# Medicare Program; Prospective Payment System for Home Health Agencies > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A00-16432 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** July 3, 2000 - **Citation:** 65 FR 41128 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Health Care Financing Administration 42 CFR Parts 409, 410, 411, 413, 424, and 484 [HCFA-1059-F] RIN 0938-AJ24 Medicare Program; Prospective Payment System for Home Health Agencies AGENCY: Health Care Financing Administration (HCFA), HHS. ACTION: Final rule. SUMMARY: This final rule establishes requirements for the new prospective payment system for home health agencies as required by section 4603 of the Balanced Budget Act of 1997, as amended by section 5101 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 and by sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999. The requirements include the implementation of a prospective payment system for home health agencies, consolidated billing requirements, and a number of other related changes. The prospective payment system described in this rule replaces the retrospective reasonable-cost-based system currently used by Medicare for the payment of home health services under Part A and Part B. EFFECTIVE DATE: These regulations are effective October 1, 2000. FOR FURTHER INFORMATION CONTACT: Bob Wardwell (Project Manager), (410) 786-3254 Susan Levy (Payment Policy), (410) 786-9364 Debbie Chaney (Data), (410) 786-8164 Randy Throndset (Data), (410) 786-0131 SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register . This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. The Website address is: http://www.access.gpo.gov/nara/index.html. To assist readers in referencing sections contained in this document, we are providing the following table of contents. Table of Contents Preamble I. Background A. Current System for Payment of Home Health Agencies B. Requirements of the Balanced Budget Act of 1997, the Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 and the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999, for the Development of a Prospective Payment System for Home Health Agencies C. Summary of the Proposed Rule 1. Transition to PPS 2. Unit of Payment (60-Day Episode) 3. Split Percentage Payment Approach to the 60-Day Episode Payment (Periodic Interim Payments Statutorily Eliminated With PPS) 4. Partial Episode Payment Adjustment (PEP Adjustment) 5. Significant Change In Condition Adjustment (SCIC Adjustment) 6. Low-Utilization Payment Adjustment (LUPA) 7. Case-Mix Methodology 8. Outlier Payments 9. Consolidated Billing/Bundling II. Provisions of Proposed Rule III. Analysis and Responses to Public Comments A. 60-Date Episode Payment Definition B. Definition of Non-Routine Medical Supplies Included in the Episode Definition C. Possible Inclusion of Medicare Part B Therapy Services in the Episode D. Continuous Episode Recertifications E. Transition/Blend F. Split Percentage Payment G. Statutory Elimination of Periodic Interim Payments H. Low Utilization Payment Adjustment (LUPA) I. Partial Episode Payment Adjustment (PEP Adjustment) J. Significant Change in Condition Payment Adjustment (SCIC Adjustment) K. Case-Mix L. Episode Rate Methodology M. Audited Cost Report Sample N. Cost Outlier Payments O. Budget Neutrality P. Discharge Issues Q. Consolidated Billing R. Physician Certification of the HHRG S. Small Rural Providers T. Wage Index U. Market Basket V. Alternative Methods of Care W. Discrimination X. Other Federal Requirements Y. OASIS Assessment and Plan of Care Certification Transition Concerns Z. Billing Issues AA. Cost Reporting Under PPS BB. OASIS Data and Grouper Issues CC. Medical Review Under PPS DD. Quality under PPS EE. Medicare Secondary Payor (MSP) Under PPS FF. Appeal Rights Under PPS GG. Suggestions for HCFA IV. Overview of Final Regulation A. Costs and Services Covered by the 60-Day Episode Payment B. Data Sources Used for the Development of the 60-Day Episode Payment 1. Audited Cost Report Data 2. Home Health Agency Market Basket Index 3. Claims Data 4. Hospital Wage Index C. Methodology Used for the Calculation of the 60-Day Episode Payment Amount 1. Cost Data—60-Day Episode Payment 2. Utilization Data—60-Day Episode Payment 3. Updating the Data 4. Standardization Factor 5. Budget-Neutrality Factor D. Methodology Used for Low-Utilization Payments E. Methodology Used for Outlier Payments F. Examples of National Standardized 60-Day Episode Payment Amounts and Low-Utilization Payment Adjustments G. Design and Methodology for Case-Mix Adjustment of 60-Day Episode Payments 1. Revisions to the Case-Mix Classification System 2. Diagnosis Coding Changes in the Revised Case-Mix Model 3. Determining the Case-Mix Indices H. Consolidated Billing 1. Background 2. HHA Consolidated Billing Legislation 3. Types of Services That Are Subject to the Provision 4. Effects of This Provision 5. Effective Date for Consolidated Billing V. Provisions of the Final Rule VI. Collection of Information Requirements VII. Regulatory Impact Analysis A. Background B. Revisions to the Proposed Rule C. Effects of This Final Rule D. Rural Hospital Impact Statement VIII. Regulations Text In addition, because of the many terms to which we refer by abbreviation in this rule, we are listing these abbreviations and their corresponding terms in alphabetical order below: ADL Activities of Daily Living BBA Balanced Budget Act of 1997 BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 COPs Conditions of participation DME Durable medical equipment FIs Fiscal intermediaries FFY Federal fiscal year FMR Focused medical review FY Fiscal year HHA Home health agency HIC Health insurance claim HHRGs Home Health Resource Groups IADL Instrumental Activities of Daily Living IPS Interim payment system LUPA Low-utilization payment adjustment MS Medical social services MSA Metropolitan Statistical Area NCSB Neurological, cognitive, sensory, and behavioral variables OASIS Outcome and Assessment Information Set OBQI Outcome based quality improvement OCESAA Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 OSCAR On-line Survey and Certification System OT Occupational therapy PEP Partial episode payment PPS Prospective payment system PT Physical therapy RHHI Regional Home Health Intermediary RUGs Resource Utilization Groups SCIC Significant Change in Condition SN Skilled nursing service SP Speech-language pathology I. Background A. Current System for Payment of Home Health Agencies The Balanced Budget Act of 1997 (BBA), Public Law 105 33, enacted on August 5, 1997, significantly changed the way we pay for Medicare home health services. Until the implementation of a home health prospective payment system (PPS), home health agencies (HHAs) receive payment under a cost-based reimbursement system, referred to as the interim payment system and generally established by section 4602 of the BBA. The interim payment system imposes two sets of cost limits for HHAs. Section 4206(a) of the BBA reduced the home health per-visit cost limits from 112 percent of the mean labor-related and nonlabor-related, per-visit costs for freestanding agencies to 105 percent of the median. In addition, HHA costs are subjected to an aggregate per-beneficiary cost limitation. For those providers with a 12-month cost reporting period ending in Federal fiscal year (FFY) 1994, the per-beneficiary cost limitation is based on a blend of costs (75 percent on 98 percent of the agency-specific costs and 25 percent on 98 percent of the standardized regional average of the costs for the agency's census region). For new providers and those providers without a 12-month cost-reporting period ending in FFY 1994, the per-beneficiary limitation is the national median of the per-beneficiary limits for HHAs. Under the interim payment system, HHAs are paid the lesser of (1) actual reasonable costs; (2) the per-visit limits; or (3) the per-beneficiary limits. Effective October 1, 1997, the interim payment system exists until prospective payment for HHAs is implemented. On October 21, 1998, the Omnibus Consolidated and Emergency Supplemental Appropriations Act for FY 1999 (OCESAA), Public Law 105-277, was signed into law. Section 5101 of OCESAA amended section 1861(v)(1)(L) of the Social Security Act (the Act) by providing for adjustments to the per-beneficiary and per-visit limitations for cost-reporting periods beginning on or after October 1, 1998. We had published a notice with comment period establishing the cost limitations for cost reporting periods beginning on or after October 1, 1998 in the Federal Register that was entitled “Medicare Program; Schedules of Per-Visit and Per-Beneficiary Limitations on Home Health Agency Costs for Cost Reporting Periods Beginning On or After October 1, 1998” on August 11, 1998 (63 FR 42912). OCESAA made the following adjustments to these limitations: Providers with a 12-month cost reporting period ending during FY 1994, whose per-beneficiary limitations were less than the national median, which is to be set at 100 percent for comparison purposes, will get their current per-beneficiary limitation plus 1/3 of the difference between their rate and the adjusted national median per-beneficiary limitation. New providers and providers without a 12-month cost-reporting period ending in FFY 1994 whose first cost-reporting period begins before October 1, 1998 will receive 100 percent of the national median per-beneficiary limitation. New providers whose first cost-reporting periods begin during FFY 1999 will receive 75 percent of the national median per-beneficiary limitation as published in the August 11, 1998 notice. In the case of a new provider or a provider that did not have a 12-month cost-reporting period beginning during FFY 1994 that filed an application for HHA provider status before October 15, 1998 or that was approved as a branch of its parent agency before that date and becomes a subunit of the parent agency or a separate freestanding agency on or after that date, the per-beneficiary limitation will be set at 100 percent of the median. The per-visit limitation effective for cost-reporting periods beginning on or after October 1, 1998 is set at 106 percent of the median instead of 105 percent of the median, as previously required in the BBA. There was contingency language for the home health PPS provided in the BBA that was also amended by section 5101 of OCESAA. The language provided that if the Secretary, for any reason, does not establish and implement the PPS for home health services by October 1, 2000, the Secretary will provide for a reduction by 15 percent to the per-visit cost limits and per-beneficiary limits, as those limits would otherwise be in effect on September 30, 2000. Section 302 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), Public Law 106-113, enacted on November 29, 1999, however, subsequently removed the contingency language governing the 15 percent reduction to the IPS cost limits for FFY 2001. It also increased the per-beneficiary limit for those providers with limits below the national median. B. Requirements of the Balanced Budget Act of 1997, the Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999, and the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 for the Development of a Prospective Payment System for Home Health Agencies Section 4603(a) of the BBA provides the authority for the development of a PPS for all Medicare-covered home health services paid on a reasonable cost basis that will ultimately be based on units of payment by adding section 1895 to the Act entitled “Prospective Payment For Home Health Services.” Section 5101(c) of OCESAA amends section 1895(a) of the Act by removing the transition into the PPS by cost-reporting periods and requiring all HHAs to be paid under PPS effective upon the implementation date of the system. Section 1895(a) of the Act now states “Notwithstanding section 1861(v), the Secretary shall provide, for portions of cost reporting periods occurring on or after October 1, 2000, for payments for home health services in accordance with a prospective payment system established by the Secretary under this section.” Section 1895(b)(1) of the Act requires the Secretary to establish a PPS for all costs of home health services. Under this system all services covered and paid for on a reasonable cost basis under the Medicare home health benefit as of the date of enactment of the BBA, including medical supplies, will be paid on the basis of a prospective payment amount. The Secretary may provide for a transition of not longer than 4 years during which a portion of the prospective payment may be agency-specific as long as the blend does not exceed budget-neutrality targets. Section 1895(b)(2) of the Act requires the Secretary in defining a prospective payment amount to consider an appropriate unit of service and the number, type, and duration of visits furnished within that unit, potential changes in the mix of services provided within that unit and their cost, and a general system design that provides for continued access to quality services. Section 1895(b)(3)(A)(i) of the Act requires that (1) the computation of a standard prospective payment amount include all costs of home health services covered and paid for on a reasonable-cost basis and be initially based on the most recent audited cost report data available to the Secretary, and (2) the prospective payment amounts be standardized to eliminate the effects of case-mix and wage levels among HHAs. Section 5101(c) of OCESAA modifies the effective date of the budget-neutrality targets for HHA PPS by amending section 1895(b)(3)(A)(ii) of the Act. Section 1895(b)(3)(A)(ii) of the Act, as amended, requires that the standard prospective payment limitation amounts be budget neutral to what would be expended under the current interim payment system with the limits reduced by 15 percent at the inception of the PPS on October 1, 2000. Section 302 of the BBRA, delayed the application of the 15 percent reduction in the budget neutrality target for PPS until one year after PPS implementation. The law further requires the Secretary to report within 6 months of implementation of PPS on the need for the 15 percent reduction. Section 5101(d)(2) of OCESAA also modifies the statutory provisions dealing with the home health market basket percentage increase. For fiscal years 2002 or 2003, sections 1895(b)(3)(B)(i) and (b)(3)(B)(ii) of the Act, as so modified, require that the standard prospective payment amounts be increased by a factor equal to the home health market basket minus 1.1 percentage points. In addition, for any subsequent fiscal years, the statute requires the rates to be increased by the applicable home health market basket index change. Section 306 of the BBRA amended the statute to provide a technical correction clarifying the applicable market basket increase for PPS in each of FYs 2002 and 2003. The technical correction clarifies that the update in home health PPS in FY 2002 and FY 2003 will be the home health market basket minus 1.1 percent. Section 1895(b)(3)(C) of the Act requires the Secretary to reduce the prospective payment amounts if the Secretary accounts for an addition or adjustment to the payment amount made in the case of outlier payments. The reduction must be in a proportion such that the aggregate reduction in the prospective payment amounts for the given period equals the aggregate increase in payments resulting from the application of outlier payments. 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 adjustment factor that explains a significant amount of the variation in cost 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 the furnishing of home health services in a geographic area compared to the national average applicable level. These wage-adjustment factors may be the factors used by the Secretary for purposes of section 1886(d)(3)(E) of the Act. Section 1895(b)(5) of the Act gives the Secretary the option to grant additions or adjustments to the payment amount otherwise made in the case of outliers because of unusual variations in the type or amount of medically necessary care. Total outlier payments in a given fiscal year cannot exceed 5 percent of total payments projected or estimated. Section 1895(b)(6) of the Act provides for the proration of prospective payment amounts between the HHAs involved in the case of a patient electing to transfer or receive services from another HHA within the period covered by the prospective payment amount. Section 1895(d) of the Act limits review of certain aspects of the HHA PPS. Specifically, there is no administrative or judicial review under sections 1869 or 1878 of the Act, or otherwise, of the following: the establishment of the transition period under 1895(b)(1) of the Act, the definition and application of payment units under section 1895(b)(2) of the Act, the computation of initial standard prospective amounts under 1895(b)(3)(A) of the Act (including the reduction described in section 1895(b)(3)(A)(ii) of the Act), the establishment of the adjustment for outliers under 1895(b)(3)(C) of the Act, the establishment of case-mix and area wage adjustments under 1895(b)(4) of the Act, and the establishment of any adjustments for outliers under 1895(b)(5) of the Act. Section 4603(b) of the BBA amends section 1815(e)(2) of the Act by eliminating periodic interim payments for HHAs effective October 1, 2000. Section 4603(c) of the BBA sets forth the following conforming amendments: • Section 1814(b)(1) of the Act is amended to indicate that payments under Part A will also be made under section 1895 of the Act; • Section 1833(a)(2)(A) of the Act is amended to require that home health services, other than a covered osteoporosis drug, are paid under HHA PPS; • Section 1833(a)(2) is amended by adding a new subparagraph (G) regarding payment of Part B services at section 1861(s)(10)(A) of the Act; and • Section 1842(b)(6)(F) is added to the Act and section 1832(a)(1) of the Act is amended to include a reference to section 1842(b)(6)(F), both governing the consolidated billing requirements. Section 4603(d) of the BBA was amended by section 5101(c)(2) of OCESAA by changing the effective date language for the HHA PPS and the other changes made by section 4603 of the BBA. Section 4603(d) now provides that: “Except as otherwise provided, the amendments made by this section shall apply to portions of cost reporting periods occurring on or after October 1, 2000.” This change requires all HHAs to be paid under HHA PPS effective October 1, 2000 regardless of the current cost-reporting period. Section 4603(e) of the BBA sets forth the contingency language for HHA PPS noting that if the Secretary, for any reason, does not establish and implement HHA PPS on October 1, 2000, the per-visit cost limits and per-beneficiary limits under the interim payment system will be reduced by 15 percent. Section 302(a) of the BBRA of 1999 eliminated the interim payment system contingency language by striking this section from the statute. Section 305 of the BBRA refined the consolidated billing requirements under PPS. The new law excludes durable medical equipment (DME) from the home health consolidated billing requirements. C. Summary of the Proposed Rule We published a proposed rule in the Federal Register on October 28, 1999 at (64 FR 58134) that set forth proposed requirements that would establish the new prospective payment system for home health agencies as required by the Balanced Budget Act (BBA) of 1997, as amended by the Omnibus Consolidated and Emergency Supplemental Appropriations Act (OCESAA), of 1999, and the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA). The PPS would replace the retrospective reasonable cost-based system currently used by Medicare for the payment of home health services under Part A and Part B. 1. Transition to PPS The statute provides authority for a transition period of no longer than 4 years to PPS. We proposed a full transition to the PPS. The overwhelming majority of the industry seems eager to move to PPS. However, some individual home health agencies (HHAs) will object to PPS because they currently enjoy a competitive advantage with high cost limits under the interim payment system. Furthermore, the statute now requires that we pay all providers under PPS on October 1, 2000 rather than phasing in by cost reporting period. 2. Unit of Payment (60-Day Episode) We proposed a 60-day episode as the basic unit of payment under the HHA PPS. Evidence from the Phase II per-episode HHA PPS demonstration illustrated that the length of a 60-day episode captured a majority of the patients. Moreover, the 60-day episode would coordinate with the 60-day physician recertification of the plan of care and with the 60-day reassessment of the patient using the Outcomes and Assessment Information Set (OASIS). This would encourage physicians' involvement in the plan of care. 3. Split Percentage Payment Approach to the 60-Day Episode Payment (Periodic Interim Payments Statutorily Eliminated With PPS) Because the PPS system must maintain a cash flow to agencies accustomed to billing on 30-day cycles or receiving periodic interim payments, we proposed a split percentage billing for each 60-day episode. Under this system, an agency would receive a partial episode payment (50 percent) as soon as it notifies us of an admission and a final percentage (50 percent) payment at the close of the 60-day episode. 4. Partial Episode Payment Adjustment (PEP Adjustment) The partial episode payment adjustment (PEP adjustment) provides a simplified approach to the episode definition and accounts for key intervening events in a patient's care defined as: —A beneficiary elected transfer, or —A discharge and return to the same HHA that would warrant a new clock for purposes of payment, OASIS assessment, and physician certification of the new plan of care. When a new 60-day episode begins, the original 60-day episode payment is proportionally adjusted to reflect the length of time the beneficiary remained under the agency's care before the intervening event. The proportional payment is the PEP adjustment. The proposed PEP adjustment is based on the span of days including the start-of-care date/first billable service date through and including the last billable service date under the original plan of care before the intervening event. The PEP adjustment is calculated by using the span of days (first billable service date through and including the last billable service date) under the original plan of care as a proportion of 60. The proportion is multiplied by the original case-mix and wage-adjusted 60-day episode payment. We also proposed to close out the initial episode payment with a PEP adjustment and restart the 60-day episode clock under an existing episode due to a beneficiary elected transfer. We are concerned that these transfer situations could be subject to manipulation. Therefore, we proposed that we will not apply the PEP adjustment if the transfer is between organizations of common ownership. In addition, the discharge and return to the same HHA during the 60-day episode period is only recognized when a beneficiary reached the treatment goals in the original plan of care. The original plan of care must be terminated with no anticipated need for additional home health services for the balance of the 60-day period. The discharge cannot be a result of a significant change in condition. In order for the situation to be defined as a PEP adjustment due to discharge and return to the same HHA during the 60-day episode, the discharge must be a termination of the complete course of treatment in the original plan of care. We would not recognize any PEP adjustment in an attempt to circumvent the payment made under the significant change in condition payment adjustment discussed below. 5. Significant Change in Condition Adjustment (SCIC Adjustment) We proposed that the third intervening event over a course of a 60-day episode of home health care that could trigger a change in payment level to be a significant change in the patient's condition. We proposed the significant change in condition payment adjustment (SCIC adjustment) as the proportional payment adjustment reflecting the time both before and after the patient experienced a significant change in condition during the 60-day episode. The proposed SCIC adjustment occurs when a beneficiary experiences a significant change in condition during a 60-day episode that was not envisioned in the original plan of care. In order to receive a new case-mix assignment for purposes of SCIC payment during the 60-day episode, the HHA must complete an OASIS assessment and obtain the necessary physician change orders reflecting the significant change in treatment approach in the patient's plan of care. The SCIC adjustment is calculated in two parts. The first part of the SCIC adjustment reflects the adjustment to the level of payment before the significant change in the patient's condition during the 60-day episode. The second part of the SCIC adjustment reflects the adjustment to the level of payment after the significant change in the patient's condition occurs during the 60-day episode. The first part of the SCIC adjustment uses the span of days of the first billable service date through the last billable service date before the intervening event of the patient's significant change in condition that warrants a new case-mix assignment for payment. The first part of the SCIC adjustment is determined by taking the span of days before the patient's significant change in condition as a proportion of 60 multiplied by the original episode payment amount. The original episode payment level is proportionally adjusted using the span of time the patient was under the care of the HHA before the significant change in condition that warranted an OASIS assessment, physician change orders indicating the need for a significant change in the course of the treatment plan, and the new case-mix assignment for payment at the end of the 60-day episode. The second part of the SCIC adjustment reflects the time the patient is under the care of the HHA after the patient experienced the significant change in condition during the 60-day episode that warranted the new case-mix assignment for payment purposes. The second part of the SCIC adjustment is a proportional payment adjustment reflecting the time the patient will be under the care of the HHA after the significant change in condition and continuing until the end of the 60-day episode. Once the HHA completes the OASIS, obtains the necessary physician change orders reflecting the need for a new course of treatment in the plan of care, and assigns a new case-mix level for payment, the second part of the SCIC adjustment begins. The second part of the SCIC adjustment is determined by taking the span of days (first billable service date through the last billable service date) after the patient experiences the significant change in condition through the balance of the 60-day episode as a proportion of 60 multiplied by the new episode payment level resulting from the significant change. The initial percentage payment provided at the start of the 60-day episode will be adjusted at the end of the episode to reflect the first and second parts of the SCIC adjustment (or any applicable medical review or low utilization payment adjustment (LUPA) discussed below) determined at the final billing for the 60-day episode. 6. Low-Utilization Payment Adjustment (LUPA) We proposed payments for low-utilization episodes by paying those episodes at a standardized average per-visit amount. Episodes with four or fewer visits would be paid the per-visit amount times the number of visits actually provided during the episode. “Savings” from reduced episode payments would be redistributed to all episodes. 7. Case-Mix Methodology In the proposed rule, we described a home health case-mix system developed under a research contract with Abt Associates, Inc., of Cambridge, Massachusetts. The case-mix system uses selected data elements from the OASIS assessment instrument and an additional data element measuring receipt of therapy services of at least 8 hours (the 8-hour threshold has been defined as 10 visits for purposes of case-mix adjustment of PPS reimbursements). The data elements are organized into three dimensions to capture clinical severity factors, functional severity factors, and services utilization factors influencing case-mix. The process of selecting data elements for each dimension was described in the proposed rule. In the clinical and functional dimensions, each data element is assigned a score value derived from multiple regression analysis of the Abt research data. The score value measures the impact of the data element on total resource use. Scores are also assigned to data elements in the services utilization dimension. To find a patient's case-mix group, the case-mix grouper sums the patient's scores within each of the three dimensions. The resulting sum is used to assign the patient to a severity level on each dimension. There are four clinical severity levels, five functional severity levels, and four services utilization severity levels. Thus there are 80 possible combinations of severity levels across the three dimensions. Each combination defines one of the 80 groups in the case-mix system. For example, a patient with high clinical severity, moderate functional severity, and low services utilization severity is placed in the same group with all other patients whose summed scores place them in the same set of severity levels for the three dimensions. 8. Outlier Payments Outlier payments are payments made in addition to the 60-day episode payments for episodes that incur unusually large costs. Outlier payments would be made for episodes whose estimated cost exceeds a threshold amount for each case-mix group. The outlier threshold for each case-mix group, PEP adjustment or total SCIC adjustment would be the episode payment amount, PEP adjustment, or total SCIC adjustment for that group plus a fixed dollar loss amount that is the same for all case-mix groups. The outlier payment would be a proportion of the amount of estimated costs beyond the threshold. Costs would be estimated for each episode by applying standard per-visit amounts to the number of visits by discipline reported on claims. The fixed dollar loss amount and the loss-sharing proportion are chosen so that total outlier payments are estimated to be no more than 5 percent of estimated total payments. There is no need for a long-stay outlier payment because we would not be limiting the number of continuous episode payments in a fiscal year that may be made for Medicare covered home health care to eligible beneficiaries. 9. Consolidated Billing/Bundling Under the consolidated billing requirement, we would require that the HHA submit all Medicare claims for the home health services included in 1861(m) of the Social Security Act while the beneficiary is under the home health plan of care established by a physician and is eligible for the home health benefit. The proposed rule included an approach that was superseded by changes to the law made by the BBRA. II. Provisions of Proposed Rule In the proposed rule that was published on October 28, 1999 (64 FR 54134), we proposed a number of revisions to the regulations in order to implement the prospective payment system, the HHA consolidated billing provision, and conforming statutory changes. We proposed to make conforming changes in 42 CFR parts 409, 424, and 484 to synchronize all timeframes for the plan of care certification, OASIS Recertification (follow-up) assessment, and episode payments to reflect a 60-day period. In addition, we proposed to add a new subpart in part 484 to set forth our new payment system for HHAs. These revisions and others are discussed in detail below. First, we proposed to revise part 409, subpart E, and discussed the requirements that must be met for Medicare to make payment for home health services. We proposed to make a conforming change in § 409.43 regarding the plan of care requirements. Specifically, we proposed to revise the frequency for review in paragraph (e) of this section by replacing the phrase “62 days” with “60 days unless there is— • An intervening beneficiary elected transfer; • A significant change in condition resulting in a new case-mix assignment; or • A discharge and return to the same HHA during the 60-day episode that warrants a new 60-day episode payment and a new physician certification of the new plan of care. In addition, we proposed to revise subpart H of this part regarding payments of hospital insurance benefits. We proposed to revise paragraph (a) in § 409.100, which discusses payment for services, to specify the conditions under which Medicare may pay hospital insurance benefits for home health services. We proposed to provide introductory text to paragraph (a) and to redesignate the current paragraph (a) as paragraph (a)(1). Proposed paragraph (a)(2) of this section would require that Medicare may pay hospital insurance benefits for the home health services specified at section 1861(m) of the Act, when furnished to an individual who at the time the item or service is furnished is under a plan of care of an HHA, to the HHA (without regard to whether the item or service is furnished by the HHA directly, under arrangement with the HHA, or under any other contracting or consulting arrangement). We proposed to make similar changes in part 410, subpart I, which deals with payment of benefits under Part B. We proposed to add a new paragraph (b)(19) to § 410.150 to specify the conditions under which Medicare Part B pays for home health services. Specifically, proposed paragraph (b)(19) specified that Medicare Part B pay a participating HHA, for home health services furnished to an individual who at the time the item or service is furnished is under a plan of care of an HHA (without regard to whether the item or service is furnished by the HHA directly, under arrangement with the HHA, or under any other contracting or consulting arrangement). We also proposed to revise part 411 subpart A, which discusses excluded services. We proposed to add a new paragraph (q) to § 411.15 to specify the conditions under which HHA services are excluded from coverage. Proposed paragraph (q) specified that a home health service as defined in section 1861(m) of the Act furnished to an individual who is under a plan of care of an HHA is excluded from coverage unless that HHA has submitted a claim for payment for such services. We also proposed to simplify the authority citation for part 413. In § 413.1 in the introduction to the section on principles of reasonable cost reimbursement, we proposed to add a new paragraph (h) to include the timeframe under which home health services will be paid prospectively. Paragraph (h) under this section specified that the amount paid for home health services as defined in section 1861(m) of the Act that are furnished beginning on or after October 1, 2000 to an eligible beneficiary under a home health plan of care is determined according to the prospectively determined payment rates for HHAs set forth in part 484, subpart E of this chapter. In addition, we proposed to amend § 413.64 concerning payments to providers. Specifically, we proposed to amend paragraph (h)(1) of this section by removing Part A and Part B HHA services from the periodic interim payment method. We also proposed to revise part 424, which explains the conditions for Medicare payment. We proposed to revise § 424.22 regarding the certification requirements as a condition for payment. We proposed to add a new paragraph (a)(1)(v) that would specify that as a condition for payment of home health services under Medicare Part A or Medicare Part B, a physician must certify that the individual is correctly assigned to one of the HHRGs. We proposed to make a conforming change at paragraph (b)(1) of this section regarding the timing of the recertification. Specifically, we proposed to amend § 424.22(b) by replacing the phrase “at least every 2 months” with “at least every 60 days,” and adding the following sentence: “Recertification is required at least every 60 days preferably unless there is a beneficiary elected transfer, a significant change in condition resulting in a new case-mix assignment, or a discharge and return to the same HHA during the 60-day episode that warrants a new 60-day episode payment and a new physician certification of the new plan of care.” We proposed to add a new statutory authority, section 1895 of the Act, to paragraph(a) of § 484.200, “Basis and scope.” Section 1895(a) provides for the implementation of a prospective payment system for HHAs for portions of cost-reporting periods occurring on or after October 1, 2000. We proposed to revise the regulations in 42 CFR part 484, which set forth the conditions that an HHA must meet in order to participate in Medicare. First, we proposed to revise the part heading from “Conditions Of Participation: Home Health Agencies” to the more generic heading “Home Health Services.” We proposed to make a conforming change in § 484.18(b) by replacing the phrase “62 days” with “60 days” unless there is— • A beneficiary elected transfer; • A significant change in condition resulting in a change in the case-mix assignment; or • A discharge and return to the same HHA during the 60-day episode. Also, we proposed to revise § 484.55(d)(1) by replacing “every second calendar month” with language that reflects the 60-day episode and possible PEP Adjustment or SCIC Adjustment. We proposed to require that the comprehensive assessment be updated and revised as frequently as the patient's condition warrants but not less frequently than every 60 days beginning with the start-of-care date unless there is— • A beneficiary elected transfer; • A significant change in condition resulting in a change in the case-mix assignment; or • A discharge and return to the same HHA during the 60-day episode. In addition, we proposed to add and reserve a new subpart D, then add a new subpart E, “Prospective Payment System for Home Health Agencies.” This proposed subpart sets forth the regulatory framework of the new prospective payment system. It specifically discussed the development of the payment rates, associated adjustments, and related rules. In § 484.202, “Definitions,” we proposed the following definitions for purposes of this new subpart: As used in this subpart— Case-mix index means a scale that measures the relative difference in resource intensity among different groups in the clinical model. Clinical model means a system for classifying Medicare-eligible patients under a home health plan of care into mutually exclusive groups based on clinical, functional, and intensity-of-service criteria. The mutually exclusive groups are defined as Home Health Resource Groups (HHRGs). Discipline means one of the six home health disciplines covered under the Medicare home health benefit (skilled nursing services, home health aide services, physical therapy services, occupational therapy services, speech-language pathology services, and medical social services). Market basket index means an index that reflects changes over time in the prices of an appropriate mix of goods and services included in home health services. In proposed § 484.205 “Basis of payment,” we discussed the Medicare payment to providers of services. Proposed § 484.205(a) described the method by which the provider would receive payment. Specifically, § 484.205(a)(1) provided that an HHA receives a national 60-day episode payment of a predetermined rate for a home health service paid on a reasonable cost basis. We determine this national 60-day episode payment under the methodology set forth in § 484.215. Paragraph (a)(2) specified that an HHA may receive a low-utilization payment adjustment (LUPA) of a predetermined per-visit rate. We proposed to determine the LUPA under the methodology set forth in § 484.230. Paragraph (a)(3) of this section provided that an HHA may receive a partial episode payment (PEP) adjustment due to an intervening event during an existing 60-day episode that initiates the start of a new 60-day episode payment and a new patient plan of care. We proposed to determine the PEP Adjustment under the methodology set forth in § 484.235. Paragraph (a)(4) of this section specified that a HHA may receive a significant change in condition (SCIC) Adjustment due to the intervening event defined as a significant change in the patient's condition during an existing 60-day episode. We proposed to determine the SCIC adjustment under a methodology set forth in 484.237. Proposed paragraph (b) discussed the 60-day episode payment and circumstances surrounding adjustments to the payment method. This paragraph proposed that the national 60-day episode payment represents payment in full for all costs associated with furnishing a home health service paid on a reasonable cost basis as of August 5, 1997 (the date of the enactment of the BBA) unless the national 60-day episode payment is subject to a low-utilization payment adjustment as set forth in § 484.230, a partial episode payment adjustment as set forth in § 484.235, a significant change in condition payment adjustment as set forth in 484.237, or an additional outlier payment as set forth in § 484.240. All payments under this system may be subject to a medical review adjustment. We noted that DME provided as a home health service as defined in section 1861(m) of the Act would continue to be paid the fee schedule amount. In paragraph (c) of this section, we proposed the low-utilization payment adjustment to the 60-day episode payment. We would require that an HHA receive a national 60-day episode payment of a predetermined rate for home health services paid on a reasonable cost basis as of August 5, 1997, unless we determine at the end of the 60-day episode that the HHA furnished minimal services to a patient during the 60-day episode. The low-utilization payment adjustment would be determined under the methodology set forth in § 484.230. In paragraph (d), we discussed the partial episode payment adjustment. We describe that an HHA receives a national payment of a predetermined rate for home health services paid on a reasonable cost basis as of August 5, 1997, unless there is an intervening event that warrants the initiation of a new 60-day episode payment and a new physician certification of the new plan of care. The initial HHA receives a partial episode payment adjustment reflecting the length of time the patient remained under its care. A partial episode payment adjustment would be determined under the methodology set forth in § 484.235. In paragraph (e), we discussed the significant change in condition adjustment. We discussed that the HHA receives a national 60-day episode payment of a pre-determined rate for home health services paid on a reasonable cost basis as of August 5, 1997, unless HCFA determines an intervening event defined as a beneficiary experiencing a significant change in condition during a 60-day episode that was not envisioned in the original plan of care. In order to receive a new case-mix assignment for purposes of payment during the 60-day episode, the HHA must complete an OASIS assessment and obtain the necessary physician change orders reflecting the significant change in the treatment approach in the patient's plan of care. The significant change in condition payment adjustment is a proportional payment adjustment reflecting the time both before and after the patient experienced a significant change in condition during the 60-day episode. In paragraph (f), we discussed how we treat payment for outliers. In this paragraph we would provide that an HHA receives a national 60-day episode payment of a predetermined rate for home health services paid on a reasonable-cost basis as of August 5, 1997, unless the estimated cost of the 60-day episode exceeds a threshold amount. The outlier payment is defined to be a proportion of the estimated costs beyond the threshold. An outlier payment is a payment in addition to the national 60-day episode payment. The total of all outlier payments is limited to 5 percent of total outlays under the HHA PPS. An outlier payment would be determined under the methodology set forth in § 484.240. In proposed § 484.210, we specified the data used for the calculation of the national prospective 60-day episode payment. These data include the following: • Medicare cost data on the most recent audited cost report data available. • Utilization data based on Medicare claims. • An appropriate wage index to adjust for area wage differences. • The most recent projections of increases in costs from the HHA market basket index. • OASIS assessment data and other data that account for the relative resource utilization for different HHA Medicare patient case-mix. Proposed § 484.215, paragraphs (a) through (e) specified the methodology used for the calculation of the national 60-day episode payment. Proposed paragraph (a) specified that in calculating the initial unadjusted national 60-day episode payment applicable for a service furnished by an HHA using data on the most recent available audited cost reports, we determined each HHA's costs by summing its allowable costs for the period. We then determined the national mean cost per visit. Proposed paragraph (b) of this section specified that in calculating the initial unadjusted national 60-day episode payment, we determined the national mean utilization for each of the six disciplines using home health claims data. Proposed paragraph (c) of this section specified that we used the HHA market basket index to adjust the HHA cost data to reflect cost increases occurring between October 1, 1996 through September 30, 2001. For each fiscal year from 2002 or 2003, we would update the cost data by a factor equivalent to the annual market basket index percentage minus 1.1 percentage points. Proposed paragraph (d) regarding standardization of the data for variation in area wage levels and case-mix specified that we would standardize the cost data described in paragraph (a) of this section to remove the effects of geographic variation in wage levels and variation in case-mix. We would then standardize the cost data for geographic variation in wage levels using the hospital wage index. We standardized the cost data for HHA variation in case-mix using the case-mix indices and other data that indicate HHA case-mix. Proposed paragraph (e) of this section described how we calculated the unadjusted national average prospective payment amount for the 60-day episode. Specifically, we calculated this payment amount by— • Computing the mean standardized national cost per visit; • Computing the national mean utilization for each discipline; then • Multiplying the mean standardized national cost per visit by the national mean utilization summed in the aggregate for each discipline. Proposed § 484.220 described how we calculated the national adjusted prospective 60-day episode payment rate for case-mix and area wage levels. This section specified that we adjusted the national prospective 60-day episode payment rate to account for HHA case-mix using a case-mix index to explain the relative resource utilization of different patients. We also adjusted the national prospective 60-day episode payment rate to account for geographic differences in wage levels using an appropriate wage index. In proposed § 484.225, we explained our methods for annually updating the national adjusted prospective payment rates for inflation. We proposed to handle it in the following manner: • We update the unadjusted national 60-day episode payment rate on a fiscal year basis. • For FY 2001, the unadjusted national 60-day episode payment rate is adjusted using the latest available market basket factors. • For fiscal year 2002 or 2003, the unadjusted national 60-day episode payment rate is equal to the rate for the previous period or fiscal year increased by a factor equal to the HHA market basket minus 1.1 percentage point. • For any subsequent fiscal years, the unadjusted national rate is equal to the rate for the previous fiscal year increased by the applicable HHA market basket index amount. In proposed § 484.230, we explained the methodology we use for the calculation of the low-utilization payment adjustment. In this section, we specified that in calculating the low-utilization payment adjustment, an episode with four or fewer visits is paid the national average standardized per-visit amount by discipline for each visit type. We also specified that the national average standardized per-visit amount is determined by using cost data set forth in § 484.210(a) and adjusting by the appropriate wage index. Proposed § 484.235 illustrated the methodology we used to calculate the partial episode payment adjustment. The intervening event of either a beneficiary elected transfer or discharge and return to the same HHA during the 60-day episode warrants a new 60-day episode payment and a new physician certification of a new plan of care. The original 60-day episode payment is adjusted with a partial episode payment that reflects the length of time the beneficiary remained under the care of the original HHA. The partial episode payment is calculated using the actual days served by the original HHA as a proportion of 60 multiplied by the initial 60-day episode payment. Proposed 484.237 illustrated the methodology we used to calculate the significant change in condition payment adjustment. The intervening event, here, a beneficiary experiencing a significant change in condition during a 60-day episode that was not envisioned in the original plan of care, initiates the significant change in condition payment adjustment. The significant change in condition is calculated in two parts. The first part of the SCIC adjustment reflects the adjustment to the level of payment prior to the significant change in the patient's condition during the 60-day episode. The second part of the SCIC adjustment reflects the adjustment to the level of payment after the significant change in the patient's condition occurs during the 60-day episode. The first part of the SCIC adjustment is determined by taking the span of days prior to the patient's significant change in condition as a proportion of 60 multiplied by the original episode amount. The original episode payment level is proportionally adjusted using the span of time the patient was under the care of the HHA prior to the significant change in condition that warranted an OASIS assessment, physician change orders indicating the need for a significant change in the course of the treatment plan, and the new case-mix assignment for payment at the end of the 60-day episode. The second part of the SCIC adjustment is a proportional payment adjustment reflecting the time the patient will be under the care of the HHA after the significant change in condition and continuing until the end of the 60-day episode. The second part of the SCIC adjustment is determined by taking the span of days (first billable visit date through the last billable visit date) after the patient experiences the significant change in condition through the balance of the 60-day episode as a proportion of 60 multiplied by the new episode payment level resulting from the significant change. The initial percentage payment provided at the start of the 60-day episode will be adjusted at the end of the episode to reflect the first and second part of the SCIC adjustment. Proposed § 484.240 described the methodology we used to calculate the outlier payment. The methodology for the calculation of the outlier payment would involve the following: • We make an outlier payment for an episode whose estimated cost exceeds a threshold amount for each case-mix group. • The outlier threshold for each case-mix group is the episode payment amount for that group plus a fixed dollar loss amount that is the same for all case-mix groups. • The outlier payment is a proportion of the amount of estimated cost beyond the threshold. • We estimate the cost for each episode by applying the standard per-visit amount to the number of visits by discipline reported on claims. • The fixed dollar loss amount and the loss-sharing proportion are chosen so that the estimated total outlier payment is no more than 5 percent of total episode payment. Proposed § 484.250 related to data that must be submitted for the development of a reliable case-mix. Specifically, we would require an HHA to submit the OASIS data described at the current § 484.55(b)(1) and (d)(1) (that we proposed to revise in the proposed rule) to administer the payment rate methodologies described in § 484.215 (methodology used for the calculation of the national 60-day episode payment), § 484.230 (methodology used for the calculation of the LUPA) and 484.237 (methodology used for the calculation of the SCIC adjustment). Proposed § 484.260 discussed the limitation for review with regard to our new payment system. In this section, we specified that judicial or administrative review under sections 1869 or 1878 of the Act, or otherwise, is prohibited with regard to the establishment of a payment unit including the national 60-day episode payment rate and the LUPA. This prohibition includes the establishment of the transition period, definition and application of the unit of payments, the computation of initial standard prospective payment amounts, the establishment of the adjustment for outliers, and the establishment of case-mix and area wage adjustment factors. III. Analysis and Responses to Public Comments We received approximately 381 timely comments on the HHA prospective payment system proposed rule HCFA-1059-P published on October 28, 1999 (64 FR 58134). Comments were submitted by HHAs and other health care providers, national industry associations, suppliers and practitioners (both individually and through their respective trade associations), State associations, health care consulting firms, and private citizens. The comments centered on various aspects of the proposed policies governing our approach to the home health prospective payment system. We have considered all comments received during the 60-day public comment period in this final rule and have set forth our responses to the comments and corresponding policy modifications in the following section. As noted in the proposed rule, because of the large number of items of correspondence we normally receive on Federal Register documents published for comment, we are unable to respond to them individually. In particular, a number of commenters on the proposed rule raised extremely technical and detailed questions, many of which were not directly related to the proposed rule, regarding OASIS, the cost report, RHHI systems and the billing process. These questions are of the nature that would more appropriately be addressed through manual instructions and other issuances than in these regulations. In this final rule, we are addressing the policy concerns raised by the commenters that are related to the proposed rule. Summaries of the major issues and our responses to those comments are set forth below. A. 60-Day Episode Payment Definition (§ 484.205) Comment: We received several comments on our proposed definition of a 60-day episode as the unit of payment under HHA PPS. The majority of commenters supported the 60-day episode approach. A few commenters suggested a shorter time period for the unit of payment. Response: We believe the 60-day episode definition is the most appropriate approach to define the unit of payment under HHA PPS. Public support for the 60-day episode as the unit of payment under PPS centered on the general consensus that HHAs and physicians predict home care needs over a 60-day period due to current plan of care requirements and OASIS assessments that basically follow a 60-day period. As discussed in detail in the proposed rule, research indicated that the 60-day episode captures the majority of stays experienced in the Phase II per-episode HHA PPS demonstration. We will continue to monitor the appropriateness of the 60-day unit of payment and may consider modifying our approach to the episode definition in subsequent years of PPS, if warranted. Comment: A few commenters raised concerns with the change to a 60-day episode from the current plan of care certification and OASIS assessments requirements that follow a bimonthly period, that is, at least every 62 days. Some of the concerns centered on confusion and the possible burden associated with the change to a 60-day episode. Response: The statute requires us to establish an appropriate unit of payment. We believe the 60-day episode is the most suitable time frame upon which to base payment and to manage home care needs of patients. To effectively implement a payment system that is built on a foundation of (1) OASIS assessments for case-mix adjustment and (2) plan of care certifications to ensure the appropriate plan of treatment, all schedules for assessment, certification and payment term should be on a parallel track. The current schedules for OASIS assessment and plan of care certification basically mirror a 60-day episode. Thus, for purposes of payment, assessment, and care planning, we do not believe it is an undue burden to adjust to a 60-day episode from a bimonthly period. Comment: A few commenters recommended that we re-examine the language we proposed to govern the 60-day episode. The commenters referred specifically to the following statement in the proposed rule: “An HHA that accepts a Medicare eligible beneficiary for home health care for the 60-day episode period and submits a bill for payment may not refuse to treat an eligible beneficiary who has been discharged from the HHA during the 60-day episode, but later requires Medicare covered home health services during the same 60-day episode period and elects to return to the same HHA * * *” (64 FR 58201) Commenters suggested that HHAs should be allowed to refuse to readmit a Medicare eligible beneficiary in accordance with HHA policies when the safety of HHA staff or the patient are threatened; when the HHA does not have the staff necessary to meet the patient's needs; or when the patient or caregiver refuses to cooperate or comply with the plan of care. Response: We proposed this policy to indicate that we would not accept a refusal to treat the beneficiary when only the HHA's economic interests were the cause of the refusal. It was not our intent to restrict the legitimate rights of an HHA that has a well-documented individualized situation that results in a determination to refuse further care of a patient. This would include threats to the safety of HHA staff or patients or failure of patients to cooperate in the care plan. As long as agencies treat all similarly situated patients equally, document the individualized situation, and comply with all Federal and State laws, they have the right to refuse to treat patients in certain well-documented situations. B. Definition of Non-Routine Medical Supplies Included in the Episode Definition Comment: We received several comments regarding certain non-routine medical supply costs that were not included in the computation of the 60-day national episode rate. Specifically, the commenters suggested that we include non-routine medical supplies both paid on the cost report and non-routine medical supply amounts that could have been unbundled to part B prior to PPS in the 60-day episode rate. Commenters also provided several suggestions for a revised approach to the payment for non-routine medical supplies under HHA PPS. Recommendations included the following: • Providing for a separate payment for non-routine medical supplies used by a patient designated as a new designated home health supply payment amount separate from the prospective payment rate. • Allowing all non-routine medical supplies to be billed under Part B. • Carving out or adjusting the medical supply amount due to the variation in intermediary coverage guidelines. • Adjusting the medical supply amounts to reflect the costs associated with wound patients, chux and diaper supply patients. • Paying medical supplies as used because of the wide variation in use due to patients who sustain out-of-pocket payments. • Carving out wound care and diabetes related medical supplies and re-examining the overall calculation of the non-routine supply costs, both bundled and non-routine supply costs that could have been unbundled, because commenters viewed the amounts inadequate to care for patients requiring supplies which then might lead to access issues. Commenters further noted problems with the 199 HCPCs codes we used to calculate the non-routine medical supply amounts that could have been unbundled to Part B before implementation of PPS. We adjusted the proposed rate to account for the non-routine medical supply behavior prior to PPS. Several commenters suggested that the inclusion of glucose test strips codes were inappropriate codes included in the original 199 code list for non-routine medical supply costs. Other commenters believed we inadvertently omitted certain codes in the original list of 199 codes. Furthermore, several commenters centered on consolidated billing requirements for non-routine medical supplies. We note that all consolidated billing comments and responses are included under the consolidated billing portion of this section of the regulation. Response: The goal of reviewing and calculating the non-routine medical supply costs that could have been unbundled to Part B was to ensure adequate payment for non-routine medical supplies used by a patient under a home health plan of care in the prospective payment rate. As stated in the proposed rule, we developed a list of 199 codes that could have possibly been unbundled to Part B before implementation of PPS, linked those Part B supply claims that included any of the 199 codes to home health claims for beneficiaries under a home health plan of care during calendar year 1997. We have replicated the exact claims analysis on corresponding calendar year 1998 claims data to develop an updated supply amount for this final regulation. This calculation was performed on an adjusted list of codes based upon review of comments and is described below. As stated in the proposed rule, section 1895(b)(1) of the Act, which governs the development of the unit of payment under HHA PPS, requires all services covered and paid on a reasonable cost basis as of the date of enactment of the BBA, including medical supplies, to be paid on the basis of a prospective payment amount under HHA PPS. The statutory language specifically refers to the inclusion of medical supplies in the prospective payment rate. We believe the statute requires the inclusion of costs of non-routine medical supplies in the episode rate. However, as stated in the proposed rule, since DME covered as a home health service as part of the Medicare home health benefit is not currently paid on a reasonable cost basis, DME will continue to be paid under the DME fee schedule as a separate payment amount from the prospective payment rates under HHA PPS. As mentioned above, commenters also supplied us with an additional 79 codes that they believed should be included on our list of non-routine medical supplies that could have been unbundled to Part B. We re-examined our approach to the original 199 codes used to calculate the amounts that could have been unbundled non-routine medical supplies. We found that several of the recommended codes had been discontinued. Further, upon re-examination of our original list, we found that several of the original codes were inappropriately included, for example, glucose test strips. These codes have subsequently been deleted. Our analysis results in a final list of 178 codes as listed below. We have provided the following analysis in order to clarify our revised approach. 59 codes proposed in comments were discontinued codes as of 12/31/96. A4190 Transparent film each A4200 Gauze pad medicated/non-med A4202 Elastic gauze roll A4203 Non-elastic gauze roll A4204 Absorptive drsg A4205 Nonabsorptive drsg K0197 Alginate drsg > 16 <=48 sq in K0198 Alginate drsg > 48 sq in K0199 Alginate drsg wound filler K0203 Composite drsg <= 16 sq in K0204 Composite drsg > 16 <=48 sq in K0205 Composite drsg > 48 sq in K0206 Contact layer <= 16 sq in K0207 Contact layer > 16 <= 48 sq in K0208 Contact layer > 48 sq in K0209 Foam drg <= 16 sq in w/o bdr K0210 Foam drg > 16 <=48 sq in w/o b K0211 Foam drg > 48 sq in w/o brdr K0212 Foam drg <= 16 sq in w/bdr K0213 Foam drg > 16 <=48 sq in w/bdr K0214 Foam drg > 48 sq in w/bdr K0215 Foam dressing wound filler K0219 Gauze <= 16 sq in w/bdr K0220 Gauze > 16 <=48 sq in w/bdr K0221 Gauze > 48 sq in w/bdr K0222 Gauze <= 16 in no w/sal w/o b K0223 Gauze > 16 <=48 no w/sal w/o b K0224 Gauze > 48 in no w/sal w/o b K0228 Gauze <= 16 sq in water/sal K0229 Gauze > 16 <=48 sq in watr/sal K0230 Gauze > 48 sq in water/salne K0234 Hydrocolloid drg <= 16 w/o bdr K0235 Hydrocolloid drg > 16 <=48 w/o b K0236 Hydrocolloid drg > 48 in w/o b K0237 Hydrocolloid drg <= 16 in w/bdr K0238 Hydrocolloid drg > 16 <=48 w/bdr K0239 Hydrocolloid drg > 48 in w/bdr K0240 Hydrocolloid drg filler paste K0241 Hydrocolloid drg filler dry K0242 Hydrogel drg <= 16 in w/o bdr K0243 Hydrogel drg > 16 <=48 w/o bdr K0244 Hydrogel drg > 48 in w/o bdr K0245 Hydrogel drg <= 16 in w/bdr K0246 Hydrogel drg > 16 <=48 in w/b K0247 Hydrogel drg > 48 sq in w/b K0248 Hydrogel drsg gel filler K0249 Hydrogel drsg dry filler K0251 Absorpt drg <= 16 sq in w/o b K0252 Absorpt drg > 16 <=48 w/o bdr K0253 Absorpt drg > 48 sq in w/o b K0254 Absorpt drg <= 16 sq in w/bdr K0255 Absorpt drg > 16 <=48 in w/bdr K0256 Absorpt drg > 48 sq in w/bdr K0257 Transparent film <= 16 sq in K0258 Transparent film > 16 <=48 in K0259 Transplant filmpercent 48 sq in K0261 Wound filler gel/paste/oz K0262 Wound filler dry form/gram K0266 Impreg gauze no h20/sal/yard Seven codes included in original list should be removed because they are considered routine medical supplies and as such would not be separately billable by an HHA. A4214 30 CC sterile water/saline K0216 Non-sterile gauze <= 16 sq in K0217 Non-sterile gauze > 16 <= 48 sq K0218 Non-sterile gauze > 48 sq in K0263 Non-sterile elastic gauze/yd K0264 Non-sterile no elastic gauze K0265 Tape per 18 sq inches Four codes are not valid for Medicare. A4206 1 CC sterile syringe & needle A4207 2 CC sterile syringe & needle A4208 3 CC sterile syringe & needle A4209 5+ CC sterile syringe & needle Three codes are for items that are not covered under Medicare. A4210. Nonneedle injection device K0250 Skin seal protect moisturizer K0260 Wound cleanser any type/size One code is a DME Fee Schedule code and should not be included in accordance with the statute. A4221 Maint drug infus cath per wk One code is not separately paid by Part B. A4211 Supp for self-adm injections Three codes mentioned by commenters had already been included in our original list of 199 codes. A4212 Non coring needle or stylet A4213 20+ CC syringe only A4215 Sterile needle After further re-examination based upon the comments, we added the following code to the list: A4554 Disposable underpads Upon further review of the original 199 codes used in the proposed rule, the following codes were deemed inappropriate to be included in the definition of non-routine medical supplies and were deleted from the list used in this final rule: A4206 1 CC sterile syringe & needle A4207 2 CC sterile syringe & needle A4208 3 CC sterile syringe & needle A4209 5+ CC sterile syringe & needle A4210 Nonneedle injection device A4211 Supp for self-adm injections A4214 30 CC sterile water/saline A4253 Blood glucose/reagent strips A4255 Glucose monitor platforms A4256 Calibrator solution/chips A4258 Lancet device each A4259 Lancets per box A4454 Tape all types all sizes A6216 Non-sterile gauze <= 16 sq in A6217 Non-sterile gauze > 16 <= 48 sq A6218 Non-sterile gauze > 48 sq in A6263 Non-sterile elastic gauze/yd A6264 Non-sterile no elastic gauze A6265 Tape per 18 sq inches K0137 Skin barrier liquid per oz K0138 Skin barrier paste per oz K0139 Skin barrier powder per oz The following is the final list of 178 codes for non- Routine Medical Supplies that have a duplicate Part B code that could have been unbundled and billed under Part B before implementation of PPS. The following codes were used to calculate additional non-routine medical supply costs to the national rate. The revised rate calculation is found in section IV.C. of this preamble. A4212 Non coring needle or stylet A4213 20+ CC syringe only A4215 Sterile needle A4310 Insert tray w/o bag/cath A4311 Catheter w/o bag 2-way latex A4312 Cath w/o bag 2-way silicone A4313 Catheter w/bag 3-way A4314 Cath w/drainage 2-way latex A4315 Cath w/drainage 2-way silcne A4316 Cath w/drainage 3-way A4320 Irrigation tray A4321 Cath therapeutic irrig agent A4322 Irrigation syringe A4323 Saline irrigation solution A4326 Male external catheter A4327 Fem urinary collect dev cup A4328 Fem urinary collect pouch A4329 External catheter start set A4330 Stool collection pouch A4335 Incontinence supply A4338 Indwelling catheter latex A4340 Indwelling catheter special A4344 Cath indw foley 2 way silicn A4346 Cath indw foley 3 way A4347 Male external catheter A4351 Straight tip urine catheter A4352 Coude tip urinary catheter A4353 Intermittent urinary cath A4354 Cath insertion tray w/bag A4355 Bladder irrigation tubing A4356 Ext ureth clmp or compr dvc A4357 Bedside drainage bag A4358 Urinary leg bag A4359 Urinary suspensory w/o leg bag A4361 Ostomy face plate A4362 Solid skin barrier A4363 Liquid skin barrier A4364 Ostomy/cath adhesive A4365 Ostomy adhesive remover wipe A4367 Ostomy belt A4368 Ostomy filter A4397 Irrigation supply sleeve A4398 Ostomy irrigation bag A4399 Ostomy irrig cone/cath w brs A4400 Ostomy irrigation set A4402 Lubricant per ounce A4404 Ostomy ring each A4421 Ostomy supply misc A4454 Tape all types all sizes A4455 Adhesive remover per ounce A4460 Elastic compression bandage A4462 Abdmnl drssng holder/binder A4481 Tracheostoma filter A4622 Tracheostomy or larngectomy A4623 Tracheostomy inner cannula A4625 Trach care kit for new trach A4626 Tracheostomy cleaning brush A4649 Surgical supplies A5051 Pouch clsd w barr attached A5052 Clsd ostomy pouch w/o barr A5053 Clsd ostomy pouch faceplate A5054 Clsd ostomy pouch w/flange A5055 Stoma cap A5061 Pouch drainable w barrier at A5062 Drnble ostomy pouch w/o barr A5063 Drain ostomy pouch w/flange A5071 Urinary pouch w/barrier A5072 Urinary pouch w/o barrier A5073 Urinary pouch on barr w/flng A5081 Continent stoma plug A5082 Continent stoma catheter A5093 Ostomy accessory convex inse A5102 Bedside drain btl w/wo tube A5105 Urinary suspensory A5112 Urinary leg bag A5113 Latex leg strap A5114 Foam/fabric leg strap A5119 Skin barrier wipes box pr 50 A5121 Solid skin barrier 6x6 A5122 Solid skin barrier 8x8 A5123 Skin barrier with flange A5126 Disk/foam pad +or− adhesive A5131 Appliance cleaner A5149 Incontinence/ostomy supply A6020 Collagen wound dressing A6154 Wound pouch each A6196 Alginate dressing <= 16 sq in A6197 Alginate drsg > 16 <= 48 sq in A6198 Alginate dressing > 48 sq in A6199 Alginate drsg wound filler A6200 Compos drsg <= 16 no bdr A6201 Compos drsg > 16 <=48 no bdr A6202 Compos drsg > 48 no bdr A6203 Composite drsg <= 16 sq in A6204 Composite drsg > 16 <=48 sq in A6205 Composite drsg > 48 sq in A6206 Contact layer <= 16 sq in A6207 Contact layer > 16 <= 48 sq in A6208 Contact layer > 48 sq in A6209 Foam drsg <= 16 sq in w/o bdr A6210 Foam drg > 16 <=48 sq in w/o b A6211 Foam drg > 48 sq in w/o brdr A6212 Foam drg <= 16 sq in w/bdr A6213 Foam drg > 16 <=48 sq in w/bdr A6214 Foam drg > 48 sq in w/bdr A6215 Foam dressing wound filler A6219 Gauze <= 16 sq in w/bdr A6220 Gauze > 16 <=48 sq in w/bdr A6221 Gauze > 48 sq in w/bdr A6222 Gauze <= 16 in no w/sal w/o b A6223 Gauze > 16 <= 48 no w/sal w/o b A6224 Gauze > 48 in no w/sal w/o b A6228 Gauze <= 16 sq in water/sal A6229 Gauze > 16 <=48 sq in watr/sal A6230 Gauze > 48 sq in water/salne A6234 Hydrocolld drg <= 16 w/o bdr A6235 Hydrocolld drg > 16 <= 48 w/o b A6236 Hydrocolld drg > 48 in w/o b A6237 Hydrocolld drg <= 16 in w/bdr A6238 Hydrocolld drg > 16 <=48 w/bdr A6239 Hydrocolld drg > 48 in w/bdr A6240 Hydrocolld drg filler paste A6241 Hydrocolloid drg filler dry A6242 Hydrogel drg <= 16 in w/o bdr A6243 Hydrogel drg > 16 <=48 w/o bdr A6244 Hydrogel drg > 48 in w/o bdr A6245 Hydrogel drg <= 16 in w/bdr A6246 Hydrogel drg > 16 <=48 in w/b A6247 Hydrogel drg > 48 sq in w/b A6251 Absorpt drg <= 16 sq in w/o b A6252 Absorpt drg > 16 <=48 w/o bdr A6253 Absorpt drg > 48 sq in w/o b A6254 Absorpt drg <= 16 sq in w/bdr A6255 Absorpt drg > 16 <=48 in w/bdr A6256 Absorpt drg > 48 sq in w/bdr A6257 Transparent film <= 16 sq in A6258 Transparent film > 16 <=48 in A6259 Transparent film > 48 sq in A6261 Wound filler gel/paste/oz A6262 Wound filler dry form/gram A6266 Impreg gauze no h20/sal/yard A6402 Sterile gauze <= 16 sq in A6403 Sterile gauze > 16 <= 48 sq in A6404 Sterile gauze > 48 sq in A6405 Sterile elastic gauze/yd A6406 Sterile non-elastic gauze/yd K0137 Skin barrier liquid per oz K0138 Skin barrier paste per oz K0139 Skin barrier powder per oz K0277 Skin barrier solid 4x4 equiv K0278 Skin barrier with flange K0279 Skin barrier extended wear K0280 Extension drainage tubing K0281 Lubricant catheter insertion K0407 Urinary cath skin attachment K0408 Urinary cath leg strap K0409 Sterile H2O irrigation solut K0410 Male ext cath w/adh coating K0411 Male ext cath w/adh strip K0419 Drainable plstic pch w fcplt K0420 Drainable rubber pch w fcplt K0421 drainable plstic pch w/o fp K0422 Drainable rubber pch w/o fp K0423 Urinary plstic pouch w fcplt K0424 Urinary rubber pouch w fcplt K0425 Urinary plstic pouch w/o fp K0426 Urinary hvy plstc pch w/o fp K0427 Urinary rubber pouch w/o fp K0428 Ostomy faceplt/silicone ring K0429 Skin barrier solid ext wear K0430 Skin barrier w flang ex wear K0431 Closed pouch w st wear bar K0432 Drainable pch w ex wear bar K0433 Drainable pch w st wear bar K0434 Drainable pch ex wear convex K0435 Urinary pouch w ex wear bar K0436 Urinary pouch w st wear bar K0437 Urine pch w ex wear bar conv K0438 Ostomy pouch liq deodorant K0439 Ostomy pouch solid deodorant We believe our revised approach to the calculation that incorporates both non-routine medical supplies provided under a plan of care and those non-routine medical supplies that could have been unbundled to Part B prior to the consolidated billing requirements results in an equitable payment methodology. As stated above, we have re-examined the list of non-routine medical supplies that could have been unbundled to Part B, recalculated the costs, and have adjusted the rates accordingly. We have also included any additional medical supply costs included in the audited cost report data from the sample that became available after the publication of the proposed rule. We have thoroughly re-examined the issue of all non-routine medical supplies included in the rate. The statute does not provide for an exception for the removal of any or all supplies for certain type of patients from the PPS rate. We have used the best data available to calculate the non-routine medical supply component of the rates. We will continue to monitor the issue of non-routine medical supply costs with implementation of PPS. Comment: Several commenters recommended that we re-examine the amount we added to adjust the LUPA per-visit amounts to account for non-routine medical supply costs. Many commenters suggested that the amount was inadequate, especially for wound care patients. Response: As stated above, we have re-examined the issue of the appropriate level of non-routine medical supply costs in terms of wound care supplies and all non-routine medical supplies as they relate to all rates in the proposed rule, including the LUPA amounts. Based on comments, we have decided to increase the LUPA amount by paying the updated, prospective per-visit amount by discipline. We believe this per-visit amount accurately reflects an appropriate per-visit payment level, including medical supplies and other services furnished during LUPA visits. This provision is set forth in regulations at § 484.230. The revised LUPA approach is discussed in section IV.D. of this rule. Comment: Commenters requested clarification of the application of 20 percent co-payment of non-routine medical supplies not related to the plan of care. Response: Medical supplies are specifically listed in section 1861(m) of the Act as a covered home health service. All covered home health services are ordered by a physician for a patient under a plan of care. The 20 percent copayment does not apply to non-routine medical supplies covered as a home health service. There is currently no imposition of copayment on home health services except for DME. There is a 20 percent copayment on DME covered as a home health service. However, as stated above in section I.B. of this rule, BBRA of 1999 removed DME covered as a home health service from the consolidated billing requirements. We note that Part B does not provide coverage of and payment for items termed “non-routine medical supplies.” DME may have a DME supply component, but that supply cost is related to the DME and included in the DME fee schedule payment. Further, the statute governing consolidated billing specifically refers to a patient under a plan of care. Providers cannot circumvent the consolidated billing requirements by attempting to exclude certain non-routine medical supplies from the plan of care by distinguishing between non-routine medical supplies related and unrelated to the plan of care. The comment may reflect concern with Part B services such as parenteral or enteral nutrition that are neither currently covered as home health services nor defined as a non-routine medical supply. Parenteral or enteral nutrition would therefore not be subject to the requirements governing home health consolidated billing because those Part B services are not home health services as defined in section 1861(m)of the Act. The applicable copayment or deductible requirements governing Medicare Part B outside of the Medicare home health benefit defined in section 1861(m) of the Act are not changed by this rule. Comment: A few commenters stated that if a beneficiary has a continuing medical need for medical supplies due to a chronic illness unrelated to the condition the HHA is treating, the patient should be excluded from the PPS rate and consolidated billing. Response: As we indicated in the proposed rule and the response to the previous comment, the law is very specific regarding the inclusion of medical supplies in the prospective rates. The law requires all services covered and paid on a reasonable cost basis as of the date of enactment of the BBA, including medical supplies, to be paid on the basis of a prospective payment amount under HHA PPS. The consolidated billing requirements at section 1842(b)(6)(F) of the Act, as amended by section 305 of BBRA, specifically require “in the case of home health services (including medical supplies described in section 1861(m)(5), but excluding durable medical equipment to the extent provided for in such section) furnished to an individual who (at the time the item or service is furnished) is under a plan of care of a home health agency, payment shall be made to the agency (without regard to whether or not the item or service was furnished by the agency, by others under arrangement with them made by the agency, or when any other contracting or consulting arrangement, or otherwise).” The statutory language governing consolidated billing clearly states that the patient is under the plan of care. If the patient requires medical supplies that are currently covered and paid for under the Medicare home health benefit during a certified episode under HHA PPS, the billing for those medical supplies falls under the auspices of the HHA due to the consolidated billing requirements. As stated in previous comments, there is no statutory latitude for an exception or carve-out of medical supplies from the PPS rate for patients under a plan of care under HHA PPS. We have included the costs of all such supplies in the rates. Comment: A few commenters suggested that we establish clear guidelines so that providers of medical supplies receive adequate notice when items they may be furnishing to a beneficiary become subject to HHA PPS. Response: The law refers to a patient under a home health plan of care. All routine and non-routine medical supplies that are currently covered as a Medicare home health service are subject to the home health PPS requirements. We believe the proposed rule and this final rule as well as current Medicare policies governing coverage of medical supplies under the home health benefit provide the notice of the requirements governing the HHA PPS. We will be directing our carrier to inform suppliers of this change and will be developing efforts to prevent erroneous billings. Further clarification of routine and non-routine medical supplies can be found in section 204.1 of the Medicare home health agency manual. Comment: A few commenters suggested that we review the non-routine medical supply coverage policies of the various RHHIs and establish a consistent national coverage policy. Adjustments to the medical supply component of the rate should be made based on the analysis of the coverage variations in the original data used to establish the PPS rates. Response: We have re-examined our approach to the national coverage policy governing non-routine medical supplies under the Medicare home health benefit. We do not have any indication of the existence of significant inconsistencies in coverage policies across RHHIs. As stated in previous comments, we will continue to monitor the coverage and utilization of non-routine medical supplies in subsequent years of PPS implementation. Comment: Commenters suggested that medical supplies should be paid as used due to the wide variation in supply usage across patients and because some patients have historically paid out-of-pocket for supplies although HHAs were required to furnish them. Response: As indicated above, the law specifically includes costs of medical supplies in determining the PPS rates. We are concerned that commenters even suggested that HHAs have historically permitted or even encouraged eligible Medicare beneficiaries to pay out-of-pocket for Medicare services that patients were not required to pay. We emphasize that agencies are obligated to furnish and Medicare will pay for needed medical supplies covered under the home health benefit. C. Possible Inclusion of Medicare Part B Therapy Services in the Episode Comment: We received a few comments regarding certain Part B therapy costs that were not included in the computation of the PPS rates. Several commenters suggested that we collect Medicare Part B Claims information for all therapy services provided to patients while receiving home health services under the home health benefit and adjust the episode definition, payment rate, and budget neutrality factor accordingly. Commenters believed that HHAs prior to PPS, as with non-routine medical supplies, had the option to unbundle therapy services outside of the home health benefit to Part B therapy providers. Because such services cannot be unbundled under PPS, commenters suggested that, based on our analysis of Part B therapy claims during a home health stay, an adjustment to the non-standardized amount should be made to account for this additional cost for therapy services. Response: Before implementation of PPS, HHAs were not clearly prohibited from unbundling therapies to Part B. Consistent with our approach to non-routine medical supplies that could have been unbundled to Part B prior to PPS, we again analyzed Part B therapy claims data. Section IV.B.3. of this rule describes our claims analysis of the Part B therapy claims. Based on the analysis, we have adjusted the rates accordingly with the methodology described in section V. of this rule. D. Continuous Episode Recertification Comment: Several commenters support continuous episode certifications because the policy permits access to home health services for eligible beneficiaries. A few commenters requested clarification of continuous episode recertification with regard to long term utilizers of Medicare home health services. In addition, commenters requested further clarification of the definition of terms associated with continuous episode recertification. Some commenters requested specific clarification of the dates governing continuous episode recertification. Response: We proposed continuous recertifications and payment, as appropriate, for beneficiaries who continue to be eligible for home health services. The payment system set forth in this final rule will permit continuous episode recertification for Medicare eligible beneficiaries. We believe this policy negates the need for a day or time (length of stay) outlier because beneficiaries will continue to be recertified for continuous episodes as long as they remain eligible for the Medicare home health benefit. In order to address the needs of longer stay patients, we are not limiting the number of 60-day episode recertifications permitted in a given fiscal year assuming a patient remains eligible for the Medicare home health benefit. In response to comments, our explanation of the dates governing continuous episode recertification and clarification of terms associated with subsequent episode recertifications is given below. The first day of a subsequent second episode is day 61. The first day of all subsequent episodes, whether it is the second or third, etc. continuous episode, will be termed the “subsequent episode date.” The first day of a subsequent episode is not necessarily the first billable visit date. Unlike the initial episode, the first day of a subsequent episode may not occur on the first billable service date. Therefore, one must distinguish between the definition of the subsequent continuing episode date and the initial episode. Further technical examples of continuous care will be found in billing instructions that will be issued after publication of this rule. E. Transition/Blend Comment: Several commenters and most national industry associations supported full transition to a national rate. Conversely, only one industry association supported a four-year blend of agency-specific and national PPS rates. A few commenters suggested the continuation of IPS for the first certification or assessment period or next discharge date or a blend with IPS related data. A few commenters provided other creative alternative blend approaches that fell out of the scope of the statutory authority for the transition blend. Response: Section 1895(b)(1) of the Act provides the option for a four-year transition to HHA PPS by blending agency-specific and national rates. We proposed full transition to the 60-day national episode rate. We believed blending cost based IPS with an episode rate was not a viable, effective option. After thorough re-examination of the comments and subsequent analysis, we continue to believe that full transition to national PPS rates without any blend of current IPS on October 1, 2000 is the most appropriate alternative. A blended rate system would be overly complex, distort the positive incentives in PPS, and reallocate limited resources from more efficient HHAs to less cost-conscious providers. A national PPS system has significant advantages over IPS. It recognizes case-mix and provides additional payments for higher cost outliers. Comment: Several commenters objected to all HHAs being paid under home health PPS effective October 1, 2000. Many commented that this was unprecedented and recommended that the implementation date should be transitioned based on cost reporting year. Response: The law governing the effective date for home health PPS implementation is very specific. In fact, section 5101(c)(1)(A) of OCESSA amended section 1895(a) of the Act to change the effective date for PPS from a transition by cost reporting periods to an immediate start-up date for all HHAs, effective October 1, 2000. The law, as amended, does not provide implementation by cost reporting period. F. Split Percentage Payment Comment: Current regulations require a physician signed plan of care before a HHA can bill Medicare for payment. Several commenters suggested the need to receive the initial percentage payment based on verbal orders. Many commenters were concerned about cash flow. Further, commenters believed that if we adopt a policy that permits initial payment based on verbal orders the need for a notice of admission would be eliminated. Response: A number of commenters expressed concerns about cash flow to providers under the proposed system. Many reasons centered on the percentage of total payment provided upfront, as opposed to the end of the episode and the potential delays in receiving payments as a result of claims processing times, documentation requirements, and medical review. We appreciate these issues and are very interested in ensuring HHAs have adequate cash flow to maintain quality services to beneficiaries. As a result, we have taken a number of steps in this final rule that include increasing the amount of the initial percentage payment for initial episodes and a number of adjustments detailed below to significantly shorten the amount of time between the submission of the request for anticipated payment (defined below) and the receipt of payment. We believe these changes will significantly lessen the time for the receipt of payment as opposed to the approach set forth in the proposed rule. We are revising our approach to the split percentage payment as originally set forth in our proposed rule. We view the initial percentage payment as a “request for anticipated payment” rather than a Medicare “claim” for purposes of the Act. However, a request for anticipated payment is a “claim” for purposes of Federal, civil, criminal, and administrative law enforcement authorities, including but not limited to the civil monetary penalties law (as defined in 42 U.S.C. 1320a-7a(i)(2)), the Civil False Claims Act (as defined in 31 U.S.C. 3729(c)), and the Criminal False Claims Act (18 U.S.C. 287)). We also note that where we use the term “claim” in this final regulation, it refers to a “Medicare claim.” The first percentage payment will not require a physician signed plan of care before submission. The request for anticipated payment reflecting the initial percentage payment for the episode may be submitted based on verbal orders. All physician verbal orders must: (1) Be put in writing; (2) reflect the agreement between the home health agency and the physician with the appropriate detail regarding the patient's condition and the services to be rendered; (3) be compatible with the regulations governing the plan of care at § 409.43, § 424.22, and § 484.18; and (4) be signed by a physician prior to submission of the claim. In order to request anticipated payment for the initial percentage payment based on physician verbal orders, a copy of the plan of care with all physician verbal orders placed in writing and dated with the date of receipt by the registered nurse or qualified therapist (as defined in § 484.4) responsible for furnishing or supervising the ordered service must be completed. A copy of the plan of care, which includes the verbal orders, must also be transmitted to the physician for his or her records. We believe this documentation need is consistent with current practice. Alternatively, the request for anticipated payment may be submitted if the HHA has a signed referral prescribing the physician's detailed orders for the services to be rendered and the patient's condition. Signed orders must, however, be obtained as soon as possible and before the submission of the claim for services is submitted for the final percentage payment for each episode. The final percentage payment including all of the utilization data for the episode is the Medicare claim. The claim for the residual final percentage payment requires a signed plan of care prior to billing for payment. Since the request for anticipated payment may be submitted based on verbal orders that are copied into the plan of care with the plan of care being immediately submitted to the physician and is not considered a Medicare claim, the request for anticipated payment will be canceled and recovered unless the claim for the episode is submitted within the greater of 60 days from the end of the episode or 60 days from the issuance of the anticipated payment. The request of anticipated payment for the initial percentage payment is a request for payment of anticipated services. The claim for final payment of the residual percentage payment constitutes the claim for services furnished. We believe this revised approach to split percentage payment will alleviate cash flow concerns raised in the public comments. We revised current § 409.43(c) governing physician signature of the plan of care. Specifically, paragraph (c)(1) of this section specifies, “If the physician signed plan of care is not available, the request for anticipated payment of the initial percentage payment must be based on— • A physician's verbal order that— ++ Is recorded in the plan of care; ++ Includes a description of the patient's condition and the services to be provided by the home health agency; ++ Includes an attestation (relating to the physician's orders and the date received) signed and dated by the registered nurse or qualified therapist (as defined in 42 CFR 484.4) responsible for furnishing or supervising the ordered service in the plan of care; and ++ Is copied into the plan of care and the plan of care is immediately submitted to the physician; or • A referral prescribing detailed orders for the services to be rendered that is signed and dated by a physician.” In paragraph (c)(2) of this section, we specify that “HCFA has the authority to reduce or disapprove requests for anticipated payments in situations when protecting Medicare program integrity warrants this action. Since the request for anticipated payment is based on verbal orders as specified in paragraphs (c)(1)(i) and/or a prescribing referral as specified in (c)(1)(ii) of this section and is not a Medicare claim for purposes of the Act (although it is a “claim” for purposes of Federal, civil, criminal, and administrative law enforcement authorities, including but not limited to the Civil Monetary Penalties Law (as defined in 42 U.S.C. 1320a-7a(i)(2), and the Civil False Claims Act (as defined in 31 U.S.C. 3729(c), and the Criminal False Claims Act (18 U.S.C. 287), the request for anticipated payment will be canceled and recovered unless the claim is submitted within the greater of 60 days from the end of the episode or 60 days from the issuance of the request for anticipated payment.” Paragraph (c)(3) of this section specifies that “The plan of care must be signed and dated— • By a physician as described who meets the certification and recertification requirements of § 424.22 of this chapter and; • Before the claim for each episode for services is submitted for the final percentage payment.” Paragraph (c)(4) of this section specifies that “Any changes in the plan must be signed and dated by a physician.” We agree with the commenter and believe that our revised approach eliminates the need for an additional notice of admission as originally proposed. We believe that the requests for anticipated payment of the initial percentage payment based on physician verbal orders responds directly to commenters concerns with current requirements governing physician signatures prior to claim submission. Commenters were concerned that the current signature requirements could disrupt necessary cash flow under PPS. We believe the request for anticipated payment for the initial percentage payment alleviates the cash flow concerns. Further, the request for anticipated payment of the initial percentage payment will provide appropriate cash flow to all providers because the requests are not subject to the current payment floor processing restrictions. The revised request for anticipated payment approach to the split percentage payment ensures adequate cash flow to providers who rely on Medicare resources to ensure continued quality care. Both the request for anticipated payment and the claim will be subject to medical review determinations. Subsequent payment withholdings may occur, as applicable. If a provider is targeted for medical review due to a history of excessive claim denials, it may not be able to submit requests for anticipated payment. Comment: In the proposed rule, we proposed a 50/50 split percentage payment approach to the 60-day episode payment. The majority of commenters recommended a higher initial percentage payment in order to recognize the front loading of administrative costs associated with patient admissions. Many commenters requested increasing the initial percentage payment on at least the first episode due to the up-front costs associated with new patients. Response: Based on comments that we have received, we believe the public has raised serious issues regarding cash flow under PPS. Therefore, we have re-evaluated our original split percentage proposal and have decided to revise our proposed approach to incorporate a 60/40 split for all initial episodes in order to recognize the up-front costs associated with new admissions. This new split percentage payment approach for all initial episodes is set forth in regulations at § 484.205(b)(1). All subsequent episodes will be paid at the 50/50 percentage payment split. The split percentage payment approach for subsequent episodes is set forth in regulations at § 484.205(b)(2). We believe our revised approach to the split percentage payment will provide appropriate financial relief to HHAs, adequate cash flow, and preserve the integrity of the Medicare trust funds. We believe our revised approach to the split percentage payment to include both the higher up-front percentage for first episodes and the submission of the request for anticipated payment of the initial percentage payment based on verbal orders, alleviates the cash flow issue for non-PIP providers as well as ongoing cash flow issues for PIP providers. PIP providers will receive their last September PIP payments during October. That continuing payment flow during the transition combined with the ability to submit all requests for anticipated payment of the initial percentage payment based on verbal orders at the onset of PPS will ensure adequate cash flow to PIP providers. The ability to submit all requests for anticipated payment of the initial percentage payment based on physician verbal orders responds directly to commenters concerns with current requirements governing physician signatures prior to submission of the claim. Commenters were concerned that the current signature requirements could disrupt necessary cash flow under PPS. We believe the request for anticipated payment for the initial percentage payment alleviates the cash flow concerns. Further, the request for anticipated payment of the initial percentage payment will provide appropriate cash flow to all providers because the requests are not subject to the current payment floor processing restrictions. We plan to continue to study the up-front rate of utilization under PPS. G. Statutory Elimination of Periodic Interim Payments (PIP) Comment: The majority of commenters recommended the reinstatement of PIP or a PIP-like accelerated payment under PPS to ensure adequate cash flow to PIP providers as well as all providers. One commenter specifically suggested accelerated payments for high volume HHAs. Response: Section 4603(b) of the BBA amended section 1815(e)(2) of the Act to eliminate periodic interim payments. PIP payments are a method to periodically pay in advance before receiving a claim. Accordingly, we proposed to revise § 413.64(h)(1) to eliminate PIP for HHAs for services furnished on or after October 1, 2000. In this final rule, we are also removing paragraph (h)(2)(iv) of this section to comply with the BBA requirement that eliminates PIP for home health services upon implementation of PPS. Based on comments received, we believe the public has raised critical issues regarding the need to provide adequate cash flow to all providers and specifically to PIP providers during the transition to PPS. However, traditional PIP is related to cost-based payment reconciliations and cannot be readily adopted to PPS rates. As stated previously, we believe our revised approach to the split percentage billing to include both the higher up-front percentage for first episodes and the submission of the request for anticipated payment of the initial percentage payment based on verbal orders, that are copied into the plan of care with the plan of care being immediately submitted to the physician, eliminates the cash flow issue for non-PIP providers as well as ongoing cash flow issues for PIP providers. With regard to transition payments to PIP providers, they will be receiving their last September PIP payments during October. That continuing payment flow during transition combined with the ability to submit all requests for anticipated payment of the initial split percentage payment at the onset of PPS as of October 1, 2000, will also ensure adequate cash flow to PIP providers. We believe our revised methodology will reduce payment flow issues and meet the needs of all providers equitably. In addition, accelerated payments, as historically available, may be available to HHAs that are disadvantaged by delayed payments due to unanticipated HCFA claims processing system failures or delays to ensure adequate cash flow. In regulations at § 413.64(g) for cost-reimbursed providers, and in §§ 412.116(f) and 413.350(d) for hospitals and skilled nursing facilities, respectively, that receive payment under a prospective payment system, we have provided for the availability of accelerated payments for non-PIP providers in certain situations. We do not believe that HHAs should be penalized for unanticipated claims processing system delays and are extending the availability of accelerated payments to all HHAs under PPS. Therefore, we are adding a new § 484.245 to provide HHAs the ability to request accelerated payments under home health PPS if the HHA is experiencing financial difficulties due to delays by the intermediary in making payment to the HHA. H. Low Utilization Payment Adjustment (LUPA) (§ 484.230) Comment: Commenters on the LUPA centered on such issues as the total elimination of the LUPA, retaining the four or fewer visit threshold at a minimum, the lack of recognition of additional costs associated with the first visit in the episode due to patient admission responsibilities, negative impact on rural and small providers, and the inadequate payment amount proposed for each standardized per-visit amount per-discipline. Many commenters suggested we increase the proposed LUPA amounts to reflect the current per-visit limits by discipline or cost per visit by discipline or by a percentage increase approach. A few commenters suggested the elimination of LUPA for the first episodes, but supported application of the LUPA for subsequent episodes. Response: We proposed a low utilization payment adjustment in order to moderate provision of minimal or negligible care, that is, to discourage HHAs from providing a minimal number of visits in an episode. We proposed episodes with four or fewer visits be paid the wage adjusted national standardized per-visit amount by discipline for each of the four or fewer visits rendered during the 60-day episode. We solicited comments on the most appropriate threshold and specifically solicited comments on the use of the higher threshold of six or fewer visits. We will retain the original four or fewer visit threshold as no commenters supported moving the threshold to six or fewer visits. In this final rule, we respond to the recommendation to increase the proposed LUPA amount by now calculating the LUPA based on a higher national average per-visit amount by discipline updated by the market basket to FY 2001. This will provide a higher level of payment and fully compensate HHAs for such visits. We are revising our regulations at § 484.230 to reflect the higher per-visit amounts that will be used to calculate the LUPA payments. We are not adopting the comment to increase the payment only for the first visit to account for the front-loading of costs in an episode because we believe the approach set forth in this rule will adequately account for the costs for low utilization episodes. We will continue to monitor the impact of the four or fewer visit threshold and the revised LUPA per-visit amounts on all types of providers under PPS. The revised LUPA methodology and rate tables are found in section IV. of this rule. Comment: Commenters suggested that we apply LUPA only to acute patients and not to chronic patients who require B-12 injections or catheter changes. Response: The LUPA payment approach does not distinguish between an acute or chronic home care patient. The goal of the LUPA is to appropriately pay for low utilization episodes. As stated above we have revised § 484.230 to reflect the higher per-visit amounts that will be used to calculate the LUPA payments. We believe the revised approach to calculating the LUPA per-visit amounts by discipline will more adequately reflect average costs associated with low volume episodes. Comment: A few commenters suggested the removal of wage index adjustment in the LUPA payment approach. Commenters also suggested that we case-mix adjust the LUPA. Response: The LUPAs are not case-mix adjusted because they are calculated using national claims data for episodes with four or fewer visits. The claims data is only wage adjusted, not case-mix adjusted. We believe it is important to adjust the labor component of the LUPA based on the most recent pre-floor and pre-reclassified hospital wage index as historically reflected in the labor portion of home health services. Comment: One commenter requested clarification of whether telephone contact or a telemedicine visit will count as a visit for purposes of the LUPA policy. Response: The current definition of a Medicare home health visit has not changed with the implementation of home health PPS. The definition of a visit is set forth in § 409.48(c) of the regulations specifies that “A visit is an episode of personal contact with the beneficiary by staff of the HHA or others under arrangements with the HHA for the purpose of providing a covered service.” A telephone contact or telemedicine visit does not meet the definition of a visit and therefore would not count toward a LUPA visit. Comment: A few commenters requested clarification of the type of practitioner that would provide a LUPA visit. Response: The current personnel qualifications and coverage guidelines governing the provision of covered home health services are not changed by home health PPS. All visits provided under HHA PPS regardless of the provision under an episode rate or LUPA rate must meet current Medicare coverage guidelines. Comment: A few commenters requested a specific HHRG level for LUPA cases. Response: We do not believe the case-mix weight methodology as proposed would accommodate an HHRG specific weight for the LUPA. The LUPA is a wage adjusted per-visit payment. Constructing a LUPA specific HHRG would confuse the concept of case-mix adjustment and per-visit payment for LUPAs. However, we will continue to consider this proposal as we further refine PPS in the future. I. Partial Episode Payment Adjustments (PEP Adjustment) Comment: Several commenters did not support the use of billable visit dates to calculate the PEP adjustment due to possible gaps in days that may not be recognized in the payment. Many commenters recommended the use of the first billable visit date through the day before the intervening event or discharge date as the span of time used to calculate the proportional payment. Many commenters did not believe the PEP reflected the increased costs associated with admission during the start of the episode. Commenters proposed eliminating the proportional payment aspect of the provision thus yielding a full episode payment for the initial HHA and a full episode payment for the HHA receiving the patient due to the intervening event. Several commenters provided alternative payment approaches to the PEP policy as set forth in the proposed rule. Response: In the October 28, 1999 proposed rule, we proposed a PEP Adjustment to address the key intervening events of the beneficiary elected transfer to another HHA and the discharge of a beneficiary who returns to the same HHA during the 60-day episode. We proposed to restart the 60-day episode clock due to the two intervening events and end the original episode payment with a proportional payment adjustment. The proportional payment adjustment would be calculated by using the span of billable visit dates prior to the intervening event. We are not adopting the commenters' suggestions to use the day before the intervening event or discharge date to calculate the proportional payment. We are retaining the use of billable service dates to determine the appropriate payments because of the HHAs involvement in decisions influencing the intervening events for a beneficiary elected transfer or the beneficiary is discharged and returns to the same HHA during the same 60-day episode period. Proportional payments based on billable visit dates will continue to be the payment methodology for the initial HHA as a result of the intervening event. We believe the new 60/40 percentage payment split for first episode payments as specified in regulations at § 484.205(b)(1) will alleviate concerns with costs associated with new patients. Comment: A few commenters requested clarification of the calculation of the therapy hour threshold in the case of the transfer PEP Adjustment. Response: The therapy threshold will apply separately to the proportional portion of the first episode and the new episode that results from the intervening event. The initial HHA will have the period of time of the first billable service date through the last billable visit date in the original plan of care prior to the intervening event to reach the therapy threshold. The new episode resulting from the intervening event will not incorporate therapy usage from the prior period but will determine the therapy needs for the patient resulting from the new certified plan of care. Each part of the episode, the PEP adjusted portion and the new 60-day episode resulting from the intervening event is subject to separate therapy thresholds. The therapy threshold is not combined or prorated across episodes. Each episode whether full or proportionally adjusted is subject to its own unique therapy threshold for purposes of case-mix adjusting the payment for that individual patient's resource needs. This PEP approach to the therapy threshold applies to both intervening events of the beneficiary elected transfer and the discharge and return to the same HHA during the same 60-day episode period. Comment: Several commenters suggested the elimination or modification of the proposed policy that prevents the PEP adjustment when a beneficiary elects to transfer to an HHA that is under common ownership with the initial HHA. We proposed that transfers among HHAs under common ownership would be paid as an under arrangement situation. Commenters believed that the proposed common ownership policy should not apply when the transfer was made because the patient moved out of the first HHA's geographic service area defined by the agency's license. Further, commenters were concerned that if the proposed language regarding common ownership was not changed to conform to the rules currently governing related parties, it would be viewed as an attempt by HCFA to pierce the corporate veil and offset the liabilities of one corporation against payments due to another. Response: In response to these concerns, we are providing further clarification of our definition of common ownership for purposes of the PEP adjustment for beneficiary elected transfers. If an HHA has a significant ownership interest as defined in § 424.22 (Requirement for home health services), then the PEP adjustment would not apply. Those situations would be considered services provided under arrangement on behalf of the originating HHA by the receiving HHA with the ownership interest until the end of the episode. The common ownership exception to the transfer PEP adjustment does not apply if the beneficiary moved out of their MSA or non-MSA during the 60-day episode before the transfer to the receiving HHA. The transferring HHA not only serves as the billing agent, but must also exercise professional responsibility over the arranged-for services in order for the services provided under arrangements to be paid. Comment: A few commenters requested that we clarify how we apply our PEP policy when a home health patient elects hospice before the end of the episode. The comments focused on a hospice that is under common ownership with the HHA. Response: If a patient elects hospice before the end of the episode and the patient did not experience an intervening event of discharge and return to the same HHA, or transfer to another HHA during an open 60-day episode prior to the hospice election, the HHA receives a full episode payment for that patient. Upon hospice election, the beneficiary is no longer eligible for the home health benefit. The common ownership restriction for the PEP adjustment applies only to the relationship between two HHAs providing covered home health services to a home health eligible beneficiary. Comment: A few commenters requested clarification of whether a PEP adjustment will apply to the initial HHA when a physician or patient-initiated termination of home health services occurs and the treatment goals have not been reached. In addition, commenters further requested clarification of the beneficiary elected transfer PEP policy when the beneficiary transfers because the HHA provided minimal or negligible services. Response: To account for the situation when a patient initiates the termination of services for any reason and requests a transfer to another HHA, we developed the PEP adjustment to assure that the patient's freedom of choice was honored and that the Medicare Trust funds were protected by a policy that ensures adequate payment levels that reflect the time each HHA served the patient under a transfer situation. Unless the beneficiary refused further care or was a safety risk to the HHA staff, we do not envision a situation in which a physician would terminate care prior to the completion of treatment goals. However, we would focus survey or medical review resources to investigate complaints of minimal or negligible service delivery as a motivating factor for a beneficiary's election to transfer from the original HHA. Comment: A few commenters suggested that we allow the physician to reinstate the initial plan of care rather than requiring a new plan of care in the situation of discharge and return to the same HHA during the same 60-day episode. Response: We are not adopting this comment. We believe that a new certified plan of care is a critical feature of any episode payment, regardless of whether prior treatment goals were met and the patient was formally discharged. We do not believe that it is unduly burdensome because the HHA will be receiving access to an entire 60-day episode payment. Further, a patient that returns to the HHA for admission after discharge would require a new OASIS assessment and new plan of care under current practice guidelines. Comment: Some commenters asked if the PEP adjustment is applied when a patient dies. Response: A full episode payment will be paid in the event of a patient's death during a 60-day episode. No PEP adjustment will be calculated due to a patient's death during an episode. Comment: A few commenters argued that the PEP adjustment policy approach does not adequately address “snow birds”, persons who seasonally migrate from one place to another. Response: We believe the PEP adjustment will adequately address this situation. As stated previously, if for any reason, a beneficiary elects to transfer to another HHA, the original HHA's episode payment would be proportionately adjusted with a PEP adjustment to reflect the time the HHA served the patient prior to the intervening event of the transfer. This would include the “snow bird” situation. We do not believe there is a need for an exception from the transfer policy regarding “snow birds”. Our PEP adjustment policy governing transfers provides for a clean slate for a 60-day episode payment, OASIS assessment, and certification for the receiving HHA. We believe [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A00-16432. Public record. Not legal advice.