[Federal Register: November 9, 2006 (Volume 71, Number 217)]
[Rules and Regulations]
[Page 65883-66006]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no06-12]
[[Page 65883]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 414 and 484
Medicare Program; Home Health Prospective Payment System Rate Update
for Calendar Year 2007 and Deficit Reduction Act of 2005 Changes to
Medicare Payment for Oxygen Equipment and Capped Rental Durable Medical
Equipment; Final Rule
[[Page 65884]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 414 and 484
[CMS-1304-F]
RIN 0938-AN76
Medicare Program; Home Health Prospective Payment System Rate
Update for Calendar Year 2007 and Deficit Reduction Act of 2005 Changes
to Medicare Payment for Oxygen Equipment and Capped Rental Durable
Medical Equipment; Final Rule
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule sets forth an update to the 60-day national
episode rates and the national per-visit amounts under the Medicare
prospective payment system for home health services. In addition, this
final rule sets forth policy changes related to Medicare payment for
certain durable medical equipment for the purpose of implementing
sections 1834(a)(5) and 1834(a)(7) of the Social Security Act, as
amended by section 5101 of the Deficit Reduction Act of 2005. This
final rule also responds to public comments on the August 3, 2006,
proposed rule that pertain to a number of issues including the
requirement that home health payments are based on the reporting of
specific quality data by home health agencies.
DATES: Effective Date: These regulations are effective on January 1,
2007.
FOR FURTHER INFORMATION CONTACT: Randy Throndset, (410) 786-0131, or
Sharon Ventura, (410) 786-1985 (for issues related to the home health
prospective payment system). Doug Brown, (410) 786-0028 (for issues
related to reporting home health quality data). Alexis Meholic, (410)
786-2300 (for issues related to payments for oxygen equipment and
capped rental durable medical equipment).
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Background
The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on
August 5, 1997, significantly changed the way Medicare pays for
Medicare home health services. Until the implementation of a home
health prospective payment system (HH PPS) on October 1, 2000, home
health agencies (HHAs) received payment under a cost-based
reimbursement system. Section 4603 of the BBA governed the development
of the HH PPS.
Section 4603(a) of the BBA provides the authority for the
development of a PPS for all Medicare-covered home health services
provided under a plan of care that were paid on a reasonable cost basis
by adding section 1895, entitled ``Prospective Payment For Home Health
Services,'' to the Social Security Act (the Act).
Section 1895(b)(1) of the Act requires the Secretary to establish a
PPS for all costs of home health services paid under Medicare.
Section 1895(b)(3)(A) of the Act requires that (1) the computation
of a standard prospective payment amount include all costs of home
health services covered and paid for on a reasonable cost basis and be
initially based on the most recent audited cost report data available
to the Secretary, and (2) the prospective payment amounts be
standardized to eliminate the effects of case-mix and wage levels among
HHAs.
Section 1895(b)(3)(B) of the Act addresses the annual update to the
standard prospective payment amounts by the home health applicable
increase percentage as specified in the statute.
Section 1895(b)(4) of the Act governs the payment computation.
Sections 1895(b)(4)(A)(i) and (b)(4)(A)(ii) of the Act require the
standard prospective payment amount to be adjusted for case-mix and
geographic differences in wage levels. Section 1895(b)(4)(B) of the Act
requires the establishment of an appropriate case-mix adjustment factor
that explains a significant amount of the variation in cost among
different units of services. Similarly, section 1895(b)(4)(C) of the
Act requires the establishment of wage-adjustment factors that reflect
the relative level of wages and wage-related costs applicable to the
furnishing of home health services in a geographic area compared to the
national average applicable level. These wage-adjustment factors may be
the factors used by the Secretary for the different area wage levels
for purposes of section 1886(d)(3)(E) of the Act.
Section 1895(b)(5) of the Act gives the Secretary the option to
grant additions or adjustments to the payment amount otherwise made in
the case of outliers because of unusual variations in the type or
amount of medically necessary care. Total outlier payments in a given
fiscal year cannot exceed 5 percent of total payments projected or
estimated.
On February 8, 2006, the Congress enacted the Deficit Reduction Act
(DRA) of 2005 (Pub. L. 109-171). This legislation made additional
changes to the HH PPS.
Section 5201 of the DRA changed the CY 2006 update from the
applicable home health market basket percentage increase minus 0.8
percentage points to a 0 percent update.
Section 5201 of the DRA amended section 421(a) of the MMA. The
amended section 421(a) of the MMA requires, for home health services
furnished in a rural area (as defined in section 1886(d)(2)(D) of the
Act) with respect to episodes and visits beginning on or after January
1, 2006 and before January 1, 2007, that the Secretary increase by 5
percent the payment amount otherwise made under section 1895 of the
Act. The statute waives budget neutrality for purposes of this increase
as it specifically requires that the Secretary not reduce the standard
prospective payment amount (or amounts) under section 1895 of the Act
applicable to home health services furnished during a period to offset
the increase in payments resulting in the application of this section
of the statute.
The 0 percent update to the payment rates and the rural add-on
provisions of the DRA were implemented through Pub. 100-20, One Time
Notification, Transmittal 211 issued February 10, 2006.
In addition, section 5201(c) of the DRA amends the statute to add
section 1895(b)(3)(B)(v) to the Act, requiring HHAs to submit data for
purposes of measuring health care quality. This requirement is
applicable for 2007 and each subsequent year. For 2007 and each
subsequent year, in the case of a HHA that does not submit quality
data, the home health market basket percentage increase would be
reduced by 2 percentage points.
B. Updates
1. 2000 Final Rule
On July 3, 2000, we published a final rule (65 FR 41128) in the
Federal Register to implement the HH PPS legislation. That final rule
established requirements for a new PPS for HHAs as required by section
4603 of the BBA, and as subsequently amended by section 5101 of the
Omnibus Consolidated and Emergency Supplemental Appropriations Act
(OCESAA) for Fiscal Year 1999 (Pub. L. 105-277), enacted on October 21,
1998; and by sections 302, 305, and 306 of the Medicare, Medicaid, and
SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113),
enacted on November 29, 1999. The requirements include the
implementation of a PPS for home
[[Page 65885]]
health services, consolidated billing requirements, and a number of
other related changes. The 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.
2. 2005 Final Rule
On November 9, 2005, we published a final rule (70 FR 68132), which
set forth an update to the 60-day national episode rates and the
national per-visit amounts under the Medicare prospective payment
system for home health services for CY 2006. As part of that final
rule, we adopted revised area labor market Metropolitan Statistical
Area designations for CY 2006. In implementing the new area labor
market designations, we allowed for a 1-year transition period. This
transition consists of a blend of 50 percent of the new area labor
market designations' wage index and 50 percent of the previous area
labor market designations' wage index. In addition, we revised the
fixed dollar loss ratio, which is used in the calculation of outlier
payments.
C. System for Payment of Home Health Services
Generally, Medicare makes payment under the HH PPS on the basis of
a national standardized 60-day episode payment, adjusted for case mix
and wage index. For episodes with four or fewer visits, Medicare pays
on the basis of a national per-visit amount by discipline, referred to
as a low utilization payment adjustment (LUPA). Medicare also adjusts
the 60-day episode payment for certain intervening events that give
rise to a partial episode payment adjustment (PEP adjustment) or a
significant change in condition adjustment (SCIC). For certain cases
that exceed a specific cost threshold, an outlier adjustment may also
be available. For a complete and full description of the HH PPS as
required by the BBA and as amended by OCESAA and BBRA, see the July 3,
2000 HH PPS final rule (65 FR 41128).
D. Changes in Payment for Oxygen and Oxygen Equipment and Other Durable
Medical Equipment (Capped Rental Items)
The Medicare payment rules for durable medical equipment (DME) are
set forth in section 1834(a) of the Act and 42 CFR part 414, subpart D
of our regulations. General payment rules for DME are set forth in
section 1834(a)(1) of the Act and Sec. 414.210 of our regulations, and
Sec. 414.210 also contains paragraphs relating to maintenance and
servicing of items and replacement of items. Specific rules for oxygen
and oxygen equipment are set forth in section 1834(a)(5) of the Act and
Sec. 414.226 of our regulations, and specific rules for capped rental
items are set forth in section 1834(a)(7) of the Act and Sec. 414.229
of our regulations. Rules for determining a period of continuous use
for the rental of DME are set forth in Sec. 414.230 of our
regulations. The Medicare payment basis for DME is equal to 80 percent
of either the lower of the actual charge or the fee schedule amount for
the item. The beneficiary coinsurance is equal to 20 percent of either
the lower of the actual charge or the fee schedule amount for the item.
In accordance with the rules set forth in section 1834(a)(5) of the
Act and Sec. 414.226 of our regulations, since 1989, suppliers have
been paid monthly for furnishing oxygen and oxygen equipment to
Medicare beneficiaries. Suppliers have also been paid an add-on fee for
furnishing portable oxygen equipment to patients when medically
necessary. Before the enactment of the DRA, these monthly payments
continued for the duration of use of the equipment, provided that
Medicare Part B coverage and eligibility criteria were met. Medicare
covers three types of oxygen delivery systems: (1) Stationary or
portable oxygen concentrators, which concentrate oxygen in room air;
(2) stationary or portable liquid oxygen systems, which use oxygen
stored as a very cold liquid in cylinders and tanks; and (3) stationary
or portable gaseous oxygen systems, which administer compressed oxygen
directly from cylinders. Both liquid and gaseous oxygen systems require
delivery of oxygen contents.
Medicare payment for furnishing oxygen and oxygen equipment is made
on a monthly basis and the fee schedule amounts vary by State. Payment
for oxygen contents for both stationary and portable equipment is
included in the fee schedule allowances for stationary equipment.
Medicare fee schedules for home oxygen equipment are modality neutral;
meaning that in a given State, there is one fee schedule amount that
applies to all stationary systems and one fee schedule amount that
applies to all portable systems.
Effective January 1, 2006, section 5101(b) of the DRA amended the
Act at section 1834(a)(5) of the Act, limiting to 36 months the total
number of continuous months for which Medicare will pay for oxygen
equipment on a rental basis. At the end of the 36-month period, this
section mandates that the supplier transfer title to the stationary and
portable oxygen equipment to the beneficiary. Section 5101(b) of the
DRA does not, however, limit the number of months for which Medicare
will pay for oxygen contents for beneficiary-owned stationary or
portable gaseous or liquid systems, and payment will continue to be
made as long as the oxygen remains medically necessary. Section 5101(b)
of the DRA also provides that payment for reasonable and necessary
maintenance and servicing of beneficiary-owned oxygen equipment will be
made for parts and labor not covered by a supplier's or manufacturer's
warranty. In the case of beneficiaries using oxygen equipment on
December 31, 2005, the 36-month rental period prescribed by the DRA
begins on January 1, 2006.
In accordance with the rules set forth in section 1834(a)(7) of the
Act and Sec. 414.229 of our regulations, before the enactment of the
DRA, suppliers of capped rental items (that is, other DME not described
in paragraphs (2) through (6) of section 1834(a) of the Act) were paid
on a rental or purchase option basis. Payment for most items in the
capped rental category was made on a monthly rental basis, with rental
payments being capped at 15 months or 13 months, depending on whether
the beneficiary chose to continue renting the item or to take over
ownership of the item through the ``purchase option.'' For all capped
rental items, the supplier was required to inform the beneficiary of
his or her purchase option, during the 10th rental month, to enter into
a purchase agreement under which the supplier would transfer title to
the item to the beneficiary on the first day after the 13th continuous
month during which payment was made for the rental of the item.
Therefore, if the beneficiary chose the purchase option, rental
payments to the supplier would continue through the 13th month of
continuous use of the equipment, after which time title to the
equipment would transfer from the supplier to the beneficiary. Medicare
would also make payment for any reasonable and necessary repair or
maintenance and servicing of the equipment following the transfer of
title. If the beneficiary did not choose the purchase option, rental
payments would continue through the 15th month of continuous use. In
these cases, suppliers would maintain title to the equipment but would
have to continue furnishing the item to the beneficiary as long as
medical necessity continued. Beginning 6 months after the 15th month of
continuous use in which payment was made, Medicare would also make
semi-annual maintenance and servicing payments to suppliers. These
payments were approximately equal to 10 percent
[[Page 65886]]
of the purchase price for the equipment as determined by the statute.
Total Medicare payments made through the 13th and 15th months of rental
equal 105 and 120 percent, respectively, of the purchase price for the
equipment.
In the case of power-driven wheelchairs, since 1989 payment has
also been made on a lump-sum purchase basis at the time that the item
is initially furnished to the beneficiary if the beneficiary chooses to
obtain the item in this manner. Most beneficiaries choose to obtain
power-driven wheelchairs via this lump-sum purchase option.
Effective for items for which the first rental month occurs on or
after January 1, 2006, section 5101(a) of the DRA of 2005 amended
section 1834(a)(7) of the Act, limiting to 13 months the total number
of continuous months for which Medicare will pay for DME in this
category. After a 13-month period of continuous use during which rental
payments are made, the statute requires that the supplier transfer
title to the equipment to the beneficiary. Beneficiaries may still
elect to obtain power-driven wheelchairs on a lump-sum purchase
agreement basis. In all cases, payment for reasonable and necessary
maintenance and servicing of beneficiary-owned equipment will be made
for parts and labor not covered by the supplier's or manufacturer's
warranty.
E. Requirements for Issuance of Regulations
Section 902 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and
requires the Secretary, in consultation with the Director of the Office
of Management and Budget, to establish and publish timelines for the
publication of Medicare final regulations based on the previous
publication of a Medicare proposed or interim final regulation. Section
902 of the MMA also states that the timelines for these regulations may
vary but shall not exceed 3 years after publication of the preceding
proposed or interim final regulation except under exceptional
circumstances.
This final rule finalizes provisions set forth in the August 3,
2006 proposed rule. In addition, this final rule has been published
within the 3-year time limit imposed by section 902 of the MMA.
Therefore, we believe that the final rule is in accordance with the
Congress' intent to ensure timely publication of final regulations.
II. Provisions of the Proposed Regulations
We published a proposed rule in the Federal Register on August 3,
2006 (71 FR 44081) that set forth a proposed update to the 60-day
national episode rates and the national per-visit amounts under the
Medicare prospective payment system for home health services. In
addition, that proposed rule set forth proposed policy changes related
to Medicare payment for certain durable medical equipment for the
purpose of implementing sections 1834(a)(5) and 1834(a)(7) of the
Social Security Act, as amended by section 5101 of the Deficit
Reduction Act of 2005. That proposed rule also invited comments on a
number of issues including payments based on reporting quality data,
the adoption of health information technology, as well as how to
improve data transparency for consumers.
A. National Standardized 60-Day Episode Rate
The Medicare HH PPS has been effective since October 1, 2000. As
set forth in the final rule published July 3, 2000 in the Federal
Register (65 FR 41128), the unit of payment under the Medicare HH PPS
is a national standardized 60-day episode rate. As set forth in Sec.
484.220, we adjust the national standardized 60-day episode rate by a
case mix grouping and a wage index value based on the site of service
for the beneficiary. The proposed CY 2007 HH PPS rates used the same
case-mix methodology and application of the wage index adjustment to
the labor portion of the HH PPS rates as set forth in the July 3, 2000
final rule. In the October 22, 2004 final rule, we rebased and revised
the home health market basket, resulting in a labor-related share of
76.775 percent and a non-labor portion of 23.225 percent (69 FR 62126).
We multiply the national 60-day episode rate by the patient's
applicable case-mix weight. We divide the case-mix adjusted amount into
a labor and non-labor portion. We multiply the labor portion by the
applicable wage index based on the site of service of the beneficiary.
As required by section 1895(b)(3)(B) of the Act, we have updated
the HH PPS rates annually in a separate Federal Register document.
Section 484.225 sets forth the specific annual percentage update. To
reflect section 1895(b)(3)(B)(v) of the Act, as added by section 5201
of the DRA, we proposed to revise Sec. 484.225, paragraph (g) as
follows:
(g) For 2007 and subsequent calendar years, the unadjusted
national rate is equal to the rate for the previous calendar year
increased by the applicable home health market basket index amount
unless the HHA has not submitted quality data in which case the
unadjusted national rate is equal to the rate for the previous
calendar year increased by the applicable home health market basket
index amount minus 2 percentage points.
For CY 2007, we proposed to use again the design and case-mix
methodology described in section III.G of the HH PPS July 3, 2000 final
rule (65 FR 41192 through 41203). For CY 2007, we will base the wage
index adjustment to the labor portion of the PPS rates on the most
recent pre-floor and pre-reclassified hospital wage index as discussed
in section II.F of the August 3, 2006 proposed rule (not including any
reclassifications under section 1886(d)(8)(B) of the Act).
As discussed in the July 3, 2000 HH PPS final rule, for episodes
with four or fewer visits, Medicare pays the national per-visit amount
by discipline, referred to as a LUPA. We update the national per-visit
amounts by discipline annually by the applicable home health market
basket percentage. We adjust the national per-visit amount by the
appropriate wage index based on the site of service for the beneficiary
as set forth in Sec. 484.230. We will adjust the labor portion of the
updated national per-visit amounts by discipline used to calculate the
LUPA by the most recent pre-floor and pre-reclassified hospital wage
index, as discussed in section II.F of the August 3, 2006 proposed
rule.
Medicare pays the 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 Sec. 484.205(b)(1) and Sec. 484.205(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 Sec. 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
would 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:
[[Page 65887]]
A low utilization payment provided on a per-visit basis as
set forth in Sec. 484.205(c) and Sec. 484.230.
A partial episode payment adjustment as set forth in Sec.
484.205(d) and Sec. 484.235.
A significant change in condition adjustment as set forth
in Sec. 484.205(e) and Sec. 484.237.
An outlier payment as set forth in Sec. 484.205(f) and
Sec. 484.240.
B. CY 2007 Update to the Home Health Market Basket Index
Section 1895(b)(3)(B) of the Act, as amended by section 5201 of the
DRA, requires for CY 2007 that the standard prospective payment amounts
be increased by a factor equal to the applicable home health market
basket update. The proposed rule contained a home health market basket
update of 3.1 percent. Since publication of the proposed rule, we have
estimated a new home health market basket update of 3.3 percent for CY
2007.
CY 2007 Adjustments
In calculating the annual update for the CY 2007 60-day episode
rates, we first look at the CY 2006 rates as a starting point. The CY
2006 national 60-day episode rate, as modified by section 5201(a)(4) of
the DRA (and implemented through Pub. 100-20, One Time Notification,
Transmittal 211 issued February 10, 2006) is $2,264.28.
In order to calculate the CY 2007 national 60-day episode rate, we
multiply the CY 2006 national 60-day episode rate ($2,264.28) by the
estimated home health market basket update of 3.3 percent for CY 2007.
The estimated home health market basket percentage increase reflects
changes over time in the prices of an appropriate mix of goods and
services included in covered home health services. The estimated home
health market basket percentage increase is generally used to update
the HH PPS rates on an annual basis.
We increase the CY 2006 60-day episode payment rate by the
estimated home health market basket update (3.3 percent) ($2,264.28 x
1.033) to yield the updated CY 2007 national 60-day episode rate
($2,339.00) (see Table 1 below). The CY 2007 HH PPS rates apply to
episodes ending on or after January 1, 2007, and before January 1,
2008.
Table 1.--National 60-Day Episode Amounts Updated by the Estimated Home Health Market Basket Update for CY 2007,
Before Case-Mix Adjustment
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Multiply by the Estimated Home
Total CY 2006 Prospective Payment Health Market Basket Update (3.3 CY 2007 Updated National 60-Day
Amount Per 60-day Episode Percent)\1\ Episode Rate
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$2,264.28 x 1.033 $2,339.00
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\1\ The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.
National Per-Visit Amounts Used To Pay LUPAs and Compute Imputed Costs
Used in Outlier Calculations
As discussed previously in the August 3, 2006 proposed rule, the
policies governing the LUPAs and outlier calculations set forth in the
July 3, 2000 HH PPS final rule will continue during CY 2007. In
calculating the annual update for the CY 2007 national per-visit
amounts we use to pay LUPAs and to compute the imputed costs in outlier
calculations, we look again at the CY 2006 rates as a starting point.
We then multiply those amounts by the estimated home health market
basket update for CY 2007 (3.3 percent) to yield the updated per-visit
amounts for each home health discipline for CY 2007 (episodes ending on
or after January 1, 2007, and before January 1, 2008) (see Table 2
below).
Table 2.--National Per-Visit Amounts for LUPAs and Outlier Calculations Updated by the Estimated Home Health
Market Basket Update for CY 2007
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Multiply by the
Final CY 2006 per- estimated home CY 2007 per-visit
Home health discipline type visit amounts per health market payment amount
60-day episode basket (3.3 per discipline
for LUPAs percent) \1\ for LUPAs
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Home Health Aide....................................... $44.76 x 1.033 $46.24
Medical Social Services................................ 158.45 x 1.033 163.68
Occupational Therapy................................... 108.81 x 1.033 112.40
Physical Therapy....................................... 108.08 x 1.033 111.65
Skilled Nursing........................................ 98.85 x 1.033 102.11
Speech-Language Pathology.............................. 117.44 x 1.033 121.32
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\1\ The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.
C. Rural Add-On
As stated above, section 5201(b) of the DRA requires, for home
health services furnished in a rural area (as defined in section
1886(d)(2)(D) of the Act) with respect to episodes and visits beginning
on or after January 1, 2006 and before January 1, 2007, that the
Secretary increase by 5 percent the payment amount otherwise made under
section 1895 of the Act. The statute waives budget neutrality related
to this provision as it specifically states that the Secretary shall
not reduce the standard prospective payment amount (or amounts) under
section 1895 of the Act applicable to home health services furnished
during a period to offset the increase in payments resulting in the
application of this section of the statute.
While the rural add-on primarily affects those episodes paid based
on CY 2006 rates, it also affects a number of CY 2007 episodes. For
example, an episode that begins on December 20, 2006 and ends on
February 17, 2007 for services furnished in a rural area, will be paid
based on CY 2007 rates because the episode ends on or after January 1,
2007 and before January 1, 2008; and the
[[Page 65888]]
episode will also receive the rural add-on because the episode begins
on or after January 1, 2006 and before January 1, 2007.
The applicable case-mix and wage index adjustment is subsequently
applied to the 60-day episode amount for the provision of home health
services where the site of service for the beneficiary is a non-
Metropolitan Statistical Area (MSA). Similarly, the applicable wage
index adjustment is subsequently applied to the LUPA per-visit amounts
adjusted for the provision of home health services where the site of
service for the beneficiary is a non-MSA area. We implemented this
provision for CY 2006 on February 13, 2006 through Pub. 100-20, One
Time Notification, Transmittal 211 issued February 10, 2006. The 5
percent rural add-on is noted in tables 3 and 4 below.
Table 3.--Payment Amounts for 60-Day Episodes Beginning in CY 2006 and Ending in CY 2007 Updated by the
Estimated Home Health Market Basket Update for CY 2007 with Rural Add-on, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
CY 2007 Payment amount per 60-day
episode beginning in CY 2006 and
CY 2007 Total prospective payment 5 Percent rural add-on before January 1, 2007 and ending in
amount per 60-day episode CY 2007 for a beneficiary who
resides in a non-MSA area
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$2,339 x 1.05 $2,455.95
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Table 4.--Per-Visit Amounts for Episodes Beginning in CY 2006 and Ending in CY 2007 Updated by the Estimated
Home Health Market Basket Update for CY 2007 with Rural Add-on
----------------------------------------------------------------------------------------------------------------
CY 2007 per-visit
payment amount
per discipline
for 60-day
episodes
CY 2007 Per-visit Multiply by the 5 beginning on or
Home health discipline type amounts percent rural add- after January 1,
on in CY 2006 and
ending in CY 2007
for a beneficiary
who resides in a
non-MSA area
----------------------------------------------------------------------------------------------------------------
Home Health Aide....................................... $46.24 x 1.05 $48.55
Medical Social Services................................ 163.68 x 1.05 171.86
Occupational Therapy................................... 112.40 x 1.05 118.02
Physical Therapy....................................... 111.65 x 1.05 117.23
Skilled Nursing........................................ 102.11 x 1.05 107.22
Speech-Language Pathology.............................. 121.32 x 1.05 127.39
----------------------------------------------------------------------------------------------------------------
D. Home Health Care Quality Improvement
Section 5201(c)(2) of the DRA added section 1895(b)(3)(B)(v)(II) to
the Act, requiring that ``each home health agency shall submit to the
Secretary such data that the Secretary determines are appropriate for
the measurement of health care quality. Such data shall be submitted in
a form and manner, and at a time, specified by the Secretary for
purposes of this clause.'' In addition, section 1895(b)(3)(B)(v)(I) of
the Act, as also added by section 5201(c)(2) of the DRA, dictates that
``for 2007 and each subsequent year, in the case of a home health
agency that does not submit data to the Secretary in accordance with
subclause (II) with respect to such a year, the home health market
basket percentage increase applicable under such clause for such year
shall be reduced by 2 percentage points.''
The Omnibus Budget Reconciliation Act of 1987 (OBRA 87) required
the use of a standardized assessment instrument for quality oversight
of HHAs. A standardized assessment instrument provides an HHA with a
uniform mechanism to assess the needs of their patients and provide CMS
with a uniform mechanism to assess the HHA's ability to adequately
address those needs. To fulfill the OBRA 87 mandate, CMS required that,
as part of their comprehensive assessment process, HHAs collect and
report Outcome and Assessment Information Set (OASIS) data and later
mandated the submission of this data as a Medicare Condition of
Participation for home health agencies at 42 CFR 484.20 and 484.55.
The OASIS data provide consumers and HHAs with ten publicly-
reported home health quality measures which have been endorsed by the
National Quality Forum (NQF). Reporting this quality data has also
required the development of several supporting mechanisms such as the
HAVEN software used to encode and transmit data using a CMS standard
electronic record layout, edit specifications, and data dictionary. Use
of the HAVEN software, which includes the OASIS, has become a standard
practice within HHA operations. These early investments in data
infrastructure and supporting software that CMS and HHAs have made over
the past several years in order to create this quality reporting
structure, have made quality reporting and measurement an important
component of the HHA industry. The 10 measures are:
(1) Improvement in ambulation/locomotion
(2) Improvement in bathing
(3) Improvement in transferring
(4) Improvement in management of oral medications
(5) Improvement in pain interfering with activity
(6) Acute care hospitalization
(7) Emergent care
(8) Improvement in dyspnea
(9) Improvement in urinary incontinence
(10) Discharge to community
We proposed to use OASIS data and the 10 quality measures based on
those data as the appropriate measure of home health quality for CY
2007. Continuing to use the OASIS instrument minimizes
[[Page 65889]]
the burden to providers and ensures that costs associated with the
development and testing of a new reporting mechanism are not incurred.
We believe that the noted 10 quality measures are the most appropriate
measure of home health quality. Accordingly, for CY 2007, we proposed
to require that the OASIS data, specifically the 10 quality measures,
be submitted by HHAs, to meet the requirement that each HHA submit data
appropriate for the measurement of health care quality, as determined
by the Secretary.
Additionally, section 1895(b)(3)(B)(v)(II) of the Act provides the
Secretary with the discretion to require the submission of the required
data in a form, manner, and time specified by him. For CY 2007, we
proposed to consider OASIS data submitted by HHAs to CMS for episodes
beginning on or after July 1, 2005 and before July 1, 2006 as meeting
the reporting requirement. This proposed reporting time period would
allow a full 12 months of data and provides CMS the time necessary to
analyze and make any necessary payment adjustments to the CY 2007
payment rates for HHAs that fail to meet the reporting requirement.
HHAs that met the reporting requirement would be eligible for the full
home health market basket percentage increase. Using historical data to
determine a prospective update is also used for hospital pay for
reporting.
As discussed in the August 3, 2006 proposed rule, during the next
few years, we noted that we would be pursuing the development of
patient level process measures for home health agencies. We also
proposed to continue to refine the current OASIS tool in response to
recommendations from a Technical Expert Panel conducted to review the
data elements that make up the OASIS tool. These process measures would
refer to specific care practices that are, or are not, followed by the
home health agency for each patient. An example of this type of measure
may be: the percentage of patients at risk of falls for whom prevention
of falls was addressed in the care plan. We expect to introduce these
additional measures over CY 2008 and CY 2009 so as to complement the
existing OASIS outcome measures. During the years leading to CY 2010
payments, we will test and refine these measures to determine if they
can more accurately reflect the level of quality care being provided at
HHAs without being overly burdensome with the data collection
instrument. Some process measures are in the very early stages of
development. To the extent that evidence-based data are available on
which to determine the appropriate measure specifications, and adequate
risk-adjustments are made, we anticipate collecting and reporting these
measures as part of each agency's home health quality plan. We believe
that future modifications to the current OASIS tool including reducing
the number of questions on the tool, refining possible responses, as
well as adding new process measures will be made. In all cases, we
anticipate that any future quality measures should be evidence-based,
clearly linked to improved outcomes, and able to be reliably captured
with the least burden to the provider. We are also beginning work in
order to measure patient experience of care (in the form of a patient
satisfaction survey) in the home health setting.
We recognize, however, that the conditions of participation (42 CFR
part 484) that require OASIS submission also provide for exclusions
from this requirement. Generally, agencies are not subject to the OASIS
submission requirement, and thus do not receive Medicare payments, for
patients that are not Medicare beneficiaries or for patients that are
not receiving Medicare-covered home health services. Under the
conditions of participation, agencies are excluded from the OASIS
reporting requirement on individual patients if:
Those patients are receiving only non-skilled services,
Neither Medicare nor Medicaid is paying for home health
care (patients receiving care under a Medicare or Medicaid Managed Care
Plan are not excluded from the OASIS reporting requirement),
Those patients are receiving pre- or post-partum services,
Those patients are under 18 years of age.
We believe that the rationale behind our proposal to exclude these
agencies from submitting OASIS data on patients excluded from OASIS
submission as a condition of participation is equally applicable to
HHAs for purposes of meeting the DRA quality data reporting
requirement. If an agency is not submitting OASIS for patients excluded
from OASIS submission as a condition of participation, we believe that
the submission of OASIS data for quality measures for Medicare payment
purposes is also not necessary. Accordingly, we proposed that HHAs
would not need to submit quality measures for DRA reporting purposes
for those patients who are excluded from OASIS submission as a
condition of participation.
Additionally, we proposed that agencies that are newly certified
(on or after May 31, 2006 for payments to be made in CY 2007) would be
excluded from the DRA reporting requirement as data submission and
analysis would not be possible for an agency certified this late in the
reporting time period. In future years, agencies that certify on or
after May 31 of the preceding year involved would be excluded from any
payment penalty under the DRA for the following calendar year. For
example, for purposes of determining compliance with the quality data
reporting requirement for CY 2007, if HHA ``X'' were to enroll in the
Medicare Program on or before May 30, 2006, CMS would expect HHA ``X''
to submit the required quality data (unless covered by another
exclusion protocol) on or before June 30, 2006 (the end of the
reporting period for payments effectuated in CY 2007). However, if HHA
``Y'' was to enroll in the Medicare Program on or after May 31, 2006,
CMS would automatically exclude HHA ``Y'' from the DRA quality data
reporting requirements and the agency would be entitled to the full
market basket increase for CY 2007. We note that these proposed
exclusions would only affect reporting requirements under the DRA and
would not otherwise affect the agency's OASIS reporting
responsibilities under the conditions of participation.
We proposed to require that all HHAs, unless covered by these
specific exclusions, meet the reporting requirement, or be subject to a
2 percent reduction in the home health market basket percentage
increase in accordance with section 1895(b)(3)(B)(v)(I) of the Act. The
2 percent reduction would apply to all episodes ending on or before
December 31, 2007. We provide the reduced payment rates in tables 5, 6,
7, and 8 below.
[[Page 65890]]
Table 5.--For HHAs That Do Not Submit the Required Quality Data-- National 60-Day Episode Amount Updated by the
Estimated Home Health Market Basket Update for CY 2007, Minus 2 Percentage Points, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
Multiply by the estimated home CY 2007 updated national 60-day
Total CY 2006 prospective payment health market basket update (3.3 episode rate for HHAs that do not
amount per 60-day episode Percent \1\ minus 2 percent) submit required quality data
----------------------------------------------------------------------------------------------------------------
$2,264.28 x 1.013 $2,293.72
----------------------------------------------------------------------------------------------------------------
\1\The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.
Table 6--For HHAs That Do Not Submit the Required Quality Data--National Per-Visit Amounts Updated by the
Estimated Home Health Market Basket Update for CY 2007, Minus 2 Percentage Points
----------------------------------------------------------------------------------------------------------------
CY 2007 per-visit
Multiply by the payment amount
Final CY 2006 per- estimated home per discipline
Home health discipline type visit amounts per health market for HHAs that do
60-day episode basket update not submit
(3.3 percent \1\ required quality
minus 2 percent) data
----------------------------------------------------------------------------------------------------------------
Home Health Aide....................................... $44.76 x 1.013 $45.34
Medical Social Services................................ 158.45 x 1.013 160.51
Occupational Therapy................................... 108.81 x 1.013 110.22
Physical Therapy....................................... 108.08 x 1.013 109.49
Skilled Nursing........................................ 98.85 x 1.013 100.14
Speech-Language Pathology.............................. 117.44 x 1.013 118.97
----------------------------------------------------------------------------------------------------------------
\1\The estimated home health market basket update of 3.3 percent for CY 2007 is based on Global Insight, Inc,
3rd Qtr, 2006 forecast with historical data through 2nd Qtr, 2006.
Table 7.--For HHAs That Do Not Submit the Required Quality Data-- Payment Amount for 60-Day Episodes Beginning
in CY 2006 and Ending in CY 2007 Updated by the Estimated Home Health Market Basket for CY 2007, Minus 2
Percentage Points, with Rural Add-on, Before Case-Mix Adjustment
----------------------------------------------------------------------------------------------------------------
CY 2007 Payment amount per 60-day
episode beginning in CY 2006 and
CY 2007 Updated national 60-day ending in CY 2007 for a beneficiary
episode rate for HHAs that do not 5 Percent rural add-on who resides in a non-MSA area for
submit required quality data HHAs that do not submit required
quality data
----------------------------------------------------------------------------------------------------------------
$2,293.72 x 1.05 $2,408.41
----------------------------------------------------------------------------------------------------------------
Table 8--For HHAs That Do Not Submit the Required Quality Data-- Per-Visit Payment Amounts for Episodes
Beginning in CY 2006 and Ending in CY 2007 Updated by the Estimated Home Health Market Basket for CY 2007, Minus
2 Percentage Points, with Rural Add-on
----------------------------------------------------------------------------------------------------------------
CY 2007 Per-visit
payment amounts
for episodes
beginning in CY
CY 2007 Per-visit 2006 and ending
amounts for HHAs 5 Percent rural in CY 2007 for a
Home health discipline type that do not add-on beneficiary who
submit required resides in a non-
quality data MSA area for HHAs
that do not
submit required
quality data
----------------------------------------------------------------------------------------------------------------
Home Health Aide....................................... $45.34 x 1.05 $47.61
Medical Social Services................................ 160.51 x 1.05 168.54
Occupational Therapy................................... 110.22 x 1.05 115.73
Physical Therapy....................................... 109.49 x 1.05 114.96
Skilled Nursing........................................ 100.14 x 1.05 105.55
Speech-Language Pathology.............................. 118.97 x 1.05 124.92
----------------------------------------------------------------------------------------------------------------
Section 1895(b)(3)(B)(v)(III) of the Act further requires that the
``Secretary shall establish procedures for making data submitted under
subclause (II) available to the public.'' Additionally, the statute
requires that ``such procedures shall ensure that a home health agency
has the opportunity to review the data that is to be made public with
respect to the agency prior to such data being made public.'' To meet
the requirement for making such data public, we proposed
[[Page 65891]]
to continue to use the CMS Home Health Compare Web site whereby HHAs
are listed geographically. Currently the 10 proposed quality measures
are posted on the CMS Home Health Compare Web site. Consumers can
search for all Medicare-approved home health providers that serve their
city or zip code and then find the agencies offering the types of
services they need as well as the required quality measures. See http://www.medicare.gov/HHCompare.
HHAs would continue to have access
(through the Home Health Compare contractor) to its own quality data
(updated periodically) and we would establish a process by which
agencies would receive a report before reporting the data publicly.
Currently, the CMS Home Health Compare Web site does not publicly
report data when agencies have fewer than 20 episodes of care within a
reporting period. In light of the DRA requirements, we recognize the
need to provide the required data to the public and would make these
statistics available through expansion of the CMS Home Health Compare
Web site.
In the July 27, 2005 Medicare Payment Advisory Commission (MedPAC)
testimony before the U.S. Senate Committee on Finance, MedPAC expressed
support for the concept of differential payments for Medicare
providers, which could create incentives to improve quality. To support
this initiative, MedPAC stated that ``outcome measures from CMS'
Outcome-based Quality Indicators'' (currently collected through the
OASIS instrument) ``could form the starter set.'' MedPAC further states
``* * * the Agency for Healthcare Research and Quality concur(s) that a
set of these measures is reliable and adequately risk adjusted.''
The MedPAC testimony recognizes that while the goal of care for
many home health patients is improving health and functioning, for some
patients the goal of the HHA is to simply stabilize their conditions
and prevent further decline. Additionally, the MedPAC testimony
reflects that measures of structure and process could also be
considered.
Various home health outcome measures are now in common use and have
been studied for some time. A number of these measures have been
endorsed by the National Quality Forum (NQF) and are evidence-based,
well accepted, and not unduly burdensome. When determining outcome
measures that will be most appropriate, it is important to measure
aspects of care that providers can control and are adequately risk-
adjusted. Home-based care presents particular difficulties for provider
control because patient conditions are compounded by a variety of home
environment and support system issues.
We are currently pursuing the development of patient-level process
measures for HHAs, as well as refining the current OASIS tool in
response to recommendations from a Technical Expert Panel conducted to
review the data elements that make up the OASIS tool. These additional
measures would complement the existing OASIS outcome measures and would
assist us in identifying processes of care that lead to improvements
for certain populations of patients. These process measures are
currently in the very early stages of development. As we stated
previously, to the extent that evidence-based data are available on
which to determine the appropriate measure specifications, and adequate
risk-adjustments are made, we anticipate collecting and reporting these
measures as part of our home health quality plan. Possible
modifications to the current OASIS tool include reducing the number of
questions on the tool, refining possible responses, as well as adding
new process measures.
We solicited comments on how to make the outcome measures more
useful. We also solicited comments on measures of home health care
processes for which there is evidence of improved care to
beneficiaries. In all cases, we noted that measures should be evidence-
based, clearly linked to improved outcomes, and able to be reliably
captured with the least burden to the provider. We also considered
measures of patient experience of care in the home health setting, as
well as efficiency measures, and solicited comment on the use of these
measures and their importance in the home health setting. In the
proposed rule, we noted that we would address any changes to the HH PPS
quality data submission requirement in future rulemaking.
We also stated our intent to provide guidance on the
specifications, definitions, and reporting requirements of any
additional measures through the standard protocol for measure
development.
We proposed to revise the regulations at Sec. 484.225 to reflect
these proposed payment requirements which would require submission of
quality data. For CY 2007, we will finalize the requirement to use the
10 OASIS measures as meeting the DRA quality data reporting requirement
as discussed in section II.D. of the August 3, 2006 proposed rule and
the regulations at Sec. 484.225.
E. Outliers and Fixed Dollar Loss Ratio
Outlier payments are payments made in addition to regular 60-day
case-mix and wage-adjusted episode payments for episodes that incur
unusually large costs due to patient home health care needs. Outlier
payments are made for episodes for which the estimated cost exceeds a
threshold amount. The episode's estimated cost is the sum of the
national wage-adjusted per-visit payment amounts for all visits
delivered during the episode. The outlier threshold for each case-mix
group, PEP adjustment, or total SCIC adjustment is defined as the 60-
day episode payment amount, PEP adjustment, or total SCIC adjustment
for that group plus a fixed dollar loss amount. Both components of the
outlier threshold are wage-adjusted.
The wage-adjusted fixed dollar loss (FDL) amount represents the
amount of loss that an agency must bear before an episode becomes
eligible for outlier payments. The FDL is computed by multiplying the
wage-adjusted 60-day episode payment amount by the FDL ratio, which is
a proportion expressed in terms of the national standardized episode
payment amount. The outlier payment is defined to be a proportion of
the wage-adjusted estimated costs beyond the wage-adjusted threshold.
The proportion of additional costs paid as outlier payments is referred
to as the loss-sharing ratio.
Section 1895(b)(5) of the Act requires that estimated total outlier
payments are no more than 5 percent of total estimated HH PPS payments.
In response to the concerns about potential financial losses that might
result from unusually expensive cases expressed in comments to the
October 28, 1999 proposed rule (64 FR 58133), the July 2000 final rule
set the target for estimated outlier payments at the 5 percent level.
The FDL ratio and the loss-sharing ratio were then selected so that
estimated total outlier payments would meet the 5 percent target.
For a given level of outlier payments, there is a trade-off between
the values selected for the FDL ratio and the loss-sharing ratio. A
high FDL ratio reduces the number of episodes that can receive outlier
payments, but makes it possible to select a higher loss-sharing ratio
and, therefore, increase outlier payments for outlier episodes.
Alternatively, a lower FDL ratio means that more episodes can qualify
for outlier payments, but outlier payments per episode must be lower.
As a result of public comments on the October 28, 1999 proposed rule,
in our July 2000 final rule, we made the decision to attempt to do the
former.
[[Page 65892]]
In the July 2000 final rule, we chose a value of 0.80 for the loss-
sharing ratio, which preserves incentives for agencies to attempt to
provide care efficiently for outlier cases. A loss-sharing ratio of
0.80 was also consistent with the loss-sharing ratios used in other
Medicare PPS outlier policies. Furthermore, we estimated the value of
the FDL ratio that would yield estimated total outlier payments that
were 5 percent of total home health PPS payments. The resulting value
for the FDL ratio for the July 2000 final rule was 1.13.
Our CY 2005 update to the HH PPS rates (69 FR 62124) changed the
FDL ratio from the original 1.13 to 0.70 to allow more home health
episodes to qualify for outlier payments and to better meet the 5
percent target of outlier payments to total HH PPS payments. We stated
in that CY 2005 update that we planned to continue to monitor the
outlier expenditures on a yearly basis and to make adjustments as
necessary (69 FR 62129). To do so, we planned on using the best
Medicare data available at the time of publication. For the CY 2005
update, we used CY 2003 home health claims data.
Our CY 2006 update to the HH PPS rates (70 FR 68132) changed the
FDL ratio from 0.70 to 0.65 to allow even more home health episodes to
qualify for outlier payments and to better meet the 5 percent target of
outlier payments to total HH PPS payments. For the CY 2006 update, we
used CY 2004 home health claims data.
At the time of publication of the August 3, 2006 proposed rule, we
did not have more recent data, but we noted that we may update the FDL
ratio for CY 2007 depending on the availability of more recent data. We
further noted that if we updated the FDL ratio for the CY 2007 update,
we would use the same methodology performed in updating the current FDL
ratio described in the October 22, 2004 final rule. Subsequent to the
publication of the August 3, 2006 proposed rule, we have now obtained
more recent data, that is, CY 2005 home health claims data.
Accordingly for this final rule, we have used the same methodology
and performed an analysis on the CY 2005 HH PPS analytic data to update
the FDL ratio for CY 2007. The results of this analysis indicate that
an FDL ratio of 0.67 is consistent with the existing loss-sharing ratio
of 0.80 and a projected target percentage of estimated outlier payments
of 5 percent. Therefore, we are updating the FDL ratio from the current
0.65 to 0.67 for CY 2007.
Expressed in terms of a fixed dollar loss amount, an FDL ratio of
0.67 indicates that providers would absorb approximately $1,567 of
their costs (before wage adjustment), in addition to their loss-sharing
portion of the estimated cost in excess of the outlier threshold. This
fixed dollar loss amount of approximately $1,567 is computed by
multiplying the standard 60-day episode payment amount (2,339.00) by
the FDL ratio (0.67). In contrast, using the current FDL ratio (0.65),
the fixed dollar loss amount would be approximately $1,520 ($2,339.00 x
0.65)
F. Hospital Wage Index--Revised OMB Definitions for Geographical
Statistical Areas
Sections 1895(b)(4)(A)(ii) and (b)(4)(C) of the Act require the
Secretary to establish area wage adjustment factors that reflect the
relative level of wages and wage-related costs applicable to the
furnishing of home health services and to provide appropriate
adjustments to the episode payment amounts under the HH PPS to account
for area wage differences. We apply the appropriate wage index value to
the labor portion (76.775 percent; see 60 FR 62126) of the HH PPS rates
based on the geographic area in which the beneficiary received home
health services as discussed in section II.A of the August 3, 2006
proposed rule. Generally, we determine each HHA's labor market area
based on definitions of Metropolitan Statistical Areas (MSAs) issued by
the Office of Management and Budget (OMB).
We acknowledged in our October 22, 2004 final rule that on June 6,
2003, the OMB issued an OMB Bulletin (No. 03-04) announcing revised
definitions for MSAs, new definitions for Micropolitan Statistical
Areas and Combined Statistical Areas, and guidance on using the
statistical definitions. A copy of the Bulletin may be obtained at the
following Internet address: http://www.whitehouse.gov/omb/bulletins/b03-04.html.
At that time, we did not propose to apply these new
definitions known as Core-Based Statistical Areas (CBSAs). In the
November 9, 2005 final rule, we adopted the OMB-revised definitions and
implemented a one-year transition policy consisting of a 50/50 blend of
the MSA-based and the new CBSA-based wage indexes.
As discussed previously and set forth in the July 3, 2000 final
rule, the statute provides that the wage adjustment factors may be the
factors used by the Secretary for purposes of section 1886(d)(3)(E) of
the Act for hospital wage adjustment factors. Again, as discussed in
the July 3, 2000 final rule, we proposed to use the pre-floor and pre-
reclassified hospital wage index data to adjust the labor portion of
the HH PPS rates based on the geographic area in which the beneficiary
receives the home health services. We believe the use of the pre-floor
and pre-reclassified hospital wage index data results in the
appropriate adjustment to the labor portion of the costs as required by
statute. For the CY 2007 update to the home health payment rates, we
proposed to continue using the most recent pre-floor and pre-
reclassified hospital wage index available at the time of publication.
See Addenda A and B of this final rule, respectively, for the rural and
urban hospital wage indexes using the CBSA designations. For the HH PPS
rates addressed in the August 3, 2006 proposed rule, we used
preliminary 2007 pre-floor and pre-reclassified hospital wage index
data. We incorporated updated hospital wage index data for the 2007
pre-floor and pre-reclassified hospital wage index to be used in this
final rule (not including any reclassifications under section
1886(d)(8)(B) of the Act).
As implemented under the HH PPS in the July 3, 2000 HH PPS final
rule, each HHA's labor market is determined based on definitions of
MSAs issued by OMB. In general, an urban area is defined as an MSA or
New England County Metropolitan Area (NECMA) as defined by OMB. Under
Sec. 412.62(f)(1)(iii), a rural area is defined as any area outside of
an urban area. The urban and rural area geographic classifications are
defined in Sec. 412.62(f)(1)(ii) and Sec. 412.62(f)(1)(iii),
respectively, and have been used under the HH PPS since it was
implemented.
Under the HH PPS, the wage index value is based upon the site of
service for the beneficiary (defined by section 1861(m) of the Act as
the beneficiary's place of residence). As has been our longstanding
practice, any area not included in an MSA (urban area) is considered to
be nonurban (Sec. 412.64(b)(1)(ii)(C)) and receives the statewide
rural wage index value (see, for example, 65 FR 41173).
For CY 2007, we proposed using 100 percent of the CBSA-based wage
area designations for purposes of determining the HH PPS wage index
adjustment.
In adopting the CBSA designations, we identified some geographic
areas where there were no hospitals, and thus no hospital wage data on
which to base the calculation of the CY 2007 home health wage index.
For CY 2006, we adopted a policy in the HH PPS final rule (70 FR 68132)
of using the CY 2005 pre-floor, pre-reclassified hospital wage index
value for rural areas when no rural hospital wage data are available.
We also adopted a policy that for urban labor markets without an urban
hospital
[[Page 65893]]
from which a hospital wage index can be derived, all of the CBSAs
within the State would be used to calculate a statewide urban average
wage index to use as a reasonable proxy for these areas. We have not
received any concerns from the industry regarding our policy to
calculate an urban wage index, using an average of all of the urban
CBSAs wage index values within the State, for urban labor markets
without an urban hospital from which a hospital wage index can be
derived. Consequently, in the August 3, 2006 proposed rule, we proposed
to continue to apply the average wage index from all urban areas in the
state to any urban areas lacking hospital wage data in that state.
Currently, the only CBSA that would be affected by this is CBSA 25980
Hinesville, Georgia.
In the August 3, 2006 proposed rule, we again proposed to apply the
CY 2005 pre-floor/pre-reclassified hospital wage index to rural areas
where no hospital wage data is available. Currently, the only rural
areas that would be affected by this are Massachusetts and Puerto Rico.
Since publication of the CY 2006 HH PPS final rule, representatives of
the home health industry have expressed concerns with this policy,
specifically as it applies to Massachusetts. In response to these
concerns and in recognition that, in the future, there may be
additional rural areas impacted by a lack of hospital wage data from
which to derive a wage index, we considered alternative methodologies
for imputing a rural wage index for areas where no hospital wage data
are available.
We specifically considered imputing a rural wage index by computing
a simple average of all of the statewide (rural) wage indexes at the
Census Division level. Census Divisions are defined by the U.S. Census
Bureau and may be found at http://www.census.gov/geo/www/us_regdiv.pdf.
Massachusetts is located in Census Division I, along with Connecticut,
Maine, New Hampshire, Vermont and Rhode Island. The Census Bureau
states, ``Puerto Rico and the Island Areas are not part of any census
region or census division.'' Therefore, we could not compute a rural
wage index for Puerto Rico using this alternative methodology.
In the August 3, 2006 proposed rule, we solicited comments on the
current methodology and alternative methodologies for determining a
wage index for areas without the necessary hospital wage data. Since
publication of the August 3, 2006 proposed rule, we have received
numerous comments regarding our policy for determining a wage index for
rural areas without the necessary hospital wage data. In direct
response to these comments, we have decided to revise the methodology
for imputing a rural wage index. We discuss the change to the
methodology for imputing a rural wage index in section III of this
final rule.
G. Payment for Oxygen, Oxygen Equipment and Capped Rental DME Items
As discussed in the August 3, 2006 proposed rule, we would amend
our regulations at Sec. 414.226 by revising the payment rules for
oxygen and oxygen equipment in paragraph (a), adding a new paragraph
(f) that provides that the beneficiary assumes ownership of oxygen
equipment on the first day that begins after the 36th continuous month
in which rental payments are made, and adding a new paragraph (g) that
contains new supplier requirements that we believe are necessary in
light of the amendments made to section 1834(a)(5) of the Act by
section 5101(b) of the DRA. As discussed in the August 3, 2006 proposed
rule, we would amend our regulations at Sec. 414.226 by adding a new
paragraph (c) that establishes new classes and national payment amounts
for oxygen and oxygen equipment based on our authority in section
1834(a)(9)(D) of the Act. We also proposed to revise paragraph (b) of
this section to incorporate the special payment rules for oxygen
equipment mandated by section 1834(a)(21) of the Act. The provisions of
section 1834(a)(21), which we believe are self-implementing, resulted
in adjustments to Medicare payment amounts for oxygen contents and
stationary oxygen equipment as well as portable oxygen equipment in
2005, which were implemented through program instructions. We are now
seeking to codify these changes to make our regulations consistent with
the payment methodology for these items in 2005 and 2006, and because
the payment reductions mandated by section 1834(a)(21) are incorporated
into our proposal, as more fully discussed in section I of the August
3, 2006 proposed rule, to create new payment classes for oxygen and
oxygen equipment. The August 3, 2006 proposed rule indicated that we
would redesignate old paragraph (c) of this section as paragraph (d)
and would amend this paragraph to indicate under what situations
payments would be made for the items and services described in new
paragraph (c). Finally, the August 3, 2006 proposed rule indicated that
we would redesignate old paragraph (d) of this section as paragraph (e)
and would make technical changes to this paragraph so that the cross-
references are accurate in light of the other changes we proposed to
make to Sec. 414.226.
The August 3, 2006 proposed rule would also amend our regulations
at Sec. 414.229 by revising the payment rules for capped rental
durable medical equipment (DME) items (also called capped rental items)
in paragraph (a), revising paragraph (f) to provide for new payment
rules for capped rental items furnished beginning on or after January
1, 2006, revising paragraph (g) to provide for supplier requirements
that we believe are necessary in light of the amendments made to
section 1834(a)(7)(A) of the Act by section 5101(a) of the DRA, and
adding a new paragraph (h) to address the lump-sum purchase option for
power-driven wheelchairs furnished on or after January 1, 2006. The
language in current paragraphs (f) and (g) of this section is obsolete,
and therefore, we proposed to delete this language.
The August 3, 2006 proposed rule indicated that we would amend our
regulations at Sec. 414.210 by revising the maintenance and servicing
rules in paragraph (e) and the replacement of equipment rules in
paragraph (f) to further implement the new supplier requirements that
we proposed below.
Finally, we proposed to revise Sec. 414.230(b) to incorporate
section 5101(b)(2)(B) of the DRA, which provides that for all
beneficiaries receiving oxygen equipment paid for under section 1834(a)
on December 31, 2005, the period of continuous use begins on January 1,
2006. We also proposed to revise Sec. 414.230(f), which governs when a
new period of continuous use begins if a beneficiary receives new
equipment, to account for the fact that oxygen equipment is paid on a
modality neutral basis.
Section 5101(a) of the DRA changes the Medicare payment methodology
for capped rental equipment to beneficiary ownership after 13 months of
continuous use, for those beneficiaries who need the equipment for more
than 13 months. This section also makes the transfer of title for the
capped rental items a requirement rather than a beneficiary option
after 13 months of continuous use. The changes made by this section of
the DRA apply to capped rental items, including rented power-driven
wheelchairs, for which the first rental month occurs on or after
January 1, 2006. We proposed to update Sec. 414.229 of our regulations
to reflect these new statutory requirements. However, for capped rental
items and rented power-driven wheelchairs for which the first rental
month occurred before January 1, 2006, the existing rules in Sec.
414.229 would continue to apply. In
[[Page 65894]]
addition, as was the case before enactment of the DRA, beneficiaries
may elect to obtain power-driven wheelchairs furnished on or after
January 1, 2006, on a lump-sum purchase basis.
Section 5101(b) of the DRA changes the Medicare payment methodology
for oxygen equipment from continuous rental to beneficiary ownership
after 36 months of continuous use, for those beneficiaries who
medically need the oxygen equipment for more than 36 months. For
beneficiaries who were receiving oxygen equipment on December 31, 2005
for which payment was made under section 1834(a) of the Act, the 36-
month rental period began on January 1, 2006. For beneficiaries who
begin to rent oxygen equipment on or after January 1, 2006, the 36-
month rental period commences at the time they begin to rent the
equipment. We proposed to update Sec. 414.226 of our regulations to
incorporate these new requirements.
In light of the changes made by sections 5101(a) and (b) of the
DRA, we believe it was necessary to propose additional supplier
requirements in order to maintain beneficiary protections and access to
oxygen, oxygen equipment, and capped rental DME items under section
1834(a) of the Act. For both capped rental DME items and oxygen
equipment, the DRA amendments make the transfer of title from the
supplier to the beneficiary a requirement rather than an option after
the statutorily-prescribed rental period ends for each category of
items. Therefore, suppliers and beneficiaries should be aware that
title to these items will automatically transfer to the beneficiary if
the medical need for the equipment continues for a period of continuous
use that is longer than 36 months for oxygen equipment and 13 months
for capped rental items. We are concerned that there may be incentives
for suppliers to avoid having to transfer title to equipment to
beneficiaries as required by the DRA. For example, we are aware of
cases where a supplier has informed beneficiaries that it would decline
to accept assignment for capped rental items and would charge
beneficiaries who elected the purchase option the full retail price for
the item during the 13th rental month (which was right before the
supplier would be required to transfer title under the purchase
option). In these cases, the beneficiary would become financially
liable for the total retail price for the equipment in the 13th month
if they elected the purchase option. In our August 3, 2006 proposed
rule, we made several proposals relating to the furnishing of oxygen
equipment and capped rental items which we believe protect
beneficiaries from these types of abusive practices and which we
believe are reasonable for a supplier to comply with. Our authority to
promulgate these requirements stems from our authority to administer
the payment rules at section 1834(a)(5) of the Act for oxygen equipment
and section 1834(a)(7) of the Act for capped rental items, as well as
the general authority provided in section 1871 of the Act for
prescribing regulations necessary for administering the Medicare
program. Other than the length of the rental periods, which the DRA
made effective beginning on January 1, 2006 for all oxygen equipment
and for capped rental items for which the first rental period began on
or after that date, we proposed that the requirements presented in this
section of the regulations would be effective on January 1, 2007, and
would apply to suppliers that furnish oxygen equipment or capped rental
items on a rental basis.
We believe that a supplier of an item that is subject to these new
payment rules that furnishes the item in the first month for which a
rental payment is made has an obligation to continue furnishing the
item to the beneficiary for the entire period of medical need in which
payments are made, up to and including the time when title to the
equipment transfers to the beneficiary. We believe it is reasonable for
the beneficiary to have an expectation that he or she will not be
forced to change equipment or suppliers during the period of medical
need unless he or she wants to. Therefore, we proposed that unless an
exception applies, the supplier that furnishes oxygen equipment or a
capped rental item for the first month of the statutorily prescribed
rental period must continue to furnish the oxygen equipment or the
capped rental item for as long as the equipment remains medically
necessary, up to and including the last month for which a rental
payment is made by Medicare. We believe that this proposal was
necessary to ensure beneficiary access to equipment during a period of
medical need, which we believe could be jeopardized if suppliers have
the option to take back the rented equipment just before the rental
period expires in order to retain title to that equipment. We proposed
that this requirement would be subject to the following exceptions: (1)
Cases where the item becomes subject to a competitive acquisition
program implemented in accordance with section 1847(a) of the Act; (2)
cases where a beneficiary relocates on either a temporary or permanent
basis to an area that is outside the normal service area of the initial
supplier; (3) cases where the beneficiary chooses to obtain equipment
from a different supplier; and (4) other cases where CMS or the carrier
determine that an exception is warranted. We have proposed rules in
connection with the first exception in our Notice of Proposed
Rulemaking for Competitive Acquisition for Certain Durable Medical
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and Other
Issues. These proposed rules are addressed beginning on page 25662 of
the May 1, 2006 proposed rule (71 FR 25654). If the second exception
applies, we proposed that the supplier or beneficiary would need to
arrange for another supplier in the new area to furnish the item on
either a temporary or permanent basis. This proposed exception is
consistent with what currently happens when beneficiaries move outside
a supplier's service area on either a temporary or permanent basis. The
third exception is intended to protect a beneficiary's right to obtain
the equipment from the supplier of his or her choice. Finally, we
proposed to allow other exceptions to this proposed requirement on a
case-by-case basis at the discretion of CMS or the Medicare contractor.
CMS will be monitoring the case-by-case determinations made by the
Medicare contractor.
We are concerned that there might be potential incentives for a
supplier to replace more valuable or newer equipment used by the
beneficiary with less valuable or older equipment from its inventory at
some point before the 36th rental month for oxygen equipment or 13th
rental month for capped rental DME expires in order to avoid losing
title to the more valuable equipment. In order to avoid such potential
situations, we proposed that the supplier may not provide different
equipment from that which was initially furnished to the beneficiary at
any time during the 36-month period for oxygen equipment or 13th rental
month for capped rental DME unless one of the following exceptions
applies: (1) The equipment is lost, stolen, or irreparably damaged; (2)
the equipment is being repaired while loaner equipment is in use; (3)
there is a change in the beneficiary's medical condition such that the
equipment initially furnished is no longer appropriate or medically
necessary; or (4) the carrier determines that a change in equipment is
warranted. However, we proposed that a change from one oxygen equipment
modality to another
[[Page 65895]]
without physician documentation that such a change is medically
necessary for the individual would not be considered a change in
equipment that is warranted under the fourth exception stated above
since there is no medical basis for the change. In those cases where
the equipment is replaced, we proposed that the replacement item must
be equipment that is, at minimum, in the same condition as the
equipment being replaced. That proposal was intended to safeguard
beneficiary access to quality oxygen equipment and capped rental items
throughout the duration of the rental period.
Under Medicare, suppliers who furnish items of DME can accept
assignment on all claims for Medicare services or on a claim-by-claim
basis. Assignment is an agreement between the supplier and the
beneficiary under which the supplier agrees to request direct payment
from Medicare for the item, to accept 80 percent of the Medicare
allowed payment amount for the item from the carrier, and to charge the
beneficiary not more than the remaining 20 percent of the Medicare
approved payment amount, plus any unmet deductible. If a supplier
elects not to accept assignment, Medicare pays the beneficiary 80
percent of the Medicare allowed payment amount, after subtracting any
unmet deductible, and there is no limit under Title XVIII of the Act on
the amount the supplier can charge the beneficiary for rental of the
DME item. The beneficiary, in these situations, is financially
responsible for the difference between 80 percent of the Medicare
allowed payment amount and the amount the supplier charges for the
rental of the DME item.
Section 1842(h) allows suppliers to sign a participation agreement
where the supplier agrees voluntarily, before a calendar year, to
accept assignment for all Medicare items and services furnished to a
beneficiary for the following calendar year. Current supplier
participation agreements are renewable annually. However, the
agreements do not apply for a full period of medical need for specific
beneficiaries in cases where such need extends for more than a calendar
year. Nor do current participation agreements apply to periods of
medical need where such a period overlaps calendar years. In the latter
case, while a supplier may renew its participation agreement annually,
a beneficiary would not know before choosing a supplier whether the
supplier would be willing to accept assignment of all claims during the
13-month or 36-month rental period.
In order for the beneficiary to make an informed choice, we
proposed that before furnishing the oxygen equipment or a capped rental
item, the supplier must disclose to the beneficiary its intentions
regarding whether it will accept assignment of all monthly rental
claims for the equipment during the period of medical necessity, up to
and including the 36th month of continuous use for oxygen equipment or
the 13th rental month of continuous use for capped rental DME in which
rental payments could potentially be made. We believe that it is
reasonable for the supplier to disclose to each beneficiary its
intentions regarding assignment of claims for all months during a
rental period as this decision has a direct financial effect on the
beneficiary. A supplier's intentions could be expressed in the form of
a written agreement between the supplier and a beneficiary. This
proposal would require suppliers to give beneficiaries advance notice
of the possible extent of their financial liability during the period
of medical need in which monthly rental payments are made for the
equipment, so that they can use this information to help select a
supplier. Additionally, to promote informed beneficiary choices, we
plan to post information on a CMS and/or CMS contractor Web site(s)
indicating supplier specific information on oxygen equipment and capped
rental items such as (1) the percentage of beneficiaries for whom each
supplier accepted assignment during a prior period of time (for
example, a quarter), and/or (2) the percentage of cases in which the
supplier accepted assignment during the beneficiary's entire rental
period. We believe that those proposals create reasonable rules for
suppliers that furnish oxygen equipment and capped rental items and
ensure that beneficiaries have information necessary to make informed
choices that could have significant financial consequences for them.
H. Payment for Oxygen Contents for Beneficiary-Owned Oxygen Equipment
Section 1834(a)(5) of the Act, as amended by section 5101(b)(1) of
the DRA, requires that Medicare continue to make monthly payments for
the delivery and refilling of oxygen contents for the period of medical
need after beneficiaries own their own gaseous or liquid oxygen
stationary or portable equipment. Before the enactment of the DRA,
Medicare made monthly payments for the delivery and refilling of oxygen
contents for beneficiaries who own their own stationary and/or portable
equipment (equipment they obtained on a purchase basis before June 1,
1989, out-of-pocket, or before they enrolled in Medicare Part B). In
accordance with the DRA, we proposed that after the supplier transfers
title to the stationary and/or portable oxygen equipment to the
beneficiary, Medicare would continue to make separate monthly payments
for gaseous or liquid oxygen contents until medical necessity ends. We
also proposed that if the beneficiary-owned equipment is replaced, and
Medicare pays for the replacement in accordance with proposed revised
Sec. 414.210(f) (see section K of this final rule for a more complete
discussion of our proposed oxygen equipment replacement policies), a
new 36-month rental period start and the payment for oxygen contents
would be included in the monthly rental payments. We proposed that all
oxygen content payment amounts would be based on new rates developed in
accordance with our proposal to establish new payment classes, as
discussed in section I below.
In transferring title to gaseous or liquid oxygen equipment used
during the 36-month rental period, we proposed that suppliers must
transfer title for all equipment that will meet the beneficiary's
continued medical need, including those oxygen cylinders or vessels
that are refilled at the supplier's place of business. Customary
practice by suppliers for refilling oxygen contents is to deliver to
the beneficiary cylinders filled with contents and take back the empty
cylinders to the supplier's place of business to refill the oxygen
contents. Under our proposal, title would transfer for both sets of
cylinders, meaning the ones that are being used by the beneficiary for
the month and the ones that the supplier refills in its business
location and delivers for use during the next subsequent month. This
policy would apply to both gaseous and liquid oxygen stationary
equipment and portable systems. Similarly, in those cases where the
beneficiary uses an oxygen equipment system which includes a compressor
which fills portable gaseous cylinders in the beneficiary's home, we
proposed that suppliers must transfer title for this equipment to the
beneficiary.
Concerns have been raised regarding beneficiary access to, and
safety issues associated with, the delivery of oxygen contents for
beneficiary-owned stationary and portable gaseous or liquid equipment.
We believe that these concerns are based on the misconception that
beneficiaries become responsible for filling their own cylinders. To
the contrary, there are numerous State and Federal regulations
governing the safe handling, filling, and transport of oxygen and those
regulations are unaffected by the DRA oxygen provisions. We expect that
[[Page 65896]]
suppliers will continue to furnish replacement contents for
beneficiary-owned gaseous and liquid systems in the same way that they
have furnished replacement contents for beneficiary-owned equipment in
the past. For example, suppliers that deliver a 1 month supply of
gaseous cylinders to a beneficiary's home at the same time that they
are picking up empty cylinders that the beneficiary used during the
previous month could continue this practice under section 5101(b) of
the DRA.
I. Classes of Oxygen and Oxygen Equipment
Based on information from paid Medicare claims with dates of
service in calendar year 2004, distribution of usage among the four
general categories of oxygen systems was: (a) 69 percent of
beneficiaries used both a stationary concentrator (which does not
require delivery of oxygen contents) and a portable system that
requires delivery of gaseous or liquid oxygen, (b) 5 percent of
beneficiaries used a stationary system that requires delivery of
gaseous or liquid oxygen and a portable system that requires delivery
of gaseous or liquid oxygen, (c) 24 percent of beneficiaries used a
stationary concentrator system only, and (d) 2 percent of beneficiaries
used only a stationary system that requires delivery of liquid or
gaseous oxygen. The prevalent use of stationary concentrator systems is
due, in part, to the fact that this system is the most cost-effective
and dependable of the stationary oxygen modalities. The main reason
that the concentrator system is the most cost-effective system is that
the oxygen is concentrated from room air, and therefore, the high cost
of delivering contents to the beneficiary's residence is removed when
this system is used. Medicare's current payment structure results in
two separate payments for beneficiaries using both stationary and
portable systems, both of which are modality neutral, meaning that the
payment amount does not differ depending on the type of oxygen delivery
system (gaseous, liquid, or concentrator) that is furnished. One
payment, hereinto referred to as the ``stationary payment,'' includes
payment for the rental of stationary equipment, delivery of stationary
oxygen contents (for gaseous or liquid systems), and delivery of
portable oxygen contents (for gaseous or liquid systems). A separate
add-on payment, hereinto referred to as the ``portable add-on,'' is
also made in cases where the beneficiary is renting portable oxygen
equipment. As a result of this payment methodology which has been in
place since 1989, suppliers have a financial incentive to furnish low
cost concentrator systems as opposed to more expensive gaseous or
liquid systems because the monthly payment is the same regardless of
which system is used. Finally, in implementing section 1834(a)(5) and
(9) of the Act, monthly payment amounts were established through
regulations at Sec. 414.226 for (1) stationary and portable oxygen
contents (for beneficiaries who use stationary and, if applicable,
portable equipment), and (2) portable oxygen contents only (for
beneficiaries who only use portable oxygen equipment). The current
average statewide monthly payment amounts are:
------------------------------------------------------------------------
------------------------------------------------------------------------
Equipment & Contents Oxygen Contents Only
------------------------------------------------------------------------
Stationary Pmt.................. $199 Stationary & Portable... $156
Portable Add-on................. 32 Portable Only........... 21
------------------------------------------------------------------------
Based on our data, 36 percent of Medicare beneficiaries continue
using oxygen equipment for more than 3 years, that is, beyond the 36th
month after which title for the equipment would transfer to the
beneficiary in accordance with the DRA.
We have heard concerns about the appropriateness of the current
payment structure for oxygen and oxygen equipment in light of changes
in the technologies for oxygen delivery systems that have occurred
since 1989, and these concerns have been amplified in light of the
recent changes made by the DRA. The specific concerns pertain to
beneficiary access to (1) portable oxygen contents after title to the
equipment transfers to the beneficiary, (2) devices that allow a
beneficiary to fill portable tanks at home (otherwise referred to in
the oxygen equipment industry as transfilling systems), and (3)
portable oxygen concentrators. As we implement the DRA provisions for
oxygen equipment and promulgate additional supplier requirements, we
want to ensure that the Medicare payment methodology results in
payments for oxygen and oxygen equipment that are accurate, do not
impede beneficiary access to innovations in technology, and do not
create inappropriate incentives for suppliers.
Some believe that Medicare's stationary payment for equipment and
contents (average of $199) is ``too high'' and that Medicare's payment
for portable oxygen contents only for beneficiary-owned portable
equipment (average of $21) is ``too low''. While some contend that the
overall payment (stationary payment plus portable add-on) for oxygen
and oxygen equipment is adequate as long as the beneficiary continues
to rent the equipment, they are concerned about the adequacy of
Medicare's $21 monthly payment for furnishing oxygen contents for
beneficiary-owned portable equipment. Some believe that Medicare's
current average monthly payment of $156 for oxygen contents, which
includes payment for both stationary and portable systems, is high
enough to create an incentive for suppliers to furnish stationary
oxygen systems that require the ongoing delivery of oxygen contents,
rather than stationary concentrator systems that do not require
delivery of oxygen contents.
Some technologies provide an attachment to a stationary oxygen
concentrator that allows beneficiaries to fill their own portable tanks
at home. Delivery of portable oxygen contents to the beneficiary's home
is, therefore, not necessary since this equipment refills the
beneficiary's rented or owned portable oxygen tanks. This transfilling
technology eliminates the need for frequent and costly trips by a
supplier to a beneficiary's home to refill portable oxygen tanks and
would save the Medicare program and beneficiaries who use portable
equipment the expense of paying for delivery of portable oxygen
contents. We note that we are not aware that a similar ``transfilling''
technology has been developed that would be capable of filling
stationary tanks in the beneficiary's home. Therefore, there remains a
need for ongoing delivery of gaseous or liquid oxygen contents for
stationary equipment. In accordance with the DRA, after 36 months of
continuous use, title for the transfilling equipment and accompanying
portable oxygen tanks would transfer to the beneficiary who would then
own a portable equipment system that self-generates oxygen in their
home. However, some are concerned that current Medicare payment rules
that
[[Page 65897]]
allow payment for oxygen contents for stationary equipment creates an
incentive for suppliers to furnish stationary oxygen equipment that
require liquid or gaseous oxygen deliveries, rather than concentrators
and transfilling equipment that self-generate oxygen in the
beneficiary's home. In addition, portable oxygen concentrators are now
available that meet both the beneficiary's stationary and portable
oxygen needs. Some have raised concern about whether the combination of
the Medicare stationary payment and portable add-on payment
(approximately $231 per month), which is what is currently paid for
portable oxygen concentrators, is sufficient to facilitate use of this
new technology which, like a transfilling system, eliminates the need
for delivery of oxygen contents, but is more expensive than a
``standard'' or ``non-portable'' concentrator.
In light of these concerns, we proposed regulatory changes to
address the Medicare payment rates for oxygen and oxygen equipment. We
proposed to address these issues by using our authority under section
1834(a)(9)(D) of the Act to establish separate classes and monthly
payment rates for items of oxygen and oxygen equipment. Specifically,
there are two changes we proposed for oxygen and oxygen equipment:
1. We proposed to establish a new class and monthly payment amount
for oxygen generating portable oxygen equipment (for example, portable
concentrators and transfilling systems).
2. We proposed to establish separate classes and monthly payment
amounts for gaseous and liquid oxygen contents that must be delivered
for beneficiary-owned stationary and portable oxygen equipment.
The first change involves creating a new separate class for
portable oxygen systems that generate their own oxygen and therefore
eliminate the need for delivery of oxygen contents (for example,
portable concentrator systems or transfilling systems). A higher
monthly payment amount would be allowed, as described below, for these
systems to account for the increased, up-front costs to the supplier of
furnishing these more expensive concentrator or transfilling systems,
which would be partially offset by the reduced payments that the
supplier would receive from the Medicare program and beneficiaries due
to the fact that these systems do not require the delivery of oxygen
contents.
The second change involves creating two separate classes
(stationary contents only and portable contents only) and monthly
payment rates for furnishing oxygen contents for beneficiary-owned
stationary and portable systems. Currently, the combined average
monthly payment amount of $156 for furnishing oxygen contents for
beneficiary-owned stationary and portable systems includes payment for
both stationary contents and portable contents. The current fee
schedule amounts for oxygen contents are based on calendar year data
from 1986 for the combined average Medicare monthly payment for both
stationary and portable contents divided by number of rental months for
stationary liquid and gaseous oxygen equipment. As a result, the
current combined stationary/portable contents payment results in
Medicare payments for portable contents even in those cases where the
beneficiary does not use portable oxygen equipment. Under our proposal
to create one payment class for oxygen contents used for stationary
equipment, and a separate class for oxygen contents used for portable
equipment, new national monthly payment amounts for stationary contents
delivery and portable contents delivery would be established by
splitting the combined payment of $156 into two new payments as
explained below. This change would increase the monthly payment for
furnishing portable oxygen contents and would address the concerns that
the monthly payment rate of $21 is too low for the delivery and filling
of portable tanks after the beneficiary assumes ownership of the
equipment in accordance with the DRA.
In order to achieve budget neutrality for the new classes of oxygen
and increase payment amounts for furnishing portable contents, we would
need to reduce other Medicare oxygen payment rates. Budget neutrality
would require that Medicare's total spending for all modalities of
stationary and portable systems, including contents, be the same under
the proposed change as they would be without the change.
We proposed to achieve budget neutrality by reducing the current
monthly payment amounts (the stationary payment) for stationary oxygen
equipment and oxygen contents (for stationary or portable equipment)
made during the rental period. This reduction in payment is necessary
to offset increased payments for the changes identified above and to
meet the requirement in section 1834(a)(9)(D)(ii) that the classes and
payments be established in a budget neutral fashion. In most cases,
suppliers furnish Medicare beneficiaries with stationary oxygen
concentrators. These devices can be purchased for $1,000 or less and
the current, average Medicare payment of $199 pays suppliers $1,990
over 10 months. We believe that these facts indicate that making a
reduction (from $199 on average to $177) in Medicare payment for this
relatively inexpensive oxygen equipment in order to pay oxygen
suppliers adequately for furnishing portable oxygen contents and more
expensive portable oxygen equipment technologies is warranted. With
this approach, the proposed new classes, as well as proposed new
national monthly payment rates, would be as follows:
1. Stationary Payment: $177.
2. Portable Add-On: $32.
3. Oxygen Generating Portable Equipment Add-On (portable
concentrators or transfilling systems): $64.
4. Stationary Contents Delivery: $101.
5. Portable Contents Delivery: $55.
We provide a detailed discussion of the payment rate calculations/
adjustments in the paragraphs that follow. Under the proposed new
oxygen and oxygen equipment class structure described above, in those
cases where the beneficiary needs both stationary and portable oxygen,
monthly payments of $241 or $209 (proposed revised stationary payment
of $177 plus one of two proposed portable equipment payments, $32 or
$64) would be made during rental months 1 through 36. The stationary
payment (which includes payment for stationary equipment, as well as
oxygen contents for stationary and portable systems) of $177 would be
made during rental months 1 through 36 for beneficiaries who only need
stationary oxygen and oxygen equipment. Monthly payments of $101 for
stationary oxygen contents and/or $55 for portable oxygen contents
would be made in cases where beneficiaries own their stationary and/or
portable oxygen equipment. As explained in more detail in the
paragraphs that follow, the $101 payment is for stationary oxygen
contents only and is derived from the current payment of $156, which is
made for both stationary and portable oxygen contents. The $55 payment
for portable oxygen contents only is also derived from the current
payment of $156 that is made for both stationary and portable oxygen
contents and would replace the current statewide portable oxygen
contents fees (average of $21), which was based on a relatively small
number of claims and allowed services compared to the number of claims
and allowed services that were used in computing the statewide fees
(average of $156) for a combination of stationary and portable oxygen
contents.
[[Page 65898]]
As noted above, the proposed national payment rates for delivery of
oxygen contents for beneficiary-owned gaseous/liquid equipment were
derived from the current average payment for a combined oxygen contents
delivery of $156. We proposed to establish $101, or 65 percent of $156,
as the monthly payment rate for delivery of larger, heavier,
beneficiary-owned stationary gaseous oxygen cylinders or liquid oxygen
vessels and $55, or 35 percent of $156, as the monthly payment rate for
delivery of smaller, lighter, beneficiary-owned portable gaseous oxygen
cylinders or liquid oxygen vessels. The 65/35 split is based on our
understanding that there are higher costs associated with delivering
stationary tanks (cylinders of gaseous oxygen and vessels of liquid
oxygen) which are approximately twice as large as the portable tanks.
Such costs include supplier overhead costs, including the costs to
purchase, maintain, and dispatch trucks, obtain insurance, and purchase
fuel. The 65/35 split is intended to account for the difference in
costs associated with the size of the tanks. Larger tanks take up more
space on the trucks, take longer to fill, are harder to move, and
result in increased fuel costs.
We estimate that the increase from $21 to $55 in the monthly
payment rate for delivery of oxygen contents for beneficiary-owned
portable equipment will result in increased expenditures of
approximately $22 million over a 24 month period, or $11 million
annually. This figure is based on current data on utilization of
portable oxygen by Medicare beneficiaries.
The add-on payment amount of $64 for the oxygen generating portable
equipment class was calculated based on data indicating long term
savings generated from use of equipment that eliminated the need for
payment of $55 per month for portable oxygen contents. The first step
in calculating the proposed $64 payment for oxygen generating portable
equipment involves the computation of a national, enhanced, modality
neutral monthly payment amount of $241 for new technology systems
(stationary concentrators and transfilling systems, as well as portable
concentrators), which was derived from the sum of the current average
stationary payment ($199), the current average portable add-on payment
($32), and an additional $10 to pay suppliers for furnishing more
expensive equipment that eliminates the need for delivery of portable
oxygen contents. Specifically, we calculated the modality neutral
increased payment (that is, $10 above the current combination of the
stationary payment and portable add-on payment) by estimating potential
savings that the Medicare program would realize as a result of not
having to pay for delivery of oxygen contents for beneficiary-owned
portable oxygen systems in the fourth and fifth years of use. We
calculated the increased payment to be equal to potential savings from
not delivering oxygen contents. In calculating this increased payment,
we were only factoring in savings from the fourth and fifth years of
use since we assume that most beneficiaries will elect to obtain
replacement equipment after the 5-year reasonable useful lifetime for
their equipment has expired. Since our data indicate that 35.8 percent
of beneficiaries will use oxygen equipment for more than 3 years, and
that approximately 74 percent of these beneficiaries use portable
equipment, the $10 amount is calculated based on the following formula,
and is rounded to the nearest dollar:
[GRAPHIC] [TIFF OMITTED] TR09NO06.000
We estimate that the additional $10 payment per month for oxygen
generating portable equipment (transfilling units and portable
concentrators) will result in increased expenditures of approximately
$15 million over a 36 month period, or $5 million annually. This figure
is based on current data on utilization of stationary and portable
oxygen by Medicare beneficiaries over 36 months.
The second step in calculating the proposed $64 add-on payment for
the proposed new class of oxygen generating portable equipment involves
subtracting the proposed new stationary payment. Therefore, the
national monthly payment of $241 computed in the first step above would
be reduced by $177, the proposed new adjusted stationary payment
amount, to arrive at the proposed add-on payment of $64 for just the
oxygen generating portable equipment. In addition, to offset the
increased annual payments of approximately $16 million that will result
from increased payments for portable oxygen contents ($11 million) and
newer technology oxygen generating portable equipment ($5 million), we
proposed to decrease the current stationary payment by $22 ($199-$177).
We estimated that this offset would result in annual Medicare savings
of approximately $16 million, and would therefore offset the increased
payments for new technology oxygen generating portable equipment and
delivery of oxygen contents for other beneficiary-owned portable
equipment. We proposed that these fees be established on a nationwide
basis due to the fact that the variation in the current statewide fee
schedule amounts for oxygen and oxygen equipment, as well as the
portable equipment add-on payment, are currently only 3 percent and 5
percent, respectively.
We proposed that the $64 add-on payment would be made for oxygen
generating portable equipment only if the equipment eliminates the need
for delivery or portable oxygen contents. However, if transfilling
equipment is used in connection with a stationary oxygen concentrator
(whether as an integrated system component or as a separate part) to
both deliver stationary oxygen and fill portable oxygen tanks, Medicare
would make both a $177 stationary payment for the stationary oxygen
concentrator and stationary oxygen contents, and a separate $64 oxygen
generating portable equipment payment for the portable oxygen
transfilling equipment.
There are also portable oxygen transfilling products that are not
part of or used in conjunction with a stationary oxygen concentrator.
These products are only used to fill portable oxygen tanks in the
beneficiary's home. If the beneficiary is using one of these products,
Medicare would make a $64 oxygen generating portable equipment payment.
If the patient is also renting any type of stationary oxygen equipment
(gaseous, liquid, or concentrator), Medicare would make a separate,
additional $177 stationary equipment payment for that equipment.
If a portable oxygen concentrator is furnished, Medicare would make
the $64 oxygen generating portable equipment add-on payment if the
portable oxygen concentrator is used as both the beneficiary's
stationary oxygen equipment and portable oxygen equipment. In this
case, the portable oxygen concentrator equipment would fall under both
the stationary oxygen equipment class and the oxygen generating
portable equipment class. Therefore, the $177 stationary payment would
also be made in this situation, since the equipment being furnished
meets the beneficiary's needs for both stationary and portable oxygen
equipment. In this case, it would be necessary for the supplier to use
two HCPCS codes to bill for this device since it is being used as both
the stationary and portable oxygen equipment for the beneficiary. If
the beneficiary owns any type of stationary equipment (concentrator,
liquid, or gaseous), and is also furnished with a portable oxygen
concentrator, only the
[[Page 65899]]
oxygen generating payment of $64 would be made (that is, the supplier
would not also receive the $177 payment) and the portable oxygen
concentrator equipment would fall under the oxygen generating portable
equipment class because it is only being used to meet the beneficiary's
need for portable oxygen equipment. Finally, if, the beneficiary is
renting any type of stationary equipment (concentrator, liquid, or
gaseous), and is also furnished with a portable oxygen concentrator,
the oxygen generating add-on payment of $64 would be paid for the
portable oxygen concentrator and the stationary payment of $177 would
be paid separately for the stationary oxygen equipment and contents.
In summary, we proposed new payment classes for oxygen contents for
beneficiary-owned stationary equipment, oxygen contents for
beneficiary-owned portable equipment, and oxygen generating portable
equipment. Payments for oxygen contents for beneficiary-owned portable
equipment and oxygen generating portable equipment would exceed what is
currently paid for these items to ensure access to portable oxygen
regardless of the type of equipment used. These increased payments
would be offset by a reduction in the stationary payment. The six broad
categories of oxygen equipment used by beneficiaries are as follows:
A. Concentrator and liquid or gaseous portable equipment.
B. Concentrator and/or oxygen generating portable equipment.
C. Liquid or gaseous stationary equipment and liquid or gaseous
portable equipment.
D. Liquid or gaseous stationary equipment and oxygen generating
portable equipment.
E. Concentrator only.
F. Liquid or gaseous stationary equipment only.
Based on our proposed new payment classes, Medicare payment under
these six categories would be as follows:
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Contents for beneficiary-owned
Category Equipment rental and contents equipment
----------------------------------------------------------------------------------------------------------------
A............................... $209 ($177 + $32) $55
B............................... $241 ($177 + $64) $0
C............................... $209 ($177 + $32) $156 ($101 + $55)
D............................... $241 ($177 + $64) $101
E............................... $177 $0
F............................... $177 $101
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We proposed to revise our regulations in order to implement these
new payment classes and payment amounts, effective for claims with
dates of service on or after January 1, 2007.
J. Payment for Maintenance and Servicing of Oxygen and Oxygen Equipment
and Capped Rental Items
Immediately following passage of the DRA, concerns were raised
regarding the ability of a beneficiary to obtain maintenance and
servicing of his or her DME once he or she has taken title to it. We
believe that these concerns are largely based on misconceptions that
the beneficiary will ``be on his or her own'' in terms of maintenance
and servicing of equipment and submission of claims for payment for
these services. We believe that these concerns are unfounded because
Medicare payment has traditionally been made for reasonable and
necessary repair and maintenance of beneficiary-owned DME. In addition,
section 1834(a)(5)(F)(ii)(II)(bb) of the Act, as amended by section
5101(b)(1)(B) of the DRA, and Section 1834(a)(7)(A)(iv) of the Act, as
amended by Section 5101(A)(1) of the DRA, require that Medicare
continue to pay for reasonable and necessary maintenance and servicing
for parts and labor not covered under a manufacturer's or supplier's
warranty in amounts determined to be appropriate by the Secretary.
Medicare has also traditionally paid for loaner equipment used
while the beneficiary's equipment is being repaired, or in some cases,
when the beneficiary does not have access to the equipment (for
example, in cases when a natural disaster such as a hurricane forces
the beneficiary to be evacuated from his or her home). We proposed to
continue Medicare payment for such loaner equipment.
We are not aware of instances where beneficiaries have encountered
problems in finding suppliers to provide maintenance and servicing of
beneficiary-owned DME. Section 414.210(e) of our regulations currently
provides that reasonable and necessary charges for maintenance and
servicing of DME are those charges made for parts and labor not
otherwise covered under a manufacturer's or supplier's warranty. This
definition has been applied in paying claims for maintenance and
servicing of beneficiary-owned DME for several years, and the wording
of this regulatory definition is parallel to that used in amended
sections 1834(a)(7)(A)(iv) and (a)(5)(F)(ii)(II)(bb) of the Act in
describing the ``maintenance and servicing'' payments that are
permitted for capped rental DME and oxygen equipment after title has
transferred to the beneficiary. We proposed to continue use of this
existing regulatory definition to define ``maintenance and servicing''
in section 5101 of the DRA. We, however, also proposed to apply our
existing policy of not covering certain routine maintenance or periodic
servicing of purchased equipment, such as testing, cleaning,
regulating, changing filters, and general inspection of beneficiary-
owned DME that can be done by the beneficiary or caregiver, to
beneficiary-owned oxygen equipment and to continue that policy for
beneficiary-owned capped rental equipment. As specified in current
program instructions at section 110.2.B of chapter 15 of the Medicare
Benefit Policy Manual (Pub 100-02), ``the owner [of the equipment] is
expected to perform such routine maintenance rather than a retailer or
some other person who charges the beneficiary.'' We expect that the
supplier, when transferring title to the equipment to the beneficiary,
would also provide to the beneficiary any operating manuals published
by the manufacturer which describe the servicing an owner may perform
to properly maintain the equipment. We also believe that these owner
manuals are commonly available at the various manufacturer Web sites.
In addition, the Durable Medical Equipment, Prosthetics, Orthotics and
Supplies (DMEPOS) supplier standards at Sec. 424.57(c)(12) require
suppliers to provide the beneficiary with necessary information and
instructions on how to use DME items safely and effectively. We believe
that after receiving this information, and after becoming familiar with
the equipment during the 13 or 36 month rental period, the beneficiary
and/or caregiver should be very knowledgeable regarding the routine
[[Page 65900]]
maintenance required for the item. All non-routine maintenance of
beneficiary-owned oxygen equipment and capped rental items which would
need to be performed by authorized technicians would be covered as
reasonable and necessary maintenance and servicing. Examples of the
types of maintenance that would be covered are currently listed in
program instructions at section 110.2.B of chapter 15 of the Medicare
Benefit Policy Manual (Pub 100-02) and include ``breaking down sealed
components and performing tests which require specialized testing
equipment not available to the beneficiary.''
We proposed that maintenance and servicing of beneficiary-owned
oxygen equipment and capped rental items would be reasonable and
necessary if it is non-routine maintenance and servicing necessary to
make the equipment serviceable. Payment is currently made under the
Medicare program for parts and labor associated with repairing
beneficiary-owned DME. Medicare allowed payment amounts for replacement
parts are currently paid based on the carrier's individual
consideration of the item. With regard to replacement parts for
beneficiary-owned oxygen equipment or capped rental equipment, we
proposed that the carrier pay for the parts in a lump sum amount based
on its consideration of the cost of the item, as is consistent with
what our carriers currently do when evaluating maintenance and
servicing claims for other beneficiary-owned DME. Currently, payment
for labor is based on 15-minute increments in amounts that are
established by the carriers and updated on an annual basis by the same
factor specified in section 1834(a)(14) of the Act, which is used to
update fee schedule amounts for DME. We proposed that the carriers use
the same fee for labor that is currently used in paying for labor
associated with repairing, maintaining, and servicing other
beneficiary-owned DME, as we are not aware of any past problems
associated with access to these services paid at these rates. We
believe that the current methods and fees used by carriers in paying
for maintenance and servicing of beneficiary-owned DME are reasonable
given that we are not aware of any past problems associated with access
to these services paid at these rates. In most cases, neither the
Medicare program nor the beneficiary actually pays the full amount for
repairing or maintaining an item since manufacturer warranties that
cover all or part of these costs are widespread. For example, some
manufacturers of commonly used oxygen concentrators offer full
warranties that cover all parts and labor for 5 years. Rules in Sec.
414.210(f) regarding replacement of DME that has been in continuous use
for the equipment's reasonable useful lifetime provide that the
beneficiary can elect to obtain replacement equipment after the
reasonable useful lifetime for the equipment has expired. Therefore, we
believe that the beneficiary should incur little, if any, expense for
repair or maintenance of necessary equipment in cases where
manufacturer warranties exist that cover parts and labor necessary to
repair a new item during a 5-year period.
K. Payment for Replacement of Beneficiary-Owned Oxygen Equipment,
Capped Rental Items, and Associated Supplies and Accessories
Medicare has traditionally paid for replacement beneficiary-owned
DME after the expiration of the equipment's useful lifetime (see Sec.
414.210(f) and Sec. 414.229(g) of our regulations), and for
replacement supplies and accessories used in conjunction with
beneficiary-owned DME when these supplies and accessories are necessary
for the effective use of the DME (see Sec. 110.3 of Chapter 15 of the
Medicare Benefit Policy Manual (pub. 100-02)). Examples of supplies
include drugs and administration sets used with infusion pumps.
Examples of accessories include masks and tubing used with respiratory
equipment. We proposed to apply these policies to beneficiary-owned
oxygen equipment, as well as the supplies and accessories used in
conjunction with this equipment, and to continue to apply these
policies to beneficiary-owned capped rental items, as well as the
supplies and accessories used in conjunction with these items.
Specifically, we proposed to update Sec. 414.210(f) and Sec.
414.229(g) of our regulations to reflect that payment may be made for
the replacement of beneficiary-owned oxygen equipment and capped rental
DME in cases where the item is lost, stolen, or irreparably damaged, or
in cases where the item has been in continuous use for its reasonable
useful lifetime. We proposed that payment for the replacement be made
on a rental basis in accordance with the payment rules in Sec. 414.226
for oxygen equipment and Sec. 414.229 for capped rental items. We also
proposed to revise Sec. 414.229 to reflect that these proposed changes
to the replacement policy for beneficiary-owned capped rental items
only apply to those items for which the first rental month occurs on or
after January 1, 2007 since the DRA does not apply to capped rental
items for which the first rental month occurs before January 1, 2006.
The current rules will remain in place for capped rental items to which
the DRA does not apply.
We are aware that some manufacturer warranties may cover
replacement of oxygen or capped rental equipment within a certain time
period after the item is furnished. As was our policy before the
enactment of DRA (see Sec. 110.2.C of Chapter 15 of the Medicare
Benefit Policy Manual (pub. 100-02)), we proposed that Medicare not pay
for the replacement of beneficiary-owned oxygen equipment or capped
rental items covered by a manufacturer's or supplier's warranty. In
cases where equipment replacement is not covered by a manufacturer's or
supplier's warranty, we proposed that the supplier must still replace
beneficiary-owned oxygen equipment or beneficiary-owned capped rental
items at no cost to the beneficiary or to the Medicare program if: (1)
The total accumulated costs, as illustrated in the example below, to
repair the item after transfer of title to the beneficiary exceed 60
percent of the replacement cost; and (2) the item has been in
continuous use for less than its reasonable useful lifetime, as
established in accordance with the procedures set forth in proposed
revised Sec. 414.210(f). For example, a capped rental item that can be
replaced for $1,000 (total of fee schedule payments after 13 rental
months) and for which title has transferred to the beneficiary in
accordance with section 1834(a)(7)(A)(ii) of the Act can be used to
illustrate what we mean when we use the term ``accumulated costs''
above. In this example, if Medicare has paid a total of $500 for 3
repairs necessary to make the item functional, and a fourth repair
costing $200 is needed in order to make the item functional, the
accumulated costs for repair in this case will equal $700, which
exceeds $600 or 60 percent of the $1,000 cost to replace the item. In
this case, the supplier would be required to furnish a replacement
item. The greater than 60 percent of cost threshold for replacement is
consistent with the threshold repair costs that can result in the
replacement of prosthetics (artificial limbs) in accordance with
section 1834(h)(1)(G) of the Act. We believe this threshold should
apply to oxygen equipment and capped rental items as well, because
artificial limbs, like these items, are built to withstand repeated
use.
We proposed that the supplier be responsible for the cost of the
replacement equipment because we believe that the item in this case did
not last for the entire reasonable useful
[[Page 65901]]
lifetime. After the beneficiary acquires title to the item, the
supplier that transferred title would be responsible for furnishing the
replacement item. We proposed this provisi