Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2012, 68526-68607 [2011-28416]

Agencies

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

[Federal Register Volume 76, Number 214 (Friday, November 4, 2011)]
[Rules and Regulations]
[Pages 68526-68607]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28416]



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Vol. 76

Friday,

No. 214

November 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 Parts 409, 424, and 484





Medicare Program; Home Health Prospective Payment System Rate Update 
for Calendar Year 2012; Final Rule

Federal Register / Vol. 76, No. 214 / Friday, November 4, 2011 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 424, and 484

[CMS-1353-F]
RIN 0938-AQ30


Medicare Program; Home Health Prospective Payment System Rate 
Update for Calendar Year 2012

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth updates to the home health 
prospective payment system (HH PPS) rates, including: the national 
standardized 60-day episode rates; the national per-visit rates; and 
the low utilization payment amount (LUPA) under the Medicare PPS for 
home health agencies effective January 1, 2012. This rule applies a 1.4 
percent update factor to the episode rates, which reflects a 1 percent 
reduction applied to the 2.4 percent market basket update factor, as 
mandated by the Affordable Care Act. This rule also updates the wage 
index used under the HH PPS, and further reduces home health payments 
to account for continued nominal growth in case-mix which is unrelated 
to changes in patient health status. This rule removes two hypertension 
codes from the HH PPS case-mix system, thereby requiring recalibration 
of the case-mix weights. In addition, the rule implements two 
structural changes designed to decrease incentives to upcode and 
provide unneeded therapy services. Finally, this rule incorporates 
additional flexibility regarding face-to-face encounters with providers 
related to home health care.

DATES: Effective Date: These regulations are effective on January 1, 
2012.

FOR FURTHER INFORMATION CONTACT: 
Elizabeth Goldstein, (410) 786-6665, for CAHPS issues.
Mary Pratt, (410) 786-6867, for quality issues.
Randy Throndset, (410) 786-0131 (overall HH PPS).

Table of Contents

I. Background
    A. Statutory Background
    B. System for Payment of Home Health Services
    C. Updates to the HH PPS
II. Provisions of the Proposed Rule and Response to Comments
    A. Case-Mix Measurement
    B. Case-Mix Revision to the Case-Mix Weights
    1. Hypertension Diagnosis Coding Under the HH PPS
    2. Revision of the Case-Mix Weights
    C. Outlier Policy
    1. Background
    2. Comments and Responses
    D. CY 2012 Rate Update
    1. Home Health Market Basket Update
    2. Home Health Care Quality Reporting Program
    a. Background and Quality Reporting Requirements
    b. OASIS Data
    c. Claims Data, Requirements and Outcome Measure Change
    d. Home Health Care CAHPS Survey (HHCAHPS)
    3. Home Health Wage Index
    4. CY 2012 Annual Payment Update
    a. National Standardized 60-Day Episode Rate
    b. Updated CY 2012 National Standardized 60-Day Episode Payment 
Rate
    c. National Per-Visit Rates Used To Pay LUPAs and Compute 
Imputed Costs Used in Outlier Calculations
    d. LUPA Add-On Payment Amount Update
    e. Nonroutine Medical Supply Conversion Factor Update
    5. Rural Add-On
    E. Therapy Corrections and Clarification
    F. Home Health Face-to-Face Encounter
    G. Payment Reform: Home Health Study and Report
    H. International Classification of Diseases 10th Edition (ICD-
10) Coding
    I. Clarification to Benefit Policy Manual Language on ``Confined 
to the Home'' Definition
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
V. Federalism Analysis
Regulations Text

Acronyms

    In addition, because of the many terms to which we refer by 
abbreviation in this final rule, the following is an alphabetical 
listing of these abbreviations and their corresponding terms:

ADL Activities of daily living
APA Administrative Procedures Act
APU Annual payment update
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Public Law 106-113
CR Cost report
CBSA Core-based statistical area
CBO Congressional Budget Office
CMI Case-mix index
CMS Centers for Medicare and Medicaid Services
CoPs Conditions of participation
DRA Deficit Reduction Act of 2005, Public Law 109-171, enacted 
February 8, 2006
FDL Fixed dollar loss
FI Fiscal intermediaries
FR Federal Register
FY Fiscal year
HCC Hierarchical condition categories
HCIS Health Care Information System
HHCAHPS Home Health Care Consumer Assessment of Healthcare Providers 
and Systems Survey
HH PPS Home Health Prospective Payment System
HHAs Home health agencies
HHRG Home health resource group
HIPPS Health Insurance Prospective Payment System
IRF Inpatient Rehabilitation Facility
LTCH Long-Term Care Hospital
LUPA Low Utilization Payment Amount
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173, enacted December 8, 2003
MSA Metropolitan statistical area
MSS Medical social services
NAHC National Association for Home Care and Hospice
NHLBI National Heart Lung and Blood Institute
NPP Nonphysician practitioner
NRS Non-routine supplies
OBRA Omnibus Reconciliation Act of 1981, Public Law 97-35, enacted 
August 13, 1981
OCESAA Omnibus Consolidated and Emergency Supplemental 
Appropriations Act, Public Law 105-277, enacted October 21, 1998
OES Occupational employment statistics
OIG Office of Inspector General
OT Occupational therapy
OMB Office of Management and Budget
PEP Partial episode payment
POC Plan of care
PT Physical therapy
QAP Quality assurance plan
PRRB Provider Reimbursement Review Board
RAP Request for anticipated payment
RFA Regulatory Flexibility Act, Public Law 96-354
RHHIs Regional Home Health Intermediaries
RIA Regulatory Impact Analysis
SLP Speech Language Pathology Therapy
SNF Skilled Nursing Facility
UMRA Unfunded Mandates Reform Act of 1995

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory Background

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted 
August 5, 1997), significantly changed the way Medicare pays for 
Medicare home health (HH) 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 retrospective reimbursement 
system.
    Section 4603(a) of the BBA mandated the development of a HH PPS for 
all Medicare-covered HH services provided under a plan of care (POC) 
that were paid on a reasonable cost basis by adding section 1895 of the 
Social

[[Page 68527]]

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 HH services paid under Medicare.
    Section 1895(b)(3)(A) of the Act requires the following: (1) The 
computation of a standard prospective payment amount include all costs 
for HH services covered and paid for on a reasonable cost basis and 
that such amounts be initially based on the most recent audited cost 
report (CR) data available to the Secretary; and (2) the standardized 
prospective payment amount be adjusted to account for 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 HH 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 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 HH services 
furnished in a geographic area compared to the applicable national 
average level. Under section 1895(b)(4)(c) of the Act, 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. Section 3131(b) of the Patient 
Protection and Affordable Care Act of 2010 (the Affordable Care Act) 
(Pub. L. 111-148, enacted March 23, 2010) revised section 1895(b)(5) of 
the Act so that estimated total outlier payments in a given fiscal year 
(FY) or year may not exceed 2.5 percent of total payments projected or 
estimated. The provision also makes permanent a 10 percent agency level 
outlier payment cap.
    In accordance with section 4603(a) of the BBA, we published a final 
rule in the July 3, 2000 Federal Register (65 FR 41128) to implement 
the HH PPS legislation. The July 2000 final rule established 
requirements for the new HH PPS for HH 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 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 November 29, 1999). The requirements include the implementation 
of a HH PPS for HH 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 HH 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).
    Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 
109-171, enacted February 8, 2006) added new section 1895(b)(3)(B)(v) 
to the Act, requiring HHAs to submit data for purposes of measuring 
health care quality, and links the quality data submission to the 
annual applicable percentage increase. This data submission requirement 
is applicable for CY 2007 and each subsequent year. If an HHA does not 
submit quality data, the HH market basket percentage increase is 
reduced 2 percentage points. In the November 9, 2006 Federal Register 
(71 FR 65884, 65935), we published a final rule to implement the pay-
for-reporting requirement of the DRA, which was codified at Sec.  
484.225(h) and (i) in accordance with the statute.
    Section 421(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted December 8, 
2003) provides an increase of 3 percent of the payment amount otherwise 
made under section 1886(d)(2)(D) of the Act for HH services furnished 
in a rural area for episodes and visits ending on or after April 1, 
2010, and before January 1, 2016.

B. 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 HH disciplines (skilled nursing, 
HH 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 
II.D.4.e). Payment for durable medical equipment covered under the HH 
benefit is made outside the HH PPS payment system. 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). The clinical severity 
level, functional severity level, and service utilization are computed 
from responses to selected data elements in the OASIS assessment 
instrument and are used to place the patient in a particular HHRG. Each 
HHRG has an associated case-mix weight which is used in calculating the 
payment for an episode.
    For episodes with four or fewer visits, Medicare pays based on a 
national per-visit rate, adjusted by the discipline(s) providing the 
services; 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.

C. Updates to the HH PPS

    As required by section 1895(b)(3)(B) of the Act, we have 
historically updated the HH PPS rates annually in the Federal Register. 
The 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. The 
CY 2008 rule included an analysis performed on CY 2005 HH claims data, 
which 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. Subsequently, a more detailed 
analysis was performed on the 12.78 percent increase in case-mix to 
evaluate if any portion of the increase was associated with a change in 
the actual clinical condition of HH patients. We examined data on 
demographics, family severity, and non-HH Part A Medicare expenditures 
to predict the average case-mix weight for 2005. We identified

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8.03 percent of the total case-mix change as real and decreased the 
12.78 percent of total case-mix change by 8.03 percent to get a final 
nominal case-mix increase measure of 11.75 percent (0.1278 * (1-0.0803) 
= 0.1175).
    To account for the changes in case-mix that were not related to an 
underlying change in patient health status, we 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 2.75 percent 
per year for 3 years beginning in CY 2008 and 2.71 percent for the 
fourth year in CY 2011.
    For CY 2011, we published the November 17, 2010 final rule (75 FR 
70372) (hereinafter referred to as the CY 2011 HH PPS final rule) 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 HH services.
    As discussed in the CY 2011 HH PPS final rule, our analysis 
indicated that there was a 19.40 percent increase in overall case-mix 
from 2000 to 2008 and that only 10.07 percent of that overall observed 
case-mix percentage increase was due to real case-mix change. As a 
result of our analysis, we identified a 17.45 percent nominal increase 
in case-mix. To fully account for the 17.45 percent nominal case-mix 
growth which was identified from 2000 to 2008, we proposed 3.79 percent 
payment reductions in both CY 2011 and CY 2012. However, we deferred 
finalizing a payment reduction for CY 2012 until a further study of the 
case-mix data was completed. Independent review of the case-mix model 
has been conducted and the results were discussed in section II.A. of 
the proposed rule, which was issued on July 12, 2011 (76 FR 40988).

II. Provisions of the Proposed Rule and Response to Comments

A. Case-Mix Measurement

    As stated in the proposed rule issued in the July 12, 2011 Federal 
Register, every year, since the HH PPS CY 2008 proposed rule, we have 
stated in HH PPS rulemaking that we would continue to monitor case-mix 
changes in the HH PPS and to update our analysis to measure change in 
case-mix, both real changes in case-mix and changes which are unrelated 
to changes in patient acuity (nominal). We have continued to monitor 
case-mix changes and our latest analysis continues to support the need 
to make payment adjustments to account for nominal case-mix growth.
    In the CY 2012 HH PPS proposed rule (76 FR 40991), we also stated 
that in response to comments we received on our case-mix measurement 
methodology during CY 2011 rulemaking, we procured an independent 
review of our methodology by a team at Harvard University led by Dr. 
David Grabowski. The review included an examination of the predictive 
regression models and data used in CY 2011 rulemaking, and further 
analysis consisting of extensions of the model to allow a closer look 
at nominal case-mix growth by categorizing the growth according to 
provider types and subgroups of patients. The extensions showed a 
similar rate of nominal case-mix growth from 2000 to 2008 for the 
various categories and subgroups. In addition, when reviewing the 
model, the Harvard team found that overall, our models are robust. 
However, one area of potential refinement to our models that the 
Harvard team suggested was to incorporate variables derived from 
Hierarchical Condition Categories (HCC) data, which is used by CMS to 
risk-adjust payments to managed care organizations in the Medicare 
program.
    Based on Dr. Grabowski and his team's recommendation and our 
previous consideration to incorporate HCC data in our models to assess 
real case-mix change, we decided to explore the effects of adding HCC 
patient classification data into our models. For our analysis of real 
and nominal case-mix growth from 2000 to 2009, we incorporated the HCC 
community scores, HCC demographic variables, and disease indicator 
variables into our models.
    In addition, for our analysis, we used a similar approach to our 
previous methods. The basic method is to estimate a prediction model 
and use coefficients from that model along with predictor variables 
from a different year to predict the average case-mix for that year. It 
should be noted that we chose to enhance our models with HCC data 
starting in 2005 due to the availability of HCC data in our analytic 
files. Therefore, we analyzed real case-mix change for 3 different 
periods, from 2000 to 2005, from 2005 to 2007, and from 2007 to 2009. 
The real case-mix change from 2000 to 2005 was assessed using the same 
variables used in the model described in last year's regulation (75 FR 
43238). The real case-mix change from 2005 to 2007 and from 2007 to 
2009 was assessed using additional information from the HCC variables. 
To determine the amount of real and nominal case-mix change from 2000 
to 2009, we added the change in case-mix units for each of the 3 
periods and compared it to the total change in case-mix from 2000 to 
2009. Based on the results from our models, we estimated 15.76 percent 
of the total case-mix change as real. When taking into account the 
total case-mix change from 2000 to 2009 (22.59 percent) and the 15.76 
percent of total case-mix change estimated as real from 2000 to 2009, 
we obtained a final nominal case-mix change measure of 19.03 percent 
from 2000 to 2009 (0.2259 * (1-0.1576) = 0.1903).
    In each of the years 2008, 2009, and 2010, we reduced payment rates 
by 2.75 percent and in 2011 we reduced payment rates by 3.79 percent to 
account for nominal case-mix change from 2000. In the proposed rule, we 
stated that a payment reduction of 5.06 percent would be needed to 
account for the outstanding amount of nominal case-mix change we 
estimated based on the real case-mix change analysis updated through 
2009 and we proposed to implement a 5.06 percent reduction to the 
national standardized 60-day episode rates to account for the entire 
residual amount of nominal case-mix change through 2009 in one year.
    The following is a summary of the comments we received regarding 
the case-mix measurement proposal.
    Comment: Some commenters stated that CMS should not implement an 
across-the-board punishment but rather target the agencies that have 
high nominal case-mix growth. Other commenters stated that all home 
health providers should not be punished for the actions of the few. 
Many commenters indicated that their agency had case-mix weights below 
the national average and some commenters stated that there has been a 
decline in their case-mix over the years. Commenters suggested that CMS 
limit the case-mix reductions to certain agencies and only apply the 
reduction to agencies whose average case-mix weight reflects high 
nominal case-mix growth.
    Response: For a variety of reasons, as we have noted in previous 
regulations, we have not proposed targeted reductions for nominal case-
mix change. We have not conducted analysis of how and whether 
individual agencies' coding practices have changed over time, because 
this is not feasible. One reason is that many agencies have small 
patient populations, which would make it practically impossible to 
measure nominal case-mix change reliably. Another reason is that we 
believe changes and improvements in coding have been widespread, so 
that such targeting would likely not separate agencies clearly into 
high and low coding-change groups. When performing an independent 
review of

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our case-mix measurement methodology, Dr. Grabowski and his team at 
Harvard University agreed with our reasons for not proposing targeted 
reductions, stating their concerns about the small sample size of many 
agencies and their findings of significant nominal case-mix across 
different classes of agencies (please see the report located at https://www.cms.gov/center/hha.asp).
    We note that although we have stated in past regulations that a 
targeted system would be administratively burdensome, the reasons we 
have just presented go beyond administrative complexity. Certain 
comments seem to assume that the level of case-mix can precisely 
identify those agencies practicing abusive coding. We do not agree with 
the comments which seem to assume that agency-specific case-mix levels 
can precisely differentiate agencies practicing abusive coding from 
others. System wide, case-mix levels have risen over time while patient 
characteristics data indicate little change in patient severity over 
time. That is, the main problem is not the level of case-mix reached 
over a period of time, but the amount of change in the billed case-mix 
weights not attributable to underlying changes in actual patient 
severity.
    In addition, in this final rule, we are finalizing a revision to 
the case-mix weights. As described in Section II.B., we are removing 
two hypertension codes from our case-mix system which are not 
associated with additional resource use and we are reducing weights for 
episodes with high therapy while increasing weights for episodes with 
no or low therapy. This revision to the case-mix weights should slow 
future nominal case-mix growth and provide a more targeted approach for 
addressing overpayment of services, while also improving the accuracy 
of the HH PPS.
    Comment: Some commenters stated that the payment cuts will make it 
difficult for small agencies to exist, leaving a market that will only 
be made up of large for-profit agencies. Other commenters stated that 
from 2000 to 2008, for-profit and free-standing agencies saw their 
nominal case-mix grow by approximately 3.5 percent to 4.0 percent more 
than non-profit, government-owned and facility-based agencies. 
Commenters attributed the difference in nominal case-mix growth to the 
idea that for-profit agencies ``pick and choose'' their patients while 
non-profit and government agencies tend to serve all patients needing 
home health care. Commenters requested that CMS either forego the 
proposed 5.06 percent adjustment or implement a two-tiered adjustment 
factor, with a much lower payment reduction factor for non-profit, 
government-owned and facility-based agencies.
    Response: When looking at the case-mix growth by agency type, our 
data shows high case-mix growth across all agency types. While for-
profit agencies' case-mix grew approximately 22.7 percent, the case-mix 
average for non-profit agencies and government agencies also grew 
considerably (17.8 percent and 17.5 percent). In addition, agencies 
with less than 99 episodes had a case-mix growth of 20.1 percent from 
2000 to 2009 and agencies with 100 or more episodes had a case-mix 
growth of 24.8 percent from 2000 to 2009. These differences are not 
large enough to warrant a tiered approach. We believe our proposal to 
make across the board payment reductions is consistent with the data, 
and making distinctions by type of agency would be inappropriate.
    In addition, we acknowledge that our analyses and the analysis 
conducted by the Harvard team revealed a difference in nominal case-mix 
growth between for-profit agencies and non-profit/government agencies, 
as cited by the commenter. However, all categories exhibited a large 
amount of nominal case-mix growth, and differences among categories 
were not large enough to warrant a tiered approach. In view of that 
fact, making separate adjustments according to ownership category is 
inadvisable because of concerns about equity and administrative 
feasibility. We will continue to analyze the HH PPS to determine where 
it may inadvertently incentivize the sort of selective admissions which 
a commenter described and we will continue to analyze how we can 
strengthen the HH PPS to increase payment accuracy while mitigating 
risks which would incentivize such selective admissions.
    Comment: Commenters stated that we should suspend or drop case-mix 
adjustments because they will cause financial distress/bankruptcy among 
agencies, particularly ``safety-net'' agencies that take patients other 
agencies reject. Commenters further stated that the proposed payment 
reductions will cause ``safety net'' providers to have a ``negative 
operating margin'' and/or cause not-for-profit agencies to go out of 
business.
    Response: Identifying the agencies that commenters call ``safety-
net'' agencies is not feasible with our administrative data, so we 
cannot provide any evidence either to support or refute assertions that 
safety-net agencies are at greatest risk. Our analysis of margins of 
not-for-profit agencies shows that they tend to have lower margins than 
for-profit agencies. However, we do not agree that not-for-profit 
agencies will necessarily be more likely to exit the home health 
business than a for-profit agency. We believe the business decision is 
a complex one with many considerations, such as the organization's 
mission, the availability of alternate sources of funding, and whether 
or not the organization is embedded in a larger one. These influential 
factors are not necessarily associated with the non-profit or for-
profit status of an agency, and therefore, we cannot accurately predict 
the business decision of an agency based solely on their status. In 
addition, we refer the commenters to section IV where we describe the 
impact of the provisions of this rule, including the revision of the 
case-mix weights. Section IV shows that when taking into account all of 
the provisions in this final rule, non-profit providers should 
experience less of a negative impact than for-profit providers. Also, 
in section IV, we describe our rationale why we believe access to 
Medicare home health will not be adversely affected by our policies, 
including the payment reductions.
    Comment: Commenters stated that by implementing an across the board 
payment cut, agencies who have been more profitable may survive while 
agencies that have smaller margins may fail, thus potentially 
preserving those who may be committing abuse.
    Response: Existing information about Medicare margins and the CR 
data we have analyzed suggest that most agencies will continue to have 
positive margins on their Medicare business. With our revisions to the 
case-mix weights, we expect the weight adjustments will reduce the 
incentive to provide more therapy than is clinically indicated. To the 
extent that profits are based on abusive behavior, we believe these 
changes will mitigate the risks of abusive behavior. We also believe 
the changes will result in more equitable revenues and profits.
    Comment: Commenters stated that they believe that the case-mix 
measurement methodology takes on the approach that all case-mix change 
is nominal unless it can be proved otherwise.
    Response: The evidence for nominal case-mix change is based on the 
small amount of change in patients' characteristics generally, as 
measured by patient demographics and information from the National 
Claims History on home health patients. We summarized the change in 
patients' characteristics in terms of the impact on the average case-
mix weight. In this analysis, the remainder of the change in

[[Page 68530]]

average case-mix weights is unexplained, and it is generally believed 
that coding change is responsible. Our method to assess real and 
nominal case-mix change is the most effective method available to us at 
this time. We remind the commenter that we have presented various types 
of other data in previous rulemaking consistent with the model-based 
evidence indicating that home health care patients have not changed 
much since the last 12 months of the Interim Payment System.
    Comment: A commenter suggested that CMS ``adjust out all data from 
active and closed settlement actions'' in their measurement of real and 
nominal case-mix growth.
    Response: We are unclear what the commenter is suggesting. As we 
have noted previously, nominal case-mix growth is an across the board 
issue. If the commenter is referring to recoupments which correspond to 
claims denied after they were reviewed, such would typically be 
reflected in the claims data we use in our case mix analysis. In the 
case where a paid-claim dispute is still active, this data would likely 
not have much effect on our determination of nominal case-mix growth.
    Comment: Commenters requested that CMS increase its program 
integrity efforts to combat fraud, waste, and abuse. Other commenters 
stated that instead of implementing a payment reduction, CMS should 
audit agencies that appear to be manipulating the case-mix system. 
Commenters stated that we should eliminate the proposed payment 
reductions and rather ``conduct targeted claims review and deny payment 
for claims where the case-mix weight is not supported by the plan of 
care.''
    Response: We have taken various measures to reduce payment 
vulnerabilities and the Federal government has launched actions to 
directly identify fraudulent and abusive activities. Commenters should 
be aware of tip lines available that can help support investigative 
efforts of the Federal government. The Office of the Inspector General, 
Department of Health and Human Services Web site at https://oig.hhs.gov/fraud/report-fraud/index.asp, provides information about how to report 
fraud. Another Web site, https://www.stopmedicarefraud.gov/, 
is oriented to Medicare patients and their families and provides 
information about recognizing fraud.
    In addition, while we appreciate the commenters' suggestion about 
the targeted claims review, we cannot perform targeted claim review as 
suggested, because our resources are not sufficient to conduct claims 
review on a scale that would be required to counteract the broad-based 
uptrend in case-mix weights.
    Comment: A commenter stated that if the payment reduction is 
implemented, the base rate will be less than at the start of the HH 
PPS.
    Response: When assessing the impact of the payment reductions, one 
must also consider the effects of the case-mix weights. Section 
1895(b)(3)(B)(iv) of the Act requires that payment adjustments in 
response to nominal case-mix change be made to the rates. As such, we 
must reduce the base rate to account for growth in nominal case-mix. 
However, we note that we have not reduced the average case-mix weight 
and the average case-mix weight has increased since the beginning of 
the HH PPS. Therefore, even with the payment reductions to account for 
nominal case-mix growth since the beginning of the HH PPS, the average 
payment is projected to be higher for CY 2012 than the average payment 
at the beginning of the HH PPS.
    Comment: Commenters mentioned the Affordable Care Act study which 
is investigating access to care issues and stated that the payment cuts 
will only further exacerbate access to care issues for vulnerable 
populations.
    Response: We appreciate the commenter's concerns and wish to note 
that our preliminary analysis suggests that vulnerable populations are 
associated with case-mix groups involving lower levels of therapy, and 
that we have adjusted weights upward for those lower-therapy case-mix 
groups. For example, whereas the average number of therapy visits for 
first episodes overall is 8.2 in 2009, the average for vulnerable 
groups in various classifications (for example, high-poverty counties 
or rural areas) ranged between 7.0 and 7.8. The impact analysis of this 
rule indicates that rural agencies will experience a smaller reduction 
overall than urban agencies. We note that rural agencies will continue 
to receive a 3 percent payment add-on in CY 2012. We anticipate that 
these aspects of the payment proposals will mitigate the risk of access 
issues. We also wish to report that the Affordable Care Act study is 
proceeding as planned. It will involve additional data gathering on 
vulnerable populations and on potential access problems that vulnerable 
beneficiaries may encounter in coming years. We will continue to 
monitor for unintended consequences and we will seek information from 
other government agencies, such as the Office of the Inspector General, 
on access. Finally, we will use Open Door Forums and other venues to 
solicit information from agencies on any actual access issues they 
witness.
    Comment: Commenters stated that the payment cuts will limit access 
to care and hinder the effort to move to more community-based care.
    Response: We do not believe this will be the case because payment 
will remain adequate. Medicare has implemented policies to support 
community-based care in other areas, such as hospital-readmissions and 
transition programs authorized by the Affordable Care Act. We encourage 
HHAs to partner with providers in their community to become a part of 
these efforts, thereby assisting in the movement to more community-
based care.
    Comment: Commenters also thought that the payment reductions would 
lower quality of care.
    Response: Commenters did not provide specific information about why 
they believe payment reductions would lower quality of care. Our 
simulation of margins under the payment policies in this rule suggests 
that margins will remain adequate, and thereby support current levels 
of quality. We also believe that policymaking in the quality 
improvement area should help to ensure quality advances. OASIS-C 
outcome reports and CAHPS data are two important recent developments 
that we anticipate will support high-quality services. Over time, 
value-based purchasing policies will be developed, further enhancing 
quality-related incentives. We encourage agencies to work to their full 
professional potential to deliver a high standard of care to their 
patients.
    Comment: Commenters were concerned that the proposed cuts would 
impede access to home health care because many agencies would be forced 
to close as a result of the lower payments. Commenters stated that if 
the proposed cuts are implemented, many providers will be operating at 
a negative or zero margins. A commenter stated that the reduction to 
payment rates along with other cuts mandated by the Affordable Care Act 
would cause over half of HHAs to be paid less than the cost of care to 
Medicare patients. This commenter provided a chart which forecasts 2012 
profit margins for each State should the proposed 5.06 percent 
reduction to payments be finalized. The commenter further described 
that six States and Guam would have more than 70 percent of their 
agencies with negative margins in CY 2012 as a result of the reduction. 
Specifically, the commenter described the States and the

[[Page 68531]]

corresponding percent of HHAs which would be forced into negative 
margins as: Alaska 80 percent; Idaho 76.9 percent; North Dakota 91.7 
percent; Oregon 96.2 percent; Vermont 70 percent; and Wisconsin 74.5 
percent. Other commenters stated that the payment reductions place more 
of a hardship on certain providers. The commenters stated that rural 
locations would be hit the hardest. Commenters also stated that if the 
proposed cuts take place, over 45 percent of Minnesota providers will 
be operating at a zero or negative margin in 2012 and nearly 60 percent 
in 2017. Other commenters stated that the Northeast has a significantly 
lower rate of increase in case-mix growth than any other region. 
Commenters stated that the payment reductions will differentially 
impact different regions of the country and urged CMS to do a State-by-
State analysis.
    Response: As we have noted in prior rules, we believe that a policy 
of varying payment levels according to regional differences in nominal 
case-mix change would be perceived as inequitable by beneficiaries. 
That is, beneficiaries who might have access only to agencies subject 
to larger payment reductions might believe Medicare's policies 
disadvantage them unfairly.
    Regarding the commenters' concerns about the effect of the proposed 
reductions on providers' viability and the resultant access risks, we 
note that in their March 2011 Report to Congress, MedPAC projected an 
average of 14.5 percent margins for HHAs in 2011, when taking into 
account various payment adjustments such as the CY 2011 payment 
reduction for nominal case-mix growth. We also note that in proposing 
the reductions, we analyzed the combined effects of all of the policies 
proposed and believe that a 5.06 percent reduction would not impede 
access to care. We believe that the margin analysis study submitted by 
one of the commenters, which projected the impact of the proposed 
policies on HHAs on a State-by-State basis, failed to take into account 
the effects of all of the policies in the rule. The payment reduction 
to the base rate is not the only policy affecting payment to HHAs 
described in the proposed rule. The effects of the payment update, wage 
index update and revision of case-mix weights also need to be taken 
into account when assessing the impact of the proposed provisions. We 
also believe that the commenter may have attempted to factor potential 
future reductions to HH PPS payments into the 2012 margin forecast. 
While the Affordable Care Act calls for CMS to rebase home health 
payments beginning in 2014 and apply a productivity adjustment to the 
yearly inflation increases beginning in 2015, the impact of these 
provisions would be impossible to accurately project at this time. 
Additionally, provisions that are targeted for implementation in 2014 
and later would have no effect on CY 2012 provider margins. The 
following discussion describes the impact if we were to implement a 
5.06 percent payment reduction in CY 2012, taking into account all of 
the policies in the rule. In the aggregate, HHAs would receive 3.52 
percent less in payments in CY 2012 when compared to CY 2011 payments, 
reflecting the net effect of a 1.4 percent HH PPS payment update 
increase, a 0.03 percent payment increase resulting from the wage index 
update, and a 5.06 percent reduction in payments to account for nominal 
case-mix growth. We note that not all providers would experience a net 
3.52 percent reduction in their payments if a 5.06 percent reduction in 
payments was finalized for CY 2012. As we described in the proposed 
rule and describe in this final rule, the revision of the case-mix 
weights would have a re-distributional effect which benefits rural and 
non-profit providers, and providers in certain areas of the country. 
For example, in aggregate, if a 5.06 percent reduction in payments was 
implemented for CY 2012, non-profit free-standing providers would 
experience an estimated 0.91 percent reduction and for-profit free-
standing providers would experience an estimated 4.72 percent reduction 
in payments. Rural providers would fare better than urban providers, as 
rural non-profit freestanding providers would see an estimated 0.31 
percent increase in payments. In response to the commenter who was 
concerned about providers in the Northeast, we note that New England 
providers are in an area of the country which would benefit from the 
re-distributional effects of the recalibration. On average, New England 
providers would experience an increase in payments in CY 2012.
    We note that of the six States which the commenter contends would 
have 70 percent or more providers experiencing negative margins as a 
result of the payment reductions, five are in areas of the country 
which would benefit from the re-distributional effect of the case-mix 
weight revisions. In Table 1, we provide the estimated impact if we 
were to finalize a 5.06 percent payment reduction with the other 
policies in this final rule for purposes of addressing this comment.
[GRAPHIC] [TIFF OMITTED] TR04NO11.000


[[Page 68532]]


    As shown in Table 1, the net effect of a 5.06 percent payment 
reduction with all of the other provisions of the rule is that 
providers from North Dakota, Oregon, and Vermont on average would 
experience an estimated increase in payments in CY 2012 of 2.73 
percent, 0.19 percent and 1.45 percent respectively, instead of the 
national average, a 3.52 percent reduction in payments. Furthermore, 
the net effect of a 5.06 percent payment reduction with all of the 
other provisions of the rule is that providers from Guam on average 
would experience an estimated increase in payments in CY 2012 of 0.11 
percent.
    In addition, the net effect of a 5.06 percent payment reduction 
with all of the other provisions of the rule is that Alaska providers 
and Wisconsin providers in the aggregate would experience an estimated 
reduction in payments in CY 2012 of 0.81 percent and 2.68 percent 
respectively, instead of the national average, a 3.52 percent reduction 
in payments.
    Table 1 shows that if we were to finalize a 5.06 percent payment 
reduction, Idaho would experience an estimated 4.54 percent reduction 
in payments in CY 2012, instead of the national average, a 3.52 percent 
reduction in payments. However, the non-profit providers and the rural 
providers in Idaho would experience an estimated reduction in payments 
in CY 2012 of 1.37 percent and 2.06 percent respectively. Regarding the 
commenters who expressed concern that a provider association reported 
that close to half of Minnesota providers would experience negative 
margins as a result of the proposed payment reductions, we disagree 
with the provider association's conclusion. The net effect of a 5.06 
percent payment reduction with all of the other provisions in the rule 
is that Minnesota providers, on average, would experience an estimated 
1.19 percent reduction in payments in CY 2012, instead of the national 
average, a 3.52 percent reduction in payments.
    Furthermore, preliminary 2009 CR analysis along with MedPAC's 
projected margin analysis for 2011 suggest that providers in these 
States have margins which are strong enough to absorb the proposed 5.06 
percent payment reduction.
    As stated above, we have concerns and questions about the 
commenter's analyses. Specifically, we believe the commenter may have 
not taken into consideration all of the provisions of this rule and 
also may have included in the analyses potential future reductions to 
HH PPS payments into the 2012 margin forecast (which are not applicable 
to 2012), and therefore, overestimated the negative impact on 
providers. We would like to note that industry margins have remained in 
the mid-double digits in recent years, even in those years in which we 
implemented similar net payment reductions. We also note that in this 
final rule, as we describe in detail in the following response to a 
comment, we are implementing the payment reduction over 2 years, rather 
than the 1 year we originally proposed. We refer the commenters to 
Section IV for the impacts of the policies we are finalizing in this 
rule.
    In addition, regarding the commenter's suggestion that we provide 
State-level impacts which reflect the provisions of the rule, we again 
refer the commenter to Section IV of this final rule where we describe 
our State-level analysis for the policies we are finalizing in this 
final rule. As we described in section IV, we believe that State-level 
impacts would be misleading unless we also provided breakouts of rural-
verses-urban and ownership status of providers within the State.
    Comment: Commenters described the burden which they have 
experienced as a result of recent regulatory and legislative changes. 
Specifically, commenters described the financial burdens surrounding 
the Affordable Care Act face-to-face encounter mandate imposed on HHAs 
and physicians. The commenters stated that HHAs and physicians have 
needed to hire additional staff to track the face-to-face paperwork. 
Additionally, commenters noted that the staff time spent tracking, 
sending, and routing the required documentation, as well as tracking 
appointments has also been costly for HHAs to absorb. In addition, 
commenters described administrative burdens associated with the CY 2011 
therapy provision which requires a qualified therapist, instead of a 
therapy assistant, to perform the needed therapy service, as well as 
assess, measure, and document the effectiveness of the therapy, at key 
points during a course of therapy treatment. Another commenter stated 
that payment cuts detract from agencies' ability to attract competent 
staff. Other commenters stated that CMS should limit any single-year 
rate reductions to no greater than a combined 2.5 percent. Some 
commenters suggested CMS phase-in the proposed 5.06 percent adjustment 
over a 2- to 3-year period. Commenters stated that a 5.06 percent rate 
reduction is the largest ever imposed in a single year by CMS and 
stated that the pay cut would have a significant impact as earlier 
payment cuts have decreased provider margins. Another commenter was 
concerned that the home health community would not be able to absorb 
the cumulative effect of recent legislative and regulatory reductions.
    Response: Our simulation analysis described in Section II.B, which 
takes into account all of the proposed policies for 2012 (such as a 
5.06 percent payment reduction and the revision of the case-mix 
weights), projects that payment will exceed costs for all episodes, 
except for episodes with 20+ therapy visits, of which more than 60 
percent would have payment that exceeds their costs. We reiterate that 
about 6 percent of episodes nationally in 2009 had 20 or more therapy 
visits. Therefore, we believe that the payment cuts will not detract 
from agencies' ability to attract staff. We also believe the payments 
in excess of estimated costs will allow agencies to adapt to recent 
legislative and regulatory requirements. However, we are sensitive to 
the challenges HHAs may have had in adapting to the Affordable Care Act 
provisions which were implemented in CY 2011, such as the face-to-face 
encounter provision. We also agree that the Affordable Care Act 
provisions and the CY 2011 therapy changes described by commenters 
likely required HHAs to incorporate process changes to adhere to these 
new requirements. As such, we are finalizing a phased-in implementation 
of a 5.06 percent reduction over 2 years, as some commenters suggested. 
We believe that by phasing-in the reductions over CY 2012 and CY 2013, 
we allow HHAs an opportunity to adopt process efficiencies associated 
with the CY 2011 mandates prior to imposing the full 5.06 percent 
payment reduction.
    In CY 2011 rulemaking, we proposed to apply a 3.79 percent 
reduction to payments in CY 2011 and an additional 3.79 percent 
reduction in CY 2012 to account for nominal case-mix growth we 
identified through CY 2008. However, we deferred finalizing the CY 2012 
reduction pending an independent review of our method for identifying 
real case-mix growth. (That independent review has been completed, as 
we reported in the CY 2012 HH PPS proposed rule.) Because we believe 
that providers likely expected and planned for us to impose a 3.79 
percent payment reduction in CY 2012, we are finalizing a 3.79 percent 
reduction in CY 2012 and a 1.32 percent reduction for CY 2013. These 
reductions enable us to account for the nominal case-mix which we have 
identified through CY 2009, to follow through with the planned 3.79 
percent reduction for CY2012, and to allow for HHAs' adopting process 
efficiencies during CY 2012.

[[Page 68533]]

    Comment: Commenters stated that HHAs should be allowed to test the 
impact of the rate changes using 2011 data.
    Response: Given the fact that we currently are in CY 2011, there is 
not a full year of data from 2011 and we caution HHAs when using a 
partial year's data in their analysis. In addition, due to the lag in 
receiving claims, we did not have full data from 2010 when developing 
the impacts for the CY 2011 HH PPS proposed rule. Therefore, the data 
used to develop the impacts of our proposed policies are from 2009. We 
plan to continue to assess the impacts of our policies once new 
complete data are available. HHAs are welcome to test the impacts of 
the rate changes on their data; however, when predicting the impacts, 
it should be noted that all of the policies in the rule should be taken 
into account (such as the wage index, rural add-on, and the revision of 
the case-mix weights, and the payment reduction).
    Comment: Commenters stated that the rate reductions may adversely 
affect hospital-based HHAs. They stated that hospital-based HHAs 
represent 80.9 percent of all providers nationwide with margins below 
zero and that the Medicare margins which MedPAC presents, only 
represents freestanding agencies and that hospital-based agencies have 
lower, negative margins. Commenters stated that hospital-based home 
care agencies are currently underpaid.
    Response: Medicare CR data for hospital-based HHAs does indicate 
that Medicare margins are lower than those of freestanding HHAs. 
However, hospital-based HHAs do not account for most of home health 
care, and there are data issues hindering understanding of hospital-
based HHAs' financial status. As stated in their March 2011 Report to 
Congress, MedPAC focuses on freestanding agencies because they are the 
majority of providers and because their costs do not reflect the sort 
of allocation of overhead costs seen in facility-based providers' 
Medicare CRs (MCR), such as hospital-based HHA MCRs. They explain that 
in the case of hospitals, which often provide services that are paid 
for by multiple Medicare payment systems, measures of payments and 
costs for an individual sector could become distorted because of the 
allocation of overhead costs or complementarities of services. Another 
consideration is that Medicare's payment policies should cover the 
costs of efficient providers. Therefore, given that the payment system 
is prospective and not based on a provider's reasonable costs, we have 
reason to question whether the problem, as stated by the commenter, is 
that hospital-based agencies are underpaid.
    Comment: Commenters stated that for those providers who do survive, 
the cuts will hinder their ability to enhance technology and move to 
electronic health records.
    Response: A reduction in margins as a result of our payment changes 
may have an effect on the availability of resources for various types 
of investments. However, our analysis indicates that payments will be 
more than adequate under our payment changes and would still allow for 
investments. We do not have sufficient data to evaluate the effect on 
technology-specific investments from the unusually large margins that 
have been in existence under the HH PPS, but we welcome information 
about whether the numerous agencies that operated with high margins 
under the HH PPS made investments during those years, and the nature of 
those investments.
    Comment: Other commenters stated that CMS should suspend further 
nominal case-mix adjustments until the rebasing of the HH PPS system 
required by the Affordable Care Act. A commenter stated that CMS should 
study the factors driving case-mix growth and analyze the differences 
in growth by provider characteristics.
    Response: We are finalizing payment reductions intended to account 
for overpayments that were made because of nominal case-mix growth. 
Since our analysis indicates that margins will remain adequate, and 
since our analysis of rebasing is still in process, we see no reason to 
defer nominal case-mix adjustments in this rule. We agree that more 
data could be useful in understanding case-mix change, and we will 
continue to solicit suggestions for reliable data that can be 
incorporated in our studies.
    Comment: Commenters urged CMS to commission studies to more 
accurately estimate real and nominal case weight changes and to help 
refine the case-mix to more closely align reimbursement with costs and 
eliminate incentives. Commenters stated that CMS should work on 
implementing a proper case-mix adjuster which accurately pays for all 
home health services before implementing a payment reduction.
    Response: The home health study under section 3131(d) of the 
Affordable Care Act allows CMS to not only look at access for 
vulnerable populations, but also look at other issues with the payment 
system and payment vulnerabilities. In this study, we plan to examine 
issues surrounding nominal case-mix growth and ways to better align 
payment with patient needs. The Report to Congress describing the 
findings of our study is projected to be available March 1, 2014. In 
the meantime, while examining ways to better improve the case-mix 
system, we believe that we need to address previous nominal case-mix 
growth, and therefore, we plan to implement payment reductions.
    Comment: A commenter recommended that CMS seek payment system 
reforms that are value-based rather than implementing payment 
reductions. The commenter noted that CMS should factor in the quality 
of care before implementing payment reductions.
    Response: Medicare's value-based purchasing initiatives in home 
health will build upon current efforts in this area, including Outcome-
Based Quality Improvement and CAHPS, and the Value-based Purchasing 
demonstration. As we develop and refine measures, and incorporate them 
in payment policies, we will involve stakeholders. Further developing 
value-based purchasing will take time, but commenters should be assured 
that it is an important goal for Medicare. However, we cannot ignore 
nominal case-mix growth in the interim and we believe we need to 
account for nominal case-mix growth through 2009.
    Comment: A commenter stated that the proposed payment cuts along 
with the proposed case-mix weight changes will hinder agencies ability 
to calculate their payment.
    Response: We note that we are not making significant, structural 
changes to our case-mix system. We are only revising the case-mix 
weights. Also, we plan to implement a payment reduction similar to 
previous payment reductions and have described the base rate payment in 
the Regulatory Impact Analysis in Section IV of this final rule. 
Therefore, we do not believe that the proposed policies will hinder 
agencies' ability to calculate their payment.
    Comment: Commenters stated that all of the payment adjustments are 
based on a false assumption that clinicians and agencies have gamed the 
system.
    Response: As we have stated in previous regulations, changes and 
improvements in coding are important in bringing about nominal coding 
change. We believe nominal coding change results mostly from changed 
coding practices, including improved understanding of the ICD-9 coding 
system, more comprehensive coding, changes in the interpretation of 
various items on the OASIS and in formal OASIS definitions, and other 
evolving measurement issues. Our view of the causes of nominal coding 
change does

[[Page 68534]]

not emphasize the idea that HHAs or clinicians in general gamed the 
system. However, since our goal is to pay increased costs associated 
with real changes in patient severity, and nominal coding change does 
not demonstrate that underlying changes in patient severity occurred, 
we believe it is necessary to exclude nominal case-mix effects that 
cannot be shown to be related to changes in patient severity.
    Comment: Commenters stated that CMS penalizes providers for 
improved accuracy in patient assessment and coding. The commenters 
contributed the increase in case-mix to increased accuracy of OASIS 
answers and increased coding accuracy as a result of training of their 
staff and/or the use of certified and trained coders.
    Response: Comments referencing coding improvements, such as 
increasing accuracy, do not recognize that such improvements are an 
inappropriate basis for increased payment. We believe that measurable 
changes in patient severity and patient need are appropriate bases for 
changes in payment. Our analysis continues to find only small changes 
in patient severity and need.
    Comment: Commenters stated that the increase in case-mix weights is 
due to HHAs complying with Medicare instructions regarding patient 
coding ``consistent with the 2008 version of the HH PPS.''
    Response: This comment is difficult to address because the 
commenter does not cite specifically which documents constitute CMS-
issued Medicare instructions ``consistent with the 2008 version of the 
HH PPS.'' Nor does the comment explain how the increase in case-mix 
weights was driven by such CMS instructions. However, we believe our 
release in late 2008 of a revision of Attachment D of the OASIS 
Instruction Manual would not have had the effect suggested by the 
comment. (Attachment D was intended to provide guidance on diagnosis 
reporting and coding in the context of the HH PPS.) First, Attachment D 
reiterated traditional CMS guidance about how to select diagnoses in 
home health. Attachment D did not deviate from the fundamental and 
longstanding instruction that reported diagnoses must be relevant to 
the treatment plan and the progress or outcome of care and be 
consistent with coding guidelines.
    Comment: Commenters stated that CMS should look into alternative 
ways to account for nominal case-mix changes. Commenters stated that 
coordinated educations efforts can help control nominal case-mix 
growth.
    Response: Section 1895(b)(3)(B)(iv) of the Act gives CMS the 
authority to implement payment reductions for nominal case-mix growth 
by applying reductions to the base payment. The section does not allow 
CMS the authority to account for nominal growth in ways other than 
through payment reductions. We continue to explore ways to prevent 
future nominal case-mix growth and we welcome any suggestions.
    Comment: A commenter stated that the CMS methodology does not 
recognize home health care's increasing ability to care for more 
serious medical conditions in the home and ignores changes in patient 
severity. We received a number of comments stating that home health 
patients now have more complex conditions than previous populations of 
home health patients and that such patients previously would have been 
referred to health care facilities, but are now being cared for at 
home. Moreover, the commenters stated that other healthcare settings 
have developed stricter admission requirements, thereby increasing the 
number of HHA patients with high severity levels. One commenter cited 
as evidence diversion of patients to home care from inpatient 
rehabilitation facilities (IRFs) due to the CMS 60 percent rule. In 
addition, the commenters cited that there has been a nationwide 
rebalancing of care in favor of community care settings leading to a 
higher severity in home care admissions.
    Response: Data we presented in the CY 2011 HH PPS final rule (75 FR 
70379) indicate that hospital lengths of stay have been declining 
slightly and lengths of stay in residential post-acute settings before 
home health admission have increased between 2001 and 2008. We note 
that the proportion of initial non-LUPA home health episodes preceded 
by acute care within the previous 60 days has declined between 2001 and 
2008, from 70.0 percent to 62.7 percent. This indicates more patients 
are being admitted to HHAs from non-institutional settings (for 
example, from the community). Also, post-acute institutional 
utilization data perhaps consistent with the comment regarding 
diversion of patients to the home care setting suggest a decline in 
IRFs as a source of home health patients, but this decline may have 
been partly offset by an increase in SNF utilization as a source. For 
example, the proportion of initial episodes preceded by an IRF stay 
that ended sometime during the 30 days before home health admission 
declined by more than a percentage point in 2005 and declined another 
1.6 percentage points by 2009, while the percentage preceded by a SNF 
stay increased half a percentage point in 2005 and has remained above 
the 2005 level through 2009, the latest year of complete data available 
(based on a 10 percent beneficiary sample of initial, non-LUPA 
episodes). We also note that in CY 2005, when CMS began enforcing the 
IRF 60 percent rule, we initially saw an increase in knee joint 
replacement patients admitted to home health following hospital 
discharge. The 60 percent rule (previously, the 75 percent rule), is a 
criterion used to define IRFs for them to receive payment as an IRF. 
The rule requires that in at least 60 percent of cases an IRF admits 
must have one or more selected conditions which have been established 
as requiring the intensity of care provided in an IRF. However, more 
current data (2007 and 2009) shows that the prevalence of knee joint 
replacement patients in home health has dropped from the 2005 levels, 
though the prevalence is slightly higher than in 2000. The prevalence 
of hip joint replacement patients has dropped since 2000, as have hip 
and femur fracture patients. Furthermore, we note that acute stays, 
which normally precede stays in institutional post-acute care settings, 
are decreasing in the stay histories of home health patients. 
Therefore, we question whether there is any evidence showing an 
increase in home health patient severity as a result of more patients 
coming to home health as a result of diversion from IRF care.
    Comment: Commenters stated that patient care capabilities are 
changing in home health services and diagnostic-specific care protocols 
allow targeting of patient populations. Commenters cited utilization of 
interdisciplinary care providers to improve patient outcomes and to 
provide best practice interventions, such as the prevention of falls. 
The commenters further expanded on this idea by stating that there is a 
movement towards a multidisciplinary approach to care and utilization 
of broader ranges of therapy services to improve outcomes and that 
evidence based best practices have improved patient outcome scores.
    Response: To the extent that home care agency capabilities are 
improving, we support such developments and we hope to see them 
continue. This is an entirely different issue from whether the patient 
population has changed to the degree as indicated b