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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 424, 484, 488, 489, and 498

[CMS-1358-F]

RIN 0938-AR18

Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2013, Hospice Quality Reporting Requirements, and Survey and Enforcement Requirements for Home Health Agencies

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
SUMMARY: This final rule updates the Home Health Prospective Payment System (HH PPS) rates, including the national standardized 60-day episode rates, the national per-visit rates, the low-utilization payment amount (LUPA), the non-routine medical supplies (NRS) conversion factor, and outlier payments under the Medicare prospective payment system for home health agencies effective January 1, 2013. This rule also establishes requirements for the Home Health and Hospice quality reporting programs. This final rule will also establish requirements for unannounced, standard and extended surveys of home health agencies (HHAs) and sets forth alternative sanctions that could be imposed instead of, or in addition to, termination of the HHA's participation in the Medicare program, which could remain in effect up to a maximum of 6 months, until an HHA achieves compliance with the HHA Conditions of Participation (CoPs) or until the HHA's provider agreement is terminated.
DATES: a. The amendments to 42 CFR 488.2, 488.3, 488.26, and 488.28, and the additions of 42 CFR part 488, subparts I and J, which are effective July 1, 2013 (except that SS 488.745, SS 488.840 and SS 488.845 are effective July 1, 2014).

b. The amendments to 42 CFR 489.53 and 498.3, which are effective July 1, 2013.

FOR FURTHER INFORMATION CONTACT: Hillary Loeffler, (410) 786-0456, for information about the HH PPS. Kristine Chu, (410) 786-8953, for information about the HH payment reform study and report. Robin Dowell, (410) 786-0060, for information about HH and Hospice quality improvement and reporting. Mollie Knight, (410) 786-7948, for information about the HH market basket. Joan Proctor, (410) 786-0949, for information about the HH PPS Grouper and ICD-10 Conversion. Lori Teichman, (410) 786-6684, for information about HHCAHPS. Patricia Sevast, (410) 786-8135 and Peggye Wilkerson, (410) 786-4857, for survey and enforcement requirements for HHAs.
SUPPLEMENTARY INFORMATION: Table of Contents I. Executive Summary A. Purpose B. Summary of the Major Provisions C. Summary of Costs and Benefits II. Background A. Statutory Background B. System for Payment of Home Health Services C. Updates to the HH PPS III. Summary of Proposed Provisions and Analysis of and Responses to Public Comments A. Case-Mix Measurement B. Outlier Policy C. CY 2013 Rate Update D. Home Health Face-to-Face Encounter E. Therapy Coverage and Reassessments F. Payment Reform: Home Health Study and Report G. International Classification of Diseases, 10th Edition (ICD-10) Transition Plan and Grouper Enhancements IV. Quality Reporting for Hospices A. Background and Statutory Authority B. Public Availability of Data Submitted C. Quality Measures for Hospice Quality Reporting Program and Data Submission Requirements for Payment Year FY 2014. D. Quality Measures for Hospice Quality Reporting Program for Payment Year FY 2015 and Beyond E. Additional Measures Under Consideration and Standardization of Data Collection V. Survey and Enforcement Requirements for Home Health Agencies A. Background and Statutory Authority B. Summary of Proposed Provisions and Analysis of and Responses to Public Comments C. Provider Agreements and Supplier Approval D. Solicitation of Comments VI. Collection of Information Requirements VII. Regulatory Impact Analysis VIII. Federalism Analysis Regulations Text Acronyms

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

ACH LOSAcute Care Hospital Length of Stay ADLActivities of Daily Living APUAnnual Payment Update BBABalanced Budget Act of 1997, Pub. L. 105-33 BBRAMedicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Pub. L. 106-113 CADCoronary Artery Disease CAHCritical Access Hospital CBSACore-Based Statistical Area CASPERCertification And Survey Provider Enhanced Reports CHFCongestive Heart Failure CMICase-Mix Index CMSCenters for Medicare and Medicaid Services CoPsConditions of Participation COPDChronic Obstructive Pulmonary Disease CVDCardiovascular Disease CYCalendar Year DMDiabetes Mellitus DRADeficit Reduction Act of 2005, Pub. L. 109-171, enacted February 8, 2006 FDLFixed Dollar Loss FIFiscal Intermediaries FRFederal Register FYFiscal Year HAVENHome Assessment Validation and Entry System HCCHierarchical Condition Categories HCISHealth Care Information System HHHome Health HHABNHome Health Advance Beneficiary Notice HHCAHPSHome Health Care Consumer Assessment of Healthcare Providers and Systems Survey HH PPSHome Health Prospective Payment System HHAsHome Health Agencies HHRGHome Health Resource Group HIPPSHealth Insurance Prospective Payment System IHInpatient Hospitalization IRFInpatient Rehabilitation Facility LTCHLong-Term Care Hospital LUPALow Utilization Payment Amount MEPSMedical Expenditures Panel Survey MMAMedicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, enacted December 8, 2003 MSAMetropolitan Statistical Areas MSSMedical Social Services NRSNon-Routine Supplies OBRAOmnibus Budget Reconciliation Act of 1987, Pub. L. 100-2-3, enacted December 22, 1987 OCESAAOmnibus Consolidated and Emergency Supplemental Appropriations Act, Pub. L. 105-277, enacted October 21, 1998 OESOccupational Employment Statistics OIGOffice of Inspector General OTOccupational Therapy OMBOffice of Management and Budget PAC-PRDPost-Acute Care Payment Reform Demonstration PEPPartial Episode Payment Adjustment PTPhysical Therapy QAPQuality Assurance Plan PRRBProvider Reimbursement Review Board RAPRequest for Anticipated Payment RFRenal Failure RFARegulatory Flexibility Act, Pub. L. 96-354 RHHIsRegional Home Health Intermediaries RIARegulatory Impact Analysis SLPSpeech Language Pathology Therapy SNFSkilled Nursing Facility UMRAUnfunded Mandates Reform Act of 1995 I. Executive Summary A. Purpose

This rule updates 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 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.

B. Summary of the Major Provisions

In this final 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 rebased and revised market basket described in section III.C.1 of this rule. This rule discusses the nominal case-mix growth adjustment, policy changes regarding therapy reassessments and face-to-face encounter requirements, grouper enhancements, and requirements concerning the home health and hospice quality reporting programs. We also provide an update on the transition plan for ICD-10 and the home health study concerning home health care access. Lastly, this rule establishes alternative sanctions, in lieu of termination, for HHAs found not to be in compliance with Medicare Conditions of Participation.

C. Summary of Costs and Benefits TABLE 1—Cost and Benefits Provision description Total costs Total benefits Transfers CY 2013 HH PPS payment rate update N/A The benefits of this final rule include paying more accurately for the delivery of Medicare home health services, providing additional regulatory flexibility for HHAs to comply with therapy requirements and face-to-face encounter documentation requirements The overall economic impact of this final rule is an estimated $10 million in decreased payments to HHAs. HHA Survey Requirements and Alternative (or Intermediate) Sanctions That May be Imposed when HHAs are Out of Compliance with federal Requirements The components of the rule, which address survey requirements, codify current Survey and Certification policies and do not represent new costs. We estimate that the costs associated with Informal Dispute Resolution (IDR) will not be significantly greater than current actions related to termination actions. We estimate a onetime $2 million expense for system modifications to monitor Civil Money Penalties and annual operating expenses of $410,972 to maintain the system and provide surveyor training The benefits of this rule include establishing alternative (or intermediate) sanctions that may be imposed when HHAs are out of compliance with federal requirements, increasing provider participation related to survey findings via the IDR, and incentives for HHAs to maintain or regain compliance with the HHA Conditions of Participation through measures other than termination N/A. II. 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 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 areacompared 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)(2) 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, 2000Federal 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, 2006Federal Register(71 FR 65884, 65935), we published a final rule to implement the pay-for-reporting requirement of the DRA, which was codified at § 484.225(h) and (i) in accordance with the statute. The pay-for-reporting requirement was implemented on January 1, 2007.

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.

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 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.

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 theFederal 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. Case-mix represents the variations in conditions of the patient population served by the HHAs. Subsequently, a more detailed analysis was performed on the 2005 case-mix data to evaluate if any portion of the 12.78 percent 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 8.03 percent of the total case-mix change as real, and therefore, 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. 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 and deferred finalizing a payment reduction for CY 2012 until further study of the case-mix change data and methodology was completed.

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. Inaddition, 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.

Following up on our commitment to further study case-mix change over time and the methodology used to determine real versus nominal case-mix change, we procured an independent review of our methodology by a team at Harvard University, lead by Dr. David Grabowski. That review led to a slight enhancement of the case-mix model, but otherwise confirmed the model's accuracy (please see the report located athttp://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Downloads/HHPPS_HHAcasemixgrowthFinalReport.pdf).

III. Summary of Proposed Provisions and Analysis of and Responses to Public Comments A. Case-Mix Measurement

As described in the CY 2013 HH PPS proposed rule issued in the July 13, 2012Federal Register(77 FR 41548) and in section II.B of this rule, we have implemented payment reductions to the national standardized 60-day episode payment rates over the past 5 years to account for nominal case-mix growth, that is, case-mix growth unrelated to changes in patient acuity.

When including the latest data available, data from 2000 to 2010, we determined that there was a 20.08 percent nominal case-mix change during that time period. 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 estimated 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 solicited comments on that proposal. However for CY 2013, we proposed 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. We note that 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 real and nominal case-mix change and make updates as appropriate. We will consider any and all analyses as it continues to address the issue of the increase in nominal case-mix in future rulemaking.

The following is a summary of the comments we received regarding the case-mix measurement proposal.

Comment:One commenter stated that the payment reductions for nominal case-mix growth are based on the unsubstantiated assertion that HHAs have intentionally “gamed the system” by coding their patients at a higher clinical severity level in order to receive higher payments.

Response:As we have stated in previous regulations, 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 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 are unrelated to changes in patient severity.

Comment:Several commenters stated that CMS should not implement across-the-board reductions in payments, but rather apply the reductions only to HHAs that are abusing the system, or upcoding. Commenters stated that the payment reductions penalize agencies where case-mix increases have been less than average. A commenter stated that those agencies with a low average case-mix should be protected from further cuts since the cuts are based on a high case-mix weight. Other commenters stated that across the board cuts do not directly address problems with upcoding. One commenter stated that instead of implementing an across the board cut, CMS should redirect its focus to approaches that target specific practices that have caused the case-mix increase and that these methods should be implemented in conjunction with rebasing.

Response:For a variety of reasons, as we have noted in previous regulations, we have not proposed targeted reductions for nominal case-mix change. Many agencies have small patient populations, which would make it practically impossible to reliably measure nominal case-mix change at the agency level. Further, we believe changes and improvements in coding practices have been widespread, making it difficult to clearly categorize agencies into high and low coding-change groups. As discussed in the CY 2012 final rule, when performing an independent review of our case-mix measurement methodology, Dr. David 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 increases across different classes of agencies (please see the report located athttp://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Downloads/HHPPS_HHAcasemixgrowthFinalReport.pdf).

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 we can use case-mix levels to precisely identify those agencies with inappropriate coding practices. We do not agree that agency-specific case-mix levels can precisely differentiate agencies with inappropriate coding practices from other agencies that are coding appropriately. System wide, case-mix levels have risen over time while data on patient characteristics 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. We continue to explore potential changes to the HH PPS which could deter future nominal case-mix growth, such as the recalibration implemented in the CY 2012 final rule, and possible changes in conjunction with rebasing. However, we believe we still need to implement payment reductions to account for nominal case-mix change from the inception of the HH PPS through 2009.

Comment:A commenter stated that across the board cuts appear to be based on high profit margins of agencies that are not committed to serving all patients.

Response:We note that the payment reductions are based on our assessment of real and nominal case-mix growth. High profit margins do not play a rolein our calculations of the payment reductions.

Comment:Commenters recommended that CMS target specific HHAs by reducing case-mix adjustments for HHAs with Medicare margins that are significantly above average for similarly situated HHAs. A commenter cited MedPAC's report of the variation in margins for home health providers and stated that the vast disparity in Medicare margins among HHAs makes across the board payment cuts not only unwarranted and unfair, but also potentially devastating for those whose costs exceed Medicare reimbursement.

Response:Case-mix adjustments are based on changes in real and nominal case-mix over time. Our analyses of coding change among many classifications of agencies, as described in the CY 2012 proposed and final rules, found relatively little difference across provider types in the amount of coding change. An examination of coding change by profitability may have similar results, as profitability may reflect efficiency rather than upcoding. We further note that a classification by profitability would be complicated by the fact that profitability can vary from year to year.

Comment:A commenter stated that applying the 1.32 percent payment reduction would be premature and that CMS should wait to apply the reduction until there are more data to review for 2011 and in particular 2012, where there has been a significant shift in the case-mix away from therapy episodes. The commenter stated that the 2012 recalibration will likely change agency behavior and, in turn, have an effect on the average case-mix weight. The commenter urged CMS to wait to make further payment reductions until it can analyze complete data sets from 2011 and 2012.

Response:As we have stated in previous rulemaking since the start of the HH PPS, we continue to use data samples that represent a 2-year lag in service dates relative to the year in which we conduct the analysis. We note that while we analyzed 2010 data, which showed that we would need to implement a 2.18 percent reduction to account for nominal case-mix growth through 2010, we only proposed to implement a 1.32 percent reduction which would account for nominal case-mix growth from 2000 to 2009. We agree with the commenter that the recalibration in CY 2012 may have an effect on the average case-mix weight and we note that this has been taken into account when considering the 1.32 percent reduction versus than the 2.18 percent reduction. We would like to point out that the 1.32 percent payment reduction was finalized in the CY 2012 rule and we believe that with the steady increases in nominal case-mix growth over the years, there is a need to implement a payment reduction to account for this growth. We plan to continue to analyze data as it becomes available and propose payment adjustments accordingly.

Comment:A commenter stated that CMS should use the most current metrics in analyzing case-mix growth and that they were willing to help with this effort.

Response:Currently, we use claims data matched to OASIS assessments and Part A information, as well as HCC data, in the analysis of real and nominal case-mix growth. The commenter did not specify what they consider to be the most current metrics. However, we will continue to solicit concrete suggestions for other metrics that can be incorporated in our analysis.

Comment:A commenter stated that CMS proposed a 1.32 percent decrease in payments to account for nominal case-mix growth from 2000 to 2010.

Response:We would like to clarify that the 1.32 percent decrease in payments was finalized in the CY 2012 final rule in order to account for nominal case-mix growth from 2000 to 2009. Our updated analysis shows that in order to account for nominal case-mix growth from 2000 to 2010, we would need to implement a 2.18 percent reduction to payments for CY 2013. Therefore, for this rule, we are finalizing the 1.32 percent case-mix adjustment.

Comment:A commenter stated that the proposed national standardized 60-day episode payment rate has only increased by a total of 1 percent in 12 years.

Response:While the national standardized 60-day episode payment rate has not increased substantially in recent years, overall Medicare HH expenditures increased from $10.1 billion in 2003 to $18.6 billion in 2011, an increase of 84 percent, and the number of HH users increased 30 percent during the same time period. However, payment for an episode does not solely rely on the national standardized 60-day episode base payment rate. One must take into account the average case-mix weight when looking at HH PPS payments. The average case-mix weight has continually increased over the years while our analysis shows relatively lower real case-mix growth. The average case-mix weight in 2000 was 1.0959 while the average case-mix weight in 2009 was 1.3435, a total case-mix change from 2000 to 2009 of 22.59 percent ((1.3435−1.0959)/1.0959). When taking into account the 15.76 percent of total case-mix change estimated as real from 2000 to 2009, the nominal case-mix change measure is 19.03 percent (0.2259 * (1−0.1576) = 0.1903) from 2000 to 2009. Therefore, we believe a payment reduction is necessary to align payments with the real case-mix growth we have observed.

Comment:A commenter stated that a further payment reduction is unwarranted especially with rebasing next year.

Response:We are finalizing a 1.32 percent payment reduction to the CY 2013 national standardized 60-day episode base payment rate intended to account for increases in billed case-mix weights, resulting in overpayments, that have occurred between 2000 and 2009, above and beyond the real change in case-mix. Since our analysis indicates that margins will remain adequate, and our analysis for purposes of rebasing is still in process, we see no reason to defer the nominal case-mix adjustment in this rule.

Comment:A commenter recommended that CMS find alternative ways to account for nominal case-mix growth that do not impose payment reductions to the HH PPS.

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. We continue to explore ways to prevent future nominal case-mix growth and we welcome any suggestions.

Comment:Some commenters stated that CMS should increase its program integrity efforts to combat fraud, waste, and abuse. Other commenters stated that CMS should eliminate the proposed payment reduction and instead “conduct targeted claims review and deny payment for claims where the case-mix weight is not supported by the plan of care.” In addition, some commenters recommended that CMS use existing medical review to identify and target specific agencies with abusive coding practices rather than imposing an across the board payment reduction, and one commenter stated that review by Medicare Administrative Contractors and edits can be used to determine if agencies are upcoding; the commenter believes that such a method would encourage accurate coding.

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 helpsupport investigative efforts of the federal government. The Office of the Inspector General, HHS Web site athttp://oig.hhs.gov/fraud/report-fraud/index.asp,provides information about how to report fraud. Another Web site,http://www.stopmedicarefraud.gov/index.html,is oriented to Medicare patients and their families and provides information about recognizing fraud.

In addition, while we appreciate the commenters' suggestion about the claims review, we note that 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, we cannot perform the review as suggested.

Furthermore, we note that our statistical methods using available administrative data are feasible and sufficiently reliable to utilize for the purpose of case-mix reductions.

Comment:A commenter requested that CMS adopt the approach outlined in the Home Health Care Access Protection Act of 2012 (H.R. 6059, 112th Cong.), which is sponsored by Rep. James McGovern and Rep. Walter Jones, and involves working with the home health industry to develop criteria and evaluating a medical records sample to determine reductions, rather than relying on hypothetical extrapolations.

Response:We already have commissioned a review of the case-mix change methodology, as we described in the CY 2012 proposed and final rule. A research team of highly qualified personnel evaluated our case-mix change methodology and found that, overall, our models to assess real and nominal case-mix growth are robust. We have not commissioned work analyzing case-mix change based on information from a medical records sample. We note that a medical records sample could be used to determine payment reductions; however, there are many difficulties and limitations to this analysis. First, to produce reliable results, we would need to collect a large sample, which would require significant financial resources that may not be available. We would need a sizable sample of records from both the IPS period and from a follow-up year (for example, 2009). In addition, based on our past experience in retrieving old records, it is difficult to find enough records to constitute a valid broad-based sample. Further, it is possible that using information from a medical records sample might not return the findings that the proponents suggest, because nominal case-mix increases partly result from reporting practices that have changed throughout time from a state of underreporting to a state of more complete reporting. Therefore, one would expect that the source records would likely reflect underreporting in the early years, just as the OASIS reflected underreporting in the early years.

Comment:A commenter stated that the CMS case-mix change methodology does not recognize the industry's increasing ability to care for more serious medical conditions in the home (caused by technology improvements, etc.) and ignores changes in patient severity. We received a number of comments stating that home health patients are now more complex with more co-morbidities and chronic conditions than in previous years and that patients that would have previously been referred to health care facilities, such as skilled nursing facilities, 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 home health patients with high severity levels. A commenter stated that Transitional Care Units (TCUs) and Skilled Nursing Facilities (SNFs) are refusing to accept complex patients from the hospital and implied that those patients were being diverted to home health care.

Response:To assess whether patients are more complex with more co-morbidities and chronic conditions than previous years, we examined the change in HCC variables over time, examining the average values for 2005 and 2010, the most recent complete data available. We note that our analysis did not find evidence that home health patients have gotten sicker over time as measured by the number of HCC indicators present. The mean number of HCC conditions present was the same in 2005 as in 2010. In addition, our analyses showed that while the prevalence of some HCCs has increased since 2005, the prevalence of others has decreased. Based on the relationship of individual HCC variables to case-mix level, the changes in the HCC indicators that have occurred since 2005 actually lead to a prediction of slightly lower expected case-mix. Furthermore, 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, such as from the community. Also, we note that acute care 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 other post-acute care settings.

Comment:Commenters stated that CMS should suspend or eliminate case-mix payment reductions because the data used to determine the reductions do not recognize real increases in severity due to earlier and sicker hospital discharges.

Response:Although we recognize that average lengths of stay in acute care settings are in decline, our analysis shows that agencies are, in fact, caring for proportionately fewer, not more, post-acute patients. Since 2001, the average length of stay (LOS) in acute care preceding home health has declined by about one day, from 7 days to 6 days. Between 2008 and 2009, the average length of stay in acute care leading directly to home health admission declined from 6.07 days to 5.85 days. However, agencies are caring for fewer highly acute patients in their caseloads. The proportion of non-LUPA episodes in which the patient went from acute care directly to home health within 14 days of acute hospital discharge declined substantially between 2001 and 2008, from 32 percent to 23 percent. Also, the median acute hospital LOS for these non-LUPA episodes with a 14-day look back period remained unchanged at 5 days between 2002 and 2008 (see 75 FR 70379). In 2009, the median LOS declined to an estimated four days (see Table 2). The distribution of lengths of stay has been fairly stable, with declines since 2006 limited to the upper half of lengths of stay.

We believe the declining proportion of home health cases with a recent acute discharge is due in part to more patients incurring re-certifications after admission to home health care, and also due to more patients entering care from the community. The shortening lengths of stay at the right tail (high percentiles) of the distribution may reflect changing utilization of long-term-care hospitals during recent years. The conclusion we draw from these data is that while patients on average have shorter hospital stays, agencies are also facing a smaller proportion of home health episodes in which the patient has been acutely ill in the very recent past. Also, the detailed data on the distribution of stay lengths suggest that for the mostpart lengths of stay for such patients remained fairly stable through 2009.

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Furthermore, we think that acuity of patients has been increasingly mitigated by lengthening post-acute stays for the substantial number of home health patients who use residential post-acute care prior to an episode. Our data show that patients who enter residential post-acute care before home health admission have experienced increasing lengths of stay in post-acute care since 2001. Using a 10 percent random beneficiary sample, we computed the total days of stay (including both acute and post-acute care days) for home health episodes with common patterns of pre-admission utilization during the 60 days preceding the beginning of the episode. We included patients whose last stay was an acute care stay, or whose next-to-last stay was an acute care stay with a follow-on residential post-acute care stay, or whose third from last stay was an acute care stay followed by two post-acute care stays. These common patterns accounted for 55 percent of the initial episodes in 2001 and 42 percent in 2008. We found that total days of stay during the 60 days leading up to the episode averaged 12.6 days in 2001, and rose to 12.8 days in 2008. This small change in total days of stay during a period when acute care LOS was declining was due to increasing lengths of stay in residential post-acute care for these patients. For example, within the 30 days before admission, an average LOS in the post-acute care setting for episodes preceded by an acute care stay that was the next-to-last stay, and where the post-acute care stay was the very last stay before the claim from-date, increased from 12.7 to 14.3 days. Our interpretation of these statistics is that patient acuity has been increasingly mitigated by longer post-acute stays for the substantial number of home health patients that use residential post-acute care prior to the start of a home health episode. Patient acuity was also mitigated by growing numbers of home health re-certifications.

Comment:A commenter stated that the model used to assess real case-mix growth ignores the fact that more individuals are becoming eligible for Medicare services and there is an increasing number of Medicare beneficiaries who are over 85 years of age and need additional services.

Response:We note that increasing eligibility does not in itself imply more severity. Rather, our statistical analysis shows that there are more patients with about the same severity of illness level. With regards to the comment about the proportion of older patients, we note that we take into account the proportion of home health patients over the age of 85 in our model to estimate real case-mix growth. The results of the model show that while the proportion of patients over age 85 has increased somewhat, this change is only associated with small changes in real case-mix.

Comment:A commenter stated that relevant data shows that home health care patients have increased functional limitations and more complex clinical conditions than in past years.

Response:As stated in the CY 2012 proposed rule, a detailed analysis of Medicare Expenditure Panel Survey (MEPS) data (which is independent of our real case-mix model) was performed to examine the severity of the Medicare home health population. The trends in health status from 2000 to 2008 were analyzed.

The analysis showed a slight increase in the overall health status of the Medicare home health population, and in particular, the percent of home health Medicare beneficiaries experiencing “extreme” or “quite a bit” of work-limiting pain decreased substantially, from 56.6 percent in 2000 to 45.4 percent in 2008 (p=0.039). While we recognize that there are some limitations to this analysis, we concluded that the results of this analysis provide no evidence of an increase in patient severity from 2000 to 2008.

In addition, we would like to note that during the CY 2012 rulemaking cycle, we incorporated HCC data, which is used by CMS to risk-adjust payments to managed care organizations in the Medicare program, in our model to assess real case-mix growth. Our findings of real and nominal case-mix growth, even when incorporating HCC data, were consistent with past results. Most of the case-mix change was identified as nominal case-mix change.

We will continue to solicit suggestions for other data that can beincorporated into our analysis of real and nominal case-mix growth.

Comment:A commenter stated the models used to determine real case-mix change do not consider increased therapy needs in the home health population.

Response:The models were intended to analyze real changes in case-mix over time and do not distinguish whether these changes are due to increases in therapy use or other factors. We do not believe that it would be appropriate to include utilization-related variables, such as the number of therapy visits, as predictors in the model, as such variables are provider-determined. In addition, the goal of these analyses was not to develop refinements to the payment system but rather to examine changes in measures of patient acuity that are not affected by any changes in provider coding practices. For example, the models do incorporate information about change in the types of patients more likely to use therapy, such as post-acute joint replacement patients. CMS has access to the claims histories and other administrative data for patients in our samples, and we welcome suggestions about how to better use these resources in finding alternative variables more indicative of the need for therapy, particularly if the suggestions involve the use of data and variables that are not HHA-determined.

Comment:Some commenters suggested that CMS recognize changes in patient severity, improved patient assessment, and coding and reimbursement changes in its case-mix methodology and work with NAHC to uncover the reasons for case-mix weight changes and to develop a valid methodology for payment reform. A commenter urged CMS to continue to evaluate and refine the case-mix methodology so that it targets drivers of case-mix change and more effectively captures real case-mix change. Another commenter stated that CMS should consult with stakeholders to agree upon factors that should be considered when calculating real and nominal case-mix growth.

Response:Through the public comment process, we have obtained industry views as to the reasons for coding changes. As we have pointed out in the past, reasons offered, such as improved coding, are not a sufficient basis for raising payment rates, particularly if data does not indicate a significant increase in the severity of home health patients. To the extent case-mix change is due to better methods of assessing patients in the home health setting, this does not justify making reimbursements as though the patients really were different in their case-mix levels of severity. Over the last several years, we have continued to evaluate our data and methods, and in the CY 2012 proposed and final rule, we described that we procured an independent review of our methodology to assess real and nominal case-mix growth performed by a team at Harvard University led by Dr. David Grabowski. The Harvard team was asked to review the appropriateness and strength of evidence from the case-mix change methodology we used. After their examination, they concluded that the methodology was robust and valid. We plan to continue to evaluate the case-mix methodology and potentially refine the methodology as needed. We will continue to solicit suggestions on possible ways to improve our models.

Comment:Commenters stated that providers have had to absorb several rounds of payment reductions due to upcoding, which have contributed to lower growth in home care spending. They stated that the growth rate in Medicare home care spending has dramatically declined to just 1.0 percent from 2010 to 2011.

Response:We note that the purpose of the payment reduction is to adjust payments to better reflect real changes in patient severity. In addition, slower Medicare home care spending growth may be due to a number of factors. We note that we have conducted analyses looking at the number of paid claims, both nationally and by state, for 2009 through 2011. Our analyses show that the volume of paid claims is consistent with previous years. Although paid claims generally go up very slightly every year and they did not in 2010, this could be attributed to many factors, including CMS's fraud and abuse efforts, or simply a more general trend in Medicare claims volume.

Comment:One commenter estimated that over 40 percent of existing HHAs currently operate with negative financial margins on Medicare revenues and that when all patient costs and revenues are considered, overall margins for all freestanding HHAs are estimated to be 3 percent in 2012. Another commenter stated that in the states where they operate, more than half or nearly half of all home health providers are reimbursed less than cost by Medicare. Specifically, the commenter stated that 59 percent of HHAs in Missouri, 45.9 percent of HHAs in Illinois, 59.0 percent of HHAs in Oklahoma, and 67.1 percent of HHAs in Wisconsin are operating with margins less than zero. The commenter urged CMS to eliminate the proposed 1.32 percent reduction so that payments more closely reflect the “economic realities” of HHAs.

Response:Regarding the commenters' concerns about the effects of the proposed reductions on providers' viability and the resultant access risks, we note that in their March 2012 Report to the Congress, MedPAC projected Medicare margins for home health agencies in 2012 to average 13.7 percent. While it is unclear whether the projection of average Medicare margins of 13.7 percent in 2012 factors in potential changes in the therapy level distribution due to the CY 2012 recalibration, and therefore actual margins could be slightly different, we note that our analysis of payments and costs also projects average margins to be adequate. Furthermore, when examining the impact of the 1.32 percent payment reduction, providers need to take into account all of the other policies in the CY 2013 rule, such as changes to the fixed dollar loss (FDL) ratio as well as the wage index and payment update. When examining all of the CY 2013 policies finalized in this final rule, our data indicates that the impact is minimal, with an average effect on payments of −0.01 percent. In addition, when taking into account all of the CY 2013 policies, Illinois, Wisconsin, and Missouri are expected to have a net increase in payments in CY 2013 (see section IV. Regulatory Impact Analysis). Furthermore, based on the results of our analysis on estimated margins by state, there is no indication that the four states mentioned by the commenter will be more adversely affected by the CY 2013 policies compared to other states.

Comment:A commenter stated that while the number of HHAs may continue to grow, the growth is limited to certain geographic areas and that the across the board payment reductions are “taking their toll” on HHAs with below average margins. Another commenter stated “Any efficiency available to control the cost of an episode of care has been implemented, and rate cuts are now having a direct, linear impact of providers.”

Response:We note that our analysis of margins and MedPAC's reported margins for 2010 indicate that payments should be adequate. In addition, we reiterate that the purpose of the payment reduction is to align payment with real, observed changes in patient severity. Moreover, while we considered a 2.18 percent reduction to the national standardized 60-day episode rates based on our analysis using 2010 data, we are finalizing a 1.32 percent payment reduction for this year.

Comment:A commenter stated that the case-mix model used to determinereal case-mix growth does not account for real case-mix changes in patient severity experienced by hospital-based home health agencies and that the proposed payment reduction would adversely impact hospital-based home health agencies. Commenters stated that the data used to calculate the case-mix reduction is skewed to free-standing facilities and that free-standing HHAs are selective while hospital-based HHAs take on all types of patients discharged from the hospital. The commenters did not think the reduction was appropriate for hospital-based home health care. Another commenter stated that hospital-based HHAs average Medicare margin was -6.29 percent in 2010 and that it can be assumed that overall margins of this HHA sector is well below zero percent given lower-than-cost Medicaid and Medicare Advantage payment rates.

Response:In the CY 2012 proposed and final rule, we described the results of the independent review of our models to assess case-mix growth performed by a team at Harvard University led by Dr. David Grabowski. We described that 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. Two of the extensions that we examined focused on free standing and facility-based HHAs. The extensions showed a large and not dissimilar rate of nominal case-mix growth from 2000 to 2008 for the two groups, 17.86 percent nominal case-mix increase for free-standing HHAs and 14.17 percent nominal case-mix increase for facility-based increase. Given the results of our analysis, which showed significant nominal case-mix growth for freestanding versus hospital based HHAs, we believe that the model is not skewed to a particular provider type and that an across the board reduction is appropriate given the widespread nominal case-mix growth. We note that our analysis on Medicare Cost Report data for hospital-based HHAs does indicate that Medicare margins are lower than those of freestanding HHAs.

Comment:Commenters criticized the model's reliance on hospital data, stating that over half of all Medicare home health patients are admitted to care from a setting other than a hospital and many of the patients receive home health care far extended past an initial episode. Commenters implied that the All Patient Refined Diagnosis Related Groups (APR-DRG) variables are less relevant for multiple episode patients.

Response:We disagree that the use of the hospital information in the case-mix change analysis is so limited. Also, with the addition of HCC data, we have enhanced the robustness of the variable set used for the analysis to include physician diagnoses and diagnoses of other clinicians, as well as Medicaid eligibility. Regardless of whether the patient came directly from a non-hospital-setting (for example, home or an institutional post-acute stay), information from a hospital stay preceding home health is typically relevant to the type of patient being seen by the HHA.

Comment:A commenter stated that case-mix reductions do not take into account the cost of new regulatory burdens, such as documentation for face-to-face encounters and HHCAHPS.

Response:We note that the 1.32 percent payment reduction is to account for nominal case-mix increases (increases in case-mix that are not related to real changes in patient acuity). Case-mix reductions are not intended take into account the costs of regulatory burdens. The models used to assess real case-mix growth take into account factors that would affect patient severity.

Comment:A commenter stated that nominal case-mix growth cannot be assumed using CMS's methodology because of the change from ICD-9 to ICD-10.

Response:Our analysis of case-mix used data from 2000 to 2010 to determine the amount of real and nominal case-mix growth and did not take into account a change from ICD-9 to ICD-10. The change is currently not relevant to our analysis of case-mix growth. After we transition from ICD-9 to ICD-10, we may examine the effects of the change on case-mix growth as data become available and propose payment adjustments accordingly.

Comment:One commenter said that the payment reductions to account for nominal case-mix growth are arbitrary and appear to reduce payments without data to show that they are necessary.

Response:We disagree. The prediction model for real case-mix is an empirical model, the findings of which are based entirely on empirical evidence. The real case-mix prediction model and its application account for changes in the HH patient population by quantifying the relationships between patient demographics, clinical characteristics, and case-mix. The relationships in conjunction with updated measures of patient characteristics are used to quantify real case-mix change. The characteristics in the model include proxy measures for severity, including a variety of measures, namely, demographic variables, hospital expenditures, expenditures on other Part A services, Part A utilization measures, living situation, type of hospital stay, severity of illness during the stay, and risk of mortality during the stay. Last year, additional diagnosis data, based on physician and hospital diagnoses in the patient's claims history, were added in the form of HCC indicators. Measurable changes in patient severity and patient need, factors mentioned by commenters, are an appropriate basis for changes in payment. Our model of real case-mix change has attempted to capture such increases.

We recognize that models are potentially limited in their ability to pick up more subtle changes in a patient population such as those alluded to by various commenters. Yet in previous regulations we presented additional types of data suggestive of only minor changes in the population admitted to home health, and very large changes in case-mix over a short period. We included among these pieces of evidence information about the declining proportion of home health episodes associated with a recent acute stay for hip fracture, congestive heart failure, stroke, and hip replacement, which are four situations often associated with high severity and high resource intensity (72 FR 49762, 49833 (August 2007)). We presented information showing that resource use did not increase along with case-mix increases (72 FR 49833). We also analyzed changes in OASIS item guidance that clarified definitions and could have led to progress in coding practice (72 FR 25356, 25359 (May 2007)). We found some small and scattered changes indicative of worsening severity but these changes did not commensurate with the increase in case-mix weights (72 FR 25359). In our discussion, we cited specific instances where agencies' changing understanding of coding could have contributed to the adverse changes. However, as previously stated, Medicare payments should be based on patient level of severity, and not on coding practices.

In the CY 2011 HH PPS proposed rule, we identified a very large, sudden 1-year change (+0.0533) in the average case-mix weight between 2007 and 2008. This increase is partly attributable to the reporting of secondary diagnosis codes (see 75 FR 43242 (July 23, 2010)). The use of secondary diagnosis codes in the case-mix algorithm was introducedin 2008 as part of the new case-mix system.

In summary, we believe the payment reductions to account for nominal case-mix growth are not arbitrary and data used in our model as well as other data indicat