# 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 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-23935 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 7, 2017 - **Citation:** 82 FR 51676 ## Text 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. 1 1 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. 2 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. 2 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. 3 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. 4 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)). 3 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. 4 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”. 5 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. 5 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. 6 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. 7 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. 6 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. 7 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 1 or 2 3+ 3+ Therapy visits 0-13 14+ 0-13 14+ EQUATION: 1 2 3 4 CLINICAL DIMENSION 1 Primary or Other Diagnosis = Blindness/Low Vision 2 Primary or Other Diagnosis = Blood disorders 1 3 Primary or Other Diagnosis = Cancer, selected benign neoplasms 4 4 4 Primary Diagnosis = Diabetes 3 5 Other Diagnosis = Diabetes 1 6 Primary or Other Diagnosis = Dysphagia AND Primary or Other Diagnosis = Neuro 3—Stroke 2 16 1 10 7 Primary or Other Diagnosis = Dysphagia AND M1030 (Therapy at home) = 3 (Enteral) 1 5 9 8 Primary or Other Diagnosis = Gastrointestinal disorders 2 9 Primary or Other Diagnosis = Gastrointestinal disorders AND M1630 (ostomy)= 1 or 2 7 10 Primary or Other Diagnosis = Gastrointestinal disorders AND Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis, OR Neuro 2—Peripheral neurological disorders, OR Neuro 3—Stroke, OR Neuro 4—Multiple Sclerosis 11 Primary or Other Diagnosis = Heart Disease OR Hypertension 1 3 2 12 Primary Diagnosis = Neuro 1—Brain disorders and paralysis 3 9 6 9 13 Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis AND M1840 (Toilet transfer) = 2 or more 4 4 14 Primary or Other Diagnosis = Neuro 1—Brain disorders and paralysis OR Neuro 2—Peripheral neurological disorders AND M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3 2 4 2 4 15 Primary or Other Diagnosis = Neuro 3—Stroke 3 9 2 4 16 Primary or Other Diagnosis = Neuro 3—Stroke AND M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3 2 17 Primary or Other Diagnosis = Neuro 3—Stroke AND M1860 (Ambulation) = 4 or more 18 Primary or Other Diagnosis = Neuro 4—Multiple Sclerosis AND AT LEAST ONE OF THE FOLLOWING: M1830 (Bathing) = 2 or more OR M1840 (Toilet transfer) = 2 or more OR M1850 (Transferring) = 2 or more OR M1860 (Ambulation) = 4 or more 3 7 5 11 19 Primary or Other Diagnosis = Ortho 1—Leg Disorders or Gait Disorders AND M1324 (most problematic pressure ulcer stage) = 1, 2, 3 or 4 7 1 7 20 Primary or Other Diagnosis = Ortho 1—Leg OR Ortho 2—Other orthopedic disorders AND M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral) 3 3 7 21 Primary or Other Diagnosis = Psych 1—Affective and other psychoses, depression 22 Primary or Other Diagnosis = Psych 2—Degenerative and other organic psychiatric disorders 23 Primary or Other Diagnosis = Pulmonary disorders 2 1 24 Primary or Other Diagnosis = Pulmonary disorders AND M1860 (Ambulation) = 1 or more 25 Primary Diagnosis = Skin 1—Traumatic wounds, burns, and post-operative complications 3 17 6 17 26 Other Diagnosis = Skin 1—Traumatic wounds, burns, post-operative complications 6 14 7 14 27 Primary or Other Diagnosis = Skin 1—Traumatic wounds, burns, and post-operative complications OR Skin 2—Ulcers and other skin conditions AND M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral) 2 28 Primary or Other Diagnosis = Skin 2—Ulcers and other skin conditions 2 16 8 18 29 Primary or Other Diagnosis = Tracheostomy 2 17 17 30 Primary or Other Diagnosis = Urostomy/Cystostomy 17 12 31 M1030 (Therapy at home) = 1 (IV/Infusion) or 2 (Parenteral) 15 5 15 32 M1030 (Therapy at home) = 3 (Enteral) 16 6 33 M1200 (Vision) = 1 or more 34 M1242 (Pain)= 3 or 4 3 2 35 M1311 = Two or more pressure ulcers at stage 3 or 4 4 6 4 6 36 M1324 (Most problematic pressure ulcer stage) = 1 or 2 4 19 7 17 37 M1324 (Most problematic pressure ulcer stage)= 3 or 4 9 31 10 25 38 M1334 (Stasis ulcer status) = 2 4 13 8 13 39 M1334 (Stasis ulcer status) = 3 7 17 9 17 40 M1342 (Surgical wound status) = 2 2 7 6 13 41 M1342 (Surgical wound status) = 3 6 5 10 42 M1400 (Dyspnea) = 2, 3, or 4 1 1 43 M1620 (Bowel Incontinence) = 2 to 5 3 2 44 M1630 (Ostomy) = 1 or 2 4 11 2 8 45 M2030 (Injectable Drug Use) = 0, 1, 2, or 3 FUNCTIONAL DIMENSION 46 M1810 or M1820 (Dressing upper or lower body) = 1, 2, or 3 1 47 M1830 (Bathing) = 2 or more 6 5 6 2 48 M1840 (Toilet transferring) = 2 or more 1 49 M1850 (Transferring) = 2 or more 3 1 2 . 50 M1860 (Ambulation) = 1, 2 or 3 7 4 51 M1860 (Ambulation) = 4 or more 8 9 7 7 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. 8 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. 8 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 1 2 3 4 5 Equations used to calculate points (see Table 1) 1 2 3 4 (2&4) Dimension Severity Level Clinical C1 0 to 1 0 to 1 0 to 1 0 to 1 0 to 3 C2 2 to 3 2 to 7 2 2 to 9 4 to 16 C3 4+ 8+ 3+ 10+ 17+ Functional F1 0 to 13 0 to 7 0 to 6 0 to 2 0 to 2 F2 14 8 to 15 7 to 10 3 to 7 3 to 6 F3 15+ 16+ 11+ 8+ 7+ 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. 9 9 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. 10 This last step creates the final CY 2018 case-mix weights shown in Table 5. 10 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 HH 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 1 0 0.2698 $14.31 2 1 to 14 0.9742 51.66 3 15 to 27 2.6712 141.65 4 28 to 48 3.9686 210.45 5 49 to 98 6.1198 324.53 6 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 1 0 0.2698 $14.02 2 1 to 14 0.9742 50.64 3 15 to 27 2.6712 138.85 4 28 to 48 3.9686 206.29 5 49 to 98 6.1198 318.11 6 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. 11 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. 11 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 countr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-23935. Public record. Not legal advice.