Daily Rules, Proposed Rules, and Notices of the Federal Government
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In addition, because of the many terms to which we refer by abbreviation in this proposed rule, we are listing these abbreviations and their corresponding terms in alphabetical order below:
This rule proposes updates to the payment rates for home health agencies (HHAs) for Calendar Year (CY) 2013 as required under section 1895(b) of the Social Security Act (the Act). The proposed update to the prospective payment system addresses the market basket update, case-mix adjustments due to variation in costs among different units of services, adjustments for geographic differences in wage levels, outlier payments, the submission of quality data, and additional payments for services provided in rural areas.
In this proposed rule, we use the methods described in the CY 2012 HH PPS final rule (76 FR 68526) to update the prospective payment rates for CY 2013 using a proposed rebased and revised market basket described in section III.C.1 of this rule. This rule discusses the proposed case-mix up-coding adjustment. In addition, we propose additional regulatory flexibility regarding therapy documentation and reassessments as well as face-to-face encounter requirements. We also provide an update on the transition plan for ICD-10 and the home health study concerning home health care access. In addition, this rule proposes new requirements concerning the hospice quality reporting program. Lastly, this proposed rule would establish requirements concerning HHAs.
The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted August 5, 1997), significantly changed the way Medicare pays for Medicare HH services. Section 4603 of the BBA mandated the development of the HH PPS. Until the implementation of a HH PPS on October 1, 2000, 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 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 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 due to 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 total outlier payments in a given year would not exceed 2.5 percent of total payments projected or estimated. The provision also made permanent a 10 percent agency-level outlier payment cap.
In accordance with the statute, as amended by the BBA, we published a final rule in the July 3, 2000
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
The Affordable Care Act made additional changes to the HH PPS. One of the changes in section 3131 of the Affordable Care Act is the amendment to section 421(a) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 8, 2003) as amended by section 5201(b) of the DRA. The amended section 421(a) of the MMA now requires, for HH services furnished in a rural area (as defined in section 1886(d)(2)(D) of the Act) with respect to episodes and visits ending on or after April 1, 2010, and before January 1, 2016, that the Secretary increase, by 3 percent, the payment amount otherwise made under section 1895 of the Act.
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 system 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 national per-visit rates based on 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.
As required by section 1895(b)(3)(B) of the Act, we have historically updated the HH PPS rates annually in the
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. In the CY 2011 HH PPS final rule (76 FR 68532) we updated our analyses of case-mix change and finalized a reduction of 3.79 percent, instead of 2.71 percent, for CY 2011.
For CY 2012, we published the November 4, 2011 final rule (76 FR 68526) (hereinafter referred to as the CY 2012 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. In addition, as discussed in the CY 2012 final rule (76 FR 68528), our analysis indicated that there was a 22.59 percent increase in overall case-mix from 2000 to 2009 and that only 15.76 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 19.03 percent nominal increase in case-mix. To fully account for the 19.03 percent nominal case-mix growth which was identified from 2000 to 2009, we finalized a 3.79 percent payment reduction in CY 2012 and 1.32 percent payment reduction for CY 2013.
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.
Before measuring nominal case-mix growth, we examined the total case-mix growth every year from 2000 to 2010. Our latest analysis indicates that there was about a 1 percent increase in the
For the remainder of this section, we will discuss our latest analysis of real and nominal case-mix change.
Section 1895(b)(3)(B)(iv) of the Act gives CMS the authority to implement payment reductions for nominal case-mix growth, changes in case-mix that are not related to actual changes in patient characteristics over time. Nominal case-mix growth was assessed and reported in CY 2008, CY 2011, and CY 2012 rulemaking, and payment reductions to the base rate were implemented to account for the nominal case-mix growth observed.
In CY 2008 rulemaking, to assess nominal case-mix growth, we first estimated real case-mix growth, changes in case-mix which are related to changes in patient characteristics, using a regression-based, predictive model of individual case-mix weights. The predictive model contained measures of patients' demographic characteristics, clinical status, inpatient history, and Part A Medicare costs in the time period leading up to their home health episodes. The regression coefficients for the predictive model were developed using 2000 as a base year and were applied to episodes from 2005, allowing for estimation of the change in real case-mix. We then determined the nominal case-mix growth from 2000 to 2005 using the regression model-predicted real case-mix change and the total case-mix change for the time period of interest.
Our analysis indicated that there was a 12.78 percent increase in overall case-mix from 2000 to 2005 and 8.03 percent of that overall observed case-mix change was identified as real case-mix change. As a result of our analysis, we adjusted the 12.78 percent of total change in case-mix downward by 8.03 percent to get a final nominal case-mix change measure of 11.75 percent (0.1278 * (1−0.0803) = 0.1175). To account for the 11.75 percent increase in nominal case-mix, we implemented a payment reduction of 2.75 percent each year for 3 years, beginning in 2008, and we planned to implement a payment reduction of 2.71 percent in CY 2011.
Since the publication of the HH PPS CY 2008 proposed rule (72 FR 25395), we have continued to monitor case-mix changes in the HH PPS, and in CY 2011 rulemaking we updated our analysis to measure more recent changes in real and nominal case-mix. In CY 2011 rulemaking, to accommodate the shift to the 153-group system in 2008, we developed two regression-based models to assess nominal case-mix growth from 2000 to 2008. One model was developed using 2000 as a base year and the 80 grouper case-mix system. The regression coefficients in the model were applied to 2007 data to determine the change in real case-mix from 2000 to 2007. The second model was developed using 2008 as a base year and the 153 grouper case-mix system. The regression coefficients in the model were applied to 2007 data to determine the change in real case-mix from 2007 to 2008. The data from both of the models were then used to calculate the overall real case-mix change from 2000 to 2008. Our analysis indicated that there was a 19.40 percent increase in overall case-mix from 2000 to 2008 and 10.07 percent of that overall observed case-mix change was identified as real case-mix change. Consequently, as a result of our analysis, we identified a 17.45 percent nominal increase in case-mix (0.1940 * (1−0.1007) = 0.1745) from 2000 to 2008. In other words, there was a growth in case-mix of 17.45 percent that was unrelated to differences in patient characteristics, reflecting changes in coding documentation and other behavioral responses to the home health prospective payment system rather than the treatment of more resource-intensive patients. To fully account for the 17.45 percent nominal case-mix growth identified from 2000 to 2008, in the CY 2011 proposed rule, we proposed a 3.79 percent payment reduction (replacing the planned 2.71 percent payment reduction) in CY 2011 and an additional 3.79 percent payment reduction in CY 2012.
We received many comments on our CY 2011 HH PPS proposed rule that criticized our methodology for assessing real and nominal case-mix change. In the CY 2011 HH PPS final rule, we implemented the proposed payment reduction of 3.79 percent to the national standardized episode rate in CY 2011. However, due to the extensive comments we received, we deferred finalizing a payment reduction for CY 2012 until further study of the case-mix data and methodology was completed.
To assess the validity of the criticisms we received about our models to measure real and nominal case-mix change, 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.
When reviewing the model, the Harvard team found that overall, our models were 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.
During CY 2012 rulemaking, 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 explored 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. It should be noted that we enhanced our models with HCC data starting in 2005 due to the availability of HCC data in our analytic files.
To use the HCC data as well as accommodate the shift to the 153-group system in 2008, 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 the CY 2011 HH PPS proposed rule (75 FR 43238). The real case-mix change from 2005 to 2007 and from 2007 to 2009 was assessed using the pre-existing variable set plus additional information from the HCC variables. To determine the amount of real case-mix change from 2000 to 2009 (0.0390 case-mix units), we added the measured real change in case-mix units for each of the 3 periods (0.0207 case-mix units for 2000 to 2005, 0.0061 case-mix units for 2005 to 2007, and 0.0122 case-mix units for 2007 to 2009). We
This year, we updated our estimates of real and nominal case-mix growth using 2010 data. To determine the amount of real case-mix growth from 2000 to 2010, we needed to obtain an estimate of real case-mix change for 2007 to 2010. We obtained this value using the same model as the one described in CY 2012 rulemaking, which was developed using 2009 data. We note that when developing an estimate of real case-mix change for 2007 to 2010, we used 2010 data for all of the variables in the model except for the living arrangement variables. A crosswalk could not be built from OASIS C to OASIS B1 for the living arrangement variables and therefore we predicted the 2010 value based on trends from 2007 to 2009. After obtaining the estimate of real case-mix change for 2007 to 2010 (0.0150 case-mix units), we added this estimate to the 2000 to 2005 estimate of real case-mix change (0.0207 case-mix units) and the 2005 to 2007 estimate of real case-mix change (0.0061 case-mix units). After adding together the estimated real case-mix change in case-mix units for the three periods, the total estimated change in real case-mix from 2000 to 2010 was 0.0418 (0.0207 + 0.0061 + 0.0150 = 0.0418). Given that the total change in case-mix from 2000 to 2010 was 0.2619 case-mix units (1.3578 − 1.0959 = 0.2619), we estimate that 15.97 percent of the total percentage change in the national average case-mix weight since the interim payment system baseline through 2010 is due to change in real case-mix (0.0418/0.2619 = 0.1597). It should be noted that there is a 0.01 percentage point difference between the calculated and actual value due to the fact that 0.0418 and 0.2619 are rounded figures. When taking into account the total measure of case-mix change (23.90 percent; see Table 1) and the 15.97 percent of total case-mix change estimated as real from 2000 to 2010, we obtained a final nominal case-mix change measure of 20.08 percent from 2000 to 2010 (0.2390 * (1 − 0.1597) = 0.2008). Please see Table 1 for additional information about the calculations used to make the real and nominal case-mix change estimates from 2000 to 2010.
Our estimates of real and nominal case-mix change are consistent with past results. Most of the case-mix change has been due to improved coding, coding practice changes, and other behavioral responses to the prospective payment system, such as increased use of high therapy treatment plans.
As we described earlier in this proposed rule, our CY 2008 HH PPS final rule finalized a reduction over 4 years in the national standardized 60-day episode payment rates to account for a large increase in case-mix from 2000 to 2005 which we determined was not related to treatment of more intense patients. We implemented a 2.75 percent reduction each year for 2008, 2009, and 2010 and planned to reduce payments by 2.71 percent in 2011. In CY 2011 rulemaking, we updated our analysis of nominal case-mix growth through 2008 and determined that there was 17.45 percent nominal case-mix growth from 2000 to 2008. Therefore, we proposed and finalized an increase in the planned 2.71 percent reduction to 3.79 percent for CY 2011. For the CY 2012 proposed rule, after updating our models to incorporate HCC data, we determined that there was a 19.03 percent nominal case-mix change from 2000 to 2009. To account for the nominal case-mix growth through 2009, we finalized a 3.79 percent payment reduction to the national standardized 60-day episode rates for nominal case-mix change for CY 2012 and a 1.32 percent payment reduction to the rates in CY 2013.
When including the latest data available, we determined that there was a 20.08 percent nominal case-mix change from 2000 to 2010. To fully account for the remainder of the 20.08 percent increase in nominal case-mix beyond that which has been accounted for in previous payment reductions, we estimate that the percentage reduction to the national standardized 60-day episode rates for nominal case-mix change would be 2.18 percent. We considered proposing a 2.18 percent reduction to account for the remaining increase in measured nominal case-mix, and seek comments on that proposal, rather than moving forward with the 1.32 percent reduction promulgated in last year's CY 2012 HH PPS final rule. However for CY 2013, we propose to move forward with the 1.32 percent payment reduction to the national standardized 60-day episode rates as promulgated in the CY 2012 HH PPS Final Rule (76 FR 68532). Analysis, to date, would seem to indicate a high likelihood of continued growth in nominal case-mix going forward. As such, we will continue to monitor both real and nominal case-mix change and make updates as appropriate. CMS will consider any and all analyses as it continues to address the issue of the increase in nominal case-mix in future rulemaking.
Section 1895(b)(5) of the Act allows for the provision of an addition or adjustment to the national standardized 60-day case-mix and wage-adjusted episode payment amounts in the case of episodes that incur unusually high costs due to patient home health (HH) care needs. Prior to the enactment of the Affordable Care Act, this section of the Act stipulated that projected total outlier payments could not exceed 5 percent of total projected or estimated HH payments in a given year. In the July 2000 final rule (65 FR 41188 through 41190), we described the method for determining outlier payments. Under this system, outlier payments are made for episodes whose estimated costs exceed a threshold amount for each Home Health Resource Group (HHRG). The episode's estimated cost is the sum of the national wage-adjusted per-visit payment amounts for all visits delivered during the episode. The outlier threshold for each case-mix group or
In the CY 2010 HH PPS final rule (74 FR 58080 through 58087), we discussed excessive growth in outlier payments, primarily the result of unusually high outlier payments in a few areas of the country. Despite program integrity efforts associated with excessive outlier payments in targeted areas of the country, we discovered that outlier expenditures still exceeded the 5 percent, target and, in the absence of corrective measures, would have continued do to so. Consequently, we assessed the appropriateness of taking action to curb outlier abuse. To mitigate possible billing vulnerabilities associated with excessive outlier payments and adhere to our statutory limit on outlier payments, we adopted an outlier policy that included a 10 percent agency level cap on outlier payments. This cap was implemented in concert with a reduced FDL ratio of 0.67. These policies resulted in a projected target outlier pool of approximately 2.5 percent. (The previous outlier pool was 5 percent of total HH expenditures.)
For CY 2010, we first returned 5 percent of these dollars back into the national standardized 60-day episode rates, the national per-visit rates, the low utilization payment adjustment (LUPA) add-on payment amount, and the non-routine supplies (NRS) conversion factor. Then, we reduced the CY 2010 rates by 2.5 percent to account for the new outlier pool of 2.5 percent. This outlier policy was adopted for CY 2010 only.
As outlined in the CY 2011 HH PPS final rule (75 FR 70397 through 70399), section 3131(b)(1) of the Affordable Care Act amended section 1895(b)(3)(C) of the Act, “Adjustment for outliers,” states that “The Secretary shall reduce the standard prospective payment amount (or amounts) under this paragraph applicable to HH services furnished during a period by such proportion as will result in an aggregate reduction in payments for the period equal to 5 percent of the total payments estimated to be made based on the prospective payment system under this subsection for the period.” In addition, section 3131(b)(2) of the Affordable Care Act amended section 1895(b)(5) of the Act by redesignating the existing language as section 1895(b)(5)(A) of the Act, and revising it to state that the Secretary, “may provide for an addition or adjustment to the payment amount otherwise made in the case of outliers because of unusual variations in the type or amount of medically necessary care. The total amount of the additional payments or payment adjustments made under this paragraph with respect to a fiscal year or year may not exceed 2.5 percent of the total payments projected or estimated to be made based on the prospective payment system under this subsection in that year.”
As such, beginning in CY 2011, our HH PPS outlier policy is that we reduce payment rates by 5 percent and target up to 2.5 percent of total estimated HH PPS payments to be paid as outliers. To get there, we first returned the 2.5 percent held for the target CY 2010 outlier pool to the national standardized 60-day episode rates, the national per visit rates, the LUPA add-on payment amount, and the NRS conversion factor for CY 2010. We then reduced the rates by 5 percent as required by section 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) of the Affordable Care Act. For CY 2011 and subsequent calendar years we target up to 2.5 percent of estimated total payments to be paid as outlier payments, and apply a 10 percent agency-level outlier cap.
For a given level of outlier payments, there is a trade-off between the values selected for the FDL ratio and the loss-sharing ratio. A high FDL ratio reduces the number of episodes that can receive outlier payments, but makes it possible to select a higher loss-sharing ratio and, therefore, increase outlier payments for outlier episodes. Alternatively, a lower FDL ratio means that more episodes can qualify for outlier payments, but outlier payments per episode must then be lower.
The FDL ratio and the loss-sharing ratio must be selected so that the estimated total outlier payments do not exceed the 2.5 percent aggregate level (as required by section 1895(b)(5)(A) of the Act). In the past, we have used a value of 0.80 for the loss-sharing ratio, which is relatively high, but preserves incentives for agencies to attempt to provide care efficiently for outlier cases. With a loss-sharing ratio of 0.80, Medicare pays 80 percent of the additional estimated costs above the outlier threshold amount. We are not proposing a change to the loss-sharing ratio in this proposed rule. In the CY 2011 HH PPS final rule (75 FR 70398), in targeting total outlier payments as 2.5 percent of total HH PPS payments, we implemented an FDL ratio of 0.67, and we maintained that ratio in CY 2012. The national standardized 60-day episode payment amount is multiplied by the FDL ratio. That amount is wage-adjusted to derive the wage-adjusted FDL, which is added to the case-mix and wage-adjusted 60-day episode payment amount to determine the outlier threshold amount that costs have to exceed before Medicare will pay 80 percent of the additional estimated costs.
Based on simulations using CY 2010 claims data, we estimate that outlier payments in 2012 will comprise approximately 2.12 percent of total HH PPS payments. Simulations based on CY 2009 claims data completed for the CY 2012 HH PPS final rule (76 FR 68528) suggested that outlier payments in 2011 would comprise approximately 2.14 percent of total HH PPS payments. As such, our simulations suggest outlier payments as a percentage total HH payments holding steady in CY 2009 and CY 2010. However, we are proposing no change to the FDL, in part because we have not been able to verify these projections in our paid claims files since we implemented the 10 percent agency-level cap on outlier payments on January 1, 2010. Two claims processing errors were identified in our implementation of the 10 percent agency-level cap on outlier payments. These errors resulted in inaccuracies in outlier payment amounts in our paid claims files for CY 2010 and 2011. One error allows for certain HHAs to be paid beyond the cap, resulting in overpayments. The other applies the cap to HHAs who have not reached it yet, resulting in underpayments. System changes are currently underway, and thus the CY 2010 data file used in our analysis for this proposed rule reflects outlier payments with these claims processing errors. Furthermore, another consideration in proposing no change to the FDL is our implementation in the CY 2012 HH PPS final rule of changes to the case-mix weights. The changes put more weight on non-therapy cases that typically are more likely to receive outlier payments. The data showing the effects of the changes to the case-mix weights on outlier payments will not be available for analysis until next year. In
As we discuss later in this proposed rule, section 3131(d) of the Affordable Care Act requires CMS to conduct a study and report on developing HH payment revisions that will ensure access to care and payment for HH patients with high severity of illness. Our Report to Congress containing this study's recommendations is due no later than March 1, 2014. Section 3131(d)(1)(A)(iii) of the Affordable Care Act, in particular, states that this study may include analysis of potential revisions to outlier payments to better reflect costs of treating Medicare beneficiaries with high levels of severity of illness.
Section 1895(b)(3)(B) of the Act requires that the standard prospective payment amounts for CY 2013 be increased by a factor equal to the applicable home health market basket update for those HHAs that submit quality data as required by the Secretary.
Effective for cost reporting periods beginning on or after July 1, 1980, we developed and adopted an HHA input price index (that is, the home health “market basket”). Although “market basket” technically describes the mix of goods and services used to produce home health care, this term is also commonly used to denote the input price index derived from that market basket. Accordingly, the term “home health market basket” used in this document refers to the HHA input price index.
The percentage change in the home health market basket reflects the average change in the price of goods and services purchased by HHAs in providing an efficient level of home health care services. We first used the home health market basket to adjust HHA cost limits by an amount that reflected the average increase in the prices of the goods and services used to furnish reasonable cost home health care. This approach linked the increase in the cost limits to the efficient utilization of resources. For a greater discussion on the home health market basket, see the notice with comment period published in the February 15, 1980
The home health market basket is a fixed-weight Laspeyres-type price index; its weights reflect the cost distribution for the base year while current period price changes are measured. The home health market basket is constructed in three major steps. First, a base period is selected and total base period expenditures are estimated for mutually exclusive and exhaustive spending categories based upon the type of expenditure. Then the proportion of total costs that each spending category represents is determined. These proportions are called cost or expenditure weights.
The second step essential for developing an input price index is to match each expenditure category to an appropriate price/wage variable, called a price proxy. These proxy variables are mainly drawn from publicly available statistical series published on a consistent schedule, preferably at least quarterly.
In the third and final step, the price level for each spending category is multiplied by the expenditure weight for that category. The sum of these products for all cost categories yields the composite index level in the market basket in a given year. Repeating the third step for other years will produce a time series of market basket index levels. Dividing one index level by an earlier index level will produce rates of growth in the input price index.
We describe the market basket as a fixed-weight index because it answers the question of how much more or less it would cost, at a later time, to purchase the same mix of goods and services that was purchased in the base period. As such, it measures “pure” price changes only. The effects on total expenditures resulting from changes in the quantity or mix of goods and services purchased subsequent to the base period are, by design, not considered.
We believe that it is desirable to rebase the home health market basket periodically so that the cost category weights reflect changes in the mix of goods and services that HHAs purchase in furnishing home health care. We based the cost category weights in the current home health market basket on CY 2003 data. We are proposing to rebase and revise the home health market basket to reflect CY 2010 Medicare cost report (MCR) data, the latest available and most complete data on the actual structure of HHA costs.
The terms “rebasing” and “revising,” while often used interchangeably, actually denote different activities. The term “rebasing” means moving the base year for the structure of costs of an input price index (that is, in this exercise, we are proposing to move the base year cost structure from CY 2003 to CY 2010) without making any other major changes to the methodology. The term “revising” means changing data sources, cost categories, and/or price proxies used in the input price index.
For this proposed rebasing and revising, we modified the wages and salaries and benefits cost categories to reflect revised occupational groupings of BLS Occupational Employment Statistics (OES) data of HHAs. As a result of the revised groupings, we are also proposing changes to the wage and benefit price proxies used in the HH market basket. We are also proposing to break out the Administration and General (A&G), Operations and Maintenance, and All Other (residual) cost category weight into more detailed cost categories, based on the 2002 Benchmark U.S. Department of Commerce, Bureau of Economic Analysis (BEA) Input-Output (I-O) Table for HHAs. We are proposing to revise the price proxies for the Insurance and Transportation cost categories. Finally, we are proposing the use of four new price proxies for the four additional cost categories.
The major cost weights for this proposed revised and rebased home health market basket are derived from the Medicare Cost Reports (MCR) data for freestanding HHAs, whose cost reporting period began on or after January 1, 2010 and before January 1, 2011. Using this methodology allowed our sample to include HHA facilities with varying cost report years including, but not limited to, the Federal fiscal or calendar year. We refer to the market basket as a calendar year market basket because the base period for all price proxies and weights are set to CY 2010.
We propose to maintain our policy of using data from freestanding HHAs because we have determined that they better reflect HHAs' actual cost structure. Expense data for hospital-based HHAs can be affected by the allocation of overhead costs over the entire institution. Due to the method of allocation, total expenses will be correct, but the individual components' expenses may be skewed; therefore, if data from hospital-based HHAs were included, the resulting cost structure could be unrepresentative of the average HHA costs.
Data on HHA expenditures for nine major expense categories (Wages and Salaries, Employee Benefits, Transportation, Operation and Maintenance, A&G, Professional Liability Insurance (PLI), Fixed Capital, Movable Capital, and a residual “All Other”) were tabulated from the CY 2010 Medicare HHA cost reports. As prescription drugs and DME are not payable under the HH PPS, we excluded those items from the home health market basket and from the expenditures. Expenditures for contract services were also tabulated from these CY 2010 Medicare HHA cost reports and allocated to Wages and Salaries, Employee Benefits, A&G, and Other Expenses. After totals for these cost categories were edited to remove reports where the data were deemed unreasonable (for example, when total costs were not greater than zero), we then determined the proportion of total costs that each category represents. The proportions represent the major rebased home health market basket weights.
Next, we disaggregated the costs for the A&G, Operations and Maintenance and “All Other” cost weights using the latest available (2002 Benchmark) U.S. Department of Commerce, Bureau of Economic Analysis (BEA) Input-Output (I-O) Table, from which we extracted data for HHAs. The BEA I-O data, which are updated at 5-year intervals, were most recently described in the Survey of Current Business article, “Benchmark Input-Output Accounts of the U.S., 2002” (December 2002). These data were aged from 2002 to 2010 using relevant price changes. The methodology we used to age the data applied the annual price changes from the price proxies to the appropriate cost categories. We repeated this practice for each year. This methodology reflects a slight revision from the methodology used to derive the 2003-based HHA market basket index. For the 2003-based index, we only disaggregated the A&G and “All Other” cost categories using BEA I-O data. For the 2010-based index, we are proposing to also disaggregate the Operations and Maintenance cost categories using the BEA I-O data. Our proposal is based on our examination of the MCR data which indicated that some providers may be including some operations and maintenance costs in the A&G category and/or other cost categories. The Operations and Maintenance cost category (which we previously proxied with the CPI for Fuel and Other Utilities) from the MCR showed a decrease in the cost weight obtained directly from the MCR data from 2003 to 2010, despite rapid increases in utility costs over this time period. The revised method would rely on the 2002 I-O data, aged by the relevant price proxy, to determine the Utilities cost weight. The resulting methodology shows an increase in the Utilities cost weight over the same time period, which we believe to be a more reasonable result. We believe this change in the methodology for estimating utility costs for HHAs better reflects the 2010 cost structures of HHAs.
This process resulted in the identification of 16 separate cost categories, which is four more cost categories than presented in the 2003-based home health market basket. The additional cost categories (Administrative and Support Services, Financial Services, Medical Supplies, and Rubber and Plastics) stem from further disaggregating the Other Products and Other Services cost categories presented in the 2003-based index into more detail. The Administrative and Support Services cost weight would include expenses for a range of day-to-day office administrative services including but not limited to billing, recordkeeping, mail routing, and reception services. The Financial Services cost weight would reflect expenses for services including but not limited to banking services and security and commodity brokering. The Medical Supplies cost weight would reflect expenses for medical and surgical instruments as, well as laboratory analysis equipment. The Rubber and Plastics cost weight would reflect expenses for products such as plastic trash cans, and carpeting. We are proposing these additional cost categories in order to proxy price inflation in a more granular fashion. We provide our proposed price proxies in more detail below.
The differences between the major categories for the proposed 2010-based index and those used for the current 2003-based index are summarized in Table 2. We have allocated the Contract Services weight to the Wages and Salaries Employee Benefits, A&G, and Other Expenses cost categories in the proposed 2010-based index as we did in the 2003-based index.
The complete proposed 2010-based cost categories and weights are listed in Table 3.