Medicare and Medicaid Programs; CY 2018 Home Health Prospective Payment System Rate Update and CY 2019 Case-Mix Adjustment Methodology Refinements; Home Health Value-Based Purchasing Model; and Home Health Quality Reporting Requirements

Federal RegisterNov 7, 2017

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 484

[CMS-1672-F]

RIN 0938-AT01

Medicare and Medicaid Programs; CY 2018 Home Health Prospective Payment System Rate Update and CY 2019 Case-Mix Adjustment Methodology Refinements; Home Health Value-Based Purchasing Model; and Home Health Quality Reporting Requirements

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule updates the home health prospective payment system (HH PPS) payment rates, including the national, standardized 60-day episode payment rates, the national per-visit rates, and the non-routine medical supply (NRS) conversion factor, effective for home health episodes of care ending on or after January 1, 2018. This rule also: Updates the HH PPS case-mix weights using the most current, complete data available at the time of rulemaking; implements the third year of a 3-year phase-in of a reduction to the national, standardized 60-day episode payment to account for estimated case-mix growth unrelated to increases in patient acuity (that is, nominal case-mix growth) between calendar year (CY) 2012 and CY 2014; and discusses our efforts to monitor the potential impacts of the rebasing adjustments that were implemented in CY 2014 through CY 2017. In addition, this rule finalizes changes to the Home Health Value-Based Purchasing (HHVBP) Model and to the Home Health Quality Reporting Program (HH QRP). We are not finalizing the implementation of the Home Health Groupings Model (HHGM) in this final rule.

DATES:

These regulations are effective on January 1, 2018.

FOR FURTHER INFORMATION CONTACT:

For general information about the Home Health Prospective Payment System (HH PPS), please send your inquiry via email to:

HomehealthPolicy@cms.hhs.gov.

For information about the Home Health Value-Based Purchasing (HHVBP) Model, please send your inquiry via email to:

HHVBPquestions@cms.hhs.gov.

Contact Joan Proctor, (410) 786-0949 for information about the Home Health Quality Reporting Program (HH QRP).

SUPPLEMENTARY INFORMATION:

Wage index addenda will be available only through the internet on the CMS Web site at:

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/coding_billing.html.

Table of Contents

I. Executive Summary

A. Purpose

B. Summary of the Major Provisions

C. Summary of Costs and Benefits

II. Background

A. Statutory Background

B. Current System for Payment of Home Health Services

C. Updates to the Home Health Prospective Payment System

D. Report to Congress: Home Health Study on Access to Care for Vulnerable Patient Populations and Subsequent Research and Analyses

III. Provisions of the Proposed Rule: Payment Under the Home Health Prospective Payment System (HH PPS) and Responses to Comments

A. Monitoring for Potential Impacts—Affordable Care Act Rebasing Adjustments

B. CY 2018 HH PPS Case-Mix Weights

C. CY 2018 Home Health Payment Rate Update

D. Payments for High-Cost Outliers Under the HH PPS

E. Proposed Implementation of the Home Health Groupings Model (HHGM) for CY 2019

IV. Provisions of the Home Health Value-Based Purchasing (HHVBP) Model and Responses to Comments

A. Background

B. Quality Measures

C. Quality Measures for Future Consideration

V. Updates to the Home Health Care Quality Reporting Program (HH QRP)

A. Background and Statutory Authority

B. General Considerations Used for the Selection of Quality Measures for the HH QRP

C. Accounting for Social Risk Factors in the HH QRP

D. Removal From OASIS

E. Collection of Standardized Patient Assessment Data Under the HH QRP

F. HH QRP Quality Measures Beginning With the CY 2020 HH QRP

G. HH QRP Quality Measures and Measure Concepts Under Consideration for Future Years

H. Standardized Patient Assessment Data

I. Form, Manner, and Timing of Data Submission Under the HH QRP

J. Other Provisions for the CY 2019 HH QRP and Subsequent Years

K. Policies Regarding Public Display of Quality Measure Data for the HH QRP

L. Mechanism for Providing Confidential Feedback Reports to HHAs

M. Home Health Care CAHPS® Survey (HHCAHPS)

VI. Collection of Information Requirements

A. Statutory Requirement for Solicitation of Comments

B. Collection of Information Requirements for the HH QRP

C. Submission of PRA-Related Comments

VII. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impact

C. Detailed Economic Analysis

D. Accounting Statement and Table

E. Reducing Regulation and Controlling Regulatory Costs

F. Conclusion

VIII. Federalism Analysis

Regulation Text

Acronyms

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

ACH LOS Acute Care Hospital Length of Stay

ADL Activities of Daily Living

AM-PAC Activity Measure for Post-Acute Care

APR DRG All-Patient Refined Diagnosis-Related Group

APU Annual Payment Update

ASPE Assistant Secretary for Planning and Evaluation

BBA Balanced Budget Act of 1997, Public Law 105-33

BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, (Pub. L. 106-113)

BIMS Brief Interview for Mental Status

BLS Bureau of Labor Statistics

CAD Coronary Artery Disease

CAH Critical Access Hospital

CAM Confusion Assessment Method

CARE Continuity Assessment Record and Evaluation

CASPER Certification and Survey Provider Enhanced Reports

CBSA Core-Based Statistical Area

CCN CMS Certification Number

CHF Congestive Heart Failure

CMI Case-Mix Index

CMP Civil Money Penalty

CMS Centers for Medicare & Medicaid Services

CoPs Conditions of Participation

COPD Chronic Obstructive Pulmonary Disease

CVD Cardiovascular Disease

CY Calendar Year

DM Diabetes Mellitus

DRA Deficit Reduction Act of 2005, Public Law 109-171, enacted February 8, 2006

DRG Diagnosis-Related Group

DTI Deep Tissue Injury

EOC End of Care

FDL Fixed Dollar Loss

FI Fiscal Intermediaries

FR Federal Register

FY Fiscal Year

HAVEN Home Assessment Validation and Entry System

HCC Hierarchical Condition Categories

HCIS Health Care Information System

HH Home Health

HHA Home Health Agency

HHCAHPS Home Health Care Consumer Assessment of Healthcare Providers and Systems Survey

HH PPS Home Health Prospective Payment System

HHGM Home Health Groupings Model

HHQRP Home Health Quality Reporting Program

HHRG Home Health Resource Group

HHVBP Home Health Value-Based Purchasing

HIPPS Health Insurance Prospective Payment System

HVBP Hospital Value-Based Purchasing

IADL Instrumental Activities of Daily Living

ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification

ICD-10-CM International Classification of Diseases, Tenth Revision, Clinical Modification

IH Inpatient Hospitalization

IMPACT Act Improving Medicare Post-Acute Care Transformation Act of 2014 (Pub. L. 113-185)

IPPS [Acute Care Hospital] Inpatient Prospective Payment System

IPR Interim Performance Report

IRF Inpatient Rehabilitation Facility

IRF-PAI IRF Patient Assessment Instrument

IV Intravenous

LCDS LTCH CARE Data Set

LEF Linear Exchange Function

LTCH Long-Term Care Hospital

LUPA Low-Utilization Payment Adjustment

MACRA Medicare Access and CHIP Reauthorization Act of 2015

MAP Measure Applications Partnership

MDS Minimum Data Set

MFP Multifactor productivity

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, enacted December 8, 2003

MSA Metropolitan Statistical Area

MSS Medical Social Services

NQF National Quality Forum

NQS National Quality Strategy

NRS Non-Routine Supplies

OASIS Outcome and Assessment Information Set

OBRA Omnibus Budget Reconciliation Act of 1987, Public Law 100-2-3, enacted December 22, 1987

OCESAA Omnibus Consolidated and Emergency Supplemental Appropriations Act, Public Law 105-277, enacted October 21, 1998

OES Occupational Employment Statistics

OIG Office of Inspector General

OLS Ordinary Least Squares

OT Occupational Therapy

OMB Office of Management and Budget

PAC Post-Acute Care

PAC-PRD Post-Acute Care Payment Reform Demonstration

PAMA Protecting Access to Medicare Act of 2014

PEP Partial Episode Payment Adjustment

PHQ-2 Patient Health Questionnaire-2

PPOC Primary Point of Contact

PPS Prospective Payment System

PRA Paperwork Reduction Act

PRRB Provider Reimbursement Review Board

PT Physical Therapy

PY Performance Year

QAP Quality Assurance Plan

QIES Quality Improvement Evaluation System

QRP Quality Reporting Program

RAP Request for Anticipated Payment

RF Renal Failure

RFA Regulatory Flexibility Act, Public Law 96—354

RHHIs Regional Home Health Intermediaries

RIA Regulatory Impact Analysis

ROC Resumption of Care

SAF Standard Analytic File

SLP Speech-Language Pathology

SN Skilled Nursing

SNF Skilled Nursing Facility

SOC Start of Care

SSI Surgical Site Infection

TEP Technical Expert Panel

TPS Total Performance Score

UMRA Unfunded Mandates Reform Act of 1995

VAD Vascular Access Device

VBP Value-Based Purchasing

I. Executive Summary

A. Purpose

This final rule updates the payment rates for home health agencies (HHAs) for calendar year (CY) 2018, as required under section 1895(b) of the Social Security Act (the Act). This final rule also updates the case-mix weights under section 1895(b)(4)(A)(i) and (b)(4)(B) of the Act for CY 2018 and implements a 0.97 percent reduction to the national, standardized 60-day episode payment amount to account for case-mix growth unrelated to increases in patient acuity (that is, nominal case-mix growth) between CY 2012 and CY 2014, under the authority of section 1895(b)(3)(B)(iv) of the Act. Additionally, this rule finalizes changes to the Home Health Value Based Purchasing (HHVBP) Model under the authority of section 1115A of the Act, and Home Health Quality Reporting Program (HH QRP) requirements under the authority of section 1895(b)(3)(B)(v) of the Act. We are not finalizing the implementation of the Home Health Groupings Model (HHGM) in this final rule. We received a number of comments from the public that we would like to take into further consideration.

B. Summary of the Major Provisions

In the CY 2015 HH PPS final rule (79 FR 66072), we finalized our proposal to recalibrate the case-mix weights every year with the most current and complete data available at the time of rulemaking. In section III.B. of this final rule, we are recalibrating the HH PPS case-mix weights, using the most current cost and utilization data available, in a budget-neutral manner. Also in section III.B. of this final rule, as finalized in the CY 2016 HH PPS final rule (80 FR 68624), we are implementing a reduction to the national, standardized 60-day episode payment rate for CY 2018 of 0.97 percent to account for estimated case-mix growth unrelated to increases in patient acuity (that is, nominal case-mix growth) between CY 2012 and CY 2014. In section III.C. of this final rule, we update the payment rates under the HH PPS by 1 percent for CY 2018 in accordance with section 411(d) of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted April 16, 2015) which amended section 1895(b)(3)(B) of the Act. Additionally, section III.C. of this final rule, updates the CY 2018 home health wage index using FY 2014 hospital cost report data. In section III.D. of this final rule, we note that the fixed-dollar loss ratio remains 0.55 for CY 2018 to pay up to, but no more than, 2.5 percent of total payments as outlier payments, as required by section 1895(b)(5)(A) of the Act.

In section IV of this final rule, we are finalizing changes to the Home Health Value-Based Purchasing (HHVBP) Model implemented January 1, 2016. We are amending the definition of “applicable measure” to mean a measure for which a competing HHA has provided a minimum of 40 completed surveys for Home Health Care Consumer Assessment of Healthcare Providers and Systems (HHCAHPS) measures, beginning with Performance Year (PY) 1, for purposes of receiving a performance score for any of the HHCAHPS measures, and for PY 3 and subsequent years, we are finalizing the removal of the Outcome and Assessment Information Set (OASIS)-based measure, Drug Education on All Medications Provided to Patient/Caregiver during All Episodes of Care, from the set of applicable measures.

In section V. of this final rule, we are finalizing updates to the Home Health Quality Reporting Program, including: The replacement of one quality measure and the adoption of two new quality measures, data submission requirements, exception and extension requirements, and reconsideration and appeals procedures. We have also finalized the removal of 235 data elements from 33 current OASIS items, effective with all HHA assessments on or after January 1, 2019. We are not finalizing the standardized patient assessment data elements that we proposed to adopt for three of the five categories under section 1899B(b)(1)(B) of the Act: Cognitive Function and Mental Status; Special Services, Treatments, and Interventions; and Impairments.

C. Summary of Costs and Benefits

Table 1—Summary of Costs and Transfers

Provision description

Costs

Transfers

CY 2018 HH PPS Payment Rate Update

The overall economic impact of the HH PPS payment rate update is an estimated −$80 million (−0.4 percent) in payments to HHAs.

CY 2018 HHVBP Model

The overall economic impact of the HHVBP Model provision for CY 2018 through 2022 is an estimated $378 million in total savings from a reduction in unnecessary hospitalizations and SNF usage as a result of greater quality improvements in the HH industry (none of which is attributable to the changes finalized in this final rule). As for payments to HHAs, there are no aggregate increases or decreases expected to be applied to the HHAs competing in the model.

CY 2019 HH QRP

The overall economic impact of the HH QRP changes is a savings to HHAs of an estimated $146.0 million, beginning January 1, 2019

II. Background

A. Statutory Background

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted August 5, 1997), significantly changed the way Medicare pays for Medicare home health services. Section 4603 of the BBA mandated the development of the HH PPS. Until the implementation of the HH PPS on October 1, 2000, HHAs received payment under a retrospective reimbursement system.

Section 4603(a) of the BBA mandated the development of a HH PPS for all Medicare-covered home health services provided under a plan of care (POC) that were paid on a reasonable cost basis by adding section 1895 of the Act, entitled “Prospective Payment For Home Health Services.” Section 1895(b)(1) of the Act requires the Secretary to establish a HH PPS for all costs of home health services paid under Medicare. Section 1895(b)(2) of the Act requires that, in defining a prospective payment amount, the Secretary shall consider an appropriate unit of service and the number, type, and duration of visits provided 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) of the Act requires the following: (1) The computation of a standard prospective payment amount include all costs for HH services covered and paid for on a reasonable cost basis and that such amounts be initially based on the most recent audited cost report data available to the Secretary; and (2) the standardized prospective payment amount be adjusted to account for the effects of case-mix and wage levels among HHAs.

Section 1895(b)(3)(B) of the Act addresses the annual update to the standard prospective payment amounts by the home health applicable percentage increase. Section 1895(b)(4) of the Act governs the payment computation. Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act require the standard prospective payment amount to be adjusted for case-mix and geographic differences in wage levels. Section 1895(b)(4)(B) of the Act requires the establishment of an appropriate case-mix change adjustment factor for significant variation in costs among different units of services.

Similarly, section 1895(b)(4)(C) of the Act requires the establishment of wage adjustment factors that reflect the relative level of wages, and wage-related costs applicable to home health services furnished in a geographic area compared to the applicable national average level. Under section 1895(b)(4)(C) of the Act, the wage-adjustment factors used by the Secretary may be the factors used under section 1886(d)(3)(E) of the Act.

Section 1895(b)(5) of the Act gives the Secretary the option to make additions or adjustments to the payment amount otherwise paid in the case of outliers due to unusual variations in the type or amount of medically necessary care. Section 3131(b)(2) of the Affordable Care Act revised section 1895(b)(5) of the Act so that total outlier payments in a given year would not exceed 2.5 percent of total payments projected or estimated. The provision also made permanent a 10 percent agency-level outlier payment cap.

In accordance with the statute, as amended by the BBA, we published a final rule in the July 3, 2000

Federal Register

(65 FR 41128) to implement the HH PPS legislation. The July 2000 final rule established requirements for the new HH PPS for home health services as required by section 4603 of the BBA, as subsequently amended by section 5101 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 (OCESAA), (Pub. L. 105-277, enacted October 21, 1998); and by sections 302, 305, and 306 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, (BBRA) (Pub. L. 106-113, enacted November 29, 1999). The requirements include the implementation of a HH PPS for home health services, consolidated billing requirements, and a number of other related changes. The HH PPS described in that rule replaced the retrospective reasonable cost-based system that was used by Medicare for the payment of home health services under Part A and Part B. For a complete and full description of the HH PPS as required by the BBA, see the July 2000 HH PPS final rule (65 FR 41128 through 41214).

Section 5201(c) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171, enacted February 8, 2006) added new section 1895(b)(3)(B)(v) to the Act, requiring HHAs to submit data for purposes of measuring health care quality, and links the quality data submission to the annual applicable percentage increase. This data submission requirement is applicable for CY 2007 and each subsequent year. If an HHA does not submit quality data, the home health market basket percentage increase is reduced by 2 percentage points. In the November 9, 2006

Federal Register

(71 FR 65884, 65935), we published a final rule to implement the pay-for-reporting requirement of the DRA, which was codified at § 484.225(h) and (i) in accordance with the statute. The pay-

for-reporting requirement was implemented on January 1, 2007.

The Affordable Care Act made additional changes to the HH PPS. One of the changes in section 3131 of the Affordable Care Act is the amendment to section 421(a) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 8, 2003) as amended by section 5201(b) of the DRA. Section 421(a) of the MMA, as amended by section 3131 of the Affordable Care Act, requires that the Secretary increase, by 3 percent, the payment amount otherwise made under section 1895 of the Act, for HH services furnished in a rural area (as defined in section 1886(d)(2)(D) of the Act) with respect to episodes and visits ending on or after April 1, 2010, and before January 1, 2016.

Section 210 of the MACRA amended section 421(a) of the MMA to extend the rural add-on for 2 more years. Section 421(a) of the MMA, as amended by section 210 of the MACRA, requires that the Secretary increase, by 3 percent, the payment amount otherwise made under section 1895 of the Act, for home health services provided in a rural area (as defined in section 1886(d)(2)(D) of the Act) with respect to episodes and visits ending on or after April 1, 2010, and before January 1, 2018. Section 411(d) of MACRA amended section 1895(b)(3)(B) of the Act such that for home health payments for CY 2018, the market basket percentage increase shall be 1 percent.

B. Current System for Payment of Home Health Services

Generally, Medicare currently makes payment under the HH PPS on the basis of a national, standardized 60-day episode payment rate that is adjusted for the applicable case-mix and wage index. The national, standardized 60-day episode rate includes the six home health disciplines (skilled nursing, home health aide, physical therapy, speech-language pathology, occupational therapy, and medical social services). Payment for non-routine supplies (NRS) is not part of the national, standardized 60-day episode rate, but is computed by multiplying the relative weight for a particular NRS severity level by the NRS conversion factor. Payment for durable medical equipment covered under the HH benefit is made outside the HH PPS payment system. To adjust for case-mix, the HH PPS uses a 153-category case-mix classification system to assign patients to a home health resource group (HHRG). The clinical severity level, functional severity level, and service utilization are computed from responses to selected data elements in the OASIS assessment instrument and are used to place the patient in a particular HHRG. Each HHRG has an associated case-mix weight which is used in calculating the payment for an episode. Therapy service use is measured by the number of therapy visits provided during the episode and can be categorized into nine visit level categories (or thresholds): 0 to 5; 6; 7 to 9; 10; 11 to 13; 14 to 15; 16 to 17; 18 to 19; and 20 or more visits.

For episodes with four or fewer visits, Medicare pays national per-visit rates based on the discipline(s) providing the services. An episode consisting of four or fewer visits within a 60-day period receives what is referred to as a low-utilization payment adjustment (LUPA). Medicare also adjusts the national standardized 60-day episode payment rate for certain intervening events that are subject to a partial episode payment adjustment (PEP adjustment). For certain cases that exceed a specific cost threshold, an outlier adjustment may also be available.

C. Updates to the Home Health Prospective Payment System

As required by section 1895(b)(3)(B) of the Act, we have historically updated the HH PPS rates annually in the

Federal Register

. The August 29, 2007 final rule with comment period set forth an update to the 60-day national episode rates and the national per-visit rates under the HH PPS for CY 2008. The CY 2008 HH PPS final rule included an analysis performed on CY 2005 home health claims data, which indicated a 12.78 percent increase in the observed case-mix since 2000. Case-mix represents the variations in conditions of the patient population served by the HHAs. Subsequently, a more detailed analysis was performed on the 2005 case-mix data to evaluate if any portion of the 12.78 percent increase was associated with a change in the actual clinical condition of home health patients. We identified 8.03 percent of the total case-mix change as real, and therefore, decreased the 12.78 percent of total case-mix change by 8.03 percent to get a final nominal case-mix increase measure of 11.75 percent (0.1278 * (1−0.0803) = 0.1175).

To account for the changes in case-mix that were not related to an underlying change in patient health status, we implemented a reduction, over 4 years, to the national, standardized 60-day episode payment rates. That reduction was to be 2.75 percent per year for 3 years beginning in CY 2008 and 2.71 percent for the fourth year in CY 2011. In the CY 2011 HH PPS final rule (76 FR 68532), we updated our analyses of case-mix change and finalized a reduction of 3.79 percent, instead of 2.71 percent, for CY 2011 and deferred finalizing a payment reduction for CY 2012 until further study of the case-mix change data and methodology was completed.

In the CY 2012 HH PPS final rule (76 FR 68526), we updated the 60-day national episode rates and the national per-visit rates. In addition, as discussed in the CY 2012 HH PPS final rule (76 FR 68528), our analysis indicated that there was a 22.59 percent increase in overall case-mix from 2000 to 2009 and that only 15.76 percent of that overall observed case-mix percentage increase was due to real case-mix change. As a result of our analysis, we identified a 19.03 percent nominal increase in case-mix. At that time, to fully account for the 19.03 percent nominal case-mix growth identified from 2000 to 2009, we finalized a 3.79 percent payment reduction in CY 2012 and a 1.32 percent payment reduction for CY 2013.

In the CY 2013 HH PPS final rule (77 FR 67078), we implemented the 1.32 percent reduction to the payment rates for CY 2013 finalized the previous year, to account for nominal case-mix growth from 2000 through 2010. When taking into account the total measure of case-mix change (23.90 percent) and the 15.97 percent of total case-mix change estimated as real from 2000 to 2010, we obtained a final nominal case-mix change measure of 20.08 percent from 2000 to 2010 (0.2390 * (1−0.1597) = 0.2008). To fully account for the remainder of the 20.08 percent increase in nominal case-mix beyond that which was accounted for in previous payment reductions, we estimated that the percentage reduction to the national, standardized 60-day episode rates for nominal case-mix change would be 2.18 percent. Although we considered proposing a 2.18 percent reduction to account for the remaining increase in measured nominal case-mix, we finalized the 1.32 percent payment reduction to the national, standardized 60-day episode rates in the CY 2012 HH PPS final rule (76 FR 68532).

Section 3131(a) of the Affordable Care Act requires that, beginning in CY 2014, we apply an adjustment to the national, standardized 60-day episode rate and other amounts that reflect factors such as changes in the number of visits in an episode, the mix of services in an episode, the level of intensity of services in an episode, the average cost of providing care per episode, and other relevant factors. Additionally, we must phase in any adjustment over a 4-year

period in equal increments, not to exceed 3.5 percent of the amount (or amounts) as of the date of enactment of the Affordable Care Act, and fully implement the rebasing adjustments by CY 2017. The statute specifies that the maximum rebasing adjustment is to be no more than 3.5 percent per year of the CY 2010 rates. Therefore, in the CY 2014 HH PPS final rule (78 FR 72256) for each year, CY 2014 through CY 2017, we finalized a fixed-dollar reduction to the national, standardized 60-day episode payment rate of $80.95 per year, increases to the national per-visit payment rates per year, and a decrease to the NRS conversion factor of 2.82 percent per year. We also finalized three separate LUPA add-on factors for skilled nursing, physical therapy, and speech-language pathology and removed 170 diagnosis codes from assignment to diagnosis groups in the HH PPS Grouper. In the CY 2015 HH PPS final rule (79 FR 66032), we implemented the second year of the 4-year phase-in of the rebasing adjustments to the HH PPS payment rates and made changes to the HH PPS case-mix weights. In addition, we simplified the face-to-face encounter regulatory requirements and the therapy reassessment timeframes.

In the CY 2016 HH PPS final rule (80 FR 68624), we implemented the third year of the 4-year phase-in of the rebasing adjustments to the national, standardized 60-day episode payment amount, the national per-visit rates and the NRS conversion factor (as outlined previously). In the CY 2016 HH PPS final rule, we also recalibrated the HH PPS case-mix weights, using the most current cost and utilization data available, in a budget-neutral manner and finalized reductions to the national, standardized 60-day episode payment rate in CY 2016, CY 2017, and CY 2018 of 0.97 percent in each year to account for estimated case-mix growth unrelated to increases in patient acuity (that is, nominal case-mix growth) between CY 2012 and CY 2014. Finally, section 421(a) of the MMA, as amended by section 210 of the MACRA, extended the payment increase of 3 percent for HH services provided in rural areas (as defined in section 1886(d)(2)(D) of the Act) to episodes or visits ending before January 1, 2018.

In the CY 2017 HH PPS final rule (81 FR 76702), we implemented the last year of the 4-year phase-in of the rebasing adjustments to the national, standardized 60-day episode payment amount, the national per-visit rates and the NRS conversion factor (as outlined previously). We also finalized changes to the methodology used to calculate outlier payments under the authority of section 1895(b)(5) of the Act. Lastly, in accordance with section 1834(s) of the Act, as added by section 504(a) of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113, enacted December 18, 2015), we implemented changes in payment for furnishing Negative Pressure Wound Therapy (NPWT) using a disposable device for patients under a home health plan of care for which payment would otherwise be made under section 1895(b) of the Act.

D. Report to Congress: Home Health Study on Access to Care for Vulnerable Patient Populations and Subsequent Research and Analyses

Section 3131(d) of the Affordable Care Act required CMS to conduct a study on home health agency costs involved with providing ongoing access to care to low-income Medicare beneficiaries or beneficiaries in medically underserved areas, and in treating beneficiaries with varying levels of severity of illness and submit a report to Congress. As discussed in the CY 2016 HH PPS proposed rule (80 FR 39840) and the CY 2017 HH PPS proposed rule (81 FR 43744), the findings from the Report to Congress on the “Medicare Home Health Study: An Investigation on Access to Care and Payment for Vulnerable Patient Populations,” found that payment accuracy could be improved under the current payment system, particularly for patients with certain clinical characteristics requiring more nursing care than therapy.

The Report to Congress can be found in its entirety at

https://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HomeHealthPPS/Downloads/HH-Report-to-Congress.pdf.

The research for the Report to Congress, released in December 2014, consisted of extensive analysis of both survey and administrative data. The CMS-developed surveys were given to physicians who referred vulnerable patient populations to Medicare home health and to Medicare-certified HHAs.

The response rates were 72 percent and 59 percent for the HHA and physician surveys, respectively. The results of the survey revealed that over 80 percent of respondent HHAs and over 90 percent of respondent physicians reported that access to home health care for Medicare fee-for-service beneficiaries in their local area was excellent or good. When survey respondents reported access issues, specifically their inability to place or admit Medicare fee-for-service patients into home health, the most common reason reported (64 percent of respondent HHAs surveyed) was that the patients did not qualify for the Medicare home health benefit. HHAs and physicians also cited family or caregiver issues as an important contributing factor in the inability to admit or place patients. Only 17.2 percent of HHAs and 16.7 percent of physicians reported insufficient payment as an important contributing factor in the inability to admit or place patients. The results of the CMS-conducted surveys suggested that CMS' ability to improve access for certain vulnerable patient populations through payment policy may be limited. However, we are able to revise the case-mix system to minimize differences in payment that could potentially be serving as a barrier to receiving care. In the near future, we intend to better align payment with resource use so that it reduces HHAs' financial incentives to select certain patients over others.

For the purposes of the surveys, “vulnerable patient populations” were defined as beneficiaries who were either eligible for the Part D low-income subsidy (LIS) 27 or residing in a health professional shortage area (HPSA).

We also performed an analysis of Medicare administrative data (CY 2010 Medicare claims and cost report data) and calculated margins for episodes of care. This was done because margin differences associated with patient clinical and social characteristics can indicate whether financial incentives exist in the current HH PPS to provide home health care for certain types of patients over others. Lower margins, if systematically associated with care for vulnerable patient populations, may indicate financial disincentives for HHAs to admit these patients, potentially creating access to care issues. The findings from the data analysis found that certain patient characteristics appear to be strongly associated with margin levels, and thus may create financial incentives to select certain patients over others. Margins were estimated to be lower for patients who required parenteral nutrition, who had traumatic wounds or ulcers, or required substantial assistance in bathing. For example, in CY 2010, episodes for patients with parenteral nutrition were, on average, associated with a $178.53 lower margin than episodes for patients without parenteral nutrition. Given that these variables are already included in the HH PPS case-mix system, the results indicated that modifications to the way the current case-mix system accounts for resource use differences may be needed to mitigate any financial incentives to select certain patients over others. Margins were also lower for beneficiaries who were admitted after acute or post-acute stays or who had certain poorly-controlled clinical

conditions, such as poorly controlled pulmonary disorders, indicating that accounting for additional patient characteristic variables in the HH PPS case-mix system may also reduce financial incentives to select certain types of patients over others. More information on the results from the home health study required by section 3131(d) of the Affordable Care Act can be found in the Report to Congress on the “Medicare Home Health Study: An Investigation on Access to Care and Payment for Vulnerable Patient Populations” available at https://www.cms.gov/center/provider-Type/home-Health-Agency-HHA-Center.html.

Section 3131(d)(5) of the Affordable Care Act authorized the Secretary to determine whether it would be appropriate to conduct a Medicare demonstration project based on the result of the home health study. If the Secretary determined it was appropriate to conduct the demonstration project under this subsection, the Secretary was to conduct the project for a 4-year period beginning not later than January 1, 2015. We did not determine that it was appropriate to conduct a demonstration project based on the findings from the home health study. Rather, the findings from the home health study suggested that follow-on work should be conducted to better align payments with costs under the authority of section 1895 of the Act.

In addition to the findings from the Report to Congress on the “Medicare Home Health Study: An Investigation on Access to Care and Payment for Vulnerable Patient Populations,” concerns have also been raised about the use of therapy thresholds in the current payment system. Under the current payment system, HHAs receive higher payments for providing more therapy visits once certain thresholds are reached. As a result, the average number of therapy visits per 60-day episode of care have increased since the implementation of the HH PPS, while the number of skilled nursing and home health aide visits have decreased over the same time period (82 FR 35280 (Figure 3)). A study examining an option of using predicted, rather than actual, therapy visits in the home health found that in 2013, 58 percent of home health episodes included some therapy services, and these episodes accounted for 72 percent of all Medicare home health payments.

Figure 1, from that study, demonstrates that the percentage of episodes, and the average episode payment by the number of therapy visits for episodes with at least one therapy visit in 2013 increased sharply in therapy provision just over payment thresholds at 6, 7, and 16. According to the study, the presence of sharp increases in the percentage of episodes just above payment thresholds suggests a response to financial incentives in the home health payment system. Similarly, between 2008 and 2013, MedPAC reported a 26 percent increase in the number of episodes with at least 6 therapy visits, compared with a 1 percent increase in the number of episodes with 5 or fewer therapy visits.

CMS analysis demonstrates that the average share of therapy visits across all 60-day episodes of care increased from 9 percent of all visits in 1997, prior to the implementation of the HH PPS (see 64 FR 58151), to 39 percent of all visits in 2015 (82 FR 35277 through 35278 (Table 2)).

Fout B, Plotzke M, Christian T. (2016). Using Predicted Therapy Visits in the Medicare Home Health Prospective Payment System. Home Health Care Management & Practice, 29(2), 81-90.

http://journals.sagepub.com/doi/abs/10.1177/1084822316678384.

Medicare Payment Advisory Commission (MedPAC). “Home Health Care Services.”

Report to Congress: Medicare Payment Policy.

Washington, DC, March 2015. P. 223. Accessed on March 28, 2017 at:

http://www.medpac.gov/docs/default-source/reports/mar2015_entirereport_revised.pdf?sfvrsn=0.

ER07NO17.000

Figure 1 suggests that HHAs may be responding to financial incentives in the home health payment system when making care plan decisions. Additionally, an investigation into the therapy practices of the four largest publically-traded home health companies, conducted by the Senate Committee on Finance in 2010, found that three out of the four companies investigated “encouraged therapists to target the most profitable number of therapy visits, even when patient need alone may not have justified such patterns”.

The Senate Committee on Finance investigation also highlighted the abrupt and dramatic responses the home health industry has taken to maximize reimbursement under the therapy threshold models (both the original 10-visit threshold model and under the revised thresholds implemented in the CY 2008 HH PPS final rule (72 FR 49762)). The report noted that, under the HH PPS, HHAs have broad discretion over the number of therapy visits to provide patients, and therefore, have control of the single-largest variable in determining reimbursement and overall margins. The report recommended that CMS closely examine a future payment approach that focuses on patient well-being and health characteristics, rather than the numerical utilization measures.

Committee on Finance, United States Senate. Staff Report on Home Health and the Medicare Therapy Threshold. Washington, DC, 2011. Accessed on March 28, 2017 at

https://www.finance.senate.gov/imo/media/doc/Home_Health_Report_Final4.pdf.

MedPAC also continues to recommend the removal of the therapy thresholds used for determining payment from the HH PPS, as it believes that such thresholds run counter to the goals of a prospective payment system, create financial incentives that detract from a focus on patient characteristics and care needs when agencies are setting plans of care for their patients, and incentivize unnecessary therapy utilization. For the average HHA, according to MedPAC, the increase in payment for therapy visits rises faster than costs, resulting in financial incentives for HHAs to overprovide therapy services.

HHAs that provide more therapy episodes tend to be more profitable and this higher profitability and rapid growth in the number of therapy episodes suggest that financial incentives are causing agencies to favor therapy services when possible.

Eliminating therapy as a payment factor will base home health payment solely on patient characteristics, which is a more patient-focused approach to payment, as recommended by both MedPAC and previously by the Senate Committee on Finance.

Medicare Payment Advisory Commission (MedPAC). “Home Health Services.” Report to Congress: Medicare Payment Policy. Washington, DC, March 2011. P. 182-183. Accessed on March 28, 2017 at

http://www.medpac.gov/docs/default-source/reports/Mar11_Ch08.pdf?sfvrsn=0.

Medicare Payment Advisory Commission (MedPAC). “Home Health Care Services.” Report to Congress: Medicare Payment Policy. Washington, DC, March 2017. P. 243-244. Accessed on March 28, 2017 at

http://www.medpac.gov/docs/default-source/reports/mar17_medpac_ch9.pdf?sfvrsn=0.

After considering the findings from the Report to Congress and recommendations from MedPAC and the Senate Committee on Finance, CMS, along with our contractor, conducted additional research on ways to improve the payment accuracy under the current payment system. Exploring all options and different models ultimately led us to further develop the Home Health Groupings Model (HHGM). As discussed in the CY 2018 HH PPS proposed rule (82 FR 35294), we shared

the analysis and development of the HHGM with both internal and external stakeholders via technical expert panels, clinical workgroups, special open door forums, in the CY 2016 HH PPS proposed rule (80 FR 39840) and the CY 2017 HH PPS proposed rule (81 FR 43744), in a detailed technical report posted on the CMS Web site in December 2016 (followed by additional technical and clinical expert panels) and a National Provider Call in January 2017. The HHGM uses 30-day periods, rather than 60-day episodes, and relies more heavily on clinical characteristics and other patient information (for example, principal diagnosis, functional level, comorbid conditions, admission source, and timing) to place patients into meaningful payment categories, rather than the current therapy-driven system, which are the major differences between the current system and the HHGM.

III. Provisions of the Proposed Rule: Payment Under the Home Health Prospective Payment System (HH PPS) and Responses to Comments

In the July 28, 2017

Federal Register

(82 FR 35270 through 35393), we published the proposed rule titled “Medicare and Medicaid Programs; CY 2018 Home Health Prospective Payment System Rate Update and Proposed CY 2019 Case-Mix Adjustment Methodology Refinements; Home Health Value-Based Purchasing Model; and Home Health Quality Reporting Requirements”. We received approximately 1,346 timely comments from the public, including comments from home health agencies, national and state provider associations, patient and other advocacy organizations, nurses, and physical therapists. In the following sections, we summarize the proposed provisions and the public comments, and provide the responses to comments.

A. Monitoring for Potential Impacts—Affordable Care Act Rebasing Adjustments

In the CY 2018 HH PPS proposed rule (82 FR 35277), we provided a summary of analysis on fiscal year (FY) 2015 HHA cost report data and how such data, if used, would impact our estimate of the percentage difference between Medicare payments and HHA costs used to calculate the Affordable Care Act rebasing adjustments. In addition, we presented information on Medicare home health utilization statistics and trends that included HHA claims data through CY 2016. We will continue monitoring the impacts due to the rebasing adjustments and other policy changes and will provide the industry with periodic updates on our analysis in rulemaking and announcements on the HHA Center Web page at

https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html.

The following is a summary of the comments received on the analysis of HHA cost report and utilization data and our responses.

Comment:

A commenter noted that it may come as no surprise that payments exceed costs by 21 percent, given that Medicare payment for home health is statutorily required to be based on a prospective payment system and the industry is now 90 percent for-profit, with incentives to admit only the most profitable cases. The commenter went on to state that home health payments from Medicare Advantage (MA) plans are inadequate and that HHAs subsidize low payments from MA plans with payments for fee-for-service patients. The commenter further noted that the number of patients coming into home health care from the community (rather than following an acute or post-acute care stay) has risen in response to deliberate Medicare and public health effort to keep patients out of the hospital. Similar comments from MedPAC stated that CMS's review of utilization is consistent with the Commission's findings on access to care, and the analysis of the cost and utilization data in the proposed rule underscores the Commission's long-standing concern that the Patient Protection and Affordable Care Act (PPACA) rebasing provision would not adequately reduce payments.

Response:

We thank the commenters for their feedback on the HHA cost and utilization data presented in the proposed rule. We will continue monitoring the impacts due to the rebasing adjustments and other policy changes and will provide the industry with periodic updates on our analysis in rulemaking or announcements on the HHA Center Web page at:

https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.html

Comment:

A commenter questioned whether CMS did any trimming to the cost report data used to populate Table 2 in the CY 2018 HH PPS proposed rule and whether NRS costs were excluded from this calculation.

Response:

As we noted in the CY 2018 HH PPS proposed rule (82 FR 35277), to determine the 2015 average cost per visit per discipline, we applied the same trimming methodology outlined in the CY 2014 HH PPS proposed rule (78 FR 40284) and weighted the costs per visit from the 2015 cost reports by size, facility type, and urban/rural location so the costs per visit were nationally representative according to 2015 claims data. The 2015 average number of visits was taken from 2015 claims data (82 FR 35277). Because CMS currently pays for NRS using a separate conversion factor, NRS costs were not included in Table 2 as the national, standardized 60-day episode payment amount only reflects the cost of care related to skilled nursing, physical therapy, occupational therapy, speech-language pathology, home health aide, and medical social services. The payment for NRS is calculated through the NRS conversion factor, multiplied by the weights for the six severity levels.

B. CY 2018 HH PPS Case-Mix Weights

In the CY 2015 HH PPS final rule (79 FR 66072), we finalized a policy to annually recalibrate the HH PPS case-mix weights—adjusting the weights relative to one another—using the most current, complete data available. To recalibrate the HH PPS case-mix weights for CY 2018, we will use the same methodology finalized in the CY 2008 HH PPS final rule (72 FR 49762), the CY 2012 HH PPS final rule (76 FR 68526), and the CY 2015 HH PPS final rule (79 FR 66032). Annual recalibration of the HH PPS case-mix weights ensures that the case-mix weights reflect, as accurately as possible, current home health resource use and changes in utilization patterns.

To generate the CY 2018 HH PPS case-mix weights, we used CY 2016 home health claims data (as of August 17, 2017) with linked OASIS data. These data are the most current and complete data available at this time. We noted in the proposed rule that we would use CY 2016 home health claims data (as of June 30, 2017 or later) with linked OASIS data to generate the CY 2018 HH PPS case-mix weights for this final rule. The process we used to calculate the HH PPS case-mix weights is outlined in this section.

Step 1:

Re-estimate the four-equation model to determine the clinical and functional points for an episode using wage-weighted minutes of care as our dependent variable for resource use. The wage-weighted minutes of care are determined using the CY 2015 Bureau of Labor Statistics national hourly wage plus fringe rates for the six home health disciplines and the minutes per visit from the claim. The points for each of the variables for each leg of the model, updated with CY 2016 home health claims data, are shown in Table 2. The points for the clinical variables are added together to determine an episode's clinical score. The points for the functional variables are added

together to determine an episode's functional score.

Table 2—Case-Mix Adjustment Variables and Scores

Episode number within sequence of adjacent episodes

1 or 2

Therapy visits

0-13

14+

0-13

14+

EQUATION:

CLINICAL DIMENSION

Primary or Other Diagnosis = Blindness/Low Vision

Primary or Other Diagnosis = Blood disorders

Primary or Other Diagnosis = Cancer, selected benign neoplasms

Primary Diagnosis = Diabetes

Other Diagnosis = Diabetes

Primary or Other Diagnosis = Dysphagia

AND

Primary or Other Diagnosis = Neuro 3—Stroke

Primary or Other Diagnosis = Dysphagia

AND

M1030 (Therapy at home) = 3 (Enteral)

Primary or Other Diagnosis = Gastrointestinal disorders

AND

M1630 (ostomy)= 1 or 2

Primary or Other Diagnosis = Gastrointestinal disorders

AND

Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis,

Neuro 2—Peripheral neurological disorders,

Neuro 3—Stroke,

Neuro 4—Multiple Sclerosis

Primary or Other Diagnosis = Heart Disease

Hypertension

Primary Diagnosis = Neuro 1—Brain disorders and paralysis

Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis

AND

M1840 (Toilet transfer) = 2 or more

Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis

Neuro 2—Peripheral neurological disorders

AND

M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3

Primary or Other Diagnosis = Neuro 3—Stroke

AND

M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3

Primary or Other Diagnosis = Neuro 3—Stroke

AND

M1860 (Ambulation) = 4 or more

Primary or Other Diagnosis = Neuro 4—Multiple Sclerosis

AND AT LEAST ONE OF THE FOLLOWING:

M1830 (Bathing) = 2 or more

M1840 (Toilet transfer) = 2 or more

M1850 (Transferring) = 2 or more

M1860 (Ambulation) = 4 or more

Primary or Other Diagnosis = Ortho 1—Leg Disorders or Gait Disorders

AND

M1324 (most problematic pressure ulcer stage) = 1, 2, 3 or 4

Primary or Other Diagnosis = Ortho 1—Leg

Ortho 2—Other orthopedic disorders

AND

M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral)

Primary or Other Diagnosis = Psych 1—Affective and other psychoses, depression

Primary or Other Diagnosis = Psych 2—Degenerative and other organic psychiatric disorders

Primary or Other Diagnosis = Pulmonary disorders

AND

M1860 (Ambulation) = 1 or more

Primary Diagnosis = Skin 1—Traumatic wounds, burns, and post-operative complications

Other Diagnosis = Skin 1—Traumatic wounds, burns, post-operative complications

Primary or Other Diagnosis = Skin 1—Traumatic wounds, burns, and post-operative complications

Skin 2—Ulcers and other skin conditions

AND

M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral)

Primary or Other Diagnosis = Skin 2—Ulcers and other skin conditions

Primary or Other Diagnosis = Tracheostomy

Primary or Other Diagnosis = Urostomy/Cystostomy

M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral)

M1030 (Therapy at home) = 3 (Enteral)

M1200 (Vision) = 1 or more

M1242 (Pain)= 3 or 4

M1311 = Two or more pressure ulcers at stage 3 or 4

M1324 (Most problematic pressure ulcer stage) = 1 or 2

M1324 (Most problematic pressure ulcer stage)= 3 or 4

M1334 (Stasis ulcer status) = 2

M1334 (Stasis ulcer status) = 3

M1342 (Surgical wound status) = 2

M1342 (Surgical wound status) = 3

M1400 (Dyspnea) = 2, 3, or 4

M1620 (Bowel Incontinence) = 2 to 5

M1630 (Ostomy) = 1 or 2

M2030 (Injectable Drug Use) = 0, 1, 2, or 3

FUNCTIONAL DIMENSION

M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3

M1830 (Bathing) = 2 or more

M1840 (Toilet transferring) = 2 or more

M1850 (Transferring) = 2 or more

M1860 (Ambulation) = 1, 2 or 3

M1860 (Ambulation) = 4 or more

Source:

CY 2016 Medicare claims data for episodes ending on or before December 31, 2016 (as of August 17, 2017) for which we had a linked OASIS assessment. LUPA episodes, outlier episodes, and episodes with PEP adjustments were excluded.

Note(s):

Points are additive; however, points may not be given for the same line item in the table more than once. Please see Medicare Home Health Diagnosis Coding guidance at

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/coding_billing.html

for definitions of primary and secondary diagnoses.

In updating the four-equation model for CY 2018, using 2016 home health claims data (the last update to the four-equation model for CY 2017 used CY 2015 home health claims data), there were few changes to the point values for the variables in the four-equation model. These relatively minor changes reflect the change in the relationship between the grouper variables and resource use between CY 2015 and CY 2016. The CY 2018 four-equation model resulted in 120 point-giving variables being used in the model (as compared to the 124 variables for the CY 2017 recalibration). There were 8 variables that were added to the model and 12 variables that were dropped from the model due to the absence of additional resources associated with the variable. Of the variables that were in both the four-equation model for CY 2017 and the four-equation model for CY 2018, the points for 14 variables increased in the CY 2018 four-equation model and the points for 48 variables decreased in the CY 2018 4-equation model. There were 50 variables with the same point values.

Step 2:

Redefining the clinical and functional thresholds so they are reflective of the new points associated with the CY 2018 four-equation model. After estimating the points for each of the variables and summing the clinical and functional points for each episode, we look at the distribution of the clinical score and functional score, breaking the episodes into different steps. The categorizations for the steps are as follows:

• Step 1: First and second episodes, 0-13 therapy visits.

• Step 2.1: First and second episodes, 14-19 therapy visits.

• Step 2.2: Third episodes and beyond, 14-19 therapy visits.

• Step 3: Third episodes and beyond, 0-13 therapy visits.

• Step 4: Episodes with 20+ therapy visits

Then, we divide the distribution of the clinical score for episodes within a step such that a third of episodes are classified as low clinical score, a third of episodes are classified as medium clinical score, and a third of episodes are classified as high clinical score. The same approach is then done looking at the functional score. It was not always possible to evenly divide the episodes within each step into thirds due to many episodes being clustered around one particular score.

Also, we looked at the average resource use associated with each clinical and functional score and used that as a guide for setting our thresholds. We grouped scores with similar average resource use within the same level (even if it meant that more or less than a third of episodes were placed within a level). The new thresholds, based off the CY 2018 four-equation model points are shown in Table 3.

For Step 1, 45.3 percent of episodes were in the medium functional level (All with score 14).

For Step 2.1, 87.3 percent of episodes were in the low functional level (Most with scores 5 to 7).

For Step 2.2, 81.9 percent of episodes were in the low functional level (Most with score 2).

For Step 3, 46.3 percent of episodes were in the medium functional level (Most with score 10).

For Step 4, 48.7 percent of episodes were in the medium functional level (Most with score 5 or 6).

Table 3—CY 2018 Clinical and Functional Thresholds

1st and 2nd episodes

0 to 13

therapy visits

14 to 19

therapy visits

3rd+ episodes

0 to 13

therapy visits

14 to 19

therapy visits

All episodes

20+ therapy

visits

Grouping Step

Equations used to calculate points (see Table 1)

(2&4)

Dimension

Severity Level

Clinical

0 to 1

0 to 3

2 to 3

2 to 7

2 to 9

4 to 16

10+

17+

Functional

0 to 13

0 to 7

0 to 6

0 to 2

8 to 15

7 to 10

3 to 7

3 to 6

15+

16+

11+

Step 3:

Once the clinical and functional thresholds are determined and each episode is assigned a clinical and functional level, the payment regression is estimated with an episode's wage-weighted minutes of care as the dependent variable. Independent variables in the model are indicators for the step of the episode as well as the clinical and functional levels within each step of the episode. Like the four-equation model, the payment regression model is also estimated with robust standard errors that are clustered at the beneficiary level. Table 4 shows the regression coefficients for the variables in the payment regression model updated with CY 2016 home health claims data. The R-squared value for the payment regression model is

0.5095 (an increase from 0.4919 for the CY 2017 recalibration).

Table 4—Payment Regression Model

Payment regression

from 4-equation

model for CY 2018

Step 1, Clinical Score Medium

$24.58

Step 1, Clinical Score High

54.24

Step 1, Functional Score Medium

72.76

Step 1, Functional Score High

107.48

Step 2.1, Clinical Score Medium

48.81

Step 2.1, Clinical Score High

135.99

Step 2.1, Functional Score Medium

31.51

Step 2.1, Functional Score High

57.73

Step 2.2, Clinical Score Medium

39.37

Step 2.2, Clinical Score High

194.18

Step 2.2, Functional Score Medium

21.53

Step 2.2, Functional Score High

56.25

Step 3, Clinical Score Medium

17.07

Step 3, Clinical Score High

95.93

Step 3, Functional Score Medium

59.15

Step 3, Functional Score High

90.40

Step 4, Clinical Score Medium

80.09

Step 4, Clinical Score High

263.75

Step 4, Functional Score Medium

27.97

Step 4, Functional Score High

62.20

Step 2.1, 1st and 2nd Episodes, 14 to 19 Therapy Visits

512.27

Step 2.2, 3rd+ Episodes, 14 to 19 Therapy Visits

523.60

Step 3, 3rd+ Episodes, 0-13 Therapy Visits

−72.22

Step 4, All Episodes, 20+ Therapy Visits

907.99

Intercept

389.35

Source:

CY 2016 Medicare claims data for episodes ending on or before December 31, 2016 (as of August 17, 2017) for which we had a linked OASIS assessment.

Step 4:

We use the coefficients from the payment regression model to predict each episode's wage-weighted minutes of care (resource use). We then divide these predicted values by the mean of the dependent variable (that is, the average wage-weighted minutes of care across all episodes used in the payment regression). This division constructs the weight for each episode, which is simply the ratio of the episode's predicted wage-weighted minutes of care divided by the average wage-weighted minutes of care in the sample. Each episode is then aggregated into one of the 153 home health resource groups (HHRGs) and the “raw” weight for each HHRG was calculated as the average of the episode weights within the HHRG.

Step 5:

The raw weights associated with 0 to 5 therapy visits are then increased by 3.75 percent, the weights associated with 14 to 15 therapy visits are decreased by 2.5 percent, and the weights associated with 20+ therapy visits are decreased by 5 percent. These adjustments to the case-mix weights were finalized in the CY 2012 HH PPS final rule (76 FR 68557) and were done to address MedPAC's concerns that the HH PPS overvalues therapy episodes and undervalues non-therapy episodes and to better align the case-mix weights with episode costs estimated from cost report data.

Medicare Payment Advisory Commission (MedPAC),

Report to the Congress: Medicare Payment Policy.

March 2011, p. 176.

Step 6:

After the adjustments in Step 5 are applied to the raw weights, the weights are further adjusted to create an increase in the payment weights for the therapy visit steps between the therapy thresholds. Weights with the same clinical severity level, functional severity level, and early/later episode status were grouped together. Then within those groups, the weights for each therapy step between thresholds are gradually increased. We do this by interpolating between the main thresholds on the model (from 0 to 5 to 14 to 15 therapy visits, and from 14 to 15 to 20+ therapy visits). We use a linear model to implement the interpolation so the payment weight increase for each step between the thresholds (such as the increase between 0 and 5 therapy visits and 6 therapy visits and the increase between 6 therapy visits and 7 to 9 therapy visits) are constant. This interpolation is identical to the process finalized in the CY 2012 HH PPS final rule (76 FR 68555).

Step 7:

The interpolated weights are then adjusted so that the average case-mix for the weights is equal to 1.0000.

This last step creates the final CY 2018 case-mix weights shown in Table 5.

When computing the average, we compute a weighted average, assigning a value of one to each normal episode and a value equal to the episode length divided by 60 for PEPs.

Table 5—CY 2018 Case-Mix Payment Weights

Pay group

Description

Clinical and

functional

levels

(1 = Low;

2 = Medium;

3 = High)

CY 2018

weight

10111

1st and 2nd Episodes, 0 to 5 Therapy Visits

C1F1S1

0.5595

10112

1st and 2nd Episodes, 6 Therapy Visits

C1F1S2

0.6911

10113

1st and 2nd Episodes, 7 to 9 Therapy Visits

C1F1S3

0.8227

10114

1st and 2nd Episodes, 10 Therapy Visits

C1F1S4

0.9543

10115

1st and 2nd Episodes, 11 to 13 Therapy Visits

C1F1S5

1.0859

10121

1st and 2nd Episodes, 0 to 5 Therapy Visits

C1F2S1

0.6640

10122

1st and 2nd Episodes, 6 Therapy Visits

C1F2S2

0.7832

10123

1st and 2nd Episodes, 7 to 9 Therapy Visits

C1F2S3

0.9025

10124

1st and 2nd Episodes, 10 Therapy Visits

C1F2S4

1.0217

10125

1st and 2nd Episodes, 11 to 13 Therapy Visits

C1F2S5

1.1409

10131

1st and 2nd Episodes, 0 to 5 Therapy Visits

C1F3S1

0.7139

10132

1st and 2nd Episodes, 6 Therapy Visits

C1F3S2

0.8302

10133

1st and 2nd Episodes, 7 to 9 Therapy Visits

C1F3S3

0.9466

10134

1st and 2nd Episodes, 10 Therapy Visits

C1F3S4

1.0629

10135

1st and 2nd Episodes, 11 to 13 Therapy Visits

C1F3S5

1.1792

10211

1st and 2nd Episodes, 0 to 5 Therapy Visits

C2F1S1

0.5948

10212

1st and 2nd Episodes, 6 Therapy Visits

C2F1S2

0.7325

10213

1st and 2nd Episodes, 7 to 9 Therapy Visits

C2F1S3

0.8703

10214

1st and 2nd Episodes, 10 Therapy Visits

C2F1S4

1.0080

10215

1st and 2nd Episodes, 11 to 13 Therapy Visits

C2F1S5

1.1457

10221

1st and 2nd Episodes, 0 to 5 Therapy Visits

C2F2S1

0.6994

10222

1st and 2nd Episodes, 6 Therapy Visits

C2F2S2

0.8247

10223

1st and 2nd Episodes, 7 to 9 Therapy Visits

C2F2S3

0.9500

10224

1st and 2nd Episodes, 10 Therapy Visits

C2F2S4

1.0753

10225

1st and 2nd Episodes, 11 to 13 Therapy Visits

C2F2S5

1.2007

10231

1st and 2nd Episodes, 0 to 5 Therapy Visits

C2F3S1

0.7493

10232

1st and 2nd Episodes, 6 Therapy Visits

C2F3S2

0.8717

10233

1st and 2nd Episodes, 7 to 9 Therapy Visits

C2F3S3

0.9941

10234

1st and 2nd Episodes, 10 Therapy Visits

C2F3S4

1.1166

10235

1st and 2nd Episodes, 11 to 13 Therapy Visits

C2F3S5

1.2390

10311

1st and 2nd Episodes, 0 to 5 Therapy Visits

C3F1S1

0.6374

10312

1st and 2nd Episodes, 6 Therapy Visits

C3F1S2

0.7902

10313

1st and 2nd Episodes, 7 to 9 Therapy Visits

C3F1S3

0.9429

10314

1st and 2nd Episodes, 10 Therapy Visits

C3F1S4

1.0957

10315

1st and 2nd Episodes, 11 to 13 Therapy Visits

C3F1S5

1.2484

10321

1st and 2nd Episodes, 0 to 5 Therapy Visits

C3F2S1

0.7420

10322

1st and 2nd Episodes, 6 Therapy Visits

C3F2S2

0.8823

10323

1st and 2nd Episodes, 7 to 9 Therapy Visits

C3F2S3

1.0227

10324

1st and 2nd Episodes, 10 Therapy Visits

C3F2S4

1.1630

10325

1st and 2nd Episodes, 11 to 13 Therapy Visits

C3F2S5

1.3034

10331

1st and 2nd Episodes, 0 to 5 Therapy Visits

C3F3S1

0.7919

10332

1st and 2nd Episodes, 6 Therapy Visits

C3F3S2

0.9293

10333

1st and 2nd Episodes, 7 to 9 Therapy Visits

C3F3S3

1.0668

10334

1st and 2nd Episodes, 10 Therapy Visits

C3F3S4

1.2042

10335

1st and 2nd Episodes, 11 to 13 Therapy Visits

C3F3S5

1.3417

21111

1st and 2nd Episodes, 14 to 15 Therapy Visits

C1F1S1

1.2176

21112

1st and 2nd Episodes, 16 to 17 Therapy Visits

C1F1S2

1.3807

21113

1st and 2nd Episodes, 18 to 19 Therapy Visits

C1F1S3

1.5439

21121

1st and 2nd Episodes, 14 to 15 Therapy Visits

C1F2S1

1.2601

21122

1st and 2nd Episodes, 16 to 17 Therapy Visits

C1F2S2

1.4213

21123

1st and 2nd Episodes, 18 to 19 Therapy Visits

C1F2S3

1.5826

21131

1st and 2nd Episodes, 14 to 15 Therapy Visits

C1F3S1

1.2955

21132

1st and 2nd Episodes, 16 to 17 Therapy Visits

C1F3S2

1.4600

21133

1st and 2nd Episodes, 18 to 19 Therapy Visits

C1F3S3

1.6244

21211

1st and 2nd Episodes, 14 to 15 Therapy Visits

C2F1S1

1.2835

21212

1st and 2nd Episodes, 16 to 17 Therapy Visits

C2F1S2

1.4598

21213

1st and 2nd Episodes, 18 to 19 Therapy Visits

C2F1S3

1.6361

21221

1st and 2nd Episodes, 14 to 15 Therapy Visits

C2F2S1

1.3260

21222

1st and 2nd Episodes, 16 to 17 Therapy Visits

C2F2S2

1.5004

21223

1st and 2nd Episodes, 18 to 19 Therapy Visits

C2F2S3

1.6748

21231

1st and 2nd Episodes, 14 to 15 Therapy Visits

C2F3S1

1.3614

21232

1st and 2nd Episodes, 16 to 17 Therapy Visits

C2F3S2

1.5390

21233

1st and 2nd Episodes, 18 to 19 Therapy Visits

C2F3S3

1.7166

21311

1st and 2nd Episodes, 14 to 15 Therapy Visits

C3F1S1

1.4012

21312

1st and 2nd Episodes, 16 to 17 Therapy Visits

C3F1S2

1.6188

21313

1st and 2nd Episodes, 18 to 19 Therapy Visits

C3F1S3

1.8364

21321

1st and 2nd Episodes, 14 to 15 Therapy Visits

C3F2S1

1.4437

21322

1st and 2nd Episodes, 16 to 17 Therapy Visits

C3F2S2

1.6594

21323

1st and 2nd Episodes, 18 to 19 Therapy Visits

C3F2S3

1.8751

21331

1st and 2nd Episodes, 14 to 15 Therapy Visits

C3F3S1

1.4791

21332

1st and 2nd Episodes, 16 to 17 Therapy Visits

C3F3S2

1.6981

21333

1st and 2nd Episodes, 18 to 19 Therapy Visits

C3F3S3

1.9170

22111

3rd+ Episodes, 14 to 15 Therapy Visits

C1F1S1

1.2328

22112

3rd+ Episodes, 16 to 17 Therapy Visits

C1F1S2

1.3909

22113

3rd+ Episodes, 18 to 19 Therapy Visits

C1F1S3

1.5489

22121

3rd+ Episodes, 14 to 15 Therapy Visits

C1F2S1

1.2619

22122

3rd+ Episodes, 16 to 17 Therapy Visits

C1F2S2

1.4225

22123

3rd+ Episodes, 18 to 19 Therapy Visits

C1F2S3

1.5832

22131

3rd+ Episodes, 14 to 15 Therapy Visits

C1F3S1

1.3088

22132

3rd+ Episodes, 16 to 17 Therapy Visits

C1F3S2

1.4688

22133

3rd+ Episodes, 18 to 19 Therapy Visits

C1F3S3

1.6288

22211

3rd++ Episodes, 14 to 15 Therapy Visits

C2F1S1

1.2860

22212

3rd+ Episodes, 16 to 17 Therapy Visits

C2F1S2

1.4615

22213

3rd+ Episodes, 18 to 19 Therapy Visits

C2F1S3

1.6369

22221

3rd+ Episodes, 14 to 15 Therapy Visits

C2F2S1

1.3151

22222

3rd+ Episodes, 16 to 17 Therapy Visits

C2F2S2

1.4931

22223

3rd+ Episodes, 18 to 19 Therapy Visits

C2F2S3

1.6712

22231

3rd+ Episodes, 14 to 15 Therapy Visits

C2F3S1

1.3620

22232

3rd+ Episodes, 16 to 17 Therapy Visits

C2F3S2

1.5394

22233

3rd+ Episodes, 18 to 19 Therapy Visits

C2F3S3

1.7168

22311

3rd+ Episodes, 14 to 15 Therapy Visits

C3F1S1

1.4951

22312

3rd+ Episodes, 16 to 17 Therapy Visits

C3F1S2

1.6814

22313

3rd+ Episodes, 18 to 19 Therapy Visits

C3F1S3

1.8677

22321

3rd+ Episodes, 14 to 15 Therapy Visits

C3F2S1

1.5241

22322

3rd+ Episodes, 16 to 17 Therapy Visits

C3F2S2

1.7130

22323

3rd+ Episodes, 18 to 19 Therapy Visits

C3F2S3

1.9019

22331

3rd+ Episodes, 14 to 15 Therapy Visits

C3F3S1

1.5710

22332

3rd+ Episodes, 16 to 17 Therapy Visits

C3F3S2

1.7593

22333

3rd+ Episodes, 18 to 19 Therapy Visits

C3F3S3

1.9476

30111

3rd+ Episodes, 0 to 5 Therapy Visits

C1F1S1

0.4557

30112

3rd+ Episodes, 6 Therapy Visits

C1F1S2

0.6111

30113

3rd+ Episodes, 7 to 9 Therapy Visits

C1F1S3

0.7666

30114

3rd+ Episodes, 10 Therapy Visits

C1F1S4

0.9220

30115

3rd+ Episodes, 11 to 13 Therapy Visits

C1F1S5

1.0774

30121

3rd+ Episodes, 0 to 5 Therapy Visits

C1F2S1

0.5407

30122

3rd+ Episodes, 6 Therapy Visits

C1F2S2

0.6850

30123

3rd+ Episodes, 7 to 9 Therapy Visits

C1F2S3

0.8292

30124

3rd+ Episodes, 10 Therapy Visits

C1F2S4

0.9734

30125

3rd+ Episodes, 11 to 13 Therapy Visits

C1F2S5

1.1177

30131

3rd+ Episodes, 0 to 5 Therapy Visits

C1F3S1

0.5856

30132

3rd+ Episodes, 6 Therapy Visits

C1F3S2

0.7303

30133

3rd+ Episodes, 7 to 9 Therapy Visits

C1F3S3

0.8749

30134

3rd+ Episodes, 10 Therapy Visits

C1F3S4

1.0195

30135

3rd+ Episodes, 11 to 13 Therapy Visits

C1F3S5

1.1642

30211

3rd+ Episodes, 0 to 5 Therapy Visits

C2F1S1

0.4802

30212

3rd+ Episodes, 6 Therapy Visits

C2F1S2

0.6414

30213

3rd+ Episodes, 7 to 9 Therapy Visits

C2F1S3

0.8025

30214

3rd+ Episodes, 10 Therapy Visits

C2F1S4

0.9637

30215

3rd+ Episodes, 11 to 13 Therapy Visits

C2F1S5

1.1249

30221

3rd+ Episodes, 0 to 5 Therapy Visits

C2F2S1

0.5652

30222

3rd+ Episodes, 6 Therapy Visits

C2F2S2

0.7152

30223

3rd+ Episodes, 7 to 9 Therapy Visits

C2F2S3

0.8652

30224

3rd+ Episodes, 10 Therapy Visits

C2F2S4

1.0151

30225

3rd+ Episodes, 11 to 13 Therapy Visits

C2F2S5

1.1651

30231

3rd+ Episodes, 0 to 5 Therapy Visits

C2F3S1

0.6101

30232

3rd+ Episodes, 6 Therapy Visits

C2F3S2

0.7605

30233

3rd+ Episodes, 7 to 9 Therapy Visits

C2F3S3

0.9109

30234

3rd+ Episodes, 10 Therapy Visits

C2F3S4

1.0612

30235

3rd+ Episodes, 11 to 13 Therapy Visits

C2F3S5

1.2116

30311

3rd+ Episodes, 0 to 5 Therapy Visits

C3F1S1

0.5936

30312

3rd+ Episodes, 6 Therapy Visits

C3F1S2

0.7739

30313

3rd+ Episodes, 7 to 9 Therapy Visits

C3F1S3

0.9542

30314

3rd+ Episodes, 10 Therapy Visits

C3F1S4

1.1345

30315

3rd+ Episodes, 11 to 13 Therapy Visits

C3F1S5

1.3148

30321

3rd+ Episodes, 0 to 5 Therapy Visits

C3F2S1

0.6786

30322

3rd+ Episodes, 6 Therapy Visits

C3F2S2

0.8477

30323

3rd+ Episodes, 7 to 9 Therapy Visits

C3F2S3

1.0168

30324

3rd+ Episodes, 10 Therapy Visits

C3F2S4

1.1859

30325

3rd+ Episodes, 11 to 13 Therapy Visits

C3F2S5

1.3550

30331

3rd+ Episodes, 0 to 5 Therapy Visits

C3F3S1

0.7235

30332

3rd+ Episodes, 6 Therapy Visits

C3F3S2

0.8930

30333

3rd+ Episodes, 7 to 9 Therapy Visits

C3F3S3

1.0625

30334

3rd+ Episodes, 10 Therapy Visits

C3F3S4

1.2320

30335

3rd+ Episodes, 11 to 13 Therapy Visits

C3F3S5

1.4015

40111

All Episodes, 20+ Therapy Visits

C1F1S1

1.7070

40121

All Episodes, 20+ Therapy Visits

C1F2S1

1.7438

40131

All Episodes, 20+ Therapy Visits

C1F3S1

1.7888

40211

All Episodes, 20+ Therapy Visits

C2F1S1

1.8124

40221

All Episodes, 20+ Therapy Visits

C2F2S1

1.8492

40231

All Episodes, 20+ Therapy Visits

C2F3S1

1.8942

40311

All Episodes, 20+ Therapy Visits

C3F1S1

2.0540

40321

All Episodes, 20+ Therapy Visits

C3F2S1

2.0908

40331

All Episodes, 20+ Therapy Visits

C3F3S1

2.1359

To ensure the changes to the HH PPS case-mix weights are implemented in a budget neutral manner, we then apply a case-mix budget neutrality factor to the CY 2018 national, standardized 60-day episode payment rate (see section III.C.3. of this final rule). The case-mix budget neutrality factor is calculated as the ratio of total payments when the CY 2018 HH PPS case-mix weights (developed using CY 2016 home health claims data) are applied to CY 2016 utilization (claims) data to total payments when CY 2017 HH PPS case-mix weights (developed using CY 2015 home health claims data) are applied to CY 2016 utilization data. This produces a case-mix budget neutrality factor for CY 2018 of 1.0160.

The following is a summary of the comments and our responses to comments on the CY 2018 case-mix weights:

Comment:

A few commenters stated that CMS did not provide sufficient transparency of the details and methods used to recalibrate the HH PPS case-mix weights in the proposed rule. In addition, commenters stated that CMS provided little justification for recalibrating the case-mix weights just 1 year following the recalibration of case-mix weights in CY 2017, 2 years since the recalibration in 2016, and 5 years since the recalibration for the CY 2012 HH PPS final rule. The commenters noted that they opposed the recalibration of the case weights for CY 2018, but supported the budget neutrality adjustment to account for the recalibrated case-mix weights if CMS finalizes the recalibration.

Response:

As stated in the CY 2018 HH PPS proposed rule (82 FR 35282), the methodology used to recalibrate the weights is identical to the methodology used in the CY 2012 recalibration except for the minor exceptions as noted in the CY 2015 HH PPS proposed and final rules (79 FR 38366 and 79 FR 66032, respectively). In the CY 2015 HH PPS final rule, we finalized annual recalibration and the methodology to be used for each year's recalibration (79 FR 66072). For more detail, we also encourage commenters to refer to the CY 2012 HH PPS proposed and final rules (76 FR 40988 and 76 FR 68526, respectively) and the November 1, 2011 “Revision of the Case-Mix Weights for the HH PPS Report” on our home page at:

https://www.cms.gov/center/provider-Type/home-Health-Agency-HHA-Center.html

for additional information about the recalibration methodology.

We note that in comparing the final CY 2018 HH PPS case-mix weights (see Table 5) to the final CY 2015 HH PPS case-mix weights (79 FR 66062), the case-mix weights change very little, with most case-mix weights either increasing or decreasing by 1 to 2 percent with no case-mix weights increasing by more than 3 percent or decreasing by more than 3 percent. The aggregate decreases in the case-mix weights are offset by the case-mix budget neutrality factor, which is applied to the national, standardized 60-day episode payment rate. In other words, although the case-mix weights themselves may increase or decrease from year-to-year, we correspondingly offset any estimated increases or decreases in total payments under the HH PPS, as a result of the case-mix recalibration, by applying a budget neutrality factor to the national, standardized 60-day episode payment rate. For CY 2018, the case-mix budget neutrality factor will be 1.0160 as described previously. The recalibration of the case-mix weights is not intended to increase or decrease overall HH PPS payments, but rather is used to update the relative differences in resource use amongst the 153 groups in the HH PPS case-mix system and maintain the level of aggregate payments before application of any other adjustments. We will continue to monitor the performance of any finalized case-mix model, and will make changes to it as necessary.

Final Decision:

We are finalizing the recalibrated scores for the case-mix adjustment variables, clinical and functional thresholds, payment regression model, and case-mix weights in Tables 2 through 5. For this final rule, the CY 2018 scores for the case-mix variables, the clinical and functional thresholds, and the case-mix weights were developed using complete CY 2016 claims data as of August 17, 2017. We note that we finalized the recalibration methodology and the proposal to annually recalibrate the HH PPS case-mix weights in the CY 2015 HH PPS final rule (79 FR 66072). No additional proposals were made with regard to the recalibration methodology in the CY 2018 HH PPS proposed rule.

C. CY 2018 Home Health Payment Rate Update

1. CY 2018 Home Health Market Basket Update

Section 1895(b)(3)(B) of the Act requires that the standard prospective payment amounts for CY 2018 be increased by a factor equal to the applicable HH market basket update for those HHAs that submit quality data as required by the Secretary. The home health market basket was rebased and revised in CY 2013. A detailed description of how we derive the HHA market basket is available in the CY 2013 HH PPS final rule (77 FR 67080 through 67090).

Section 1895(b)(3)(B)(vi) of the Act, requires that, in CY 2015 (and in subsequent calendar years, except CY 2018 (under section 411(c) of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10, enacted April 16, 2015)), the market basket percentage under the HHA prospective payment system as described in section 1895(b)(3)(B) of the Act be annually adjusted by changes in economy-wide productivity. Section 1886(b)(3)(B)(xi)(II) of the Act defines the productivity adjustment to be equal to the 10-year moving average of change in annual economy-wide private nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, calendar year, cost reporting period, or other annual period) (the “MFP adjustment”). The Bureau of Labor Statistics (BLS) is the agency that publishes the official measure of private nonfarm business MFP. Please see

http://www.bls.gov/mfp

to obtain the BLS historical published MFP data.

Prior to the enactment of the MACRA, which amended section 1895(b)(3)(B) of the Act, the home health update percentage for CY 2018 would have been based on the estimated home health market basket update of 2.5 percent (based on IHS Global Inc.'s third-quarter 2017 forecast with historical data through second-quarter 2017). Due to the requirements specified at section 1895(b)(3)(B)(vi) of the Act prior to the enactment of MACRA, the estimated CY 2018 home health market basket update of 2.5 percent would have been reduced by a MFP adjustment as mandated by the Affordable Care Act (currently estimated to be 0.6 percentage point for CY 2018). In effect, the home health payment update percentage for CY 2018 would have been 1.9 percent. However, section 411(c) of the MACRA amended section 1895(b)(3)(B) of the Act, such that, for home health payments for CY 2018, the market basket percentage increase is required to be 1 percent.

Section 1895(b)(3)(B) of the Act requires that the home health update be decreased by 2 percentage points for those HHAs that do not submit quality data as required by the Secretary. For HHAs that do not submit the required quality data for CY 2018, the home health payment update will be −1 percent (1 percent minus 2 percentage points).

2. CY 2018 Home Health Wage Index

Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the Secretary to provide appropriate adjustments to the proportion of the payment amount under the HH PPS that account for area wage differences, using adjustment factors that reflect the relative level of wages and wage-related costs applicable to the furnishing of HH services. Since the inception of the HH PPS, we have used inpatient hospital wage data in developing a wage index to be applied to HH payments. We proposed to continue this practice for CY 2018, as we continue to believe that, in the absence of HH-specific wage data, using inpatient hospital wage data is appropriate and reasonable for the HH PPS. Specifically, we proposed to continue to use the pre-floor, pre-reclassified hospital wage index as the wage adjustment to the labor portion of the HH PPS rates. For CY 2018, the updated wage data are for hospital cost reporting periods beginning on or after October 1, 2013, and before October 1, 2014 (FY 2014 cost report data). We apply the appropriate wage index value to the labor portion of the HH PPS rates based on the site of service for the beneficiary (defined by section 1861(m) of the Act as the beneficiary's place of residence).

To address those geographic areas in which there are no inpatient hospitals, and thus, no hospital wage data on which to base the calculation of the CY 2018 HH PPS wage index, we proposed to continue to use the same methodology discussed in the CY 2007 HH PPS final rule (71 FR 65884) to address those geographic areas in which there are no inpatient hospitals. For rural areas that do not have inpatient hospitals, we proposed to use the average wage index from all contiguous Core Based Statistical Areas (CBSAs) as a reasonable proxy. Currently, the only rural area without a hospital from which hospital wage data could be derived is Puerto Rico. However, for rural Puerto Rico, we do not apply this methodology due to the distinct economic circumstances that exist there (for example, due to the close proximity to one another of almost all of Puerto Rico's various urban and non-urban areas, this methodology would produce a wage index for rural Puerto Rico that is higher than that in half of its urban areas). Instead, we proposed to continue to use the most recent wage index previously available for that area. For urban areas without inpatient hospitals, we use the average wage index of all urban areas within the state as a reasonable proxy for the wage index for that CBSA. For CY 2018, the only urban area without inpatient hospital wage data is Hinesville, GA (CBSA 25980).

On February 28, 2013, OMB issued Bulletin No. 13-01, announcing revisions to the delineations of MSAs, Micropolitan Statistical Areas, and CBSAs, and guidance on uses of the delineation of these areas. In the CY 2015 HH PPS final rule (79 FR 66085 through 66087), we adopted the OMB's new area delineations using a 1-year transition. The most recent bulletin (No. 15-01) concerning the revised delineations was published by the OMB on July 15, 2015.

The CY 2018 wage index is available on the CMS Web site at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/Home-Health-Prospective-Payment-System-Regulations-and-Notices.html

3. CY 2018 Annual Payment Update

a. Background

The Medicare HH PPS has been in effect since October 1, 2000. As set forth in the July 3, 2000 final rule (65 FR 41128), the base unit of payment under the Medicare HH PPS is a national, standardized 60-day episode payment rate. As set forth in § 484.220, we adjust the national, standardized 60-day episode payment rate by a case-mix relative weight and a wage index value based on the site of service for the beneficiary.

To provide appropriate adjustments to the proportion of the payment amount under the HH PPS to account for area wage differences, we apply the appropriate wage index value to the labor portion of the HH PPS rates. The labor-related share of the case-mix adjusted 60-day episode rate will continue to be 78.535 percent and the non-labor-related share will continue to be 21.465 percent as set out in the CY 2013 HH PPS final rule (77 FR 67068). The CY 2018 HH PPS rates use the same case-mix methodology as set forth in the CY 2008 HH PPS final rule with comment period (72 FR 49762) and will be adjusted as described in section III.B.

of this final rule. The following are the steps we take to compute the case-mix and wage-adjusted 60-day episode rate:

(1) Multiply the national 60-day episode rate by the patient's applicable case-mix weight.

(2) Divide the case-mix adjusted amount into a labor (78.535 percent) and a non-labor portion (21.465 percent).

(3) Multiply the labor portion by the applicable wage index based on the site of service of the beneficiary.

(4) Add the wage-adjusted portion to the non-labor portion, yielding the case-mix and wage adjusted 60-day episode rate, subject to any additional applicable adjustments.

In accordance with section 1895(b)(3)(B) of the Act, we proposed the annual update of the HH PPS rates. Section 484.225 sets forth the specific annual percentage update methodology. In accordance with § 484.225(i), for a HHA that does not submit HH quality data, as specified by the Secretary, the unadjusted national prospective 60-day episode rate is equal to the rate for the previous calendar year increased by the applicable HH market basket index amount minus 2 percentage points. Any reduction of the percentage change will apply only to the calendar year involved and will not be considered in computing the prospective payment amount for a subsequent calendar year.

Medicare pays the national, standardized 60-day case-mix and wage-adjusted episode payment on a split percentage payment approach. The split percentage payment approach includes an initial percentage payment and a final percentage payment as set forth in § 484.205(b)(1) and (b)(2). We may base the initial percentage payment on the submission of a request for anticipated payment (RAP) and the final percentage payment on the submission of the claim for the episode, as discussed in § 409.43. The claim for the episode that the HHA submits for the final percentage payment determines the total payment amount for the episode and whether we make an applicable adjustment to the 60-day case-mix and wage-adjusted episode payment. The end date of the 60-day episode as reported on the claim determines which calendar year rates Medicare will use to pay the claim.

We may also adjust the 60-day case-mix and wage-adjusted episode payment based on the information submitted on the claim to reflect the following:

• A low-utilization payment adjustment (LUPA) is provided on a per-visit basis as set forth in §§ 484.205(c) and 484.230.

• A partial episode payment (PEP) adjustment as set forth in §§ 484.205(d) and 484.235.

• An outlier payment as set forth in §§ 484.205(e) and 484.240.

b. CY 2018 National, Standardized 60-Day Episode Payment Rate

Section 1895(b)(3)(A)(i) of the Act requires that the 60-day episode base rate and other applicable amounts be standardized in a manner that eliminates the effects of variations in relative case-mix and area wage adjustments among different home health agencies in a budget neutral manner. To determine the CY 2018 national, standardized 60-day episode payment rate, we apply a wage index budget neutrality factor; a case-mix budget neutrality factor described in section III.B. of this final rule; a reduction of 0.97 percent to account for nominal case-mix growth from 2012 to 2014, as finalized in the CY 2016 HH PPS final rule (80 FR 68646); and the home health payment update percentage discussed in section III.C.1 of this final rule.

To calculate the wage index budget neutrality factor, we simulated total payments for non-LUPA episodes using the CY 2018 wage index and compared it to our simulation of total payments for non-LUPA episodes using the CY 2017 wage index. By dividing the total payments for non-LUPA episodes using the CY 2018 wage index by the total payments for non-LUPA episodes using the CY 2017 wage index, we obtain a wage index budget neutrality factor of 1.0004. We will apply the wage index budget neutrality factor of 1.0004 to the calculation of the CY 2018 national, standardized 60-day episode rate.

As discussed in section III.B. of the proposed rule, to ensure the changes to the case-mix weights are implemented in a budget neutral manner, we proposed to apply a case-mix weight budget neutrality factor to the CY 2018 national, standardized 60-day episode payment rate. The case-mix weight budget neutrality factor is calculated as the ratio of total payments when CY 2018 case-mix weights are applied to CY 2016 utilization (claims) data to total payments when CY 2017 case-mix weights are applied to CY 2016 utilization data. The case-mix budget neutrality factor for CY 2018 is 1.0160 as described in section III.B of this final rule.

Next, we apply a reduction of 0.97 percent to the national, standardized 60-day payment rate for CY 2018 to account for nominal case-mix growth between CY 2012 and CY 2014. Lastly, we will update the payment rates by the CY 2018 home health payment update percentage of 1 percent as mandated by section 1895(b)(3)(B)(iii) of the Act. The CY 2018 national, standardized 60-day episode payment rate is calculated in Table 6.

Table 6—CY 2018 60-Day National, Standardized 60-Day Episode Payment Amount

CY 2017 national, standardized 60-day episode payment

Wage index budget

neutrality

factor

Case-mix

weights

budget

neutrality

factor

Nominal

case-mix

growth

adjustment

(1-0.0097)

CY 2018 HH

payment

update

CY 2018

national,

standardized

60-day

episode

payment

$2,989.97

× 1.0004

× 1.0160

× 0.9903

× 1.01

$3,039.64

The CY 2018 national, standardized 60-day episode payment rate for an HHA that does not submit the required quality data is updated by the CY 2018 home health payment update of 1 percent minus 2 percentage points and is shown in Table 7.

Table 7—CY 2017 National, Standardized 60-Day Episode Payment Amount for HHAS That Do Not Submit the Quality Data

CY 2017 national, standardized 60-day episode payment

Wage index

budget neutrality

factor

Case-mix

weights

budget

neutrality

factor

Nominal

case-mix

growth

adjustment

(1-0.0097)

CY 2018 HH

payment

update

CY 2018

national,

standardized

60-day

episode

payment

$2,989.97

× 1.0004

× 1.0160

× 0.9903

× 0.99

$2,979.45

c. CY 2018 National Per-Visit Rates

The national per-visit rates are used to pay LUPAs (episodes with four or fewer visits) and are also used to compute imputed costs in outlier calculations. The per-visit rates are paid by type of visit or HH discipline. The six HH disciplines are as follows:

• Home health aide (HH aide).

• Medical Social Services (MSS).

• Occupational therapy (OT).

• Physical therapy (PT).

• Skilled nursing (SN).

• Speech-language pathology (SLP).

To calculate the CY 2018 national per-visit rates, we started with the CY 2017 national per-visit rates. Then we applied a wage index budget neutrality factor to ensure budget neutrality for LUPA per-visit payments. We calculated the wage index budget neutrality factor by simulating total payments for LUPA episodes using the CY 2018 wage index and comparing it to simulated total payments for LUPA episodes using the CY 2017 wage index. By dividing the total payments for LUPA episodes using the CY 2018 wage index by the total payments for LUPA episodes using the CY 2017 wage index, we obtained a wage index budget neutrality factor of 1.0010. We apply the wage index budget neutrality factor of 1.0010 in order to calculate the CY 2018 national per-visit rates.

The LUPA per-visit rates are not calculated using case-mix weights. Therefore, there is no case-mix weights budget neutrality factor needed to ensure budget neutrality for LUPA payments. Lastly, the per-visit rates for each discipline are updated by the CY 2018 home health payment update percentage of 1 percent. The national per-visit rates are adjusted by the wage index based on the site of service of the beneficiary. The per-visit payments for LUPAs are separate from the LUPA add-on payment amount, which is paid for episodes that occur as the only episode or initial episode in a sequence of adjacent episodes. The CY 2018 national per-visit rates are shown in Tables 8 and 9.

Table 8—CY 2018 National Per-Visit Payment Amounts for HHAS That Do Submit the Required Quality Data

HH Discipline

CY 2017

per-visit

payment

Wage index

budget

neutrality

factor

CY 2018

payment

update

CY 2018

per-visit

payment

Home Health Aide

$64.23

× 1.0010

× 1.01

$64.94

Medical Social Services

227.36

× 1.0010

× 1.01

229.86

Occupational Therapy

156.11

× 1.0010

× 1.01

157.83

Physical Therapy

155.05

× 1.0010

× 1.01

156.76

Skilled Nursing

141.84

× 1.0010

× 1.01

143.40

Speech-Language Pathology

168.52

× 1.0010

× 1.01

170.38

The CY 2018 per-visit payment rates for HHAs that do not submit the required quality data are updated by the CY 2018 HH payment update percentage of 1 percent minus 2 percentage points and are shown in Table 9.

Table 9—CY 2018 National Per-Visit Payment Amounts for HHAS That Do Not Submit the Required Quality Data

HH Discipline

CY 2017

per-visit

rates

Wage index

budget

neutrality

factor

CY 2018

HH payment

update minus

2 percentage

points

CY 2018

per-visit

rates

Home Health Aide

$64.23

× 1.0010

× 0.99

$63.65

Medical Social Services

227.36

× 1.0010

× 0.99

225.31

Occupational Therapy

156.11

× 1.0010

× 0.99

154.70

Physical Therapy

155.05

× 1.0010

× 0.99

153.65

Skilled Nursing

141.84

× 1.0010

× 0.99

140.56

Speech-Language Pathology

168.52

× 1.0010

× 0.99

167.00

d. Low-Utilization Payment Adjustment (LUPA) Add-On Factors

LUPA episodes that occur as the only episode or as an initial episode in a sequence of adjacent episodes are adjusted by applying an additional amount to the LUPA payment before adjusting for area wage differences. In the CY 2014 HH PPS final rule (78 FR 72305), we changed the methodology for calculating the LUPA add-on amount by finalizing the use of three LUPA add-on factors: 1.8451 for SN; 1.6700 for PT; and 1.6266 for SLP. We multiply the per-visit payment amount for the first SN, PT, or SLP visit in LUPA episodes that occur as the only episode or an initial episode in a sequence of adjacent episodes by the appropriate factor to determine the LUPA add-on payment amount. For example, in the case of HHAs that do submit the required quality data, for LUPA episodes that occur as the only episode or an initial episode in a sequence of adjacent episodes, if the first skilled visit is SN, the payment for that visit will be $264.59 (1.8451 multiplied by $143.40), subject to area wage adjustment.

e. CY 2018 Non-Routine Medical Supply (NRS) Payment Rates

All medical supplies (routine and nonroutine) must be provided by the HHA while the patient is under a home health plan of care. Examples of supplies that can be considered non-routine include dressings for wound care, I.V. supplies, ostomy supplies, catheters, and catheter supplies. Payments for NRS are computed by multiplying the relative weight for a particular severity level by the NRS conversion factor. To determine the CY 2018 NRS conversion factor, we updated the CY 2017 NRS conversion factor ($52.50) by the CY 2018 home health payment update percentage of 1 percent. We did not apply a standardization factor as the NRS payment amount calculated from the conversion factor is not wage or case-mix adjusted when the final claim payment amount is computed. The NRS conversion factor for CY 2018 is shown in Table 10.

Table 10—CY 2018 NRS Conversion Factor for HHAs That Do Submit the Required Quality Data

CY 2017 NRS

conversion

factor

CY 2018 HH

payment

update

CY 2018 NRS

conversion

factor

$52.50

× 1.01

$53.03

Using the CY 2018 NRS conversion factor, the payment amounts for the six severity levels are shown in Table 11.

Table 11—CY 2018 NRS Payment Amounts for HHAs That Do Submit the Required Quality Data

Severity level

Points

(scoring)

Relative

weight

CY 2018 NRS

payment

amounts

0.2698

$14.31

1 to 14

0.9742

51.66

15 to 27

2.6712

141.65

28 to 48

3.9686

210.45

49 to 98

6.1198

324.53

99+

10.5254

558.16

For HHAs that do not submit the required quality data, we updated the CY 2017 NRS conversion factor ($52.50) by the CY 2018 home health payment update percentage of 1 percent minus 2 percentage points. The CY 2018 NRS conversion factor for HHAs that do not submit quality data is shown in Table 12.

Table 12—CY 2018 NRS Conversion Factor for HHAs That Do Not Submit the Required Quality Data

CY 2017 NRS

conversion factor

CY 2018 HH

payment

update

percentage

minus 2

percentage

points

CY 2018 NRS

conversion

factor

$52.50

× 0.99

$51.98

The payment amounts for the various severity levels based on the updated conversion factor for HHAs that do not submit quality data are calculated in Table 13.

Table 13—CY 2018 NRS Payment Amounts for HHAs That Do Not Submit the Required Quality Data

Severity level

Points

(scoring)

Relative

weight

CY 2018 NRS

payment

amounts

0.2698

$14.02

1 to 14

0.9742

50.64

15 to 27

2.6712

138.85

28 to 48

3.9686

206.29

49 to 98

6.1198

318.11

99+

10.5254

547.11

f. Rural Add-On

Section 421(a) of the MMA required, for HH services furnished in a rural area (as defined in section 1886(d)(2)(D) of the Act), for episodes or visits ending on or after April 1, 2004, and before April 1, 2005, that the Secretary increase the payment amount that otherwise would have been made under section 1895 of the Act for the services by 5 percent.

Section 5201 of the DRA amended section 421(a) of the MMA. The amended section 421(a) of the MMA required, for HH services furnished in a rural area (as defined in section 1886(d)(2)(D) of the Act), on or after January 1, 2006, and before January 1, 2007, that the Secretary increase the payment amount otherwise made under section 1895 of the Act for those services by 5 percent.

Section 3131(c) of the Affordable Care Act amended section 421(a) of the MMA to provide an increase of 3 percent of the payment amount otherwise made under section 1895 of the Act for HH services furnished in a rural area (as defined in section 1886(d)(2)(D) of the Act), for episodes and visits ending on or after April 1, 2010, and before January 1, 2016.

Section 210 of the MACRA amended section 421(a) of the MMA to extend the rural add-on by providing an increase of 3 percent of the payment amount otherwise made under section 1895 of the Act for HH services provided in a rural area (as defined in section 1886(d)(2)(D) of the Act), for episodes and visits ending before January 1, 2018. Therefore, for episodes and visits that end on or after January 1, 2018, a rural add-on payment will not apply.

The following is a summary of the public comments received on the “CY 2018 Home Health Payment Rate Update” proposals and our responses:

Comment:

Several commenters stated that they wanted CMS to rescind the nominal case-mix reduction for CY 2018. Some commenters stated that implementation of the nominal case-mix reductions in 2016, 2017, and 2018 violated the limits on payment reductions set out by the Congress, and urged CMS to adhere to the statutory limits on home health rate cuts. Commenters expressed concerns with the data and methodology used to develop the proposed case-mix cuts and stated that the annual recalibration may have eliminated any practice of assigning an inaccurate code to increase reimbursement and questioned the interaction between the rebasing adjustments, nominal case-mix growth reductions, and case-mix recalibration. A few commenters stated that the baseline used in calculating the amount of case-mix growth was inappropriate. Some commenters noted that actual program spending on home health was consistently less than Congressional Budget Office (CBO) estimates, and questioned CMS' authority to implement case mix weight adjustments when home health spending was less than these estimates. Commenters stated that there was no increase in aggregate expenditures that warranted the application of this statutory authority, and CMS should withdraw its proposal. Some commenters stated that CMS should implement program integrity measures to control aberrant coding by some providers instead of imposing across-the-board case mix creep adjustments on all providers.

Response:

We finalized the nominal case-mix reduction for CY 2018 in the CY 2016 HH PPS final rule. We did not propose changes to the finalized reduction for CY 2018, nor did we propose any changes in the methodology used to calculate nominal case-mix growth in the CY 2018 HH PPS proposed rule. The majority of the comments received regarding the payment reductions for nominal case-mix growth were very similar to the comments submitted during the comment period for the CY 2016 HH PPS proposed rule. Therefore, we encourage commenters to review our responses to the comments we received on the payment reductions for nominal case-mix growth in the CY 2016 HH PPS final rule (80 FR 68639 through 68646), which include responses on the interaction between the rebasing and recalibration of the case-mix weights on the measurement of nominal case-mix growth between 2012 and 2014, our rationale for the methodology used to determine “real” versus “nominal” case-mix growth in CYs 2012-2014, the role of CBO estimates in our determination of nominal case-mix reductions, and our ability to target nominal case-mix reductions to certain providers rather the industry as a whole. We will continue to monitor real and nominal case-mix growth and may propose additional reductions for nominal case-mix growth, as needed, in the future.

Comment:

MedPAC stated that they have long believed that it was necessary for CMS to make adjustments to account for nominal case-mix change to prevent additional overpayments. MedPAC stated that the CMS' reduction to account for nominal case-mix growth is consistent with the agency's past findings on trends in case-mix change in the payment system and thus is warranted to ensure the accuracy of payments under the home health PPS. MedPAC stated that a reduction of 0.97 percent should not significantly affect access to care.

Response:

We thank MedPAC for their comments.

Comment:

Several commenters stated their belief that the CY 2018 payment update of 1 percent is inadequate.

Response:

We appreciate the commenters' concerns. However, the 1 percent payment update for CY 2018 is mandated by section 1895(b)(3)(B)(iii) of the Act, as amended by section 411(c) of the MACRA.

Comment:

Several commenters urged CMS to continue providing rural add-on payments in order that beneficiaries in rural communities continue to have access to home health services.

Response:

The sunset of rural add-on payments for CY 2018 is statutory and we do not have the authority to re-authorize rural add-on payments for episodes and visits ending on or after January 1, 2018.

However, we plan to continue to monitor the costs associated with providing home health care in rural versus urban areas. We note that in Chapter 9 of its 2013 Report to Congress (available at

http://medpac.gov/docs/default-source/reports/mar13_ch09.pdf?sfvrsn=0

), MedPAC stated that the use of the “broadly targeted add-on, providing the same payment for all rural areas regardless of access, results in rural areas with the highest utilization drawing a disproportionate share of the add-on payments.” MedPAC stated that “70 percent of the episodes that received the add-on payments in 2011 were in rural counties with utilization significantly higher than the national average” and recommended that Medicare target payment adjustments for rural areas to those areas that have access challenges.

See U.S. CONST. art. I, § 9 (“No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”).

Comment:

A commenter recommended that CMS explore policies that provide Medicare coverage for services from therapy providers who furnish telehealth services to their patients as proper application of telehealth rehabilitation therapy services, particularly in underserved areas, can potentially have a dramatic impact on improving care, diminishing negative consequences, and reducing costs.

Response:

The definition of a visit for purposes of Medicare home health services as set forth in § 409.48(c) 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 telehealth visit does not meet the definition of a visit and therefore does not count as a visit. While there is nothing to preclude an HHA from furnishing services via telehealth or other technologies that they believe promote efficiencies, those technologies are not specifically recognized and paid by Medicare under the home health benefit.

Comment:

Several commenters expressed concerns with the wage index for rural areas in Maine, citing it as one of the lowest in New England. Another commenter questioned the validity of the wage index data, especially in the case of the CBSA for Albany-Schenectady-Troy, noting that in the past 5 years, this CBSA has seen its wage index reduced 5.41 percent, going from 0.8647 in 2013 to a proposed CY 2018 wage index of 0.8179.

Response:

As discussed in the CY 2017 HH PPS final rule (81 FR 76721), we believe that the wage index values are reflective of the labor costs in each geographic area as they reflect the costs included on the cost reports of hospitals in those specific labor market areas. The wage index values are based on data submitted on the inpatient hospital cost reports. We utilize efficient means to ensure and review the accuracy of the hospital cost report data and resulting wage index. The home health wage index is derived from the pre-floor, pre-reclassified wage index, which is calculated based on cost report data from hospitals paid under the Hospital Inpatient Prospective Payment System (IPPS). All IPPS hospitals must complete the wage index survey (Worksheet S-3, Parts II and III) as part of their Medicare cost reports. Cost reports will be rejected if Worksheet S- 3 is not completed. In addition, Medicare contractors perform desk reviews on all hospitals' Worksheet S-3 wage data, and we run edits on the wage data to further ensure the accuracy and validity of the wage data. We believe that our review processes result in an accurate reflection of the applicable wages for the areas given. The processes and procedures describing how the inpatient hospital wage index is developed are discussed in the IPPS rule each year, with the most recent discussion provided in the FY 2018 IPPS final rule (82 FR 38130 through 38136 and 82 FR 38152 through 38156). Any provider type may submit comments on the hospital wage index during the annual IPPS rulemaking cycle.

Comment:

A commenter stated that CMS's decision to switch from MSAs to the CBSAs for the wage index calculation has had serious financial ramifications for New York HHAs. The commenter stated that CMS's shift to the CBSA wage index designation has resulted in below trend reimbursement for New York City agencies.

Response:

The MSA delineations as well as the CBSA delineations are determined by the OMB. The OMB reviews its Metropolitan Area definitions preceding each decennial census to reflect recent population changes. We believe that the OMB's CBSA designations reflect the most recent available geographic classifications and are a reasonable and appropriate way to define geographic areas for purposes of wage index values.

Comment:

Several commenters opposed the fact that hospitals are given the opportunity to appeal their annual wage index and apply for geographic reclassification while HHAs in the same geographic location are not given that same privilege. The commenters believe that this lack of parity between different health care sectors further exemplifies the inadequacy of CMS's decision to continue to use the pre-floor, pre-reclassified hospital wage index to adjust home health services payment rates. Another commenter suggests that CMS include wage data from reclassified hospitals in calculating rural wage index values.

Response:

We continue to believe that the regulations and statutes that govern the HH PPS do not provide a mechanism for allowing HHAs to seek geographic reclassification or to utilize the rural floor provisions that exist for IPPS hospitals. Section 4410(a) of the BBA provides that the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that state. This is the rural floor provision and it is specific to hospitals. The reclassification provision at section 1886(d)(10)(C)(i) of the Act states that the Board shall consider the application of any subsection (d) hospital requesting the Secretary change the hospital's geographic classification. This reclassification provision is only applicable to hospitals as defined in section 1886(d) of the Act. In addition, we do not believe that using hospital reclassification data would be appropriate as these data are specific to the requesting hospitals and may or may not apply to a given HHA.

We continue to believe that using the pre-floor, pre-reclassified hospital wage index as the wage adjustment to the labor portion of the HH PPS rates is appropriate and reasonable.

Comment:

Several commenters requested that CMS explore wholesale revision and reform of the home health wage index, including the development of a home health-specific wage index. Commenters noted that reform of the home health wage index should address the commenters' following concerns and opinions: (1) The impact on care access and financial stability of HHAs at the local level; (2) the unpredictable year-to-year swings in wage index values that are often based on inaccurate or incomplete hospital cost reports which have negatively impacted HHAs throughout the years and jeopardized access to care; (3) the inadequacy and inaccuracy of the pre-floor, pre-reclassified hospital wage index for adjusting home health costs; and (4) the labor market distortions created by reclassification of hospitals in areas in which home health labor costs are not reclassified.

Response:

We appreciate the commenter's recommendation to continue exploring potential approaches for wage index reform, including collecting home health-specific wage data in order to establish a home health-specific wage index. We note that our previous attempts at either proposing or developing a home health-specific wage index were not well-received by the home health industry. In September 30, 1988

Federal Register

notice (53 FR 38476), the Health Care Financing Administration (HCFA), as CMS was then known, implemented an HHA-specific wage index based on data received from HHAs. Subsequently, providers gave significant feedback concerning the burden that the reporting requirements posed and the accuracy of the data. As a result, the Medicare Catastrophic Coverage Act of 1988 retroactively repealed the use of an HHA-specific wage index and referenced use of the hospital wage index (see section 1895(b)(4)(C) of the Act). While this occurred many years ago, we believe that HHAs would voice similar concerns regarding the burden such reporting requirements would place on HHAs.

Consistent with our previous responses to these recurring comments (most recently published in the CY 2016 HH PPS final rule (80 FR 68654)), we also note that developing such a wage index would require a resource-intensive audit process similar to that used for IPPS hospital data, to improve the quality of the HHA cost report data in order for it to be used as part of this analysis. This audit process is quite extensive in the case of approximately

3,300 hospitals, it would be significantly more so in the case of approximately 11,000 HHAs. We believe auditing all HHA cost reports, similar to the process used to audit inpatient hospital cost reports for purposes of the IPPS wage index, would also place a burden on providers in terms of recordkeeping and completion of the cost report worksheet.

We also believe that adopting such an approach would require a significant commitment of resources by CMS and the Medicare Administrative Contractors, potentially far in excess of those required under the IPPS given that there are more than three times as many HHAs as there are hospitals. Therefore, we continue to believe that, in the absence of the appropriate home health-specific wage data, using the pre-floor, pre-reclassified inpatient hospital wage data is appropriate and reasonable for the HH PPS.

Finally, CMS has conducted research on a possible alternative to the hospital wage index. CMS issued its “Report to Congress: Plan to Reform the Medicare Wage Index” concerning the hospital wage index, on April 11, 2012 and is available on our Wage Index Reform Web page

https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html

. This report describes the concept of a commuting-based wage index (CBWI). However, implementation of a CBWI may require both statutory and regulatory changes. In addition, we believe other intermediate steps for implementation, including the collection of commuting data, may be necessary. In considering alternative methodologies for area wage adjustment, CMS would have to consider whether the benefits of such methodologies outweigh the reporting, record keeping and audit burden that would be placed on HHAs and/or other providers.

Comment:

Several commenters stated that the pre-floor, pre-reclassified hospital wage index is inadequate for adjusting home health costs, particularly in states like New York, which has among the nation's highest labor costs, exacerbated, in the commenters' opinions, by their state's implementation of a phased-in $15 per-hour minimum wage hike, which they argue would be unfunded by Medicare. The commenters estimated that the minimum wage mandate, when fully phased-in, would add $2 billion in costs for that state's HHAs across all payers (Medicaid, Medicare, managed care, commercial insurance and private-pay), and would not be captured by the pre-floor, pre-reclassified hospital wage index. One commenter recommended that providers meeting higher minimum wage standards, such as HHAs, obtain additional supplemental funding to better align payments with cost trends impacting providers.

Response:

Regarding minimum wage standards, we note that such increases will be reflected in future data used to create the hospital wage index to the extent that these changes to state minimum wage standards are reflected in increased wages to hospital staff.

Comment:

Commenters raised issues with CMS's decision to maintain the current policy of using the pre-floor, pre-reclassified hospital wage index to adjust home health services payment rates because this resulted in volatility in the home health wage index from one year to the next. These commenters believe that what they view as unpredictable year-to-year swings in wage index values were based on inaccurate or incomplete hospital cost reports.

Response:

We appreciate the commenters' concerns regarding the accuracy of the home health wage index. We utilize efficient means to ensure and review the accuracy of the hospital cost report data and resulting wage index. The home health wage index is derived from the pre-floor, pre-reclassified wage index, which is calculated based on cost report data from hospitals paid under the IPPS. All IPPS hospitals must complete the wage index survey (Worksheet S-3, Parts II and III) as part of their Medicare cost reports. Cost reports will be rejected if Worksheet S-3 is not completed. In addition, Medicare contractors perform desk reviews on all hospitals' Worksheet S-3 wage data, and we run edits on the wage data to further ensure the accuracy and validity of the wage data. We believe that our review processes result in an accurate reflection of the applicable wages for the areas given. The processes and procedures describing how the inpatient hospital wage index is developed, including a wage data verification and correction process, are discussed in the IPPS rule each year, with the most recent discussion provided in the FY 2018 IPPS final rule (82 FR 38130 through 38136, and 82 FR 38152 through 38156). Any provider type may submit comments on the hospital wage index during the annual IPPS rulemaking cycle.

Comment:

A commenter recommended that CMS research the impact of instituting a population density adjustment to the labor portion of the HH PPS payments.

Response:

As discussed in the CY 2017 HH PPS final rule (81 FR 76721), we do not believe that a population density adjustment is appropriate at this time. Rural HHAs continually cite the added cost of traveling from one patient to the next patient. However, urban HHAs cite the added costs associated with needed security measures and traffic congestion. The home health wage index values in rural areas are not necessarily lower than the home health wage index values in urban areas. The home health wage index reflects the wages that inpatient hospitals pay in their local geographic areas.

Final Decision:

After considering the comments received in response to the CY 2018 HH PPS proposed rule, we are finalizing our proposal to use the pre-floor, pre-reclassified hospital inpatient wage index as the wage adjustment to the labor portion of the HH PPS rates. For CY 2018, the updated wage data are for the hospital cost reporting periods beginning on or after October 1, 2013 and before October 1, 2014 (FY 2014 cost report data). In addition, we are implementing the third and final year of a 0.97 percent payment reduction to account for nominal case-mix growth from CY 2012 through CY 2014 when finalizing the CY 2018 HH PPS payment rates. We note that the payment reductions to account for nominal case-mix growth from 2012 to 2014 were finalized in the CY 2016 HH PPS final rule. No additional adjustments or reductions were proposed in the CY 2018 proposed rule.

D. Payments for High-Cost Outliers Under the HH PPS

1. Background

Section 1895(b)(5) of the Act allows for the provision of an addition or adjustment to the home health payment amount in the case of outliers because of unusual variations in the type or amount of medically necessary care. Outlier payments serve as a type of “reinsurance” whereby, under the HH PPS, Medicare reimburses HHAs 80 percent of their costs for outlier cases once the case exceeds an outlier threshold amount. Prior to the enactment of the Affordable Care Act, section 1895(b)(5) of the Act stipulated that projected total outlier payments could not exceed 5 percent of total projected or estimated HH payments in a given year. In the July 3, 2000 Medicare Program; Prospective Payment System for Home Health Agencies final rule (65 FR 41188 through 41190), we described the method for determining outlier payments. Under this system, outlier payments are made for episodes

whose estimated costs exceed a threshold amount for each Home Health Resource Group (HHRG). The episode's estimated cost was established as the sum of the national wage-adjusted per-visit payment amounts delivered during the episode. The outlier threshold for each case-mix group or Partial Episode Payment (PEP) adjustment is defined as the 60-day episode payment or PEP adjustment for that group plus a fixed-dollar loss (FDL) amount. The outlier payment is defined to be a proportion of the wage-adjusted estimated cost beyond the wage-adjusted threshold. The threshold amount is the sum of the wage and case-mix adjusted PPS episode amount and wage-adjusted FDL amount. The proportion of additional costs over the outlier threshold amount paid as outlier payments is referred to as the loss-sharing ratio.

In the CY 2010 HH PPS proposed rule (74 FR 40948, 40957), we stated that outlier payments increased as a percentage of total payments from 4.1 percent in CY 2005, to 5.0 percent in CY 2006, to 6.4 percent in CY 2007 and that this excessive growth in outlier payments was primarily the result of unusually high outlier payments in a few areas of the country. In that discussion, we noted that despite program integrity efforts associated with excessive outlier payments in targeted areas of the country, we discovered that outlier expenditures still exceeded the 5 percent target in CY 2007 and, in the absence of corrective measures, would continue do to so. Consequently, we assessed the appropriateness of taking action to curb outlier abuse. As described in the CY 2010 HH PPS final rule (74 FR 58080 through 58087), to mitigate possible billing vulnerabilities associated with excessive outlier payments and adhere to our statutory limit on outlier payments, we finalized an outlier policy that included a 10 percent agency-level cap on outlier payments. This cap was implemented in concert with a reduced FDL ratio of 0.67. These policies resulted in a projected target outlier pool of approximately 2.5 percent. (The previous outlier pool was 5 percent of total home health expenditures). For CY 2010, we first returned the 5 percent held for the previous target outlier pool to the national, standardized 60-day episode rates, the national per-visit rates, the LUPA add-on payment amount, and the NRS conversion factor. Then, we reduced the CY 2010 rates by 2.5 percent to account for the new outlier pool of 2.5 percent. This outlier policy was adopted for CY 2010 only.

As we noted in the CY 2011 HH PPS final rule (75 FR 70397 through 70399), section 3131(b)(1) of the Affordable Care Act amended section 1895(b)(3)(C) of the Act, and required the Secretary to reduce the HH PPS payment rates such that aggregate HH PPS payments were reduced by 5 percent. In addition, section 3131(b)(2) of the Affordable Care Act amended section 1895(b)(5) of the Act by redesignating the existing language as section 1895(b)(5)(A) of the Act, and revising the language to state that the total amount of the additional payments or payment adjustments for outlier episodes may not exceed 2.5 percent of the estimated total HH PPS payments for that year. Section 3131(b)(2)(C) of the Affordable Care Act also added section 1895(b)(5)(B) of the Act which capped outlier payments as a percent of total payments for each HHA at 10 percent.

As such, beginning in CY 2011, our HH PPS outlier policy is that we reduce payment rates by 5 percent and target up to 2.5 percent of total estimated HH PPS payments to be paid as outliers. To do so, we returned the 2.5 percent held for the target CY 2010 outlier pool to the national, standardized 60-day episode rates, the national per visit rates, the LUPA add-on payment amount, and the NRS conversion factor for CY 2010. Then we reduced the rates by 5 percent as required by section 1895(b)(3)(C) of the Act, as amended by section 3131(b)(1) of the Affordable Care Act. For CY 2011 and subsequent calendar years we target up to 2.5 percent of estimated total payments to be paid as outlier payments, and apply a 10 percent agency-level outlier cap.

In the CY 2017 HH PPS proposed and final rules (81 FR 43737 through 43742 and 81 FR 76724), we described our concerns regarding patterns observed in home health outlier episodes. Specifically, we noted that the methodology for calculating home health outlier payments may have created a financial incentive for providers to increase the number of visits during an episode of care to surpass the outlier threshold and simultaneously created a disincentive for providers to treat medically complex beneficiaries who require fewer but longer visits. Given these concerns, in the CY 2017 HH PPS final rule (81 FR 76724), we finalized changes to the methodology used to calculate outlier payments, using a cost-per-unit approach rather than a cost-per-visit approach. This change in methodology allows for more accurate payment for outlier episodes, accounting for both the number of visits during an episode of care and also the length of the visits provided. Using this approach, we now convert the national per-visit rates into per 15-minute unit rates. These per 15-minute unit rates are used to calculate the estimated cost of an episode to determine whether the claim will receive an outlier payment and the amount of payment for an episode of care. In conjunction with our finalized policy to change to a cost-per-unit approach to estimate episode costs and determine whether an outlier episode should receive outlier payments, in the CY 2017 HH PPS final rule (81 FR 76725) we also finalized the implementation of a cap on the amount of time per day that would be counted toward the estimation of an episode's costs for outlier calculation purposes. Specifically, we limit the amount of time per day (summed across the six disciplines of care) to 8 hours (32 units) per day when estimating the cost of an episode for outlier calculation purposes.

2. Fixed Dollar Loss (FDL) Ratio

For a given level of outlier payments, there is a trade-off between the values selected for the FDL ratio and the loss-sharing ratio. A high FDL ratio reduces the number of episodes that can receive outlier payments, but makes it possible to select a higher loss-sharing ratio, and therefore, increase outlier payments for qualifying outlier episodes. Alternatively, a lower FDL ratio means that more episodes can qualify for outlier payments, but outlier payments per episode must then be lower.

The FDL ratio and the loss-sharing ratio must be selected so that the estimated total outlier payments do not exceed the 2.5 percent aggregate level (as required by section 1895(b)(5)(A) of the Act). Historically, we have used a value of 0.80 for the loss-sharing ratio which, we believe, preserves incentives for agencies to attempt to provide care efficiently for outlier cases. With a loss-sharing ratio of 0.80, Medicare pays 80 percent of the additional estimated costs above the outlier threshold amount.

Simulations based on CY 2015 claims data (as of June 30, 2016) completed for the CY 2017 HH PPS final rule showed that outlier payments were estimated to represent approximately 2.84 percent of total HH PPS payments in CY 2017, and as such, we finalized a change to the FDL ratio from 0.45 to 0.55. We stated that raising the FDL ratio to 0.55, while maintaining a loss-sharing ratio of 0.80, struck an effective balance of compensating for high-cost episodes while still meeting the statutory requirement to target up to, but no more than, 2.5 percent of total payments as outlier payments (81 FR 76726). The national, standardized 60-day episode payment amount is multiplied by the FDL ratio. That amount is wage-adjusted

to derive the wage-adjusted FDL amount, which is added to the case-mix and wage-adjusted 60-day episode payment amount to determine the outlier threshold amount that costs have to exceed before Medicare would pay 80 percent of the additional estimated costs.

Using preliminary CY 2016 claims data (as of March 17, 2017) and the proposed CY 2018 payment rates presented in section III.C. of the CY 2018 HH PPS proposed rule (82 FR 35293), we estimated that outlier payments would constitute approximately 2.47 percent of total HH PPS payments in CY 2018 under the current outlier methodology. Given the statutory requirement to target up to, but no more than, 2.5 percent of total payments as outlier payments, we did not propose a change to the FDL ratio for CY 2018 as we believed that maintaining an FDL ratio of 0.55 with a loss-sharing ratio of 0.80 was still appropriate given the percentage of outlier payments projected for CY 2018. Likewise, we did not propose a change to the loss-sharing ratio (0.80) for the HH PPS to remain consistent with payment for high-cost outliers in other Medicare payment systems (for example, Inpatient Rehabilitation Facility (IRF) PPS, IPPS, etc.). While we did not propose to change the FDL ratio of 0.55 for CY 2018, we noted that we would update our estimate of outlier payments as a percent of total HH PPS payments using the most current and complete year of HH PPS data (CY 2016 claims data as of June 30, 2017 or later) in this final rule.

Using updated CY 2016 claims data (as of August 18, 2017) and the final CY 2018 payment rates presented in section III.C of this final rule, we estimate that outlier payments would continue to constitute approximately 2.47 percent of total HH PPS payments in CY 2018 under the current outlier methodology. Given the statutory requirement to target up to, but no more than, 2.5 percent of total payments as outlier payments, we continue to believe that maintaining an FDL ratio of 0.55 with a loss-sharing ratio of 0.80 is still appropriate given the percentage of outlier payments projected for CY 2018.

The following is a summary of the comments received and our responses.

Comment:

A commenter questioned if we would provide the CY 2018 cost-per-unit values to be used for the outlier calculation.

Response:

The cost-per-unit amounts for CY 2018 are in Table 14 of this final rule. We note that in the CY 2017 HH PPS final rule (81 FR 76724), we stated that we did not plan to re-estimate the average minutes per visit by discipline every year. Additionally, we noted that the per-unit rates used to estimate an episode's cost will be updated by the home health update percentage each year, meaning we would start with the national per-visit amounts for the same calendar year when calculating the cost-per-unit used to determine the cost of an episode of care (81 FR 76727).

Table 14—CY 2018 Cost-Per-Unit Payment Rates for the Calculation of Outlier Payments *

Visit type

CY 2018

National

per-visit

payment rates

Average

minutes-

per-visit

Cost-per-unit

(1 unit = 15 minutes)

Home health aide

$64.94

63.0

$15.46

Medical social services

229.86

56.5

61.02

Occupational therapy

157.83

47.1

50.26

Physical therapy

156.76

46.6

50.46

Skilled nursing

143.40

44.8

48.01

Speech-language pathology

170.38

48.1

53.13

* These values reflect the national per visit rates for each discipline for providers who have submitted quality data; for rates applicable to those providers who did not submit quality data submitted, please see our forthcoming CY 2018 Rate Update Change Request, which will be available here:

https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2017-Transmittals.html

We note that we will continue to monitor the visit length by discipline as more recent data become available, and we may propose to update the rates as needed in the future.

Comment:

Several commenters stated that the changes to the outlier methodology made in the CY 2017 final rule, particularly the increase in the FDL ratio from 0.45 to 0.55, were significant and may have led to a reduction in the number of home health episodes that would qualify for outlier payment. The commenters recommended that CMS release data on the impact of this policy change on the dually eligible beneficiary population and in particular those patients with clinically complex conditions.

Response:

We appreciate the commenters' concerns regarding the potential impact of the changes to the outlier policy finalized in the CY 2017 HH PPS final rule (81 FR 76727). Data reflecting the changes to the outlier policy made for CY 2017 are not yet available for analysis and assessment. However, as these updated data become available, we will evaluate for changes, analyze patterns in home health outlier payments, and monitor for any impacts, particularly for those beneficiaries with clinically complex conditions, and may include the results of such efforts in future rulemaking.

Additionally, as discussed in the CY 2017 HH PPS final rule (81 FR 76728), the goal of this policy change is to more accurately pay for outlier episodes. We noted in the CY 2017 HH PPS proposed rule that analysis indicates that a larger percentage of episodes of care for patients with a fragile overall health status will qualify for outlier payments (81 FR 43713). The outlier system is meant to help address extra costs associated with extra, and potentially unpredictable, medically necessary care. In section II.D. of the CY 2018 HH PPS proposed rule (82 FR 35275), we discussed Report to Congress: Home Health Study on Access to Care for Vulnerable Patient Populations and Subsequent Research and Analyses. We believe that this change in the outlier payment policy may ultimately serve to address some of the findings from the home health study, where margins were lower for patients with medically complex needs that typically require longer visits, thus potentially creating an incentive to treat only or primarily patients with less complex needs.

Moreover, the 2.5 percent target of outlier payments to total home health payments is a statutory requirement, as established in section 1895(b)(5) of the Act. Therefore, we modified the FDL in order to align the estimated outlier payments with the 2.5 percent target required by law.

Comment:

A few commenters expressed disagreement with CMS's decision to maintain the existing 10-percent cap on outlier payments to HHAs as a purported fraud-fighting effort, suggesting that a potentially more appropriate and targeted fraud-fighting initiative will include a possible minimum provider-specific number or percent of episodes that result in LUPAs, suggesting that reporting periods with zero LUPAs could be an indicator of inappropriate provider behavior.

Response:

Regarding the appropriateness of the 10 percent per-agency cap, we note that the 2.5 percent target of outlier payments to total home health payments and the 10 percent cap on outlier payments at the home health agency level are statutory requirements, as established in section 1895(b)(5) of the Act. Therefore, we do not have the authority to adjust or eliminate the 10-percent cap or increase the 2.5 percent target amount. Additionally, we appreciate the commenter's suggestion regarding alternative approaches for targeting fraud within the Medicare home health benefit. The Program for Evaluating Payment Patterns Electronic Report (PEPPER) is a comparative data report that summarizes a single provider's Medicare claims data statistics for services vulnerable to improper payments. PEPPER can support a hospital or facility's compliance efforts by identifying where its billing patterns are different from the majority of other providers in the nation. This data can help identify both potential overpayments and potential underpayments, and can provide guidance on areas in which a provider may want to focus auditing and monitoring efforts with the goal of preventing improper Medicare payments. In the HHA PEPPER, we include a metric for non-LUPA payment, which represents the count of episodes paid to the HHA that did not have a LUPA payment during the report period as a proportion of total episodes paid to the HHA during the report period (available at:

https://www.pepperresources.org/Portals/0/Documents/PEPPER/HHA/HHA_PEPPERUsersGuide_Edition2.pdf

). This measure is provided to the HHA community for review and may also be used by our Center for Program Integrity as a guide for audits and other investigative efforts.

We also note that, as described in the CY 2017 HH PPS final rule (82 FR 76727), in 2015, only about 1 percent of HHAs received 10 percent of their total HH PPS payments as outlier payments, while almost 71 percent of HHAs received less than 1 percent of their total HH PPS payments as outliers. Therefore, the 10 percent agency-level cap does not seem to significantly impact a large portion of HHAs.

Comment:

Several commenters recommended that CMS conduct a more detailed analysis to determine whether the total cap of 2.5 percent of total payments as outlier payments is adequate or whether it needs to be increased for future years, particularly given the expected change in Medicare beneficiary demographics anticipated in the coming years.

Response:

As established in section 1895(b)(5) of the Act, both the 2.5 percent target of outlier payments to total home health payments and the 10-percent cap on outlier payments at the home health agency level are statutory requirements. Therefore, we do not have the authority to adjust or eliminate the 10-percent cap or increase the 2.5-percent target amount. However, we will continue to evaluate for the appropriateness of those elements of the outlier policy that may be modified, including the FDL and the loss-sharing ratio. We note that other Medicare payment systems with outlier payments, such as the IRF PPS and IPPS, annually reassess the fixed-loss cost outlier threshold amount. Adjusting the outlier threshold amount in order to target the statutorily required percentage of total payments as outlier payments is standard practice.

Comment:

A commenter recommended that CMS eliminate outlier payments in their entirety.

Response:

We believe that section 1895(b)(5)(A) of the Act allows the Secretary the discretion as to whether or not to have an outlier policy under the HH PPS. However, we also believe that outlier payments are beneficial in that they help mitigate the incentive for HHAs to avoid patients that may have episodes of care that result in unusual variations in the type or amount of medically necessary care. The outlier system is meant to help address extra costs associated with extra, and potentially unpredictable, medically necessary care. We note that we plan to continue evaluating whether or not an outlier policy remains appropriate as well as ways to maintain an outlier policy for episodes that incur unusually high costs due to patient care needs.

Final Decision:

We are finalizing no change to the FDL ratio or loss sharing ratio for CY 2018. We are maintaining an FDL ratio of 0.55 with a loss-sharing ratio of 0.80 for CY 2018. However, we will continue to monitor outlier payments and continue to explore ways to maintain an outlier policy for episodes that incur unusually high costs.

E. Proposed Implementation of the Home Health Groupings Model (HHGM) for CY 2019

We proposed case-mix methodology refinements through the implementation of the Home Health Groupings Model (HHGM). We proposed to implement the HHGM for home health periods of care beginning on or after January 1, 2019. The HHGM uses 30-day periods rather than the 60-day episode used in the current payment system, eliminates the use of the number of therapy visits provided to determine payment, and relies more heavily on clinical characteristics and other patient information (for example, diagnosis, functional level, comorbid conditions, admission source) to place patients into clinically meaningful payment categories.

We are not finalizing the implementation of the HHGM in this final rule. We received many comments from the public that we would like to take into further consideration. While commenters were generally supportive of the concept of revising the HH PPS case-mix methodology to better align payments with the costs of providing care, commenters included technical comments on various aspects of the proposed case-mix adjustment methodology under the HHGM and were most concerned about the proposed change in the unit of payment from 60 days to 30 days and such change being proposed for implementation in a non-budget neutral manner. Commenters also stated their desire for greater involvement in the development of the HHGM and the need for access to the necessary data in order to replicate and model the effects on their businesses.

We note that information continues to be available to stakeholders around this important initiative. The analyses and the ultimate development of HHGM was previously shared with both internal and external stakeholders via technical expert panels, clinical workgroups, and special open door forums. We provided high-level summaries on our case-mix methodology refinement work in the HH PPS proposed rules for CYs 2016 and 2017 (80 FR 39839, and 81 FR 76702). Additionally, a detailed technical report was posted on the CMS Web site in December 2016 and remains available, additional technical expert panel and clinical workgroup webinars were held after the posting of the technical report, and a National Provider call occurred in January 2017 to further solicit feedback from stakeholders and the general

public.

As many did, any provider or organization wishing to receive the necessary data to replicate and model the effects of the HHGM or study the Medicare home health benefit can submit a request through the CMS Data Request Center.

We note that the Home Health Agency Limited Data Set files and Research Identifiable Files are available on a quarterly and annual basis. The fourth quarter data for CY 2016 were available in mid-May of 2017. The fourth quarter files include all final action fee-for-service claims received by December 31, 2016. We also posted a HHGM Groupings Tool along with the CY 2018 HH PPS proposed rule on the HHA Center Web page, which providers can continue to use in order to replicate the HHGM methodology using their own internal data.

https://www.cms.gov/Outreach-and-Education/Outreach/NPC/National-Provider-Calls-and-Events-Items/2017-01-18-Home-Health.html

https://www.resdac.org/cms-data/request/cms-data-request-center

We also note that, in the CY 2018 HH PPS proposed rule, we assumed that behavioral responses would occur upon implementation of the HHGM. If no behavioral assumptions were made and we implemented the HHGM for CY 2018, we estimate that the 30-day payment amount needed to achieve budget neutrality would have been $1,722.29. However, because we have a continued fiduciary duty as stewards of the Medicare program to mitigate potential overpayments, if possible, we assumed behavioral responses would occur in the estimation of the 30-day payment amount. We determined that, if the HHGM were implemented for CY 2018 with assumed behavioral responses, the 30-day payment amount needed to achieve budget neutrality would have been $1,622.61. For the CY 2018 HH PPS proposed rule, we included two behavioral assumptions in our impact estimates related to the proposed implementation of the HHGM for CY 2019: (1) For LUPAs one visit under the proposed HHGM case-mix group thresholds, HHAs would provide an additional visit so the 30-day period of care becomes a non-LUPA; and (2) the highest-paying diagnosis code would be listed as primary for clinical grouping assignment. While we do not support or condone coding practices or the provision of services solely to maximize payment, we often take into account expected behavioral effects of policy changes related to rate setting. We included a LUPA behavioral assumption in our estimated impact of the HHGM based on past behavioral assumptions made under the HH PPS. As noted in the FY 2001 HH PPS final rule, the episode file showed that approximately 16 percent of episodes would have received a LUPA (65 FR 41162). However, currently, about 7 percent of all 60-day episodes receive a LUPA. For the HHGM, approximately 7 percent of 30-day periods would receive a LUPA. However, because 4.9 percent of 30-day periods of care are just one visit below the LUPA thresholds under the HHGM, we assume that for these 30-day periods, HHAs will provide an additional visit to avoid receiving a LUPA, especially in the absence of therapy thresholds and the change from a 60-day to 30-day unit of payment.

With regards to our assumption that HHAs would code the highest-paying diagnosis code as primary for the clinical grouping assignment, this assumption was based on decades of past experience under the HH PPS and other case-mix systems, such as the implementation of the diagnosis-related groups (DRGs) and the Medicare Severity (MS)-DRGs under the inpatient prospective payment system. In the FY 2008 IPPS final rule (72 FR 47176), we noted that case-mix refinements can lead to substantial unwarranted increase in payments. To address this issue when CMS transitioned from DRGs to MS-DRGs, MedPAC recommended that the Secretary project the likely effect of reporting improvements on total payments and make an offsetting adjustment to the national average base payment amounts (72 FR 47176). In the FY 2008 IPPS final rule (72 FR 47181), we summarized instances where case-mix increases resulted from documentation and coding-induced changes for the first year of the IRF PPS and in Maryland hospitals' transition to APR DRGs (estimated at around 5 percent in both instances). Therefore, we estimated that an adjustment of 4.8 percent would be necessary to maintain budget neutrality for the transition to the MS-DRGs (72 FR 47178). With regards to experience under the HH PPS, as outlined in the CY 2018 HH PPS proposed rule (82 FR 35274), between CY 2000 and 2010, total case-mix change was 23.90 percent, with 20.08 considered nominal case-mix growth, an average of approximately 2 percent nominal case-mix growth per year.

IV. Provisions of the Home Health Value-Based Purchasing (HHVBP) Model

A. Background

As authorized by section 1115A of the Act and finalized in the CY 2016 HH PPS final rule (80 FR 68624), we began testing the HHVBP Model on January 1, 2016. The HHVBP Model has an overall purpose of improving the quality and delivery of home health care services to Medicare beneficiaries. The specific goals of the Model are to: (1) Provide incentives for better quality care with greater efficiency; (2) study new potential quality and efficiency measures for appropriateness in the home health setting; and (3) enhance the current public reporting process.

Using the randomized selection methodology finalized in the CY 2016 HH PPS final rule, nine states were selected for inclusion in the HHVBP Model, representing each geographic area across the nation. All Medicare-certified HHAs providing services in Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North Carolina, Tennessee, and Washington (competing HHAs) are required to compete in the Model. Requiring all Medicare-certified HHAs providing services in the selected states to participate in the Model ensures that: (1) There is no selection bias; (2) participating HHAs are representative of HHAs nationally; and, (3) there is sufficient participation to generate meaningful results.

As finalized in the CY 2016 HH PPS final rule, the HHVBP Model will utilize the waiver authority under section 1115A(d)(1) of the Act to adjust Medicare payment rates under section 1895(b) of the Act beginning in CY 2018 based on performance on applicable measures. Payment adjustments will be increased incrementally over the course of the HHVBP Model in the following manner: (1) A maximum payment adjustment of 3 percent (upward or downward) in CY 2018; (2) a maximum payment adjustment of 5 percent (upward or downward) in CY 2019; (3) a maximum payment adjustment of 6 percent (upward or downward) in CY 2020; (4) a maximum payment adjustment of 7 percent (upward or downward) in CY 2021; and (5) a maximum payment adjustment of 8 percent (upward or downward) in CY 2022. Payment adjustments will be based on each HHA's Total Performance Score (TPS) in a given performance year (PY) on: (1) A set of measures already reported via OASIS and HHCAHPS for all patients serviced by the HHA and select claims data elements; and (2) three new measures where points are achieved for reporting data.

In the CY 2017 HH PPS final rule (81 FR 76741 through 76752), in addition to providing an update on the progress towards developing public reporting of performance under the HHVBP Model, we finalized the following changes related to the HHVBP Model:

• Calculating benchmarks and achievement thresholds at the state level rather than the level of the size-cohort and revising the definition for benchmark to state that benchmark refers to the mean of the top decile of Medicare-certified HHA performance on the specified quality measure during the baseline period, calculated for each state.

• Requiring a minimum of eight HHAs in a size-cohort.

• Increasing the timeframe for submitting new measure data from seven calendar days to 15 calendar days following the end of each reporting period to account for weekends and holidays.

• Removing four measures (Care Management: Types and Sources of Assistance, Prior Functioning Activities of Daily Living (ADL)/Instrumental ADL (IADL), Influenza Vaccine Data Collection Period, and Reason Pneumococcal Vaccine Not Received) from the set of applicable measures.

• Adjusting the reporting period and submission date for the Influenza Vaccination Coverage for Home Health Personnel measure from a quarterly submission to an annual submission.

• Allowing for an appeals process that includes the recalculation process finalized in the CY 2016 HH PPS final rule (80 FR 68688 through 68689), as modified, and adds a reconsideration process.

B. Quality Measures

1. Adjustment to the Minimum Number of Completed Home Health Care Consumer Assessment of Healthcare Providers and System (HHCAHPS) Surveys

The HHCAHPS survey presents home health patients with a set of standardized questions about their home health care providers and about the quality of their home health care. The survey is designed to measure the experiences of people receiving home health care from Medicare-certified home health care agencies and meet the following three broad goals to: (1) Produce comparable data on the patient's perspective that allows objective and meaningful comparisons between HHAs on domains that are important to consumers; (2) create incentives through public reporting of survey results for agencies to improve their quality of care; and (3) enhance public accountability in health care by increasing the transparency of the quality of care provided in return for public investment through public reporting.

As finalized in the CY 2016 HH PPS final rule (80 FR 68685 through 68686), if a HHA does not have a minimum of 20 episodes of care during a performance year (PY) to generate a performance score on at least five measures, that HHA would not be included in the Linear Exchange Function (LEF) and would not have a payment adjustment percentage calculated. The LEF is used to translate an HHA's Total Performance Score (TPS) into a percentage of the value-based payment adjustment earned by each HHA under the HHVBP Model. For the HHCAHPS measures, a minimum of 20 HHCAHPS completed surveys would be necessary in order for scores to be generated for the HHCAHPS quality measures that can be included in the calculation of the TPS.

However, as we stated in the CY 2018 HH PPS proposed rule (82 FR 35333), we believe that using a minimum of 40 completed HHCAHPS surveys, rather than a minimum of 20 completed HHCAHPS surveys, will better align the Model with HHCAHPS policy for the Patient Survey Star Ratings on Home Health Compare.

The decision to use a minimum of 40 completed surveys for these star ratings was a result of balancing two competing goals. One goal was to provide star ratings that were meaningful and minimized random variations. This goal was best served by calculating star ratings for large numbers of cases by having a larger minimum of completed HHCAHPS surveys (for example, 50 or 100 completed HHCAHPS surveys). At the same time, we also wanted to be able to provide star ratings for as many HHAs as possible. This goal was best served by using a lower minimum of completed HHCAHPS surveys (for example, 20 completed HHCAHPS surveys). We chose to balance these opposing and necessary goals by using 40 completed HHCAHPS surveys for the Patient Survey Star Ratings. Because we believe that aligning the Patient Survey Star Ratings system and the HHVBP Model provides uniformity, consistency, and standard transformability for different healthcare platforms, we proposed using a minimum of 40 instead of 20 completed HHCAHPS surveys under the HHVBP Model (82 FR 35333).

Patient Survey Star Ratings https://www.medicare.gov/HomeHealthCompare/Data/Patient-Survey-Star-Ratings.html

In the CY 2018 HH PPS proposed rule (82 FR 35333), we noted that we received a comment in response to the CY 2016 HH PPS proposed rule in support of using a higher minimum threshold for HHCAHPS completed surveys for the Patient Survey Star Ratings if the data are going to be used in HHVBP or any other quality assessment program. We also noted that we received public comment in response to the CY 2017 HH PPS proposed rule in support of using a higher minimum threshold for HHCAHPS completed surveys in the HHVBP Model, including a recommendation to use a minimum of 100 HHCAHPS rather than a sample size of 20 surveys (82 FR 35333). We stated in the CY 2018 HH PPS proposed rule (82 FR 35333) that we believe that proposing a minimum of 40 completed HHCAHPS surveys for the Model would be more appropriate than the higher minimums previously recommended by some commenters because it represents a balance between providing meaningful data and having sufficient numbers of HHAs with performance scores for at least 5 measures in the cohorts. Moreover, using a minimum of 40 completed HHCAHPS surveys aligns with the Patient Survey Star Ratings on Home Health Compare (82 FR 35333).

To understand the possible impact of our proposal to use a minimum of 40 HHCAHPS completed surveys, we noted in the CY 2018 HH PPS proposed rule (82 FR 35333) that HHAs may refer to the Interim Performance Reports (IPRs) issued in October 2016, January 2017 and April 2017, which analyzed 40 or more completed HHCAHPS surveys to determine each HHA's HHCAHPS quality measure scores. As a point of comparison to the minimum of 40 HHCAHPS completed surveys, these IPRs were reissued using a minimum of 20 or more completed HHCAHPS surveys and included quality measure scores, for these same time periods, calculated with HHAs that qualify for the LEF by having sufficient data for at least five measures. HHAs had the opportunity to submit a request for recalculation of the revised interim performance scores.

HHAs had an opportunity to evaluate these IPRs in light of the proposal to change to a minimum of 40 HHCAHPS completed surveys, as well as seek clarification on the difference in their reports. The participating HHAs received concurrent IPRs in July 2017 and concurrent Annual Total Performance Score and Payment Adjustment Reports, which we made available in August 2017. The concurrent reports showed one report with HHCAHPS quality measure scores calculated based on a minimum of 40 completed surveys and one report with HHCAHPS quality measure scores calculated based on a minimum of 20

completed surveys. Because the CY 2018 HH PPS proposed rule would not be finalized before the timeline for submission of recalculation and reconsideration requests, we noted HHAs would have the opportunity to submit recalculation requests for the interim performance scores based on both a minimum of 40 and 20 completed surveys, and recalculation and reconsideration requests, as applicable, for the annual total performance scores included in these reports for these thresholds in accordance with the appeals process set forth at § 484.335, which was finalized in the CY 2017 HH PPS final rule (82 FR 35333).

As discussed in the CY 2018 HH PPS proposed rule (82 FR 35333 through 35334), we analyzed the effects on participating HHAs of using the proposed 40 or more completed HHCAHPS surveys as compared to using 20 or more completed HHCAHPS surveys by examining OASIS measu

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