FR Doc 08-1198

[Federal Register: May 1, 2008 (Volume 73, Number 85)]
[Proposed Rules]
[Page 24000-24035]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01my08-19]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 418

[CMS-1548-P]
RIN 0938-AP14

Medicare Program; Proposed Hospice Wage Index for Fiscal Year
2009

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule proposes the hospice wage index for fiscal
year 2009. This proposed rule also proposes to phase-out the Medicare
hospice budget neutrality adjustment factor and clarify two wage index
issues, pertaining to the definition of rural and urban areas and to
multi-campus hospital facilities.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on June 27, 2008.

ADDRESSES: In commenting, please refer to file code CMS-1548-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the filecode to find the document
accepting comments.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address only: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1548-P, P.O. Box 8012, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1548-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:

a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue,
SW., Washington, DC 20201.

(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)

b. 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-9994 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Randy Throndset (410) 786-0131 or
Katie Lucas (410) 786-7723.

SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. You can assist us by

[[Page 24001]]

referencing the file code CMS-1548-P and the specific ``issue
identifier'' that precedes the section on which you choose to comment.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://
www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.

Table of Contents

I. Background
A. General
1. Hospice Care
2. Medicare Payment for Hospice Care
B. Hospice Wage Index
1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital
Wage Index)
2. Changes to Core-Based Statistical Area (CBSA) Designations
3. Definition of Urban and Rural Areas
4. Areas Without Hospital Wage Data
5. CBSA Nomenclature Changes
6. Hospice Payment Rates
II. Provisions of the Proposed Rule
A. Clarification of New England Deemed Counties
B. Wage Data for Multi-Campus Hospitals
C. FY 2009 Proposed Hospice Wage Index With Phase-Out of the
Budget Neutrality Adjustment Factor (BNAF)
1. Background
2. Areas Without Hospital Wage Data
3. Phase-Out of the BNAF
a. Effects of phasing-out the BNAF using the published FY 2008
Hospice Wage Index Data
b. Effects of phasing-out the BNAF using the Updated Pre-floor,
Pre-reclassified Hospital Wage Index Data (FY 2009 proposal)
D. Summary of the Provisions of the Proposed Rule
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
A. Overall Impact
B. Anticipated Effects
1. Hospice Size
2. Geographic Location
3. Type of Ownership
4. Hospice Base
C. Accounting Statement

Part 418--Hospice Care

I. Background

A. General

1. Hospice Care
Hospice care is an approach to treatment that recognizes that the
impending death of an individual warrants a change in the focus from
curative care to palliative care for relief of pain and for symptom
management. The goal of hospice care is to help terminally ill
individuals continue life with minimal disruption to normal activities
while remaining primarily in the home environment. A hospice uses an
interdisciplinary approach to deliver medical, nursing, social,
psychological, emotional, and spiritual services through use of a broad
spectrum of professional and other caregivers, with the goal of making
the individual as physically and emotionally comfortable as possible.
Counseling services and inpatient respite services are available to the
family of the hospice patient. Hospice programs consider both the
patient and the family as a unit of care.
Section 1861(dd) of the Social Security Act (the Act) provides for
coverage of hospice care for terminally ill Medicare beneficiaries who
elect to receive care from a participating hospice. Section 1814(i) of
the Act provides payment for Medicare participating hospices.
2. Medicare Payment for Hospice Care
Our regulations at 42 CFR part 418 establish eligibility
requirements, payment standards and procedures, define covered
services, and delineate the conditions a hospice must meet to be
approved for participation in the Medicare program. Part 418 subpart G
provides for payment in one of four prospectively-determined rate
categories (routine home care, continuous home care, inpatient respite
care, and general inpatient care) to hospices based on each day a
qualified Medicare beneficiary is under a hospice election.

B. Hospice Wage Index

Our regulations at Sec. 418.306(c) require each hospice's labor
market to be established using the most current hospital wage data
available, including any changes by OMB to the Metropolitan Statistical
Areas (MSAs) definitions. OMB revised the MSA definitions beginning in
2003 with new designations called the Core Based Statistical Areas
(CBSAs). For the purposes of the hospice benefit, the term ``MSA-
based'' refers to wage index values and designations based on the
previous MSA designations before 2003. Conversely, the term ``CBSA-
based'' refers to wage index values and designations based on the OMB
revised MSA designations in 2003, which now include CBSAs. In the
August 11, 2004 IPPS final rule (69 FR 48916, 49026), revised labor
market area definitions were adopted at Sec. 412.64(b), which were
effective October 1, 2004 for acute care hospitals. CMS also revised
the labor market areas for hospices using the new OMB standards that
included CBSAs. In the FY 2006 hospice wage index final rule (70 FR
45130), we implemented a 1-year transition policy using a 50/50 blend
of the CBSA-based wage index values and the Metropolitan Statistical
Area (MSA)-based wage index values for FY 2006. The one-year transition
policy ended on September 30, 2006. For FY 2007 and FY 2008 we used
wage index values based on CBSA designations.
The hospice wage index is used to adjust payment rates for hospice
agencies under the Medicare program to reflect local differences in
area wage levels. The original hospice wage index was based on the 1981
Bureau of Labor Statistics hospital data and had not been updated since
1983. In 1994, because of disparity in wages from one geographical
location to another, a committee was formulated to negotiate a wage
index methodology that could be accepted by the industry and the
government. This committee, functioning under a process established by
the Negotiated Rulemaking Act of 1990, was comprised of national
hospice associations; rural, urban, large and small hospices; multi-
site hospices; consumer groups; and a government representative. On
April 13, 1995, the Hospice Wage Index Negotiated Rulemaking Committee
signed an agreement for the methodology to be used for updating the
hospice wage index.
In the August 8, 1997 Federal Register (62 FR 42860), we published
a final rule implementing a new methodology for calculating the hospice
wage index based on the recommendations of the negotiated rulemaking
committee. The committee statement was included in the appendix of that
final rule (62 FR 42883). The hospice wage index is updated annually.
Our most recent annual update notice published in the Federal Register
(72 FR 50214) on August 31, 2007 set forth updates to the hospice wage
index for FY 2008. On October 1, 2007, we published a correction notice
in the Federal Register (72 FR 55672) to correct technical errors that
appeared in the August 31, 2007 final rule.

[[Page 24002]]

1. Raw Wage Index Values (Pre-Floor, Pre-Reclassified Hospital Wage
Index)
As described in the August 8, 1997 hospice wage index final rule
(62 FR 42860), the pre-floor and pre-reclassified hospital wage index
is used as the raw wage index for the hospice benefit. These raw wage
index values are then subject to either a budget neutrality adjustment
or application of the hospice floor to compute the hospice wage index
used to determine payments to hospices.
Pre-floor, pre-reclassified hospital wage index values of 0.8 or
greater are adjusted by the BNAF. Pre-floor, pre-reclassified hospital
wage index values below 0.8 are adjusted by the greater of: (1) The
hospice BNAF; or (2) the hospice floor (which is a 15 percent increase)
subject to a maximum wage index value of 0.8. For example, if County A
has a pre-floor, pre-reclassified hospital wage index (raw wage index)
value of 0.4000, we would perform the following calculations using the
budget neutrality factor (which for this example is 1.060988) and the
hospice floor to determine County A's hospice wage index:

Pre-floor, pre-reclassified hospital wage index value below 0.8
multiplied by the BNAF: (0.4000 x 1.060988 = 0.4244)
Pre-floor, pre-reclassified hospital wage index value below 0.8
multiplied by the hospice floor: (0.4000 x 1.15 = 0.4600)

Based on these calculations, County A's hospice wage index would be
0.4600.
As decided upon by the Hospice Wage Index Negotiated Rulemaking
Committee, budget neutrality means that, in a given year, estimated
aggregate payments for Medicare hospice services using the updated
hospice values will equal estimated payments that would have been made
for these services if the 1983 hospice wage index values had remained
in effect, after adjusting the payment rates for inflation.
The BNAF has been computed and applied annually to the labor
portion of the hospice payment. Currently, the labor portion of the
payment rates is as follows: for Routine Home Care, 68.71 percent; for
Continuous Home Care, 68.71 percent; for General Inpatient Care, 64.01
percent; and for Respite Care, 54.13 percent. The non-labor portion is
equal to 100 percent minus the labor portion for each level of care.
Therefore the non-labor portion of the payment rates is as follows: for
Routine Home Care, 31.29 percent; for Continuous Home Care, 31.29
percent; for General Inpatient Care, 35.99 percent; and for Respite
Care, 45.87 percent.
2. Changes to Core-Based Statistical Area (CBSA) Designations
The annual update to the hospice wage index is published in the
Federal Register and is based on the most current available hospital
wage data, as well as any changes by the Office of Management and
Budget (OMB) to the definitions of MSAs, which now include CBSA
designations. The August 4, 2005 final rule (70 FR 45130) set forth the
adoption of the changes discussed in the OMB Bulletin No. 03-04 (June
6, 2003), which announced revised definitions for Micropolitan
Statistical Areas and the creation of MSAs and Combined Statistical
Areas. In adopting the OMB CBSA geographic designations, we provided
for a 1-year transition with a blended hospice wage index for all
hospices for FY 2006. For FY 2006, the hospice wage index for each
provider consisted of a blend of 50 percent of the FY 2006 MSA-based
hospice wage index and 50 percent of the FY 2006 CBSA-based hospice
wage index. Fiscal years 2007 and 2008 used the full CBSA-based hospice
wage index values as discussed in their respective notices or rules (71
FR 52080 and 72 FR 50214).
3. Definition of Rural and Urban Areas
Each hospice'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. 412.64(b)(1)(ii)(C), a rural area is defined as any area outside
of the urban area. The urban and rural area geographic classifications
are defined in Sec. 412.64(b)(1)(ii)(A) through (C), and have been
used for the Medicare hospice benefit since implementation.
4. Areas Without Hospital Wage Data
When adopting OMB's new labor market designations in FY 2006, we
identified some geographic areas where there were no hospitals, and
thus, no hospital wage index data on which to base the calculation of
the hospice wage index. Beginning in FY 2006, we adopted a policy to
use the FY 2005 pre-floor, pre-reclassified hospital wage index value
for rural areas when no hospital wage data were available. We also
adopted the policy that for urban labor markets without a hospital from
which a hospital wage index data could be derived, all of the CBSAs
within the State would be used to calculate a statewide urban average
pre-floor, pre-reclassified hospital wage index value to use as a
reasonable proxy for these areas. Consequently, in the FY 2006 final
rule, the FY 2007 update notice, and the FY 2008 final rule, we applied
the average pre-floor, pre-reclassified hospital wage index data from
all urban areas in that state to urban areas without a hospital. The
only affected CBSA is 25980, Hinesville-Fort Stewart, Georgia.
Under the CBSA labor market areas, there are no hospitals in rural
locations in Massachusetts and Puerto Rico. Since there was no rural
proxy for more recent rural data within those areas, in the FY 2006
hospice wage index proposed rule (70 FR 22394, 22398), we proposed
applying the FY 2005 pre-floor, pre-reclassified hospital wage index
value to rural areas where no hospital wage data were available. In the
FY 2006 final rule and in the FY 2007 update notice, we applied the FY
2005 pre-floor, pre-reclassified hospital wage index data for areas
lacking hospital wage data in both FY 2006 and FY 2007 for rural
Massachusetts and rural Puerto Rico.
In the FY 2008 final rule (72 FR 50214, 50217) we considered
alternatives to our methodology to update the pre-floor, pre-
reclassified hospital wage index for rural areas without hospital wage
data. We indicated that we believed that the best imputed proxy for
rural areas, would: (1) Use pre-floor, pre-reclassified hospital data;
(2) use the most local data available to impute a rural pre-floor, pre-
reclassified hospital wage index; (3) be easy to evaluate; and, (4) be
easy to update from year-to-year.
Therefore, in FY 2008, in cases where there was a rural area
without rural hospital wage data, we used the average pre-floor, pre-
reclassified hospital wage index data from all contiguous CBSAs to
represent a reasonable proxy for the rural area. This approach does not
use rural data, however, the approach uses pre-floor, pre-reclassified
hospital wage data, is easy to evaluate, is easy to update from year-
to-year, and uses the most local data available. In the FY 2008 rule
(72 FR at 50217), we noted that in determining an imputed rural pre-
floor, pre-reclassified hospital wage index, we interpret the term
``contiguous'' to mean sharing a border. For example, in the case of
Massachusetts, the entire rural area consists of Dukes and Nantucket
counties. We determined that the borders of Dukes and Nantucket
counties are contiguous with Barnstable and Bristol counties. Under the
adopted methodology, the pre-floor, pre-reclassified hospital wage
index values for the counties of Barnstable (CBSA 12700, Barnstable
Town, MA) and Bristol (CBSA 39300, Providence-New Bedford-Fall River,
RI-MA) would be

[[Page 24003]]

averaged resulting in an imputed pre-floor, pre-reclassified rural
hospital wage index for FY 2008. We noted in the FY 2008 final hospice
wage index rule that while we believe that this policy could be readily
applied to other rural areas that lack hospital wage data (possibly due
to hospitals converting to a different provider type, such as a
Critical Access Hospital, that does not submit the appropriate wage
data), if a similar situation arose in the future, we would re-examine
this policy.
We also noted that we do not believe that this policy would be
appropriate for Puerto Rico, as there are sufficient economic
differences between hospitals in the United States and those in Puerto
Rico, including the payment of hospitals in Puerto Rico using blended
Federal/Commonwealth-specific rates. Therefore we believe that a
separate and distinct policy for Puerto Rico is necessary. Any
alternative methodology for imputing a pre-floor, pre-reclassified
hospital wage index for rural Puerto Rico would need to take into
account the economic differences between hospitals in the United States
and those in Puerto Rico. Our policy of imputing a rural pre-floor,
pre-reclassified hospital wage index based on the pre-floor, pre-
reclassified hospital wage index(es) of CBSAs contiguous to the rural
area in question does not recognize the unique circumstances of Puerto
Rico. While we have not yet identified an alternative methodology for
imputing a pre-floor, pre-reclassified hospital wage index for rural
Puerto Rico, we will continue to evaluate the feasibility of using
existing hospital wage data and, possibly, wage data from other
sources. For FY 2008, we used the most recent pre-floor, pre-
reclassified hospital wage index available for Puerto Rico, which is
0.4047.
5. CBSA Nomenclature Changes
The Office of Management and Budget (OMB) regularly publishes a
bulletin that updates the titles of certain CBSAs. In the FY 2008 Final
Rule (72 FR 50218) we noted that the FY 2008 rule and all subsequent
hospice wage index rules and notices would incorporate CBSA changes
from the most recent OMB bulletins. The OMB bulletins may be accessed
at http://www.whitehouse.gov/omb/bulletins/index.html.
6. Hospice Payment Rates
Section 4441(a) of the Balanced Budget Act of 1997 (BBA) amended
section 1814(i)(1)(C)(ii) of the Act to establish updates to hospice
rates for FYs 1998 through 2002. Hospice rates were to be updated by a
factor equal to the market basket index, minus 1 percentage point.
However, neither the BBA nor subsequent legislation specified
alteration to the market basket adjustment to be used to compute
payment for fiscal years beyond 2002. Payment rates for FYs since 2002
have been updated according to section 1814(i)(1)(C)(ii)(VII) of the
Act, which states that the update to the payment rates for subsequent
fiscal years will be the market basket percentage for the fiscal year.
It has been longstanding practice to use the inpatient hospital market
basket as a proxy for a hospice market basket.
Historically, the rate update has been published through a separate
administrative instruction issued annually in July to provide adequate
time to implement system change requirements. Providers determine their
payments by applying the hospice wage index in this notice to the labor
portion of the published hospice rates.

II. Provisions of the Proposed Rule

A. Clarification of New England Deemed Counties

We are taking the opportunity to address the change in the
designation of ``New England deemed counties,'' which are listed in
Sec. 412.64(b)(1)(ii)(B). These counties were deemed to be parts of
urban areas under section 601(g) of the Social Security Amendments of
1983, yet the OMB designates these counties as rural. In the FY 2008
Inpatient Prospective Payment System (IPPS) final rule, IPPS adopted
the OMB designation for the pre-floor, pre-reclassified hospital wage
index. The counties include Litchfield County, Connecticut; York
County, Maine; Sagadahoc County, Maine; Merrimack County, New
Hampshire; and Newport County, Rhode Island. Of these five ``New
England deemed counties,'' three (York County, Sagadahoc County, and
Newport County) are also included in metropolitan statistical areas
defined by OMB and are considered urban under the current IPPS labor
market area definitions in Sec. 412.64(b)(1)(ii)(A).
The remaining two, Litchfield County and Merrimack County, are
geographically located in areas that are considered rural under the
current IPPS labor market area definitions. However, they have been
previously deemed urban under the IPPS in certain circumstances as
discussed below. In the FY 2008 IPPS final rule with comment period (72
FR 47130, August 22, 2007), Sec. 412.64(b)(1)(ii)(B) was revised such
that the two ``New England deemed counties'' that are still considered
rural by OMB (Litchfield County, CT and Merrimack County, NH) are no
longer considered urban effective for discharges occurring on or after
October 1, 2007. Therefore, these two counties are considered rural in
accordance with Sec. 412.64(b)(1)(ii)(C). However, for purposes of
payment under the IPPS, acute care hospitals located within those areas
are treated as being reclassified to their deemed urban area effective
for discharges occurring on or after October 1, 2007 (see 72 FR 47337
through 47338). We also noted in this discussion that this policy
change was limited to the ``New England deemed counties'' IPPS
hospitals only, and that any change to non-IPPS provider wage indexes
would be addressed in the respective payment system rules. The hospice
program does not provide for such geographic reclassification as the
IPPS does, and we are taking this opportunity to clarify treatment of
``New England deemed counties'' under the hospice program in this
proposed rule.
As discussed, our regulations at Sec. 418.306(c) require each
hospice's labor market to be established using the most current
hospital wage data available. The original hospice wage index was based
on the 1981 Bureau of Labor Statistics hospital data. In 1994, a
committee functioning under a process established by the Negotiated
Rulemaking Act of 1990, was formed to negotiate a hospice wage index
methodology that could be accepted by the industry and the government.
The revised hospice wage index was based on the recommendations of the
Negotiated Rulemaking Advisory Committee. This committee was
established to provide advice and make recommendations to the Secretary
on the hospice wage index used to adjust payment rates for hospices
under the Medicare program, to reflect local differences in area wage
levels. The Committee recommended that the revised hospice wage index
be based on the most current available data for each fiscal year, which
would be used to construct a pre-floor, pre-reclassified hospital wage
index under the prospective payment system before adjustments were made
to take into account the geographic reclassification of hospitals in
accordance with sections 1886(d)(8)(B) and (d)(10) of the Act, as well
as each hospice's labor market area as established by OMB. The reason
the unadjusted hospital wage data were recommended was to avoid further
reductions in certain rural statewide wage index values that would
result from reclassification. The recommendations are codified in

[[Page 24004]]

Sec. 418.306(c) of our regulations; however, there is no reference to
Sec. 412.64.
In other words, while Sec. 412.64 is not explicitly noted, the
hospice program has used the urban definition in Sec.
412.64(b)(1)(ii)(A) and (B), and the rural definition as any area
outside of an urban area in Sec. 412.64(b)(1)(ii)(C). Historical
changes to the labor market area/geographic classifications and annual
updates to the hospice wage index values have been made effective
October 1 each year. When we established the hospice wage index values
effective October 1, 2007 through September 30, 2008, we considered the
``New England deemed counties'' (including Litchfield County, CT and
Merrimack County, NH) as urban for FY 2008 in accordance with the
definitions of urban and rural areas in the FY 2008 hospice final rule
(72 FR 50216). Therefore, Litchfield County was listed as one of the
constituent counties of urban CBSA 25540 (Hartford-West Hartford-East
Hartford, CT), and Merrimack County was listed as one of the
constituent counties of urban CBSA 31700 (Manchester-Nashua, NH) (72 FR
50236 and 50239, respectively). As noted above, the terms ``rural'' and
``urban'' areas are defined in IPPS according to the definitions of
those terms in Sec. 412.64(b)(1)(ii)(A) through (C). Litchfield
county, CT and Merrimack county, NH are considered rural areas for
hospital IPPS purposes in accordance with Sec. 412.64. Under this
proposal, effective October 1, 2008, Litchfield county, CT would no
longer be considered part of urban CBSA 25540 (Hartford-West Hartford-
East Hartford, CT), and Merrimack County, NH would no longer be
considered part of urban CBSA 31700 (Manchester-Nashua, NH). Rather,
these counties would be considered to be rural areas within their
respective states under the hospice payment system. This proposed
policy is consistent with our policy of not taking into account IPPS
geographic reclassifications in determining payments under the hospice
wage index. We propose to amend Sec. 418.306(c) to cross-reference to
the definitions of urban and rural in the IPPS regulations in 42 CFR
part 412 subpart D.

B. Wage Data for Multi-Campus Hospitals

In the 2007 IPPS final rule, we changed in the way that we treat
multi-campus hospital wage data in the creation of the pre-floor, pre-
reclassified hospital wage index. The IPPS wage data used to determine
the proposed FY 2009 hospice wage index values now apportion the wage
data for multi-campus hospitals located in different labor market areas
(CBSAs) to the CBSAs where the campuses are located (see 72 FR 47317
through 47320). Historically, the hospice wage index is derived from
the pre-floor, pre-reclassified hospital wage index. Consequently, for
this proposed rule we propose to continue to use the most recent
available pre-floor, pre-reclassified hospital wage index in computing
the hospice wage index. The pre-floor, pre-reclassified hospital wage
index values for the following CBSAs are affected by this change in how
wage data from multi-campus hospitals are used in the computation of
the pre-floor, pre-reclassified hospital wage index: Boston-Quincy, MA
(CBSA 14484), Providence-New Bedford-Falls River, RI-MA (CBSA 39300),
Chicago-Naperville-Joliet, IL (CBSA 16974) and Lake-County-Kenosha
County, IL-WI (CBSA 29404).

C. FY 2009 Hospice Wage Index With Phase-Out of the Budget Neutrality
Adjustment Factor (BNAF)

[If you choose to comment on issues in this section, please include
the caption, ``FY 2009 Hospice Wage Index with Phase-out of the Budget
Neutrality Adjustment Factor (BNAF)'' at the beginning of your
comments.]
1. Background
The hospice final rule published in the Federal Register on
December 16, 1983 (48 FR 56008) provided for adjustment to hospice
payment rates to reflect differences in area wage levels. We apply the
appropriate hospice wage index value to the labor portion of the
hospice payment rates based on the geographic area where hospice care
was furnished. As noted earlier, each hospice's labor market area is
based on definitions of Metropolitan Statistical Areas (MSAs) issued by
the OMB. For FY 2009, we propose to again use a pre-floor, pre-
reclassified hospital wage index based solely on the CBSA designations.
As noted above, our hospice payment rules utilize the wage
adjustment factors used by the Secretary for purposes of section
1886(d)(3)(E) of the Act for hospital wage adjustments. We are
proposing again to use the pre-floor and pre-reclassified hospital wage
index data to adjust the labor portion of the hospice payment rates
based on the geographic area where the beneficiary receives hospice
care. We believe the use of the pre-floor, pre-reclassified hospital
wage index data results in the appropriate adjustment to the labor
portion of the costs. For the FY 2009 update to hospice payment rates,
we propose to continue to use the most recent pre-floor, pre-
reclassified hospital wage index available at the time of publication.
2. Areas Without Hospital Wage Data
In adopting the CBSA designations, we identified some geographic
areas where there are no hospitals, and thus no hospital wage data on
which to base the calculation of the hospice wage index. These areas
were described in section I.B.4 of this proposed rule. Beginning in FY
2006, we adopted a policy that, for urban labor markets without an
urban hospital from which a pre-floor, pre-reclassified hospital wage
index can be derived, all of the urban CBSA pre-floor, pre-reclassified
hospital wage index values within the State would be used to calculate
a statewide urban average pre-floor, pre-reclassified hospital wage
index to use as a reasonable proxy for these areas. Currently, the only
CBSA that would be affected by this policy is CBSA 25980, Hinesville,
Georgia. We propose to continue this policy for FY 2009.
Currently, the only rural areas where there are no hospitals from
which to calculate a pre-floor, pre-reclassified hospital wage index
are Massachusetts and Puerto Rico. In August 2007 (72 FR 50217) we
adopted the following methodology for imputing rural pre-floor, pre-
reclassified hospital wage index values for areas where no hospital
wage data are available as an acceptable proxy. We imputed an average
pre-floor, pre-reclassified hospital wage index value by averaging the
pre-floor, pre-reclassified hospital wage index values from contiguous
CBSAs as a reasonable proxy for rural areas with no hospital wage data
from which to calculate a pre-floor, pre-reclassified hospital wage
index. In determining an imputed rural pre-floor, pre-reclassified
hospital wage index, we define ``contiguous'' as sharing a border. For
Massachusetts, rural Massachusetts currently consists of Dukes and
Nantucket Counties. We determined that the borders of Dukes and
Nantucket counties are ``contiguous'' with Barnstable and Bristol
counties. We are again proposing to apply this methodology for imputing
a rural pre-floor, pre-reclassified hospital wage index for those rural
areas without rural hospital wage data in FY 2009.
However, as we noted in our final rule at 72 FR 50218, we do not
believe that this policy is appropriate for Puerto Rico. We noted that
there are sufficient economic differences between the hospitals in the
United States and those in Puerto Rico, including the fact that
hospitals in Puerto Rico are paid on

[[Page 24005]]

blended Federal/Commonwealth-specific rates, to make a separate
distinct policy for Puerto Rico necessary. For FY 2009, we again
propose to continue to use the most recent pre-floor, pre-reclassified
hospital wage index value available for Puerto Rico, which is 0.4047.
This pre-floor, pre-reclassified hospital wage index value is then
adjusted upward by the hospice floor in the computing of the proposed
FY 2009 hospice wage index.
3. Phase-Out of the Budget Neutrality Adjustment Factor (BNAF)
As noted in section 1.B of this proposed rule, the current hospice
wage index methodology was developed through a negotiated rule making
process and implemented in 1997. The rule making committee sought to
address the inaccuracies in the original Bureau of Labor Statistics
(BLS)-based hospice wage index, account better for disparities from one
geographic location to another, and develop a wage index that would be
as accurate, reliable and equitable as possible. The resulting hospice
wage index reflects a special adjustment (a BNAF) to ensure payments in
the aggregate are budget neutral to payments using the original 1983
hospice wage index. The adjustment, still in place today, results in
providers currently receiving about 4 percent more in payments than
they would receive if the adjustment factor were not applied. The
rationale for maintaining this adjustment is outdated given the time
that has elapsed since it was put into place and the growth that is
occurring in the hospice benefit. In this section, we propose to phase-
out this adjustment over 3 years, reducing it by 25 percent in FY 2009,
by an additional 50 percent for a total of 75 percent in FY 2010, and
eliminating it completely in FY 2011. We also provide our rationale for
the phase-out.
As discussed in section I.B of this proposed rule, the original
hospice wage index was based on the 1981 Bureau of Labor Statistics
(BLS) hospital data and had not been updated since 1983. During earlier
attempts to update the hospice wage index, the hospice industry raised
concerns over the adverse financial impact of a new wage index on
individual hospices and a possible overall reduction in Medicare
payments. Thus, the result was that in the absence of agreement on a
new wage index, we continued to use a wage index that was clearly
obsolete for geographically adjusting Medicare hospice payments (see
``Medicare Program; Notice Containing the Statement Drafted by the
Committee Established to Negotiate the Wage Index to be Used to Adjust
Hospice Payment Rates Under Medicare,'' November 29, 1995, 60 FR
61264).
Changing to a new but more accurate wage index would result in some
areas gaining as their wage index value would increase, but in other
areas seeing declines in payments as their wage index value dropped. In
1994 we noted that a majority of hospices would have their wage index
reduced with the new wage index based on using the pre-floor, pre-
reclassified hospital wage index. These reductions would have occurred
for two key reasons: (1) Hospices were located in areas where the
original hospice wage index was artificially high due to flaws in the
1981 BLS data, and (2) hospices were located in areas where wages had
gone down relative to other geographic areas (see ``Hospice Services
Under Medicare Program: Intent to Form Negotiated Rulemaking
Committee,'' October 14, 1994, 59 FR 52130).
Because of the negative impact to certain areas that was expected
with the change to a new wage index, a committee was formulated in
1994, under the process established by the Negotiated Rulemaking Act of
1990 (Pub. L. 101-648). The Committee was established to negotiate the
hospice wage index methodology rather than to go through the usual
rulemaking process. On September 4, 1996, we published a proposed rule
(61 FR 46579) in which we proposed a methodology to update the hospice
wage index used to adjust Medicare hospice payment rates.
In formulating the provisions of that proposed rule, the Committee
considered criteria in evaluating the available data sources. The need
for fundamental equity of the wage index; data that reflected actual
work performed by hospice personnel; compatibility with wage indexes
used by CMS for other Medicare providers; and availability of the data
for timely implementation were considered.
The Committee agreed that the hospice wage index be derived from
the 1993 hospital cost report data and that these data, prior to
reclassification, would form the basis for the FY 1997 hospice wage
index. That is the pre-floor, pre-reclassified hospital wage index
would not be adjusted to take into account the geographic
reclassification of hospitals in accordance with sections 1886(d)(8)(B)
and 1886(d)(10) of the Act. The methodology is codified in Sec.
418.306(c). The hospice wage index for subsequent years would be based
on pre-floor, pre-reclassified hospital wage index data for a
subsequent year.
The Committee was also concerned that while some hospices would see
increases, use of the pre-floor, pre-reclassified hospital wage index
as the wage index for hospices would result in a net reduction in
aggregate Medicare payments for hospices. As noted above, a majority of
hospices would have had their wage index lowered by using the new wage
index because the prior hospice wage indices were based on outdated
data which were artificially high due to flaws in the 1981 BLS data,
and because some hospices were located in areas where wages had gone
down relative to other geographic areas. The reduction in overall
Medicare payments if a new wage index were adopted was noted in the
November 29, 1995 final rule (60 FR 61264). Therefore, the Committee
also decided that, each year in updating the hospice wage index,
aggregate Medicare payments to hospices would remain budget neutral to
payments as if the 1983 wage index had been used.
As decided upon by the Hospice Wage Index Negotiated Rulemaking
Committee, budget neutrality means that, in a given year, estimated
aggregate payments for Medicare hospice services using the updated
hospice values will equal estimated payments that would have been made
for these services if the 1983 hospice wage index values had remained
in effect, after adjusting the payment rates for inflations. Being
budget neutral does not take into account annual market basket updates
to hospice payment rates. Therefore, although payments to individual
hospice programs may change each year, the total payments each year to
hospices would not be affected by using the updated hospice wage index
because total payments would be budget neutral as if the 1983 wage
index had been used. To implement this provision a BNAF would be
computed and applied annually.
The BNAF is calculated by computing estimated payments using the
most recent completed year of hospice claims data. The units (days or
hours) from those claims are multiplied by the updated hospice payment
rates to calculate estimated payments. The updated hospice wage index
values are then applied to the labor portion of the payments. For this
proposed rule, that means estimating payments for FY 2009 using FY 2006
hospice claims data, and applying the estimated updated FY 2009 hospice
payment rates (updating the FY 2008 rates by the estimated FY 2009
market basket update). The proposed FY 2009 hospice wage index values
are then applied to the labor portion only. The procedure is repeated
using the

[[Page 24006]]

same claims data and payment rates, but using the 1983 BLS-based wage
index instead of the updated pre-floor, pre-reclassified hospital wage
index. The total payments are then compared, and the adjustment
required to make total payments equal is computed; that adjustment
factor is the BNAF. In 1998, the BNAF increased all wage index values
by just over 2 percent.
All pre-floor, pre-reclassified hospital wage index values of 0.8
or greater would be adjusted by the BNAF. Also, all pre-floor, pre-
reclassified hospital wage index values below 0.8 would receive the
greater of the following: (1) A 15-percent increase subject to a
maximum hospice wage index value of 0.8; or (2) an adjustment by the
BNAF. All hospice wage index values of 0.8 or greater would be adjusted
by the BNAF. The BNAF would be calculated and applied annually.
While the Committee sought to adopt a wage index methodology that
would be as accurate, reliable, and equitable as possible, the
Committee also decided to incorporate a BNAF into the calculation of
the hospice wage index that would otherwise apply in order to mitigate
adverse financial impacts some hospices would experience through a
decrease in their wage index value by transitioning to a pre-floor,
pre-reclassified hospital wage index.
In the August 8, 1997 final rule (62 FR 42860), we indicated that
the annual updates of the hospice wage index values would be made in
accordance with the methodology agreed to by the rulemaking committee.
We also noted that in the event that if we decide to change this
methodology by which the hospice wage index is computed, it would be
reflected in a proposed rule published in the Federal Register. In this
proposed rule, we now propose to change this methodology.
In FY 1998, the BNAF was 1.020768; in FY 2008 it was 1.066671. In
other words, any pre-floor, pre-reclassified hospital wage index value
greater than 0.8 was increased by over 2 percent in FY 1998 and
increased by almost 7 percent in FY 2008. In FY 2008, this adjustment
resulted in hospice providers receiving about 4 percent more in
payments than they would have received if the BNAF had not been
applied.
The negotiating committee also recommended that the transition to
the new hospice wage index occur over 3 years, from FY 1998 to FY 2001.
The intent of both the three year transition and the budget neutrality
adjustment was to mitigate the negative financial impact to many
hospices resulting from the wage index change. Additionally, the
committee sought to ensure that access to hospice care was not
jeopardized as a result of the wage index change.
We believe that the rationale for maintaining this adjustment is
outdated for several reasons.
First, the original purpose of the BNAF was to prevent reductions
in payments to the majority of hospices whose wage index was based on
the original hospice wage index which was artificially high due to
flaws in the 1981 BLS data. While incorporating a BNAF into hospice
wage indices could be rationalized in 1997 as a way to smooth the
transition from an old wage index to a new one, since hospices have had
plenty of time to adjust to the new wage index, it is difficult to
justify maintaining in perpetuity a BNAF which was in part compensating
for artificially high data to begin with.
Second, the new wage index adopted in 1997 resulted in increases in
wage index values for hospices in certain areas. The BNAF applies to
hospices in all areas. Thus, hospices in areas that would have had
increases without the BNAF received an artificial boost in the wage
index for the past 11 years. We believe that continuation of this
excess payment can no longer be justified.
Third, an adjustment factor that is based on 24-year old wage index
values is contrary to our goal of using a hospice wage index that is as
accurate, reliable and equitable as possible in accounting for
geographic variation in wages. We believe that those goals can be
better achieved by using the pre-floor, pre-reclassified hospital wage
index, without an outdated BNAF, consistent with other providers. For
instance, Medicare payments to home health agencies, that utilize a
similar labor mix, are adjusted by the pre-floor, pre-reclassified
hospital wage index, without any budget neutrality adjustment. We
believe that using the unadjusted pre-floor, pre-reclassified hospital
wage index provides a good measure of area wage differences for both
these home-based reimbursement systems.
Fourth, in the 13 years since concerns about the impact of
switching from an old to a new wage index were voiced, the hospice
industry and hospice payments have grown substantially. Hospice
expenditures in 2006 were $9.2 billion, compared to about $2.2 billion
in 1998, a growth rate of almost 20 percent per year. Aggregate hospice
expenditures are increasing at a rate of about $1 billion per year.
MedPAC projects that expenditures will continue to grow at a rate of 9
percent per year through 2015, outpacing the growth rate of projected
expenditures for hospitals, skilled nursing facilities, and physician
and home health services. We believe that this growth in Medicare
spending for hospice indicates that the original rationale of the BNAF,
to cushion the impact of using the new wage index, is no longer
justified. These spending growth figures also indicate that any
negative financial impact to the hospice industry as a result of
eliminating the BNAF is no longer present, and thus the need for a
transitional adjustment has passed.
Fifth, 13 years ago the industry also voiced concerns about the
negative financial impact on individual hospices that could occur by
adopting a new wage index. In August 1994 there were 1,602 hospices;
currently there are 2,986 hospices. Clearly any negative financial
impact from adopting a new wage index in 1997 is no longer present, or
we would not have seen an 86 percent increase in the number of hospices
since 1994. The number of Medicare-certified hospices has continued to
increase, with a 26 percent increase in the number of hospice providers
from 2001 to 2005. This ongoing growth in the industry also suggests
that phasing out the BNAF would not have a negative impact on access to
care.
Therefore for these reasons, we believe that continuing to apply a
BNAF for the purpose of mitigating any adverse financial impact on
hospices or negative impact on access to care is no longer necessary.
We are proposing to phase out the BNAF over a 3-year period, reducing
the BNAF by 25 percent in FY 2009, by 75 percent in FY 2010, and
eliminating it in FY 2011. We believe that the proposed 3-year phase-
out period will reduce any adverse financial impact that the industry
might experience if we eliminated the BNAF in a single year. However,
depending on the comments received, updated data, and subsequent
analysis, for the final rule we may determine that a different
percentage reduction in the BNAF (for any of the years) or a different
phase-out timeframe would be more appropriate. Specifically, it may be
determined that a more aggressive phase-out alternative (e.g. a 50
percent reduction in the BNAF in FY 2009, a 75 percent reduction in the
BNAF in FY 2010, and elimination of the BNAF in FY 2011) is more
appropriate. Consequently, we will continue to look at reduction
percentages and timeframe alternatives for the phase-out of the BNAF
and, for the final rule, will implement what is determined to be the
most appropriate option based on the above information. We propose to
maintain the hospice floor, which offers protection to

[[Page 24007]]

hospices with pre-floor, pre-reclassified hospital wage index values
less than 0.8.
We believe that we should have addressed this issue in previous
years. We believe that using the BNAF has resulted in Medicare spending
for hospice services in excess of what spending should have been in the
absence of such an adjustment. However, we are not proposing to reduce
Medicare payments to hospices for prior years. We are only proposing to
remove the application of the BNAF on a prospective basis, beginning on
October 1, 2008.
Section II.C.3.a below discusses the effects of phasing out the
BNAF over three years using the data from the published FY 2008 hospice
wage index; by basing the analysis on this data, our simulations hold
claims data, the wage index values, and payment rates constant, with
the only change being the reduction in the BNAF. Section II.C.3.b
discusses the effects of reducing the BNAF for FY 2009 using the
proposed FY 2009 hospice wage index.
a. Effects of Phasing-Out the BNAF Using the Published FY 2008 Hospice
Wage Index
For this proposed rule, we will use the FY 2008 hospice wage index
(72 FR 50214, published August 31, 2007) to illustrate the effects of
phasing out the BNAF over 3 years. This analysis and discussion is for
illustrative purposes only and does not affect any of the hospice wage
index values for FY 2008.
The BNAF that was calculated and applied to the 2007 pre-floor,
pre-reclassified hospital wage index values was 6.6671 percent. We
propose reducing the BNAF by 25 percent for FY 2009, by 75 percent for
FY 2010, and eliminating it altogether for FY 2011 and beyond. A 25
percent reduction in the BNAF can be accomplished by blending 75
percent of the FY 2008 hospice wage index that applied the full 6.6671
percent BNAF with 25 percent of the FY 2008 hospice wage index that
used no BNAF. This is mathematically equivalent to taking 75 percent of
the full BNAF value, or multiplying 0.066671 by 0.75, which equals
0.050003, or 5.0003 percent. The BNAF of 5.0003 percent reflects a 25
percent reduction in the BNAF. The 25 percent reduction in the BNAF of
5.0003 percent would be applied to the pre-floor, pre-reclassified
hospital wage index values of 0.8 or greater used in the published FY
2008 hospice wage index.
The hospice floor calculation would still apply to any pre-floor,
pre-reclassified hospital wage index values less then 0.8. Currently,
the floor calculation has 4 steps. Pre-floor, pre-reclassified hospital
wage index values that are less than 0.8 are first multiplied by 1.15;
second, the minimum of 0.8 or the pre-floor, pre-reclassified hospital
wage index value times 1.15 is chosen as the preliminary hospice wage
index value. Third, the pre-floor, pre-reclassified hospital wage index
value is multiplied by BNAF. Finally, the greater result of either step
2 or step 3 is chosen as the final hospice wage index value. We propose
to leave the hospice floor unchanged, noting that steps 3 and 4 will
become unnecessary once the BNAF is eliminated.
For the simulations of the BNAF phase-out for FY 2010 and FY 2011,
we used the same pre-floor, pre-reclassified hospital wage index values
and claims data as the example above, and simply changed the value of
the BNAF to reflect either a 75 percent reduction for FY 2010 or a 100
percent reduction for FY 2011. In both cases we started with the full
BNAF of 6.6671 percent. We changed the calculation to take 25 percent
of the full BNAF to reflect a 75 percent reduction for FY 2010, or
eliminated the BNAF altogether to reflect a 100 percent reduction for
FY 2011. For FY 2010, the reduced BNAF or the hospice floor was then
applied to the 2008 pre-floor, pre-reclassified hospital wage index as
described previously. For FY 2011 and subsequent years, the pre-floor,
pre-reclassified hospital wage index values would be unadjusted unless
they are less than 0.8, in which case the hospice floor calculation
would be applied.
For our simulations, the calculations of the BNAF are as follows:
A 75 percent reduction to the BNAF in FY 2010 would be
0.066671 x 0.25 = 0.016668 or 1.6668 percent
A 100 percent reduction or elimination of the BNAF in FY 2011
would be 0.066671 x 0.0 = 0.0 or 0 percent

We examined the effects of phasing out the BNAF versus using the
full BNAF of 6.6671 percent on the FY 2008 hospice wage index. The FY
2009 BNAF reduction of 25 percent resulted in approximately a 1.55 to
1.57 percent reduction in the hospice wage index value. The FY 2010
BNAF reduction of 75 percent would result in an estimated additional
3.12 to 3.13 percent reduction from the FY 2009 hospice wage index
values. The elimination of the BNAF in FY 2011 would result in an
estimated final reduction of the FY 2011 hospice wage index values of
approximately 1.55 to 1.57 percent compared to FY 2010 hospice wage
index values.
Those CBSAs whose pre-floor, pre-reclassified hospital wage index
values had the hospice floor calculation applied prior to the BNAF
reduction would not be affected by this proposed phase-out of the BNAF.
These CBSAs, which typically include rural areas, are protected by the
hospice floor calculation. Additionally, those CBSAs whose hospice wage
index values were previously 0.8 or greater after the BNAF was applied,
but which would have values less than 0.8 after the reduced BNAF was
applied would see a smaller reduction in their hospice wage index
values since the hospice floor calculation would apply. We have
estimated the number of CBSAs that would have their pre-floor, pre-
reclassified hospital wage index value eligible for the floor
calculation after applying the 25, 75, and 100 percent reductions in
the BNAF. Three CBSAs would be affected by the 25 percent reduction, 12
would be affected by the 75 percent reduction, and 22 would be affected
by the 100 percent reduction. Because of the protection given by the
hospice floor calculation, these CBSAs would see smaller percentage
decreases in their hospice wage index values than those CBSAs that are
not eligible for the floor calculation. This will benefit those
hospices with lower hospice wage index values, which are typically in
rural areas.
Finally, the hospice wage index values only apply to the labor
portion of the payment rates; the labor portion was described in
Section I.B.1 of this proposed rule. Therefore the estimated reduction
in payments due to this proposed phase-out of the BNAF would be less
than the percentage reductions to the hospice wage index values that
would result from reducing or eliminating the BNAF. In addition, the
effects of the proposed phase-out of the BNAF could also be mitigated
by a hospital market basket update in payments, which in FY 2008 was a
3.3 percent increase in payment rates. We will not have the final
market basket update for FY 2009 until the summer, but the current
estimate of the hospital market basket update is expected to be around
3.0 percent. This update will be communicated through an administrative
instruction and not through rulemaking. The estimated effects on
payment described in column 5 of Table 1 in section IV.B of this
proposed rule include the projected effect of an estimated 3.0 percent
hospital market basket update. CMS may implement updates to the payment
rates in future rulemaking.

[[Page 24008]]

b. Effects of Phasing-Out the BNAF Using the Updated Pre-floor, Pre-
reclassified Hospital Wage Index Data (FY 2009 Proposal)
For FY 2009, we propose updating the hospice wage index using the
2008 pre-floor, pre-reclassified hospital wage index and the most
complete claims data available (FY 2006 claims). Using these data, we
computed a full BNAF of 6.5357 percent. For the first year of the BNAF
phase-out (FY 2009), the BNAF would be reduced by 25 percent, or
0.065357 x 0.75 = 0.049018, to 4.9018 percent. This would decrease
hospice wage index values by approximately 1.53 to 1.54 percent from
wage index values with the full BNAF applied. As noted in the previous
discussion on the effects of the BNAF reduction in the published FY
2008 hospice wage index, those CBSAs which already have pre-floor, pre-
reclassified hospital wage index values that have the hospice floor
applied prior to implementing a proposed BNAF reduction would be
completely unaffected by this proposed BNAF reduction. Those CBSAs
which previously had hospice wage index values above 0.8 after applying
the full BNAF, but which now are below 0.8 with the 25 percent
reduction in the BNAF would be less affected by the BNAF reduction than
those CBSAs which are 0.8 or above after applying the BNAF, as they are
protected by the hospice floor calculation. Additionally, as mentioned
in section I.B.1 of this proposed rule, the final hospice wage index is
only applied to the labor portion of the payment rates, so the actual
effect on estimated payment would be less than the anticipated 1.53 to
1.54 percent reduction in the hospice wage index value. Furthermore,
that effect may be mitigated by a market basket update. As noted
earlier, the market basket update will not be available until the
summer, but estimates of the update are at about 3.0 percent.
Column 3 of Table 1 (section IV of this proposed rule) shows the
impact of using the most recent wage index data (the 2008 pre-floor,
pre-reclassified hospital wage index not including any reclassification
under section 1886(d)(8)(B) of the Act) compared to the 2007 pre-floor,
pre-reclassified hospital wage index data which was used to derive the
FY 2008 hospice wage index. Column 4 of Table 1 in Section IV of this
proposed rule shows the impact of incorporating the 25 percent
reduction in the BNAF in the proposed FY 2009 hospice wage index along
with using the most recent wage index data (2008 pre-floor, pre-
reclassified hospital wage index). Finally, column 5 of Table 1 shows
the combined effects of using the updated pre-floor, pre-reclassified
hospital wage index, the 25 percent reduced BNAF, and an estimated
market basket update of 3.0 percent. The proposed FY 2009 rural and
urban hospice wage indexes can be found in Addenda A and B of this
proposed rule. The pre-floor, pre-reclassified hospital wage index
values were adjusted by the 25 percent reduced BNAF or by the hospice
floor.

D. Summary of the Provisions of the Proposed Rule

We propose to clarify that the hospice benefit will follow
the definition of ``urban'' specified in Sec. 412.64(b)(1)(ii)(A) and
(B), and the rural definition as any area outside of an urban area in
Sec. 412.64(b)(1)(ii)(C). The regulatory text of Sec. 418.306(c) will
be amended to reference Sec. 412.64(b)(1)(ii)(A) through (C). This
affects two New England ``deemed'' counties that meet the OMB
definition of rural, but were previously counted as urban; these two
counties would now be considered rural. See section II.A of this
proposed rule for details.
As a basis for the hospice wage index, we propose to
continue to use the pre-floor, pre-reclassified hospital wage index,
which includes a change to how wage data from multi-campus hospitals
are apportioned. See section II.B of this proposed rule for more
details.
We propose to continue to use a pre-floor, pre-
reclassified hospital wage index based solely on the CBSA designations,
using the most recent pre-floor and pre-reclassified hospital wage
index available at the time of publication. See section II.C.1 of this
proposed rule for details.
We propose to continue the policy that for urban labor
markets without an urban hospital from which a pre-floor, pre-
reclassified hospital wage index could be derived, all of the urban
CBSA pre-floor, pre-reclassified hospital wage index values within the
State would be used to calculate a statewide urban average pre-floor,
pre-reclassified hospital wage index to use as a reasonable proxy for
these areas. See section II.C.2 of this proposed rule for details.
We propose to continue the policy that we impute an
average pre-floor, pre-reclassified rural hospital wage index value by
averaging the pre-floor, pre-reclassified hospital wage index values
from contiguous CBSAs as a reasonable proxy for rural areas with no
hospital wage data from which to calculate a pre-floor, pre-
reclassified hospital wage index. See section II.C.2 f of this proposed
rule or details.
We propose to continue to utilize the most recent pre-
floor, pre-reclassified hospital wage index value available for Puerto
Rico. See section II.C.2 of this proposed rule for details.
We propose to phase-out the hospice BNAF over 3 years,
reducing it by 25 percent for FY 2009, by 75 percent for FY 2010, and
eliminating it completely for FY 2011. See sections II.C.3.a and
II.C.3.b of this proposed rule for details. As stated in section
II.C.3, based on comments received, updated data, and subsequent
analysis, for the final rule we may determine that a different
percentage reduction in the BNAF (for any of the years) or a different
phase-out timeframe would be more appropriate. Specifically, it may be
determined that a more aggressive alternative (e.g., a 50 percent
reduction in the BNAF in FY 2009, a 75 percent reduction in the BNAF in
FY 2010, and elimination of the BNAF in FY 2011) is more appropriate.
Consequently, we will continue to look at reduction percentages and
time period alternatives for the phase-out of the BNAF and, for the
final rule, will implement what is determined to be the most
appropriate option based on the above information.
We propose to continue to maintain the hospice floor
calculation. See section II.C.3 of this proposed rule for details.
Addendum A reflects the proposed FY 2009 hospice wage index values
for urban areas designations. Addendum B reflects the proposed FY 2009
hospice wage index values for rural areas designations.

III. Collection of Information Requirements

This document does not impose any information collection and
recordkeeping requirements. Consequently, it does not need to be
reviewed by the Office of Management and Budget under the authority of
the Paperwork Reduction Act of 1995 (44 U.S.C. 35).

IV. Regulatory Impact Analysis

A. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)). We

[[Page 24009]]

estimated the impact on hospices, as a result of the changes to the
proposed FY 2009 hospice wage index and of reducing the BNAF by 25
percent. As discussed previously, the methodology for computing the
hospice wage index was determined through a negotiated rulemaking
committee and implemented in the August 8, 1997 final rule (62 FR
42860). This rule proposes updates to the hospice wage index in
accordance with our regulation but proposes to revise the Negotiated
Rulemaking Committee methodology of including a BNAF.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits including potential economic, environmental, public health
and safety effects, distributive impacts, and equity. A regulatory
impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
We have determined that this proposed rule is an economically
significant rule under this Executive Order.
Column 4 of Table 1 shows the combined effects of the proposed 25
percent reduction in the BNAF and of the updated wage data, comparing
estimated payments for FY 2009 to estimated payments for FY 2008. We
estimate that the total hospice payments for FY 2009 will decrease by
$100 million as a result of the application of the 25 percent reduction
in the BNAF and the updated wage data. This estimate does not take into
account any market basket update, which is currently forecast to be
about 3.0 percent. The final market basket update will not be available
until some time later this year and will be communicated through an
administrative instruction. The estimated effect of a 3.0 percent
forecasted market basket update on payments to hospices is
approximately $280 million. If we were to take into account an
estimated 3.0 percent market basket update, in addition to the 25
percent reduction in the BNAF and the updated wage data, it is
estimated that hospice payments would increase by approximately $180
million ($280 million - $100 million = $180 million). The percent
change in payments to hospices due to the combined effects of the 25
percent reduction in the BNAF, the updated wage data, and the estimated
market basket update of 3.0 percent is reflected in column 5 of the
impact table (Table 1).
The RFA requires agencies to analyze options for regulatory relief
of small businesses, if a rule has a significant impact on a
substantial number of small entities. The great majority of hospices
and most other providers and suppliers are small entities, either by
nonprofit status or by having revenues of less than $6.5 million to
$31.5 million in any one year (for details, see the Small Business
Administration's regulation at 65 FR 69432, that sets forth size
standards for health care industries). As indicated in Table 1 below,
there are 2,986 hospices as of February 2008. Approximately 52.7
percent of Medicare certified hospices are identified as voluntary,
government, or other agencies and, therefore, are considered small
entities. Most of these and most of the remainder are also small
hospice entities because their revenues fall below the SBA size
thresholds. We note that the hospice wage index methodology was
previously guided by consensus, through a negotiated rulemaking
committee that included representatives of national hospice
associations, rural, urban, large and small hospices, multi-site
hospices, and consumer groups. Based on all of the options considered,
the committee agreed on the methodology described in the committee
statement, and after notice and comment, it was adopted into regulation
in the August 8, 1997 final rule. In developing the process for
updating the hospice wage index in the 1997 final rule, we considered
the impact of this methodology on small hospice entities and attempted
to mitigate any potential negative effects. Small hospice entities are
more likely to be in rural areas, which are less affected by the BNAF
reduction than entities in urban areas. Generally, hospices in rural
areas are protected by the hospice floor, which mitigates the effect of
the BNAF reduction. The effects of this rule on hospices, as
illustrated in Table 1, are small. Overall, Medicare payments to all
hospices will decrease by an estimated 1.1 percent, reflecting the
combined effects of the 25 percent reduction in the BNAF and the
updated wage data. Within the hospice subgroups, Medicare payments will
decrease by no more than 1.6 percent. Furthermore, when including the
estimated market basket update of 3.0 percent into these figures, the
combined effects of Medicare payment changes to all hospices will
result in an increase of approximately 1.9 percent. Overall average
hospice revenue effects will be slightly less than these estimates
since according the National Hospice and Palliative Care Organization,
about 16 percent of hospice caseload is non-Medicare. Longstanding HHS
practice in interpreting the RFA is to consider effects economically
``significant'' only if they reach a threshold of 3 to 5 percent or
more. Accordingly, we have determined that this proposed rule does not
create a significant economic impact on a substantial number of small
entities.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside a CBSA and has fewer
than 100 beds. We have determined that this proposed rule will not have
a significant impact on the operations of a substantial number of small
rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of about
$130 million or more (the threshold in the statute, updated for
inflation through 2008). This proposed rule is not anticipated to have
an effect on State, local, or tribal governments or on the private
sector of $130 million or more.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. We have reviewed this proposed rule under the threshold
criteria of Executive Order 13132, Federalism, and have determined that
it will not have an impact on the rights, roles, and responsibilities
of State, local, or tribal governments.

B. Anticipated Effects

This section discusses the impact of the projected effects of the
proposed provisions of this rule, including the estimated effects of a
projected 3.0 percent market basket update that will be communicated
separately through an administrative instruction. The proposed
provisions include continuing to use the CBSA-based pre-floor, pre-
reclassified hospital wage index (to include the clarification of New
England ``deemed'' counties and a change in the way that multi-campus
hospital wage

[[Page 24010]]

data are treated in the creation of the pre-floor, pre-reclassified
hospital wage index), continuing the use the same policies for
treatment of areas (rural and urban) without hospital wage data, and
reducing the BNAF by 25 percent for the first year of a 3-year BNAF
phase-out. The proposed FY 2009 hospice wage index is based upon the
2008 pre-floor, pre-reclassified hospital wage index and the most
complete claims data available (FY 2006) with a 25 percent reduction in
the BNAF.
For the purposes of our impacts, our baseline is estimated FY 2008
payments using the 2007 pre-floor, pre-reclassified hospital wage
index. Our first comparison (column 3, Table 1) compares our baseline
to estimated FY 2009 payments (holding payment rates constant) using
the updated wage data (2008 pre-floor, pre-reclassified hospital wage
index). Consequently, the estimated effects illustrated in column 3 of
Table 1 are for the updated wage data only. The effects of using the
updated pre-floor, pre-reclassified hospital wage index data combined
with the 25 percent reduction in the BNAF are illustrated in column 4
of Table 1.
Even though the market basket update is not part of this proposed
rule, we have included a comparison of the combined effects of the 25
percent BNAF reduction, the updated pre-floor, pre-reclassified
hospital wage index, and an estimated 3.0 percent market basket
increase for FY 2009 (Table 1, column 5). Presenting this data gives
the hospice industry a more complete picture of the effects of the
proposed changes in this rule and the market basket update. Certain
events may limit the scope or accuracy of our impact analysis, because
such an analysis is susceptible to forecasting errors due to other
changes in the forecasted impact time period. The nature of the
Medicare program is such that the changes may interact, and the
complexity of the interaction of these changes could make it difficult
to predict accurately the full scope of the impact upon hospices.

Table 1.--Anticipated Impact on Medicare Hospice Payments of Reducing the BNAF, Updating the Pre-Floor, Pre-Reclassified Hospital Wage Index Data, and
Applying an Estimated 3.0 Percent Market Basket Update for the Proposed FY 2009 Hospice Wage Index, Compared to the Published Final FY 2008 Hospice Wage
Index
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent change in Percent change in
Percent change in payments due to payments due to the
Number of payments due to the combined combined effects of
routine the effects of effects of the the 25% reduction in
Number of home care the updated wage 25% reduction in the BNAF, the updated
hospices* days in data (FY 2009 the BNAF and the wage data (FY 2009
thousands Proposed Wage updated wage data Proposed Wage Index),
Index) (FY 2009 Proposed and estimated market
Wage Index) basket update (3.0%)
(1) (2) (3) (4) (5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL HOSPICES..................................................... 2,986 61,351 -0.1 -1.1 1.9
URBAN HOSPICES............................................... 1,996 52,642 -0.1 -1.1 1.8
RURAL HOSPICES............................................... 990 8,709 -0.1 -0.9 2.1
BY REGION--URBAN:
NEW ENGLAND.................................................. 113 1,787 0.3 -0.8 2.2
MIDDLE ATLANTIC.............................................. 201 5,250 -0.5 -1.6 1.4
SOUTH ATLANTIC............................................... 288 11,388 -0.1 -1.1 1.8
EAST NORTH CENTRAL........................................... 296 7,638 -0.3 -1.4 1.6
EAST SOUTH CENTRAL........................................... 160 4,365 -0.4 -1.3 1.7
WEST NORTH CENTRAL........................................... 152 3,413 0.0 -1.0 1.9
WEST SOUTH CENTRAL........................................... 339 7,131 -0.2 -1.2 1.7
MOUNTAIN..................................................... 183 4,543 0.0 -1.1 1.9
PACIFIC...................................................... 230 6,330 0.8 -0.4 2.6
PUERTO RICO.................................................. 34 797 -1.1 -1.1 1.9
BY REGION--RURAL:
NEW ENGLAND.................................................. 26 147 -0.4 -1.4 1.5
MIDDLE ATLANTIC.............................................. 43 408 0.3 -0.7 2.3
SOUTH ATLANTIC............................................... 125 1,759 0.0 -0.9 2.0
EAST NORTH CENTRAL........................................... 140 1,148 0.0 -1.0 1.9
EAST SOUTH CENTRAL........................................... 145 2,017 -0.4 -1.1 1.8
WEST NORTH CENTRAL........................................... 189 945 -0.3 -1.3 1.7
WEST SOUTH CENTRAL........................................... 165 1,325 -0.6 -0.8 2.2
MOUNTAIN..................................................... 104 580 0.4 -0.6 2.4
PACIFIC...................................................... 52 372 1.5 0.4 3.4
PUERTO RICO.................................................. 1 7 0.0 0.0 3.0
ROUTINE HOME CARE DAYS:
0-3499 DAYS (small).......................................... 631 1,060 0.0 -0.9 2.0
3500-19,999 DAYS (medium).................................... 1,445 14,385 -0.1 -1.1 1.9
20,000+ DAYS (large)......................................... 910 45,906 -0.1 -1.1 1.9
TYPE OF OWNERSHIP:
VOLUNTARY.................................................... 1,194 27,185 -0.2 -1.2 1.8
PROPRIETARY.................................................. 1,412 30,017 0.0 -1.0 1.9
GOVERNMENT................................................... 192 986 0.1 -0.8 2.2
OTHER........................................................ 188 3,163 0.0 -1.0 2.0
HOSPICE BASE:
FREESTANDING................................................. 1,807 45,473 -0.1 -1.1 1.8
HOME HEALTH AGENCY........................................... 597 8,908 0.0 -1.0 2.0
HOSPITAL..................................................... 567 6,756 0.0 -1.1 1.9

[[Page 24011]]

SKILLED NURSING FACILITY..................................... 15 213 -0.6 -1.7 1.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
BNAF = Budget Neutrality Adjustment Factor.
* As of February 2008.

Table 1 shows the results of our analysis. In column 1, we indicate
the number of hospices included in our analysis as of February 2008. In
column 2, we indicate the number of routine home care days that were
included in our analysis, although the analysis was performed on all
types of hospice care. Column 3 shows the percentage change in
estimated Medicare payments from FY 2008 to FY 2009 due to the effects
of the updated wage data only. Column 4 shows the percentage change in
estimated hospice payments from FY 2008 to FY 2009 due to the combined
effects of using the 2008 pre-floor, pre-reclassified hospital wage
index and reducing the BNAF by 25 percent. Column 5 shows the
percentage change in estimated hospice payments from FY 2008 to FY 2009
due to the combined effects of using updated wage data, a 25 percent
BNAF reduction, and a 3.0 percent estimated market basket update.
Table 1 also categorizes hospices by various geographic and
provider characteristics. The first row of data displays the aggregate
result of the impact for all Medicare-certified hospices. The second
and third rows of the table categorize hospices according to their
geographic location (urban and rural). Our analysis indicated that
there are 1,996 hospices located in urban areas and 990 hospices
located in rural areas. The next two row groupings in the table
indicate the number of hospices by census region, also broken down by
urban and rural hospices. The next grouping shows the impact on
hospices based on the size of the hospice's program. We determined that
the majority of hospice payments are made at the routine home care
rate. Therefore, we based the size of each individual hospice's program
on the number of routine home care days provided in FY 2006. The next
grouping shows the impact on hospices by type of ownership. The final
grouping shows the impact on hospices defined by whether they are
provider-based or freestanding.
As indicated in Table 1 below, there are 2,986 hospices.
Approximately 52.7 percent of Medicare-certified hospices are
identified as voluntary, government, or other agencies and, therefore,
are considered small entities. Because the National Hospice and
Palliative Care Organization estimates that approximately 83.7 percent
of hospice patients are Medicare beneficiaries, we have not considered
other sources of revenue in this analysis. As noted earlier, those
CBSAs which had the hospice floor applied prior to our proposal to
reduce the BNAF are unaffected by this proposed change in methodology.
Those CBSAs that were not previously less than 0.8 after applying the
full BNAF but which now are less than 0.8 after applying the reduced
BNAF will see less of a reduction in payments as the floor protects
their hospice wage index value.
As stated previously, the following discussions are limited to
demonstrating trends rather than projected dollars. We used the pre-
floor, pre-reclassified hospital wage indexes as well as the most
complete claims data available (FY 2006) in developing the impact
analysis. The FY 2009 payment rates will be adjusted to reflect the
full hospital market basket, as required by section
1814(i)(1)(C)(ii)(VII) of the Act. As previously noted, we publish
these rates through administrative instructions rather than in a
proposed rule. The FY 2008 update was 3.3 percent, and the FY 2009
update will not be available until the summer. Currently the FY 2009
update is estimated to be 3.0 percent; however this figure is subject
to change. Since the inclusion of the effect of a market basket
increase provides a more complete picture of estimated hospice payments
for FY 2009, the last column of Table 1 shows the combined impacts of
the 25 percent BNAF reduction, the updated wage index, and a projected
3.0 percent market basket update factor.
As discussed in the FY 2006 final rule (70 FR 45129), hospice
agencies may use multiple hospice wage index values to compute their
payments based on potentially different geographic locations. Before
January 1, 2008, the location of the beneficiary was used to determine
the CBSA for routine and continuous home care and the location of the
hospice agency was used to determine the CBSA for respite and general
inpatient care. Beginning January 1, 2008, the hospice wage index
utilized is based on the location of the site of service. As the
location of the beneficiary's home and the location of the facility may
vary, there will still be variability in geographic location for an
individual hospice. We anticipate that the location of the various
sites will usually correspond with the geographic location of the
hospice, and thus we will continue to use the location of the hospice
for our analyses of the impact of the proposed changes to the hospice
wage index in this rule. For this analysis, we use payments to the
hospice in the aggregate based on the location of the hospice.
The impact of hospice wage index changes has been analyzed
according to the type of hospice, geographic location, type of
ownership, hospice base, and size. Our analysis shows that most
hospices are in urban areas and provide the vast majority of routine
home care days. Most hospices are medium-sized

[[Page 24012]]

followed by large hospices. Hospices are almost equal in numbers by
ownership with 1,574 designated as non-profit and 1,412 as proprietary.
The vast majority of hospices are freestanding.
1. Hospice Size
Under the Medicare hospice benefit, hospices can provide four
different levels of care days. The majority of the days provided by a
hospice are routine home care (RHC) days representing about 97 percent
of the services provided by a hospice. Therefore, the number of RHC
days can be used as a proxy for the size of the hospice, that is, the
more days of care provided, the larger the hospice. As discussed in the
August 4, 2005 final rule, we currently use three size designations to
present the impact analyses. The three categories are: (1) Small
agencies having 0 to 3,499 RHC days; (2) medium agencies having 3,500
to 19,999 RHC days; and (3) large agencies having 20,000 or more RHC
days. The proposed FY 2009 wage index values without the BNAF reduction
are anticipated to have virtually no impact on small hospice providers,
with a slight decrease of 0.1 percent anticipated for medium and large
hospices (column 3); the proposed FY 2009 wage index values with the 25
percent BNAF reduction and the updated wage data are anticipated to
decrease estimated payments by 0.9 percent to small hospices and by 1.1
percent to medium and large hospices (column 4); and finally, the
proposed FY 2009 wage index values with the 25 percent BNAF reduction,
the updated wage data, and the estimated 3.0 percent market basket
update are projected to increase estimated payments by 2.0 percent for
small hospices and by 1.9 percent for medium and large hospices (column
5).
2. Geographic Location
Column 3 of Table 1 shows that FY 2009 wage index values without
the BNAF reduction will result in little change in estimated payments
with rural and urban hospices anticipated to experience a slight
decrease of 0.1 percent. For urban hospices, the greatest increase of
0.8 percent is anticipated to be experienced by the Pacific regions,
followed by an increase for New England of 0.3 percent and no change
for the West North Central and Mountain regions. The remaining urban
regions are anticipated to experience a decrease ranging from 0.1
percent in the South Atlantic region 1.1 percent is for Puerto Rico.
Column 3 shows that for rural hospices, Puerto Rico, the South
Atlantic, and the East North Central regions are anticipated to
experience no change. Four regions are anticipated to experience a
decrease ranging from 0.3 percent for the West North Central region to
0.6 percent for West South Central region. The remaining regions are
anticipated to experience an increase ranging from 0.3 percent for the
Middle Atlantic region to 1.5 percent for the Pacific region.
Column 4 shows the combined effect of the 25 percent BNAF reduction
and the updated pre-floor, pre-reclassified hospital wage index values
on estimated payments, as compared to the published FY 2008 payments.
Overall urban hospices are anticipated to experience a 1.1 percent
decrease in payments, while rural hospices expect a 0.9 percent
decrease. The estimated percent decrease in payment for urban hospices
ranged from 0.4 percent for Pacific hospices to 1.6 percent for Middle
Atlantic hospices.
The estimated percent decrease in payment for rural hospices ranged
from 0.6 percent for Mountain hospices to 1.4 percent for New England
hospices. Rural Puerto Rico's estimated payments were unaffected, and
the Pacific region saw a 0.4 percent increase in estimated payments.
Column 5 shows the combined effects of the proposed FY 2009 wage
index values with the 25 percent BNAF reduction, the updated wage data,
and the estimated 3.0 percent market basket update on estimated
payments as compared to the published FY 2008 payments. Overall, urban
hospices are anticipated to experience a 1.8 percent increase in
payments while rural hospices should experience a 2.1 percent increase
in payments. Urban hospices are anticipated to see an increase in
estimated payments ranging from 1.4 percent for the Middle Atlantic
region to 2.6 percent for the Pacific region. Rural hospices are
estimated to see an increase in estimated payments ranging from 1.5
percent for the New England region to 3.4 percent for the Pacific
region.
3. Type of Ownership
Column 3 demonstrates the effect of the updated pre-floor, pre-
reclassified hospital wage index on FY 2009 estimated payments versus
FY 2008 estimated payments. We anticipate that using the updated pre-
floor, pre-reclassified hospital wage index data will have no effect on
proprietary hospices. While we estimate a slight decrease in estimated
payments for voluntary (non-profit) hospices (0.2 percent), other
hospices are expected to experience no effect and government hospices
are expected to experience a slight increase in payments (0.1 percent).
Column 4 demonstrates the combined effects of using updated pre-
floor, pre-reclassified hospital wage index data and of incorporating a
25 percent BNAF reduction. Estimated payments to proprietary hospices
are anticipated to decrease by 1.0 percent, while voluntary (non-
profit), other, and government hospices are anticipated to experience
decreases of 1.2 percent, 1.0 percent, and 0.8 percent, respectively.
Column 5 shows the combined effects of the updated pre-floor, pre-
reclassified hospital wage index values with the 25 percent BNAF
reduction, the updated wage data, and the estimated 3.0 percent market
basket update on estimated payments, comparing FY 2009 to FY 2008.
Estimated FY 2009 payments are anticipated to increase for all
hospices, regardless of ownership type. Estimated payments are forecast
to increase from 1.8 percent for voluntary hospices to 2.2 percent for
government hospices.
4. Hospice Base
Column 3 demonstrates the effect of using the updated pre-floor,
pre-reclassified hospital wage index values, comparing estimated
payments for FY 2009 to FY 2008. Estimated payments are anticipated to
decrease by 0.1 percent for freestanding facilities and by 0.6 percent
for skilled nursing facilities. Home health and hospital based
facilities are anticipated to experience no change in estimated
payments.
Column 4 shows the combined effects of reducing the BNAF by 25
percent and updating the pre-floor, pre-reclassified hospital wage
index values, comparing FY 2009 to FY 2008 estimated payments. Skilled
nursing facility based hospices are estimated to see a 1.7 percent
decline, while hospital based hospices and freestanding hospices are
each anticipated to experience a 1.1 percent decrease in payments. Home
health agency based hospices are expected to experience a 1.0 percent
decrease.
Column 5 shows the combined effects of the 25 percent BNAF
reduction, the updated pre-floor, pre-reclassified hospital wage index,
and the estimated 3.0 percent market basket update on estimated
payments, comparing FY 2009 to FY 2008. Estimated increases in payments
range from 1.2 percent for skilled nursing facility based hospices to
2.0 percent for home health agency based hospices.
We note that the President's budget includes a proposal for a zero
percent payment update for hospices in FY 2009. The impacts outlined in
Column 5 of Table 1 in this proposed rule,

[[Page 24013]]

which include the effects of a 3.0 percent market basket update, would
need to change in the final rule to reflect any legislation that the
Congress might enact which would affect the market basket update.

C. Accounting Statement

As required by OMB Circular A-4 (available at http://
www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the proposed provisions of this rule. This
table provides our best estimate of the decrease in Medicare payments
under the hospice benefit as a result of the changes presented in this
proposed rule on data for 2,086 hospices in our database. All
expenditures are classified as transfers to Medicare providers (that
is, hospices).

Table 2.--Accounting Statement: Classification of Estimated
Expenditures, From FY 2008 to FY 2009 [In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............ $-100\*\.
From Whom to Whom......................... Federal Government to
Hospices.
------------------------------------------------------------------------
\*\The $100 million reduction in transfers includes the 25 percent
reduction in the BNAF and the updated wage data. It does not include
the market basket update, which is currently forecast to be about
3.0%.

In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 418

Health facilities, Health professions, Medicare, and Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
and Medicare Services proposes to amend 42 CFR chapter IV as set forth
below:

PART 418--HOSPICE CARE

1. The authority citation for part 418 continues to read as
follows:

Authority: Secs 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).

Subpart G--Payment for Hospice Care

2. Section Sec. 418.306 is amended by revising paragraph (c) to
read as follows:

Sec. 418.306 Determination of payment rates.

* * * * *
(c) Each hospice's labor market is determined based on definitions
of Metropolitan Statistical Areas (MSAs) issued by OMB. CMS will issue
annually, in the Federal Register, a hospice wage index based on the
most current available CMS hospital wage data, including changes to the
definition of MSAs. The urban and rural area geographic classifications
are defined in Sec. 412.64(b)(1)(ii)(A) through (C) of this chapter.
The payment rates established by CMS are adjusted by the intermediary
to reflect local differences in wages according to the revised wage
data.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

Note: The following addendums will not appear in the Code of
Federal Regulations.

Dated: March 14, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: April 7, 2008.
Michael O. Leavitt,
Secretary.

Addendum A.--Proposed Hospice Wage Index for Urban Areas by CBSA--FY 2009
----------------------------------------------------------------------------------------------------------------
Wage
CBSA code Urban area (constituent counties) \2\ index
\1\
----------------------------------------------------------------------------------------------------------------
10180........................................ Abilene, TX............................................. 0.8347
Callahan County, TX....................................
Jones County, TX.......................................
Taylor County, TX......................................
10380........................................ Aguadilla-Isabela-San Sebasti[aacute]n, PR.............. 0.3965
Aguada Municipio, PR...................................
Aguadilla Municipio, PR................................
A[ntilde]asco Municipio, PR............................
Isabela Municipio, PR..................................
Lares Municipio, PR....................................
Moca Municipio, PR.....................................
Rinc[oacute]n Municipio, PR............................
San Sebasti[aacute]n Municipio, PR.....................
10420........................................ Akron, OH............................................... 0.9225
Portage County, OH.....................................
Summit County, OH......................................
10500........................................ Albany, GA.............................................. 0.8931
Baker County, GA.......................................
Dougherty County, GA...................................
Lee County, GA.........................................
Terrell County, GA.....................................
Worth County, GA.......................................
10580........................................ Albany-Schenectady-Troy, NY............................. 0.9009
Albany County, NY......................................
Rensselaer County, NY..................................
Saratoga County, NY....................................
Schenectady County, NY.................................

[[Page 24014]]

Schoharie County, NY...................................
10740........................................ Albuquerque, NM......................................... 1.0022
Bernalillo County, NM..................................
Sandoval County, NM....................................
Torrance County, NM....................................
Valencia County, NM....................................
10780........................................ Alexandria, LA.......................................... 0.8370
Grant Parish, LA.......................................
Rapides Parish, LA.....................................
10900........................................ Allentown-Bethlehem-Easton, PA-NJ....................... 1.0349
Warren County, NJ......................................
Carbon County, PA......................................
Lehigh County, PA......................................
Northampton County, PA.................................
11020........................................ Altoona, PA............................................. 0.9040
Blair County, PA.......................................
11100........................................ Amarillo, TX............................................ 0.9563
Armstrong County, TX...................................
Carson County, TX......................................
Potter County, TX......................................
Randall County, TX.....................................
11180........................................ Ames, IA................................................ 1.0538
Story County, IA.......................................
11260........................................ Anchorage, AK........................................... 1.2497
Anchorage Municipality, AK.............................
Matanuska-Susitna Borough, AK..........................
11300........................................ Anderson, IN............................................ 0.9260
Madison County, IN.....................................
11340........................................ Anderson, SC............................................ 0.9531
Anderson County, SC....................................
11460........................................ Ann Arbor, MI........................................... 1.1056
Washtenaw County, MI...................................
11500........................................ Anniston-Oxford, AL..................................... 0.8315
Calhoun County, AL.....................................
11540........................................ Appleton, WI............................................ 1.0068
Calumet County, WI.....................................
Outagamie County, WI...................................
11700........................................ Asheville, NC........................................... 0.9635
Buncombe County, NC....................................
Haywood County, NC.....................................
Henderson County, NC...................................
Madison County, NC.....................................
12020........................................ Athens-Clarke County, GA................................ 1.1033
Clarke County, GA......................................
Madison County, GA.....................................
Oconee County, GA......................................
Oglethorpe County, GA..................................
12060........................................ Atlanta-Sandy Springs-Marietta, GA...................... 1.0310
Barrow County, GA......................................
Bartow County, GA......................................
Butts County, GA.......................................
Carroll County, GA.....................................
Cherokee County, GA....................................
Clayton County, GA.....................................
Cobb County, GA........................................
Coweta County, GA......................................
Dawson County, GA......................................
DeKalb County, GA......................................
Douglas County, GA.....................................
Fayette County, GA.....................................
Forsyth County, GA.....................................
Fulton County, GA......................................
Gwinnett County, GA....................................
Haralson County, GA....................................
Heard County, GA.......................................
Henry County, GA.......................................
Jasper County, GA......................................
Lamar County, GA.......................................
Meriwether County, GA..................................
Newton County, GA......................................
Paulding County, GA....................................

[[Page 24015]]

Pickens County, GA.....................................
Pike County, GA........................................
Rockdale County, GA....................................
Spalding County, GA....................................
Walton County, GA......................................
12100........................................ Atlantic City, NJ....................................... 1.2796
Atlantic County, NJ....................................
12220........................................ Auburn-Opelika, AL...................................... 0.8487
Lee County, AL.........................................
12260........................................ Augusta-Richmond County, GA-SC.......................... 1.0118
Burke County, GA.......................................
Columbia County, GA....................................
McDuffie County, GA....................................
Richmond County, GA....................................
Aiken County, SC.......................................
Edgefield County, SC...................................
12420........................................ Austin-Round Rock, TX................................... 1.0012
Bastrop County, TX.....................................
Caldwell County, TX....................................
Hays County, TX........................................
Travis County, TX......................................
Williamson County, TX..................................
12540........................................ Bakersfield, CA......................................... 1.1593
Kern County, CA........................................
12580........................................ Baltimore-Towson, MD.................................... 1.0631
Anne Arundel County, MD................................
Baltimore County, MD...................................
Carroll County, MD.....................................
Harford County, MD.....................................
Howard County, MD......................................
Queen Anne's County, MD................................
Baltimore City, MD.....................................
12620........................................ Bangor, ME.............................................. 1.0467
Penobscot County, ME...................................
12700........................................ Barnstable Town, MA..................................... 1.3221
Barnstable County, MA..................................
12940........................................ Baton Rouge, LA......................................... 0.8428
Ascension Parish, LA...................................
East Baton Rouge Parish, LA............................
East Feliciana Parish, LA..............................
Iberville Parish, LA...................................
Livingston Parish, LA..................................
Pointe Coupee Parish, LA...............................
St. Helena Parish, LA..................................
West Baton Rouge Parish, LA............................
West Feliciana Parish, LA..............................
12980........................................ Battle Creek, MI........................................ 1.0678
Calhoun County, MI.....................................
13020........................................ Bay City, MI............................................ 0.9333
Bay County, MI.........................................
13140........................................ Beaumont-Port Arthur, TX................................ 0.8949
Hardin County, TX......................................
Jefferson County, TX...................................
Orange County, TX......................................
13380........................................ Bellingham, WA.......................................... 1.2036
Whatcom County, WA.....................................
13460........................................ Bend, OR................................................ 1.1478
Deschutes County, OR...................................
13644........................................ Bethesda-Frederick-Gaithersburg, MD..................... 1.1026
Frederick County, MD...................................
Montgomery County, MD..................................
13740........................................ Billings, MT............................................ 0.9091
Carbon County, MT......................................
Yellowstone County, MT.................................
13780........................................ Binghamton, NY.......................................... 0.9388
Broome County, NY......................................
Tioga County, NY.......................................
13820........................................ Birmingham-Hoover, AL................................... 0.9334
Bibb County, AL........................................
Blount County, AL......................................
Chilton County, AL.....................................

[[Page 24016]]

Jefferson County, AL...................................
St. Clair County, AL...................................
Shelby County, AL......................................
Walker County, AL......................................
13900........................................ Bismarck, ND............................................ 0.8000
Burleigh County, ND....................................
Morton County, ND......................................
13980........................................ Blacksburg-Christiansburg-Radford, VA................... 0.8594
Giles County, VA.......................................
Montgomery County, VA..................................
Pulaski County, VA.....................................
Radford City, VA.......................................
14020........................................ Bloomington, IN......................................... 0.9352
Greene County, IN......................................
Monroe County, IN......................................
Owen County, IN........................................
14060........................................ Bloomington-Normal, IL.................................. 0.9782
McLean County, IL......................................
14260........................................ Boise City-Nampa, ID.................................... 0.9929
Ada County, ID.........................................
Boise County, ID.......................................
Canyon County, ID......................................
Gem County, ID.........................................
Owyhee County, ID......................................
14484........................................ Boston-Quincy, MA....................................... 1.2370
Norfolk County, MA.....................................
Plymouth County, MA....................................
Suffolk County, MA.....................................
14500........................................ Boulder, CO............................................. 1.0937
Boulder County, CO.....................................
14540........................................ Bowling Green, KY....................................... 0.8559
Edmonson County, KY....................................
Warren County, KY......................................
14740........................................ Bremerton-Silverdale, WA................................ 1.1438
Kitsap County, WA......................................
14860........................................ Bridgeport-Stamford-Norwalk, CT......................... 1.3359
Fairfield County, CT...................................
15180........................................ Brownsville-Harlingen, TX............................... 0.9351
Cameron County, TX.....................................
15260........................................ Brunswick, GA........................................... 0.9939
Brantley County, GA....................................
Glynn County, GA.......................................
McIntosh County, GA....................................
15380........................................ Buffalo-Niagara Falls, NY............................... 1.0037
Erie County, NY........................................
Niagara County, NY.....................................
15500........................................ Burlington, NC.......................................... 0.9176
Alamance County, NC....................................
15540........................................ Burlington-South Burlington, VT......................... 1.0134
Chittenden County, VT..................................
Franklin County, VT....................................
Grand Isle County, VT..................................
15764........................................ Cambridge-Newton-Framingham, MA......................... 1.1765
Middlesex County, MA...................................
15804........................................ Camden, NJ.............................................. 1.0921
Burlington County, NJ..................................
Camden County, NJ......................................
Gloucester County, NJ..................................
15940........................................ Canton-Massillon, OH.................................... 0.9373
Carroll County, OH.....................................
Stark County, OH.......................................
15980........................................ Cape Coral-Fort Myers, FL............................... 0.9857
Lee County, FL.........................................
16180........................................ Carson City, NV......................................... 1.0493
Carson City, NV........................................
16220........................................ Casper, WY.............................................. 0.9845
Natrona County, WY.....................................
16300........................................ Cedar Rapids, IA........................................ 0.9286
Benton County, IA......................................
Jones County, IA.......................................
Linn County, IA........................................

[[Page 24017]]

16580........................................ Champaign-Urbana, IL.................................... 0.9852
Champaign County, IL...................................
Ford County, IL........................................
Piatt County, IL.......................................
16620........................................ Charleston, WV.......................................... 0.8695
Boone County, WV.......................................
Clay County, WV........................................
Kanawha County, WV.....................................
Lincoln County, WV.....................................
Putnam County, WV......................................
16700........................................ Charleston-North Charleston, SC......................... 0.9571
Berkeley County, SC....................................
Charleston County, SC..................................
Dorchester County, SC..................................
16740........................................ Charlotte-Gastonia-Concord, NC-SC....................... 0.9987
Anson County, NC.......................................
Cabarrus County, NC....................................
Gaston County, NC......................................
Mecklenburg County, NC.................................
Union County, NC.......................................
York County, SC........................................
16820........................................ Charlottesville, VA..................................... 0.9732
Albemarle County, VA...................................
Fluvanna County, VA....................................
Greene County, VA......................................
Nelson County, VA......................................
Charlottesville City, VA...............................
16860........................................ Chattanooga, TN-GA...................................... 0.9435
Catoosa County, GA.....................................
Dade County, GA........................................
Walker County, GA......................................
Hamilton County, TN....................................
Marion County, TN......................................
Sequatchie County, TN..................................
16940........................................ Cheyenne, WY............................................ 0.9764
Laramie County, WY.....................................
16974........................................ Chicago-Naperville-Joliet, IL........................... 1.1240
Cook County, IL........................................
DeKalb County, IL......................................
DuPage County, IL......................................
Grundy County, IL......................................
Kane County, IL........................................
Kendall County, IL.....................................
McHenry County, IL.....................................