
1895(b)(3)(C) of the Act stipulates that the standard episode payment 
be reduced by such a proportion to account for the aggregate increase 
in payments resulting from outlier payments.
    In the July 2000 final rule (65 FR 41189), we described and 
subsequently implemented an HH PPS outlier policy under which we reduce 
the standard episode payment by 5 percent, and target up to 5 percent 
of total projected estimated HH PPS payments to be paid as outlier 
payments. The July 2000 final rule described a methodology for 
determining outlier payments. Under this system, outlier payments are 
made for episodes whose estimated cost exceeds a threshold amount. The 
episode's estimated cost is the sum of the national wage-adjusted per-
visit rate amounts for all visits delivered during the episode. The 
outlier threshold is defined as the national standardized 60-day 
episode payment rate for that case-mix group plus a fixed dollar loss 
(FDL) amount. Both components of the outlier threshold are wage-
adjusted. The wage-adjusted FDL amount represents the amount of loss 
that an agency must experience before an episode becomes eligible for 
outlier payments. The wage-adjusted FDL amount is computed by 
multiplying the national standardized 60-day episode payment amount by 
the FDL ratio, and wage-adjusting that amount. That wage-adjusted FDL 
amount is added to the HH PPS payment amount to arrive at the wage-
adjusted outlier threshold amount. The outlier payment is defined to be 
a proportion of the wage-adjusted estimated costs beyond the wage-
adjusted outlier threshold amount. The proportion of additional costs 
paid as outlier payments is referred to as the loss-sharing ratio. The 
FDL ratio and the loss-sharing ratio were selected so that the 
estimated total outlier payments would not exceed the 5 percent level. 
We chose a value of 0.80 for the loss-sharing ratio, which is 
relatively high, but preserves incentives for agencies to attempt to 
provide care efficiently for outlier cases. A loss-sharing ratio of 
0.80 means that Medicare pays 80 percent of the additional costs above 
the wage-adjusted outlier threshold amount. A loss-sharing ratio of 
0.80 is also consistent with the loss-sharing ratios used in other 
Medicare PPS outlier policies, such as inpatient hospital, inpatient 
rehabilitation, long-term hospital, and inpatient psychiatric payment 
systems. In CY 2000, we estimated that a FDL ratio of 1.13 would yield 
estimated total outlier payments that were projected to be no more than 
5 percent of total HH PPS payments. As discussed in the October 1999 
proposed rule (64 FR 58169) and the July 2000 final rule (65 FR 41189), 
the percentage constraint on total outlier payments creates a tradeoff 
between the values selected for the FDL amount and the loss-sharing 
ratio. For a given level of outlier payments, a higher fixed dollar 
loss amount reduces the number of cases that receive outlier payments, 
but makes it possible to select a higher loss-sharing ratio and 
therefore increase outlier payments per episode. Alternatively, a lower 
fixed dollar loss amount means that more episodes qualify for outlier 
payments but outlier payments per episode must be lower.

[[Page 40955]]

Therefore, setting these two parameters involves policy choices about 
the number of outlier cases and their rate of payment.
    When the data became available, we performed an analysis of CY 2001 
home health claims data. This analysis revealed that outlier episodes 
represented approximately 3 percent of total episodes and 3 percent of 
total HH PPS payments. Additionally, we performed the same analysis on 
CY 2002 and CY 2003 home health claims data and found the number of 
outlier episodes and payments held at approximately 3 percent of total 
episodes and total HH PPS payments, respectively. Based on these 
analyses and comments we received, we decided that an update to the FDL 
ratio would be appropriate.
    To that end, for the October 22, 2004 HH PPS rate update for the CY 
2005 final rule, we performed data analysis on CY 2003 HH PPS claims 
data. The results of that analysis indicated that a FDL ratio of 0.70 
was consistent with the existing loss-sharing ratio of 0.80 and a 
projected target percentage of estimated outlier payments of no more 
than 5 percent. Consequently, we updated the FDL ratio from the initial 
ratio of 1.13 to an FDL ratio of 0.70. Our analysis showed that 
reducing the FDL ratio from 1.13 to 0.70 would increase the percentage 
of episodes that qualified for outlier episodes from 3.0 percent to 
approximately 5.9 percent. A FDL ratio of 0.70 also better met the 
estimated 5 percent target of outlier payments to total HH PPS 
payments. We believed that this updated FDL ratio of 0.70 preserved a 
reasonable degree of cost sharing, while allowing a greater number of 
episodes to qualify for outlier payments.
    Our CY 2006 update to the HH PPS rates (70 FR 68132) updated the 
FDL ratio from 0.70 to 0.65 to allow even more home health episodes to 
qualify for outlier payments and to better meet the estimated 5 percent 
target of outlier payments to total HH PPS payments. For the CY 2006 
update, we used CY 2004 home health claims data.
    In our CY 2007 update to the HH PPS rates (71 FR 65884) we again 
updated the FDL ratio from 0.65 to 0.67 to better meet the estimated 5 
percent target of outlier payments to total HH PPS payments. For the CY 
2007 update, we used CY 2005 home health claims data.
    In the CY 2008 final rule with comment period, in the interest of 
using the latest data and best analysis available, we performed 
supplemental analysis on the most recent data available in order to 
best estimate the FDL ratio. That analysis derived a final FDL ratio of 
0.89 for CY 2008.
    In order to determine the appropriate value for the FDL ratio for 
the CY 2009 rate update, in the November 3, 2008 HH PPS Rate Update for 
CY 2009 notice (73 FR 65351), we performed an analysis using the most 
recent, complete available data at the time (CY 2006), applying a 
methodology similar to that which we used to update the FDL ratio in 
the CY 2008 HH PPS final rule. That updated analysis projected that in 
CY 2009 we would expend an estimated 10.26 percent of total estimated 
HH PPS payments in outlier payments, more than twice our 5 percent 
statutory limit. Our analysis also revealed that this growth in outlier 
payments was primarily the result of excessive growth in outlier 
payments in a few discrete areas of the country. We noticed statistical 
anomalies in outlier payments in terms of both high outlier dollars and 
as a percentage of total HH PPS payments, in areas such as Miami-Dade 
Florida, where outlier payments to providers far exceed the national 
average and the 5 percent target for outlier payments. Using similar 
analysis to what was performed for the CY 2008 final rule with comment, 
we estimated that we would need to raise our FDL ratio from 0.89 to 
2.71 for CY 2009 in order for estimated outlier payments to be no more 
than 5 percent of total HH PPS payments. In addition, the size of these 
statistical anomalies raised concerns about the medical necessity of 
the outlier episodes in some areas. However, in our CY 2009 payment 
update, we did not raise the FDL ratio to 2.71, given the statistical 
outlier data anomalies that we identified in certain targeted areas, 
because program integrity efforts, such as payment suspensions for 
suspect HHAs, were underway to address excessive, suspect outlier 
payments that were occurring in these areas. Instead, we maintained the 
then-current (CY 2008) FDL ratio of 0.89 in CY 2009 while actions to 
remedy any inappropriate outlier payments in these target areas of the 
country were effectuated.
2. Proposed Change To Target Outlier Payment Percentage
    For CY 2010 rulemaking, we have expanded our outlier analysis. In 
addition to assessing what FDL ratio would most accurately achieve the 
5 percent target of outlier payments as a percentage of total HH PPS 
payments, we also performed analyses to assess the appropriateness of 
adopting a lower target percentage of outlier payments to total HH PPS 
payments. Some commenters to our CY 2008 proposed rule suggested that 
CMS should consider targeting a lower percentage in outlier payments to 
total estimated HH PPS payments.
    Commenters suggested that by lowering the target outlier percentage 
to total estimated HH payments, CMS could then return to the national 
standardized 60-day episode payment rate, a portion of that 5 percent 
which was originally withheld from the rates to fund the 5 percent of 
total estimated HH PPS outlier payments. In our response to the CY 2008 
comments, we described our concern that reducing the target outlier 
percentage could risk access to home care for high needs patients. 
However, recent analysis of more current data, specifically CY 2007 and 
CY 2008 data, suggests that a target around that of 2.5 percent in 
outlier payments to total estimated HH PPS payments may be a more 
appropriate target than 5 percent, while not risking access to care for 
high needs patients. Section 1895(b)(5) of the Act states that the 
Secretary ``may'' provide for an addition or adjustment to the payment 
amount otherwise made in the case of outliers. It goes on to say that 
if the Secretary decides to provide such a payment, that the total 
amount of the additional payments or payment adjustments may not exceed 
5 percent of the total payment projected or estimated to be made under 
the payment system. Consequently, providing an addition or adjustment 
to the payment amount for outliers is optional and not statutorily 
required. We performed an analysis of all providers who receive outlier 
payments, focusing our analysis on total HH PPS payments, total outlier 
payments, number of episodes, number of outlier episodes, and location 
of provider. As discussed below under ``Proposed Outlier Cap Policy'', 
our analysis incorporates a proposed 10 percent cap on outliers and 
looks at outlier payments as a percentage of total HH PPS payments with 
that 10 percent cap in place. In our analysis of 2007 data, after 
implementing the 10 percent cap, outlier dollars accounted for 
approximately 2.1 percent of total HH PPS payments.
    Additionally, we performed a separate analysis on a major 
association of home health agencies who claim to be safety-net 
providers, serving sicker, more costly patients. The average outlier 
payment to these agencies is also under 2 percent. Therefore, we 
believe a target of less than 5 percent for outlier dollars as a 
percentage of total estimated HH PPS payments is appropriate. However, 
past years' data trends show us that outlier payments will likely 
continue to

[[Page 40956]]

grow. Consequently, we propose to change our target percentage of 
outlier payments from 5 percent to approximately 2.5 percent of total 
estimated HH PPS payments.
    Currently, we reduce the national standardized 60-day episode 
payment rates, the national per-visit rates, the LUPA add-on amount, 
and the NRS conversion factor by 5 percent in order to create an 
outlier pool that accommodates estimated outlier payments of 5 percent 
of total HH PPS payments. Targeting the percentage of outlier payments 
at approximately 2.5 percent will allow us to create a smaller outlier 
pool and return the remaining 2.5 percent to the HH PPS rates. We would 
retain a 2.5 percent reduction to the national standardized 60-day 
episode rates, the national per-visit rates, the LUPA add-on payment 
amount, and the NRS conversion factor to fund the proposed target of 
approximately 2.5 percent of total estimated HH PPS payments in outlier 
payments, adhering to the statutory requirement in Section 1895(b)(3) 
of the Act.
3. Proposed Outlier Cap Policy
    Although program integrity efforts associated with excessive 
outlier payments continue in targeted areas of the country, we continue 
to be at risk of exceeding the 5 percent statutory limit on estimated 
outlier expenditures. Therefore, our recent analysis also focused on 
whether a broader policy change to our outlier payment policy might 
also be warranted, to mitigate possible billing vulnerabilities 
associated with excessive outlier payments, and to adhere to our 
statutory limit on outlier payments.
    We also considered eliminating outlier payments altogether and 
restoring the 5 percent, originally taken out of the national 
standardized 60-day episode rates, the national per-visit rates, the 
LUPA add-on payment amount, and the NRS conversion factor to pay for 
the existing outlier policy, back into the HH PPS rates. Eliminating 
outlier payments would simplify payments to HHAs and remove the 
vulnerability associated with inappropriate outlier payments. However, 
we are concerned that eliminating outlier payments to HHAs could result 
in denying added protection to HHAs that historically treat sicker, 
more costly patients.
    In attempts to better estimate outlier payments as a percentage of 
total HH PPS payments and to mitigate vulnerabilities associated with 
inappropriate outlier payments, we also looked into options that would 
impose an outlier cap, at the agency level, such that in any given 
year, an individual HHA would receive no more than a set percentage of 
its total HH PPS payments in outlier payments. We performed extensive 
analyses to model the impact to HHAs of a variety of percent caps in 
outlier payments. A primary focus of this analysis was to identify HHAs 
which would be representative of the types of agencies we are most 
concerned about disadvantaging with an outlier policy that included an 
outlier cap at the agency level. Our analysis revealed that a 10 
percent agency cap in outlier payments would mitigate potential 
inappropriate outlier billing vulnerabilities while minimizing the 
access to care risk for high needs patients.
    We used CY 2007 claims data to perform a detailed impact analysis. 
We identified 1137 HH agencies whose outlier payments exceeded 10 
percent of their total HH PPS payments in CY 2007. However, we excluded 
700 of these agencies from the impact analysis, because these agencies 
received sizeable outlier payments (totaling at least around $100,000), 
had high percentages (at least around 30 percent) of outlier payments 
to total HH PPS payments, and were located in the counties in FL, TX 
and CA where we believe possible program integrity issues had been 
identified.
    We targeted our in-depth impact analysis to the remaining 437 
agencies, about 5 percent of all Medicare home health agencies. We 
analyzed these agencies as a group and individually. Our analysis 
focused on total HH PPS payments, total outlier payments, number of 
episodes, number of outlier episodes, percentage reductions in payments 
if a 10 percent outlier cap were imposed, and location. Analyzing CY 
2007 data, these 437 agencies would have experienced about a 10 percent 
decrease in their total HH payments if an outlier cap of 10 percent, at 
the agency level, were imposed. As we looked closely at the individual 
437 agencies, we excluded additional agencies for a number of reasons. 
Specifically, we excluded 70 agencies that had fewer than 20 Medicare 
HH episodes, believing that Medicare beneficiaries account for such a 
small part of