Medicare Program; Hospice Wage Index for Fiscal Year 2012, 47302-47352 [2011-19488]

Agencies

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

[Federal Register Volume 76, Number 150 (Thursday, August 4, 2011)]
[Rules and Regulations]
[Pages 47302-47352]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19488]



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Vol. 76

Thursday,

No. 150

August 4, 2011

Part II





Department of Health and Human Services





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 Centers for Medicare & Medicaid Services





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42 CFR Part 418





 Medicare Program; Hospice Wage Index for Fiscal Year 2012; Final Rule

Federal Register / Vol. 76 , No. 150 / Thursday, August 4, 2011 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 418

[CMS-1355-F]
RIN 0938-AQ31


Medicare Program; Hospice Wage Index for Fiscal Year 2012

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

ACTION: Final rule.

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SUMMARY: This final rule will set forth the hospice wage index for 
fiscal year (FY) 2012 and continue the phase-out of the wage index 
budget neutrality adjustment factor (BNAF), with an additional 15 
percent BNAF reduction, for a total BNAF reduction in FY 2012 of 40 
percent. The BNAF phase-out will continue with successive 15 percent 
reductions from FY 2013 through FY 2016. This final rule will change 
the hospice aggregate cap calculation methodology. This final rule will 
also revise the hospice requirement for a face-to-face encounter for 
recertification of a patient's terminal illness. Finally, this final 
rule will begin implementation of a hospice quality reporting program.

DATES: Effective Date: These regulations are effective on October 1, 
2011.

FOR FURTHER INFORMATION CONTACT:

Robin Dowell, (410) 786-0060 for questions regarding quality reporting 
for hospices and collection of information requirements. Anjana Patel, 
(410) 786-2120 for questions regarding hospice wage index and hospice 
face-to-face requirement.
Katie Lucas, (410) 786-7723 for questions regarding all other sections.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
    A. General
    1. Hospice Care
    2. Medicare Payment for Hospice Care
    B. Hospice Wage Index
    1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified, Hospital 
Wage Index)
    2. Changes to Core-Based Statistical Area (CBSA) Designations
    3. Definition of Rural and Urban Areas
    4. Areas Without Hospital Wage Data
    5. CBSA Nomenclature Changes
    6. Wage Data for Multi-Campus Hospitals
    7. Hospice Payment Rates
II. Provisions of the Proposed Rule and Analysis of and Response to 
Public Comments
    A. FY 2012 Hospice Wage Index
    1. Background
    2. Areas without Hospital Wage Data
    3. FY 2012 Wage Index with an Additional 15 Percent Reduced 
Budget Neutrality Adjustment Factor (BNAF)
    4. Effects of Phasing Out the BNAF
    B. Aggregate Cap Calculation Methodology
    1. Cap Determinations for Cap Years Ending on or Before October 
31, 2011
    2. Cap Determinations for Cap Years Ending on or After October 
31, 2012
    3. Patient-by-Patient Proportional Methodology
    4. Streamlined Methodology
    5. Changing Methodologies
    6. Other Issues
    C. Hospice Face-to-Face Requirement
    D. Technical Proposals and Clarification
    1. Hospice Local Coverage Determinations
    2. Definition of Hospice Employee
    3. Timeframe for Face-to-Face Encounters
    4. Hospice Aide and Homemaker Services
    E. Quality Reporting for Hospices
    1. Background and Statutory Authority
    2. Quality Measures for Hospice Quality Reporting Program for 
Payment Year FY 2014
    a. Considerations in the Selection of the Proposed Quality 
Measures
    b. Proposed Quality Measures for the Quality Reporting Program 
for Hospices
    c. Proposed Timeline for Data Collection Under the Quality 
Reporting Program for Hospices
    d. Data Submission Requirements
    3. Public Availability of Data Submitted
    4. Additional Measures Under Consideration
III. Provisions of the Final Regulations
IV. Updates on Issues Not Proposed for FY 2012 Rulemaking
    A. Update on Hospice Payment Reform and Value Based Purchasing
    B. Update on the Redesigned Provider Statistical & Reimbursement 
Report
    (PS&R)
V. Collection of Information Requirements
    A. Structural Measure: Participation in Quality Assessment 
Performance Improvement Program That Includes at Least Three 
Indicators Related to Patient Care
    B. Outcome Measure: NQF Measure 0209, Percentage of 
Patients Who Were Uncomfortable Because of Pain on Admission to 
Hospice Whose Pain Was Brought Under Control Within 48 Hours
VI. Economic Analyses
    A. Regulatory Impact Analysis
    1. Introduction
    2. Statement of Need
    3. Overall Impact
    4. Detailed Economic Analysis
    a. Effects on Hospices
    b. Hospice Size
    c. Geographic Location
    d. Type of Ownership
    e. Hospice Base
    f. Effects on Other Providers
    g. Effects on the Medicare and Medicaid Programs
    h. Accounting Statement
    i. Conclusion
    B. Regulatory Flexibility Act Analysis
    C. Unfunded Mandates Reform Act Analysis
VII. Federalism Analysis
Addendum A: FY 2012 Wage Index for Urban Areas
Addendum B: FY 2012 Wage Index for Rural Areas

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 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
    Sections 1812(d), 1813(a)(4), 1814(a)(7), 1814(i) and 1861(dd) of 
the Act, and 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

    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. 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

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any changes by the Office of Management and Budget (OMB) to the 
Metropolitan Statistical Areas (MSAs) definitions. OMB revised the MSA 
definitions beginning in 2003 with new designations called the Core 
Based Statistical Areas (CBSAs). For the purposes of the hospice 
benefit, the term ``MSA-based'' refers to wage index values and 
designations based on the previous MSA designations before 2003. 
Conversely, the term ``CBSA-based'' refers to wage index values and 
designations based on the OMB revised MSA designations in 2003, which 
now include CBSAs. In the August 11, 2004 Inpatient Prospective Payment 
System (IPPS) final rule (69 FR 48916, 49026), revised labor market 
area definitions were adopted at Sec.  412.64(b), which were effective 
October 1, 2004 for acute care hospitals. We also revised the labor 
market areas for hospices using the new OMB standards that included 
CBSAs. In the FY 2006 hospice wage index final rule (70 FR 45130), we 
implemented a 1-year transition policy using a 50/50 blend of the CBSA-
based wage index values and the Metropolitan Statistical Area (MSA)-
based wage index values for FY 2006. The one-year transition policy 
ended on September 30, 2006. For fiscal years 2007 and beyond, we have 
used CBSAs exclusively to calculate wage index values.
    The original hospice wage index was based on the 1981 Bureau of 
Labor Statistics hospital data and had not been updated since 1983. In 
1994, because of disparity in wages from one geographical location to 
another, a committee was formulated to negotiate a wage index 
methodology that could be accepted by the industry and the government. 
This committee, functioning under a process established by the 
Negotiated Rulemaking Act of 1990, comprised representatives from 
national hospice associations; rural, urban, large and small hospices, 
and multi-site hospices; consumer groups; and a government 
representative. On April 13, 1995, the Hospice Wage Index Negotiated 
Rulemaking Committee (the Committee) signed an agreement for the 
methodology to be used for updating the hospice wage index.
    In the August 8, 1997 Federal Register (62 FR 42860), we published 
a final rule implementing a new methodology for calculating the hospice 
wage index based on the recommendations of the negotiated rulemaking 
committee. The Committee's statement was included in the appendix of 
that final rule (62 FR 42883).
    The reduction in overall Medicare payments if a new wage index were 
adopted was noted in the November 29, 1995 notice transmitting the 
recommendations of the Committee (60 FR 61264). 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 suggested by the Committee, ``budget neutrality'' would mean 
that, in a given year, estimated aggregate payments for Medicare 
hospice services using the updated hospice values would equal estimated 
payments that would have been made for these services if the 1983 
hospice wage index values had remained in effect. Although payments to 
individual hospice programs would 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 Budget 
Neutrality Adjustment Factor (BNAF) would be computed and applied 
annually to the pre-floor, pre-reclassified hospital wage index when 
deriving the hospice wage index.
    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. For the FY 2011 Hospice Wage 
Index Notice with Comment Period, that meant estimating payments for FY 
2011 using FY 2009 hospice claims data, and applying the FY 2011 
hospice payment rates (updating the FY 2010 rates by the FY 2011 
inpatient hospital market basket update). The FY 2011 hospice wage 
index values are then applied to the labor portion of the payment rates 
only. The procedure is repeated using the same claims data and payment 
rates, but using the 1983 Bureau of Labor Statistics (BLS)-based wage 
index instead of the updated raw pre-floor, pre-reclassified hospital 
wage index (note that both wage indices include their respective floor 
adjustments). The total payments are then compared, and the adjustment 
required to make total payments equal is computed; that adjustment 
factor is the BNAF.
    The FY 2010 Hospice Wage Index Final Rule (74 FR 39384) finalized a 
provision for a 7-year phase-out of the BNAF, which is applied to the 
wage index values. The BNAF was reduced by 10 percent in FY 2010, an 
additional 15 percent in FY 2011, and will be reduced by an additional 
15 percent in each of the next 5 years, for complete phase out in 2016.
    The hospice wage index is updated annually. Our most recent annual 
hospice wage index Notice with Comment Period, published in the Federal 
Register (75 FR 42944) on July 22, 2010, set forth updates to the 
hospice wage index for FY 2011. As noted previously, that update 
included the second year of a 7-year phase-out of the BNAF, which was 
applied to the wage index values. The BNAF was reduced by 10 percent in 
FY 2010 and by additional 15 percent in 2011, for a total FY 2011 
reduction of 25 percent.
1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital Wage 
Index)
    As described in the August 8, 1997 hospice wage index final rule 
(62 FR 42860), the pre-floor and pre-reclassified hospital wage index 
is used as the raw wage index for the hospice benefit. These raw wage 
index values are then subject to either a budget neutrality adjustment 
or application of the hospice floor to compute the hospice wage index 
used to determine payments to hospices.
    Pre-floor, pre-reclassified hospital wage index values of 0.8 or 
greater are currently adjusted by a reduced BNAF. As noted above, for 
FY 2011, the BNAF was reduced by a cumulative total of 25 percent. Pre-
floor, pre-reclassified hospital wage index values below 0.8 are 
adjusted by the greater of: (1) The hospice BNAF, reduced by a total of 
25 percent for FY 2011; or (2) the hospice floor (which is a 15 percent 
increase) subject to a maximum wage index value of 0.8. For example, if 
in FY 2011, County A had a pre-floor, pre-reclassified hospital wage 
index (raw wage index) value of 0.3994, we would perform the following 
calculations using the budget-neutrality factor (which for this example 
is an unreduced BNAF of 0.060562, less 25 percent, or 0.045422) and the 
hospice floor to determine County A's hospice wage index:
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the 25 percent reduced BNAF: (0.3994 x 1.045422 = 
0.4175).
    Pre-floor, pre-reclassified hospital wage index value below 0.8 
multiplied by the hospice floor: (0.3994 x 1.15 = 0.4593).
    Based on these calculations, County A's hospice wage index would be 
0.4593.
    The BNAF has been computed and applied annually, in full or in 
reduced form, 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

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percent; and for Respite Care, 54.13 percent. The non-labor portion is 
equal to 100 percent minus the labor portion for each level of care. 
Therefore the non-labor portion of the payment rates is as follows: for 
Routine Home Care, 31.29 percent; for Continuous Home Care, 31.29 
percent; for General Inpatient Care, 35.99 percent; and for Respite 
Care, 45.87 percent.
2. Changes to Core Based Statistical Area (CBSA) Designations
    The annual update to the hospice wage index is published in the 
Federal Register and is based on the most current available hospital 
wage data, as well as any changes by the OMB to the definitions of 
MSAs, which now include CBSA designations. The August 4, 2005 final 
rule (70 FR 45130) set forth the adoption of the changes discussed in 
the OMB Bulletin No. 03-04 (June 6, 2003), which announced revised 
definitions for Micropolitan Statistical Areas and the creation of MSAs 
and Combined Statistical Areas. In adopting the OMB CBSA geographic 
designations, we provided for a 1-year transition with a blended 
hospice wage index for all hospices for FY 2006. For FY 2006, the 
hospice wage index consisted of a blend of 50 percent of the FY 2006 
MSA-based hospice wage index and 50 percent of the FY 2006 CBSA based 
hospice wage index. Subsequent fiscal years have used the full CBSA-
based hospice wage index.
3. Definition of Rural and Urban Areas
    Each hospice's labor market is determined based on definitions of 
MSAs issued by OMB. In general, an urban area is defined as an MSA or 
New England County Metropolitan Area (NECMA), as defined by OMB. Under 
Sec.  412.64(b)(1)(ii)(C), a rural area is defined as any area outside 
of the urban area. The urban and rural area geographic classifications 
are defined in Sec.  412.64(b)(1)(ii)(A) through (C), and have been 
used for the Medicare hospice benefit since implementation.
    When the raw pre-floor, pre-reclassified hospital wage index was 
adopted for use in deriving the hospice wage index, it was decided not 
to take into account Inpatient Prospective Payment System (IPPS) 
geographic reclassifications. This policy of following 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.
4. Areas Without Hospital Wage Data
    When adopting OMB's new labor market designations in FY 2006, we 
identified some geographic areas where there were no hospitals, and 
thus, no hospital wage index data on which to base the calculation of 
the hospice wage index. Beginning in FY 2006, we adopted a policy to 
use the FY 2005 pre-floor, pre-reclassified hospital wage index value 
for rural areas when no hospital wage data were available. We also 
adopted the policy that for urban labor markets without a hospital from 
which a hospital wage index data could be derived, all of the CBSAs 
within the State would be used to calculate a statewide urban average 
pre-floor, pre-reclassified hospital wage index value to use as a 
reasonable proxy for these areas. Consequently, in subsequent fiscal 
years, we applied the average pre-floor, pre-reclassified hospital wage 
index data from all urban areas in that state, to urban areas without a 
hospital. In FY 2011, the only such CBSA was 25980, Hinesville-Fort 
Stewart, Georgia.
    Under the CBSA labor market areas, there are no hospitals in rural 
locations in Massachusetts and Puerto Rico. Since there was no rural 
proxy for more recent rural data within those areas, in the FY 2006 
hospice wage index proposed rule (70 FR 22394, 22398), we proposed 
applying the FY 2005 pre-floor, pre-reclassified hospital wage index 
value to rural areas where no hospital wage data were available. In the 
FY 2006 final rule and in the FY 2007 update notice, we applied the FY 
2005 pre-floor, pre-reclassified hospital wage index data for areas 
lacking hospital wage data in both FY 2006 and FY 2007 for rural 
Massachusetts and rural Puerto Rico.
    In the FY 2008 final rule (72 FR 50214, 50217) we considered 
alternatives to our methodology to update the pre-floor, pre-
reclassified hospital wage index for rural areas without hospital wage 
data. We indicated that we believed that the best imputed proxy for 
rural areas, would: (1) Use pre-floor, pre-reclassified hospital data; 
(2) use the most local data available to impute a rural pre-floor, pre-
reclassified hospital wage index; (3) be easy to evaluate; and, (4) be 
easy to update from year to year.
    Therefore, in FY 2008 through FY 2011, in cases where there was a 
rural area without rural hospital wage data, we used the average pre-
floor, pre-reclassified hospital wage index data from all contiguous 
CBSAs to represent a reasonable proxy for the rural area. This approach 
does not use rural data; however, the approach, which uses pre-floor, 
pre-reclassified hospital wage data, is easy to evaluate, is easy to 
update from year to year, and uses the most local data available. In 
the FY 2008 rule (72 FR at 50217), we noted that in determining an 
imputed rural pre-floor, pre-reclassified hospital wage index, we 
interpret the term ``contiguous'' to mean sharing a border. For 
example, in the case of Massachusetts, the entire rural area consists 
of Dukes and Nantucket counties. We determined that the borders of 
Dukes and Nantucket counties are contiguous with Barnstable and Bristol 
counties. Under the adopted methodology, the pre-floor, pre-
reclassified hospital wage index values for the counties of Barnstable 
(CBSA 12700, Barnstable Town, MA) and Bristol (CBSA 39300, Providence-
New Bedford-Fall River, RI-MA) would be averaged resulting in an 
imputed pre-floor, pre-reclassified rural hospital wage index for FY 
2008. We noted in the FY 2008 final hospice wage index rule that while 
we believe that this policy could be readily applied to other rural 
areas that lack hospital wage data (possibly due to hospitals 
converting to a different provider type, such as a Critical Access 
Hospital, that does not submit the appropriate wage data), if a similar 
situation arose in the future, we would re-examine this policy.
    We also noted that we do not believe that this policy would be 
appropriate for Puerto Rico, as there are sufficient economic 
differences between hospitals in the United States and those in Puerto 
Rico, including the payment of hospitals in Puerto Rico using blended 
Federal/Commonwealth-specific rates. Therefore, we believe that a 
separate and distinct policy is necessary for Puerto Rico. Any 
alternative methodology for imputing a pre-floor, pre-reclassified 
hospital wage index for rural Puerto Rico would need to take into 
account the economic differences between hospitals in the United States 
and those in Puerto Rico. Our policy of imputing a rural pre-floor, 
pre-reclassified hospital wage index based on the pre-floor, pre-
reclassified hospital wage index (or indices) of CBSAs contiguous to 
the rural area in question does not recognize the unique circumstances 
of Puerto Rico. While we have not yet identified an alternative 
methodology for imputing a pre-floor, pre-reclassified hospital wage 
index for rural Puerto Rico, we will continue to evaluate the 
feasibility of using existing hospital wage data and, possibly, wage 
data from other sources. For FY 2008 through FY 2011, we have used the 
most recent pre-floor, pre-reclassified hospital wage index available 
for Puerto Rico, which is 0.4047.

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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. Wage Data From 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 2011, the data collected from cost reports submitted by 
hospitals for cost reporting periods beginning during FY 2006 were used 
to compute the 2010 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 2010 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 
2006) were the most recent complete cost data.
    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 were 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 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 2012 hospice wage index values reflects the application 
of our policy to use those data to establish the hospice wage index. 
The FY 2012 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). As implemented in the August 8, 2008 FY 2009 Hospice Wage 
Index final rule, for the FY 2009 Medicare hospice benefit, the hospice 
wage index was computed from IPPS wage data (submitted by hospitals for 
cost reporting periods beginning in FY 2004 (as was 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, in FY 
2009 and subsequent fiscal years, hospice wage index values for the 
following CBSAs have been 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).
7. Hospice Payment Rates
    Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended 
section 1814(i)(1)(C)(ii) of the Act to establish updates to hospice 
rates for FYs 1998 through 2002. Hospice rates were to be updated by a 
factor equal to the market basket index, minus 1 percentage point. 
Payment rates for FYs since 2002 have been updated according to section 
1814(i)(1)(C)(ii)(VII) of the Act, which states that the update to the 
payment rates for subsequent fiscal years will be the market basket 
percentage for the fiscal year. It has been longstanding practice to 
use the inpatient hospital market basket as a proxy for a hospice 
market basket.
    Historically, the rate update has been published through a separate 
administrative instruction issued annually in the summer to provide 
adequate time to implement system change requirements. Hospices 
determine their payments by applying the hospice wage index in this 
final rule to the labor portion of the published hospice rates. Section 
3401(g) of the Affordable Care Act of 2010 requires that, in FY 2013 
(and in subsequent fiscal years), the market basket percentage update 
under the hospice payment system as described in section 
1814(i)(1)(C)(ii)(VII) or section 1814(i)(1)(C)(iii) be annually 
reduced by changes in economy-wide productivity as set out at section 
1886(b)(3)(B)(xi)(II) of the Act. Additionally, section 3401(g) of the 
Affordable Care Act requires that in FY 2013 through FY 2019, the 
market basket percentage update under the hospice payment system be 
reduced by an additional 0.3 percentage point (although the potential 
reduction is subject to suspension under conditions set out under new 
section 1814(i)(1)(C)(v) of the Act). Congress also required, in 
section 3004(c) of the Affordable Care Act, that hospices begin 
submitting quality data, based on measures to be specified by the 
Secretary, for FY 2014 and subsequent fiscal years. Beginning in FY 
2014, hospices which fail to report quality data will have their market 
basket update reduced by 2 percentage points.

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

A. FY 2012 Hospice Wage Index

1. Background
    As previously noted, 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 MSAs issued by the OMB. In the 
proposed rule, and in this final rule, we are using the pre-floor, pre-
reclassified hospital wage index, based solely on the CBSA 
designations, as the basis for determining wage index values for the FY 
2012 hospice wage index.
    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. In the proposed 
rule, and in this final rule, we are again using the pre-floor and pre-
reclassified hospital wage index data as the basis to determine the 
hospice wage index, which is then used to adjust the labor portion of 
the hospice payment rates based on the geographic area where the 
beneficiary receives hospice care. We believe the use of the pre-floor, 
pre-reclassified hospital wage index data, as a basis for the hospice 
wage index, results in the appropriate adjustment to the labor portion 
of the costs. For the FY 2012 update to the hospice wage index, we are 
continuing to use the most recent pre-floor, pre-reclassified hospital 
wage index available at the time of publication.
    We received three comments regarding the wage index.
    Comment: A commenter was concerned that the wage index continues to 
provide a significantly lower wage index to rural counties and 
indicated that cuts affect rural areas more than urban areas. The 
commenter asked that we move to a more accurate

[[Page 47306]]

and fair index as recommended by the Medicare Payment Advisory 
Commission (MedPAC). In addition, the commenter felt that the pre-
floor, pre-reclassified hospital wage index with only the hospice floor 
is not a good policy. The same commenter suggested that we maintain the 
BNAF until a more equitable wage index can be developed.
    Two commenters wanted Montgomery County, Maryland to be moved from 
its current CBSA and placed into CBSA 47894 for number of reasons. One 
of the reasons a commenter described was that in FY 2012, hospices in 
CBSA 47894 will be paid at a rate 4.0 percent greater than the payment 
given to hospices in Montgomery County's current CBSA. The commenter 
indicated that this rate differential creates significant hardship and 
results in loss of revenue. The commenter also indicated that by not 
changing, CMS is discriminating against the Medicare beneficiaries 
living in Montgomery County because it is financially jeopardizing the 
hospices that serve them.
    Response: We thank the commenters. The pre-floor, pre-reclassified 
hospital wage index was adopted in 1998 as the wage index from which 
the hospice wage index is derived by a committee of CMS (then Health 
Care Financing Administration) and industry representatives as part of 
a negotiated rulemaking effort. 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 pre-floor, pre-reclassified 
hospital wage index was the best option for hospice. The pre-floor, 
pre-reclassified hospital wage index is updated annually, and reflects 
the wages of highly skilled hospital workers.
    We also note that section 3137(b) of the Affordable Care Act 
requires us to submit to Congress a report that includes a plan to 
reform the hospital wage index system. This provision was enacted in 
response to MedPAC's suggestions, which included a suggestion that the 
hospital wage index minimize wage index adjustments between and within 
metropolitan statistical areas and statewide rural areas. The latest 
information on hospital wage index reform is discussed in the 
``Proposed Changes to the Hospital Inpatient Prospective Payment 
Systems for Acute Care Hospitals and the Long-Term Care Hospital 
Prospective Payment System and Fiscal Year 2012 Rates'' proposed rule, 
published May 5, 2011 in the Federal Register (76 FR 25788).
    In the future, when reforming the hospice payment system, we will 
consider wage index alternatives if alternatives are available.
    Each hospice's labor market area is based on definitions of MSAs 
issued by the Office of Management and Budget (OMB), not CMS. For this 
final rule, we are using the pre-floor, pre-reclassified hospital wage 
index, based solely on the CBSA designations, as the basis for 
determining wage index values for the FY 2012 hospice wage index. In 
summary, we continue to believe that the pre-floor, pre-reclassified 
hospital wage index, which is updated yearly and is used by many other 
CMS payment systems, is the most appropriate method available to 
account for geographic variances in labor costs for hospices for FY 
2012.
2. Areas Without Hospital Wage Data
    In adopting the CBSA designations, we identified some geographic 
areas where there are no hospitals, and no hospital wage data on which 
to base the calculation of the hospice wage index. These areas are 
described in section I.B.4 of this final rule. Beginning in FY 2006, we 
adopted a policy that, for urban labor markets without an urban 
hospital from which a pre-floor, pre-reclassified hospital wage index 
can be derived, all of the urban CBSA pre-floor, pre-reclassified 
hospital wage index values within the State would be used to calculate 
a statewide urban average pre-floor, pre-reclassified hospital wage 
index to use as a reasonable proxy for these areas. Currently, the only 
CBSA that would be affected by this policy is CBSA 25980, Hinesville-
Fort Stewart, Georgia. We proposed to continue this policy for FY 2012 
and have applied this policy in this final rule.
    Currently, the only rural areas where there are no hospitals from 
which to calculate a pre-floor, pre-reclassified hospital wage index 
are Massachusetts and Puerto Rico. In August 2007 (72 FR 50217), we 
adopted a methodology for imputing rural pre-floor, pre-reclassified 
hospital wage index values for areas where no hospital wage data are 
available as an acceptable proxy; that methodology is also described in 
section I.B.4 of this final rule. In FY 2012, Dukes and Nantucket 
Counties are the only areas for rural Massachusetts which are affected. 
We again proposed to apply this methodology for imputing a rural pre-
floor, pre-reclassified hospital wage index for those rural areas 
without rural hospital wage data in FY 2012, and we are implementing 
this policy in this final rule.
    However, as we noted section I.B.4 of this final rule, we do not 
believe that this policy is appropriate for Puerto Rico. For FY 2012, 
we again proposed to continue to use the most recent pre-floor, pre-
reclassified hospital wage index value available for Puerto Rico, which 
is 0.4047. This pre-floor, pre-reclassified hospital wage index value 
was then adjusted upward by the hospice 15 percent floor adjustment in 
the computing of the proposed FY 2012 hospice wage index. We are 
continuing to follow this policy in this final rule. We received no 
comments regarding continuing this policy for areas without hospital 
wage data.
3. FY 2012 Wage Index With an Additional 15 Percent Reduced Budget 
Neutrality Adjustment Factor (BNAF)
    The hospice wage index set forth in this final rule would be 
effective October 1, 2011 through September 30, 2012. We did not 
propose and are not finalizing any modifications to the hospice wage 
index methodology. For this final rule, the FY 2011 hospital wage index 
was the most current hospital wage data available for calculating the 
FY 2012 hospice wage index values. We used the FY 2011 pre-floor, pre-
reclassified hospital wage index data for this calculation.
    As noted above, for this FY 2012 wage index final rule, the hospice 
wage index values are based solely on the adoption of the CBSA-based 
labor market definitions and the hospital wage index. We continue to 
use the most recent pre-floor and pre-reclassified hospital wage index 
data available (based on FY 2007 hospital cost report wage data). A 
detailed description of the methodology used to compute the hospice 
wage index is contained in the September 4, 1996 hospice wage index 
proposed rule (61 FR 46579), the August 8, 1997 hospice wage index 
final rule (62 FR 42860), and the August 6, 2009 FY 2010 Hospice Wage 
Index final rule (74 FR 39384).
    The August 6, 2009 FY 2010 Hospice Wage Index final rule finalized 
a provision to phase out the BNAF over seven years, with a 10 percent 
reduction in the BNAF in FY 2010, and an additional 15 percent 
reduction in FY 2011, and additional 15 percent reductions in each of 
the next five years, with complete phase out in FY 2016. Therefore, in 
accordance with the August 6, 2009, FY 2010 Hospice Wage Index final 
rule, the BNAF for FY 2012 was reduced by an additional 15 percent for 
a total BNAF reduction of 40 percent (10 percent from FY 2010, 
additional 15

[[Page 47307]]

percent from FY 2011, and additional 15 percent for FY 2012).
    For this final rule, an unreduced BNAF for FY 2012 is computed to 
be 0.058593 (or 5.8593 percent). A 40 percent reduced BNAF, which is 
subsequently applied to the pre-floor, pre-reclassified hospital wage 
index values greater than or equal to 0.8, is computed to be 0.035156 
(or 3.5156 percent). Pre-floor, pre-reclassified hospital wage index 
values which are less than 0.8 are subject to the hospice floor 
calculation; that calculation is described in section I.B.1. The BNAF 
is updated compared to the proposed rule based on availability of more 
complete data.
    The final hospice wage index for FY 2012 is shown in Addenda A and 
B; the wage index values shown already have the BNAF reduction applied. 
Specifically, Addendum A reflects the final FY 2012 wage index values 
for urban areas under the CBSA designations. Addendum B reflects the 
final FY 2012 wage index values for rural areas under the CBSA 
designations.
    We received five comments regarding the BNAF.
    Comment: A few commenters were pleased with overall increase in the 
hospice payments for fiscal year 2012. Some commenters continued to 
voice opposition to the BNAF reduction; several were concerned about 
the impact of the BNAF phase-out, coupled with the productivity 
adjustment which begins in FY 2013. One commenter provided analysis 
which suggested that estimated mean hospice profit margins would 
decrease, and noted that many hospices can't absorb these reductions. 
Commenters were concerned that hospices would be forced to close, which 
could create access issues for patients, put at risk the quality of 
care, and ultimately increase Medicare costs. Several commenters noted 
that rate reductions disproportionately affect rural providers. One 
wrote that rural providers have higher costs of care than urban 
hospices, and yet also have a payment reduction due to lower rural wage 
index values. This commenter asked for a rural add-on, or at least 
parity. Another commenter asked that we create ``critical access'' 
hospices in rural areas to protect rural providers.
    Response: We thank the commenters. The BNAF phase-out was finalized 
in the August 6, 2009 final rule. Comments opposing the BNAF reductions 
are outside the scope of this rule because we finalized this policy in 
FY 2010. Comments surrounding the productivity adjustment, which the 
Affordable Care Act mandates be applied beginning in fiscal year 2013, 
are also outside the scope of this rule. We acknowledge that there was 
a single erroneous reference to the BNAF reduction as a proposal; 
however, as noted on page 26808 of the proposed rule, and in multiple 
other locations throughout the proposed rule, the BNAF phase-out was 
already settled for the remaining years of the phase-out, as described 
in the FY 2010 Hospice Wage Index final rule (74 FR 39384).
    However, we are sensitive to the issues raised by commenters, and 
to the possible effects of the BNAF reduction on access to care. We 
continue to monitor for unintended consequences associated with the 
BNAF phase-out. Our analysis reveals an overall growth in number of 
hospices since the start of the phase-out. Additionally, we see no data 
which would indicate that hospices in rural areas are closing.
    We also note that the hospice wage index includes a floor 
calculation which benefits many rural providers. We are sensitive to 
concerns from rural hospices that the additional time and distance 
required to visit a rural patient adds significantly to their costs. We 
do not have the authority to change the hospice rates beyond the limits 
set out in the statute. We will consider the situation of rural 
providers in the context of broader hospice payment system reform. We 
appreciate the analyses shared by the commenter.
4. Effects of Phasing Out the BNAF
    The full (unreduced) BNAF calculated for the FY 2012 final rule is 
5.8593 percent. As implemented in the August 6, 2009 FY 2010 Hospice 
Wage Index final rule (74 FR 39384), for FY 2012 we are reducing the 
BNAF by an additional 15 percent, for a total BNAF reduction of 40 
percent (a 10 percent reduction in FY 2010 plus a 15 percent reduction 
in FY 2011 plus a 15 percent reduction in FY 2012), with additional 
reductions of 15 percent per year in each of the next 4 years until the 
BNAF is phased out in FY 2016.
    For FY 2012, this is mathematically equivalent to taking 60 percent 
of the full BNAF value, or multiplying 0.58593 by 0.60, which equals 
0.035156 (3.5156 percent). The BNAF of 3.5156 percent reflects a 40 
percent reduction in the BNAF. The 40 percent reduced BNAF (3.5156 
percent) was applied to the pre-floor, pre-reclassified hospital wage 
index values of 0.8 or greater in the final FY 2012 hospice wage index.
    The hospice floor calculation still applies to any pre-floor, pre-
reclassified hospital wage index values less than 0.8. The hospice 
floor calculation is described in section I.B.1 of this final rule. We 
examined the effects of an additional 15 percent reduction in the BNAF, 
for a total BNAF reduction of 40 percent, on the final FY 2012 hospice 
wage index compared to remaining with the total 25 percent reduced BNAF 
which was used for the FY 2011 hospice wage index. The additional 15 
percent BNAF reduction applied to the final FY 2012 wage index resulted 
in a (rounded) 0.9 percent reduction in wage index values in 39.7 
percent of CBSAs, a 0.8 percent reduction in wage index values in 53.0 
percent of CBSAs, a 0.6 or 0.7 percent reduction in wage index values 
in 0.7 percent of CBSAs, and no reduction in wage index values in 6.5 
percent of CBSAs. Note that these are reductions in wage index values, 
not in payments. Please see Table 1 in section VI of this rule for the 
effects on payments. The wage index values in Addenda A and B already 
reflect the additional 15 percent BNAF reduction.
    Those CBSAs whose pre-floor, pre-reclassified hospital wage index 
values had the hospice 15 percent floor adjustment applied before the 
BNAF reduction would not be affected by this ongoing phase out of the 
BNAF. These CBSAs, which typically include rural areas, are protected 
by the hospice 15 percent floor adjustment. We estimate that 29 CBSAs 
are already protected by the hospice 15 percent floor adjustment, and 
are therefore completely unaffected by the BNAF reduction. There are 
325 hospices in these 29 CBSAs.
    Additionally, some CBSAs with pre-floor, pre-reclassified wage 
index values less than 0.8 will become newly eligible for the hospice 
15 percent floor adjustment as a result of the additional 15 percent 
reduction in the BNAF applied in FY 2012. Areas where the hospice floor 
calculation would have yielded a wage index value greater than 0.8 if 
the 25 percent reduction in BNAF were maintained, but which will have a 
final wage index value less than 0.8 after the additional 15 percent 
reduction in the BNAF (for a total BNAF reduction of 40 percent) is 
applied, will now be eligible for the hospice 15 percent floor 
adjustment. These CBSAs will see a smaller reduction in their hospice 
wage index values since the hospice 15 percent floor adjustment will 
apply. We estimate that 3 CBSAs will have their pre-floor, pre-
reclassified hospital wage index value become newly protected by the 
hospice 15 percent floor adjustment due to the additional 15 percent 
reduction in the BNAF applied in the final FY 2012 hospice wage index. 
Because of the protection given by the hospice 15 percent floor 
adjustment, these CBSAs will see smaller percentage decreases in their 
hospice wage index values than those CBSAs that are not

[[Page 47308]]

eligible for the hospice 15 percent floor adjustment. This will affect 
those hospices with lower hospice wage index values, which are 
typically in rural areas. There are 44 hospices located in these 3 
CBSAs.
    Finally, the hospice wage index values only apply to the labor 
portion of the payment rates; the labor portion is described in section 
I.B.1 of this final rule. Therefore, the projected reduction in 
payments due solely to the additional 15 percent reduction of the BNAF 
applied in FY 2012 is estimated to be 0.6 percent, as calculated from 
the difference in column 3 and column 4 of Table 1 in section VI of 
this final rule. In addition, the estimated effects of the phase-out of 
the BNAF will be mitigated by any inpatient hospital market basket 
updates in payments. The final inpatient hospital market basket update 
for FY 2012 is 3.0 percent; this 3.0 percent does not reflect the 
provision in the Affordable Care Act which reduces the inpatient 
hospital market basket update for FY 2012 by 0.1 percentage point, 
since that reduction does not apply to hospices. The final update is 
communicated through an administrative instruction.
    The combined estimated effects of the updated wage data, an 
additional 15 percent reduction of the BNAF, and the final inpatient 
hospital market basket update are shown in Table 1 in section VI of 
this final rule. The updated wage data are estimated to increase 
payments by 0.1 percent (column 3 of Table 1). The additional 15 
percent reduction in the BNAF, which has already been applied to the 
wage index values shown in this final rule, is estimated to reduce 
payments by 0.6 percent. Therefore, the changes in the wage data and 
the additional 15 percent BNAF reduction reduce estimated hospice 
payments by 0.5 percent, when compared to FY 2011 payments (column 4 of 
Table 1). However, so that hospices can fully understand the total 
estimated effects on their revenue, we have also accounted for the 3.0 
percent final market basket update for FY 2012. The net effect of that 
3.0 percent increase and the 0.5 percent reduction due the updated wage 
data and the additional 15 percent BNAF reduction, is an estimated 
increase in payments to hospices in FY 2012 of 2.5 percent (column 5 of 
Table 1).
    We received two comments regarding the combined effect of the 
expected market basket update, BNAF reduction and wage data updates.
    Comment: Some commenters were confused about the language in the 
proposed rule concerning the market basket increase and the BNAF 
adjustment. They suggested revising the description of the BNAF 
reduction and the market basket increase to further describe the effect 
of each of the components which affect hospice rates in section II.A.4 
of the final rule.
    Response: We have clarified the language about the BNAF reduction 
and the market basket increase in this section.

B. Aggregate Cap Calculation Methodology

    The existing methodology for counting Medicare beneficiaries in 42 
CFR 418.309 has been the subject of substantial litigation. 
Specifically, the lawsuits challenge the way CMS apportions hospice 
patients with care spanning more than one year when calculating the 
cap.
    A number of district courts and two appellate courts have concluded 
that CMS' current methodology used to determine the number of Medicare 
beneficiaries used in the aggregate cap calculation is not consistent 
with the statute. We continue to believe that the methodology set forth 
in Sec.  418.309(b)(1) is consistent with the Medicare statute. 
Nonetheless, we have determined that it is in the best interest of CMS 
and the Medicare program to take action to prevent future litigation, 
and alleviate the litigation burden on providers, CMS, and the courts. 
On April 14, 2011, we issued a Ruling entitled ``Medicare Program; 
Hospice Appeals for Review of an Overpayment Determination'' (CMS-1355-
R), and also published in the Federal Register as CMS-1355-NR (76 FR 
26731, May 9, 2011), related to the aggregate cap calculation for 
hospices which provided for application of a patient-by-patient 
proportional methodology, as defined in the Ruling, to hospices that 
have challenged the current methodology. Specifically, the Ruling 
provides that, for any hospice which has a timely-filed administrative 
appeal of the methodology set forth at Sec.  418.309(b)(1) used to 
determine the number of Medicare beneficiaries used in the aggregate 
cap calculation for a cap year ending on or before October 31, 2011, 
the Medicare contractors will recalculate that year's cap determination 
using the patient-by-patient proportional methodology as set forth in 
the Ruling.
    In the proposed rule, we also made several proposals regarding cap 
determinations from two time periods:
     Cap determinations for cap years ending on or before 
October 31, 2011; and
     Cap determinations for cap years ending on or after 
October 31, 2012.
1. Cap Determinations for Cap Years Ending on or Before October 31, 
2011
    By its terms, the relief provided in Ruling CMS-1355-R applies only 
to those cap years for which a hospice has received an overpayment 
determination and filed a timely qualifying appeal. For any hospice 
that receives relief pursuant to Ruling CMS-1355-R in the form of a 
recalculation of one or more of its cap determinations, or for any 
hospice that receives relief from a court after challenging the 
validity of the cap regulation, we proposed that the hospice's cap 
determination for any subsequent cap year also be calculated using a 
patient-by-patient proportional methodology as opposed to the 
methodology set forth in 42 CFR 418.309(b)(1). The patient-by-patient 
proportional methodology is defined below in section II.B.3.
    Additionally, there are hospices that have not filed an appeal of 
an overpayment determination challenging the validity of 42 CFR 
418.309(b)(1) and which are awaiting for CMS to make a cap 
determination for cap years ending on or before October 31, 2011. We 
proposed to allow any such hospice provider, as of October 1, 2011, to 
elect to have its final cap determination for such cap year(s), and all 
subsequent cap years, calculated using the patient-by-patient 
proportional methodology.
    Finally, we recognize that most hospices have not challenged the 
methodology used for determining the number of beneficiaries used in 
the cap calculation. Therefore, we proposed that those hospices which 
would like to continue to have the existing methodology (hereafter 
called the streamlined methodology) used to determine the number of 
beneficiaries in a given cap year would not need to take any action, 
and would have their cap calculated using the streamlined methodology 
for cap years ending on or before October 31, 2011. The streamlined 
methodology is defined in section II.B.4 below.
2. Cap Determinations for Cap Years Ending on or After October 31, 2012
    We continue to believe that the methodology set forth in Sec.  
418.309(b)(1) is consistent with the Medicare statute. We emphasized 
that nothing in our proposals in this section constitutes an admission 
as to any issue of law or fact. In light of the court decisions, 
however, we proposed to change the hospice aggregate cap calculation 
methodology policy for cap determinations ending on or after October 
31, 2012 (the 2012 cap year). Specifically, for the cap year ending 
October 31, 2012 (the 2012 cap

[[Page 47309]]

year) and subsequent cap years, we proposed to revise the methodology 
set forth at Sec.  418.309(b)(1) to adopt a patient-by-patient 
proportional methodology when computing hospices' aggregate caps. We 
also proposed to ``grandfather'' in the current streamlined methodology 
set forth in Sec.  418.309(b)(1) for those hospices that elect to 
continue to have the current streamlined methodology used to determine 
the number of Medicare beneficiaries in a given cap year, for the 
following reasons.
    As described in section II of the proposed rule, we solicited 
comments on modernizing the cap calculation in our FY 2011 Hospice Wage 
Index Notice with Comment Period. We summarized those comments in 
section II of that proposed rule, and noted that many commenters, 
including the major hospice associations, were concerned about the 
burden to hospices of changing the cap calculation methodology, and 
urged us to defer across-the-board changes to the cap methodology until 
we analyzed the cap in the context of broader payment reform. 
Specifically, commenters urged us to retain the current methodology, as 
it resulted in a more streamlined and timely cap determination for 
providers, as compared to other options. In addition, commenters noted 
that once made, cap determinations usually remain final. Commenters 
were concerned that a proportional methodology could result in prior 
year cap determination revisions to account for situations in which the 
percentage of time a beneficiary received services in a prior cap year 
declined as his or her overall hospice stay continued into subsequent 
cap years, and these revisions could result in new overpayments for 
some providers. Commenters noted that the vast majority of providers 
don't exceed the cap, so burdening these providers with an across-the-
board change would not be justified. We also noted that on January 18, 
2011, President Obama issued an Executive Order (EO) entitled 
``Improving Regulation and Regulatory Review'' (EO 13563), which 
instructed federal agencies to consider regulatory approaches that 
reduced burdens and maintained flexibility and freedom of choice for 
the public. We believe that offering hospices the option to elect to 
continue to have the streamlined methodology used in calculating their 
caps is in keeping with this EO.
    For these reasons, for the cap year ending October 31, 2012 (the 
2012 cap year) and subsequent cap years, we proposed that the hospice 
aggregate cap be calculated using the patient-by-patient proportional 
methodology, but also proposed to allow hospices the option of having 
their cap calculated via the current streamlined methodology, as 
discussed below. We stated in the proposed rule that we believe this 
two-pronged approach is responsive to the commenters who do not want to 
be burdened with a change in the cap calculation methodology at this 
time, while also conforming with decisional law and meeting the needs 
of hospices that would prefer the patient-by-patient proportional 
methodology of counting beneficiaries. This grandfathering proposal to 
allow hospices the option of having their caps calculated based on 
application of the current streamlined methodology would apply only to 
currently existing hospices that have, or will have, had a cap 
determination calculated under the streamlined methodology. New 
hospices that have not had their cap determination calculated using the 
streamlined methodology did not fall under the proposed ``grandfather'' 
policy. Therefore, all new hospices that are Medicare-certified after 
the effective date of this final rule would have their cap 
determinations calculated using the patient-by-patient proportional 
methodology.
3. Patient-by-Patient Proportional Methodology
    For the cap year ending October 31, 2012 (the 2012 cap year), and 
for all subsequent cap years (unless changed by future rulemaking), we 
proposed that the Medicare contractors would apply the patient-by-
patient proportional methodology (defined below) to a hospice's 
aggregate cap calculations unless the hospice elected to have its cap 
determination for cap years 2012 and beyond calculated using the 
current, streamlined methodology set forth in Sec.  418.309(b)(1).
    Under the proposed patient-by-patient proportional methodology, for 
each hospice, CMS would include in its number of Medicare beneficiaries 
only that fraction which represents the portion of a patient's total 
days of care in all hospices and all years that was spent in that 
hospice in that cap year, using the best data available at the time of 
the calculation. We proposed that the whole and fractional shares of 
Medicare beneficiaries' time in a given cap year would then be summed 
to compute the total number of Medicare beneficiaries served by that 
hospice in that cap year.
    When a hospice's cap is calculated using the patient-by-patient 
proportional methodology, and a beneficiary included in that 
calculation survives into another cap year, the contractor may need to 
make adjustments to prior cap determinations, subject to existing 
reopening regulations.
4. Streamlined Methodology
    As we described above and in the proposed rule, comments received 
from hospices and the major hospice associations in previous years 
urged us to defer across-the-board changes to the cap calculation 
methodology until we reform hospice payments. Several of these 
commenters feared that an across-the-board change in methodology now 
could disadvantage them by potentially placing them at risk for 
incurring new cap overpayments. Additionally, approximately 90 percent 
of hospices do not exceed the cap and have not objected to the current 
methodology, and commenters expressed concern that adapting to a 
process change would be costly and burdensome. In response to these 
concerns, we proposed that a hospice could exercise a one-time election 
to have its cap determination for cap years 2012 and beyond calculated 
using the current, streamlined methodology set forth in Sec.  
418.309(b). We proposed that the option to elect the continued use of 
the streamlined methodology for cap years 2012 and beyond would be 
available only to hospices that have had their cap determinations 
calculated using the streamlined methodology for all cap years prior to 
cap year 2012. In section II.B.5 (``Changing Methodologies'') below, we 
described our detailed rationale for limiting the election. Allowing 
hospices which, prior to cap year 2012, have their cap determination(s) 
calculated pursuant to a patient-by-patient proportional methodology to 
elect the streamlined methodology for cap years 2012 and beyond could 
result in over-counting patients and introduce a program vulnerability.
    Our current policy set forth in the existing Sec.  418.309(b)(2) 
states that when a beneficiary receives care from more than one hospice 
during a cap year or years, each hospice includes in its number of 
Medicare beneficiaries only that fraction which represents the portion 
of a patient's total stay in all hospices that was spent in that 
hospice. We proposed to revise the regulatory text at Sec.  
418.309(b)(2) to clarify that for each hospice, CMS includes in its 
number of Medicare beneficiaries only that fraction which represents 
the portion of a patient's total days of care in all hospices and all 
years that was spent in that hospice in that cap year, using the best 
data available at the time of the calculation. We also proposed to

[[Page 47310]]

add language to make clear that cap determinations are subject to 
reopening/adjustment to account for updated data.
5. Changing Methodologies
    We believe our proposed policies, described above, provide hospices 
with a reasonable amount of flexibility with regard to their cap 
calculation. However, we believe that if we allowed hospices to switch 
back and forth between methodologies, it would greatly complicate the 
cap determination calculation, would be difficult to administer, and 
might lead to inappropriate switching by hospices seeking merely to 
maximize Medicare payments. Additionally, in the year of a change in 
the calculation methodology, there is a potential for over-counting 
some beneficiaries. Allowing hospices to switch back and forth between 
methodologies would perpetuate the risk of over-counting beneficiaries. 
Therefore, we proposed that:
    (1) Those hospices that have their cap determination calculated 
using the patient-by-patient proportional methodology for any cap year 
prior to the 2012 cap year would continue to have their cap calculated 
using the patient-by-patient proportional methodology for the 2012 cap 
year and all subsequent cap years; and,
    (2) All other hospices would have their cap determinations for the 
2012 cap year and all subsequent cap years calculated using the 
patient-by-patient proportional methodology unless they make a one-time 
election to have their cap determinations for cap year 2012 and beyond 
calculated using the streamlined methodology.
    (3) A hospice would be able to elect the streamlined methodology no 
later than 60 days following the receipt of its 2012 cap determination.
    (4) Hospices which elected to have their cap determination 
calculated using the streamlined methodology could later elect to have 
their cap determinations calculated pursuant to the patient-by-patient 
proportional methodology by either:
    a. Electing to change to the patient-by-patient proportional 
methodology; or
    b. Appealing a cap determination calculated using the streamlined 
methodology to determine the number of Medicare beneficiaries.
    (5) If a hospice elected the streamlined methodology, and changed 
to the patient-by-patient proportional methodology for a subsequent cap 
year, the hospice's aggregate cap determination for that cap year 
(i.e., the cap year of the change) and all subsequent cap years would 
be calculated using the patient-by-patient proportional methodology. As 
such, past cap year determinations could be adjusted to prevent the 
over-counting of beneficiaries, notwithstanding the ordinary 
limitations on reopening.
6. Other Issues
    Contractors will provide hospices with instructions regarding the 
cap determination methodology election process. Regardless of which 
methodology is used, the contractor will continue to demand any 
additional overpayment amounts due to CMS at the time of the hospice 
cap determination. The contractor will continue to include the hospice 
cap determination in a letter which serves as a notice of program 
reimbursement under 42 CFR 405.1803(a)(3). Cap determinations are 
subject to the existing CMS reopening regulations.
    In that FY 2011 Hospice Wage Index Notice with Comment Period, we 
also discussed the timeframe used for counting beneficiaries under the 
streamlined methodology, which is September 28th to September 27th. 
This timeframe for counting beneficiaries was implemented because it 
allows those beneficiaries who elected hospice near the end of the cap 
year to be counted in the year when most of the services were provided. 
However, for those hospices whose cap determinations are calculated 
using a patient-by-patient proportional methodology for counting the 
number of beneficiaries, we proposed to count beneficiaries and their 
associated days of care from November 1st through October 31st, to 
match that of the cap year. This would ensure that the proportional 
share of each beneficiary's days in that hospice during the cap year is 
accurately computed.
    Finally, we noted that the existing regulatory text at Sec.  
418.308(b)(1) refers to the timeframe for counting beneficiaries as 
``(1) * * * the period beginning on September 28 (35 days before the 
beginning of the cap period) and ending on September 27 (35 days before 
the end of the cap period).'' The period beginning September 28 is 
actually 34 days before November 1 (the beginning of the cap year), 
rather than 35 days. We proposed to correct this in the regulatory 
text, and to change references to the ``cap period''