06-7293. Medicare Program; Hospice Wage Index for Fiscal Year 2007

AGENCY:

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

ACTION:

Notice.

SUMMARY:

This notice announces the annual update to the hospice wage index as required by statute. This fiscal year 2007 update is effective from October 1, 2006 through September 30, 2007. The wage index is used to reflect local differences in wage levels. The hospice wage index methodology and values are based on recommendations of a negotiated rulemaking advisory committee and were originally published in the August 8, 1997 Federal Register.

EFFECTIVE DATE:

This notice is effective on October 1, 2006.

FOR FURTHER INFORMATION CONTACT:

Terri Deutsch, [phone].

SUPPLEMENTARY INFORMATION:

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, 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 § 418.306(c) require each hospice's labor market to be established using the most current hospital wage data available, including any changes to the Metropolitan Statistical Areas (MSAs), definitions which are superceded by Core Based Statistical Areas (CBSAs). Section 1814(i)(2)(D) of the Act requires Medicare to pay for hospice care furnished in an individual's home on the basis of the geographic location where the service is furnished. We have interpreted this to mean that the wage index value used is based upon the location of the beneficiary's home for routine home care and continuous home care and the location of the hospice agency for general inpatient and respite care.

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; multisite 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 occurred in the August 4, 2005 final rule (70 FR 45130), that set forth updates to the hospice wage index for FY 2006. On September 30, 2005, we published a correction notice in the Federal Register (70 FR 57174) and a subsequent correction notice on December 23, 2005 (70 FR 76175), to correct technical errors that appeared in the August 4, 2005 final rule.

1. Changes to Core-Based Statistical Areas

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. The August 4, 2005 final rule 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 Core-Based Statistical Area (CBSA) geographic designations, we provided for a 1-year transition with a blended wage index for all providers 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 wage index and 50 percent of the FY 2006 CBSA-based wage index. As discussed in the August 4, 2005 final rule, we will use the full CBSA-based wage index values as presented in Tables A and B of this notice for FY 2007.

Furthermore, we continue to use the same methodology as discussed in the April 29, 2005 proposed rule (70 FR 22394) and finalized in the August 4, 2005 final rule to address those geographic areas where there were no hospitals and, thus, no hospital wage index data on which to base the calculation of the FY 2007 hospice wage index. For FY 2007, those areas consist of rural Massachusetts, rural Puerto Rico and urban Hinesville-Fort Stewart, Georgia. (CBSA-25980).

2. Raw Wage Index Values

Raw wage index values (that is, inpatient hospital pre-floor and pre-reclassified wage index values) as described in the August 8, 1997 hospice wage index final rule (62 FR 42860), are subject to either a budget neutrality adjustment or application of the wage index floor. Raw wage index values of 0.8 or greater are adjusted by the budget neutrality adjustment factor. Budget neutrality means that, in a given year, estimated aggregate payments for Medicare hospice services using the updated wage index values will equal estimated payments that would have been made for these services if the 1983 wage index values had remained in effect. To achieve this budget neutrality, the raw wage index is multiplied by a budget neutrality adjustment factor. The budget neutrality adjustment factor is calculated by comparing what we would have paid using current rates and the 1983 wage index to what would be paid using current rates and new wage index. The budget neutrality adjustment factor is computed and applied annually. For the FY 2007 hospice wage index, FY 2006 hospice payment rates were used in the budget neutrality adjustment factor calculation.

Raw wage index values below 0.8 are adjusted by the greater of: (1) The hospice budget neutrality adjustment factor; or (2) the hospice wage index floor (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 0.060988) and the hospice wage index floor to determine County A's hospice wage index:

Raw wage index value below 0.8 multiplied by the budget neutrality adjustment factor:

(0.4000 × 1.060988 = 0.4244)

Raw wage index value below 0.8 multiplied by the hospice wage index floor:

(0.400 × 1.15 = 0.4600)

Based on these calculations, County A's hospice wage index would be 0.4600.

3. 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 the market basket adjustment to be used to compute payment for FY 2007. Therefore, payment rates for FY 2007 will be updated according to section 1814(i)(1)(C)(ii)(VII) of the Act, which states that the update to the payment rates for subsequent FYs will be the market basket percentage for the fiscal year. Accordingly, the FY 2007 update to the payment rates will be the full market basket percentage increase for FY 2007. This rate update is implemented through a separate administrative instruction and is not part of this notice. 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 payment rates by applying the wage index in this notice to the labor portion of the published hospice rates.

II. Provisions of the Notice

A. Annual Update

This annual update to the hospice wage index is effective October 1, 2006 through September 30, 2007. In accordance with our regulations and the agreement signed with other members of the Hospice Wage Index Negotiated Rulemaking Committee, we are using the most current hospital data available to us. The FY 2006 hospital wage index was the most current hospital wage data available when the FY 2007 hospice wage index values were calculated. We used the FY 2006 pre-reclassified and pre-floor hospital area wage index data.

As noted above, for FY 2007, the hospice wage index values will be based solely on the adoption of the CBSA-based labor market definitions and its wage index. We continue to use the most recent pre-floor and pre-reclassified hospital wage index data available (FY 2002 hospital wage data).

Furthermore, we will continue to use the methodology described in the FY 2006 final rule in the event there are no hospital wage data available for urban or rural areas, consistent with the rationale outlined in the August 5, 2005 final rule (70 FR 45135). A detailed description of the methodology used to compute the hospice wage index is contained in both the September 4, 1996 proposed rule (61 FR 46579) and the August 8, 1997 final rule (62 FR 42860). All wage index values are adjusted by a budget-neutrality factor of 1.063448 and are subject to the wage index floor adjustment, if applicable. We have completed all of the calculations described in section 2.B below and have included them in the wage index values reflected in Tables A and B of the Addendum. Specifically, Table A reflects the FY 2007 wage index values for urban areas under the CBSA designations. Table B reflects the FY 2007 wage index values for rural areas under the CBSA designations.

B. Other Issues

1. Proxy for the hospital market basket

As discussed above, the hospice payment rates are adjusted each year based upon the full hospital market basket. The market basket currently uses the Bureau of Labor Statistics' Employment Cost Indexes (ECIs) as proxies for wages, salaries and benefits for private industry workers classified in Standard Industrial Code (SIC) 806, Hospitals. The ECIs were consistently used as the data source for wages and salaries and other price proxies in the market basket.

Beginning in April 2006, with the publication of March 2006 data, the BLS' ECI is using a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Classification System (SIC), which no longer exists. The ECIs have consistently been used as the data source for wages and salaries and other price proxies in the hospital market basket. We are not making any changes to the usage at this time. However, we welcome input on our continued use of the BLS ECI data in light of the BLS change to the NAICS-based ECI. Interested parties who would like to provide input on this issue are invited to do so by contacting Terri Deutsch (please refer to the section entitled FOR FURTHER INFORMATION CONTACT as the beginning of this document).

2. Nomenclature Changes

As we described in the August 4, 2005 final rule, certain names of the CBSAs were changed based on OMB Bulletin No. 05-02 (November 2004). The name changes listed below do not result in substantive changes to the CBSA-based designations. Tables A and B of the addendum reflect the following name changes:

• CBSA 36740—Orlando-Kissimmee, FL
• CBSA 37620—Parkersburg-Marietta-Vienna, WV-OH
• CBSA 42060—Santa Barbara-Santa Maria, CA
• CBSA 13644—Bethesda-Gaithersburg-Frederick, MD
• CBSA 32580—McAllen-Edinburg-Mission, TX
• CBSA 26420—Houston-Sugar Land-Baytown, TX
• CBSA 35644—New York-White Plains-Wayne, NY-NJ

III. Collection of Information Requirements

This document does not impose information collection and record keeping requirements. Consequently, it need not 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. Waiver of Proposed Rulemaking

Under the Administrative Procedure Act (5 U.S.C. section (553(b)(B)), we may waive notice and comment rulemaking procedures if we find good cause to do so (that is, notice and comment procedures are impracticable, unnecessary, or contrary to the public interest) and the agency incorporates a statement of the finding and the reasons for waiver in the notice issued. We are waiving notice and comment rulemaking before the provisions of this notice take effect.

We find it unnecessary to undertake notice and comment rulemaking because the methodologies used to determine the hospice wage index have been previously subjected to public comments, and this notice merely reflects the application of those previously established methodologies. In this notice, we are not changing the methodologies, but merely performing the ministerial function of applying methodologies previously subject to notice and public comment. Therefore, we believe it is unnecessary to engage in notice and comment rulemaking and, for good cause, we waive notice and comment procedures.

V. Regulatory Impact Analysis

A. Overall Impact

We have examined the impacts of this notice 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 Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. We estimated the impact on hospices, as a result of the changes to the FY 2007 hospice wage index. As discussed previously, the methodology for computing the wage index was determined through a negotiated rulemaking committee and implemented in the August 8, 1997 final rule (62 FR 42860). This notice only updates the hospice wage index in accordance with our regulation and that methodology, incorporating the adoption of the CBSA designations used in the FY 2006 hospital wage index data.

• Table 1 categorizes the impact on hospices by various geographic and provider characteristics. We estimate that the total hospice payments will increase $2,194,000 as a result of the FY 2007 wage index values.
• Table A reflects the FY 2007 wage index values for urban areas under the CBSA designations.
• Table B reflects the FY 2007 wage index values for rural areas under the CBSA designations.

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 notice is not an economically significant rule under this Executive Order.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospices and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year (for details, see the Small Business Administration's regulation at 65 FR 69432, that sets forth size standards for health care industries). For purposes of the RFA, most hospices are small entities. As indicated in Table 1 below, there are 2,810 hospices. Approximately 70 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 79 percent of hospice patients are Medicare beneficiaries, we have not considered other sources of revenue in this analysis. Furthermore, the wage index methodology was previously determined by consensus, through a negotiated rulemaking committee that included representatives of national hospice associations; rural, urban, large and small hospices; multisite hospices; and consumer groups. Based on all of the options considered, the committee agreed on the methodology described in the committee statement, and it was adopted into regulation in the August 8, 1997 final rule. In developing the process for updating the wage index in the 1997 final rule, we considered the impact of this methodology on small entities and attempted to mitigate any potential negative effects.

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 an MSA and has fewer than 100 beds. We have determined that this notice would 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 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditure in any 1 year by State, local, and tribal governments, in the aggregate, or by the private sector, of $110 million or more. This notice is not anticipated to have an effect on State, local, or tribal governments or on the private sector of $110 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 notice under the threshold criteria of Executive Order 13132, Federalism, and have determined that it would not have an impact on the rights, roles, and responsibilities of State, local, or tribal governments.

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

B. Anticipated Effects

The impact analysis of this notice represents the projected effects of the changes in the hospice wage index from FY 2006 to FY 2007. We estimate the effects by estimating payments for FY 2007 utilizing the FY 2007 wage index values and the full implementation of the CBSA designations while holding all other payment variables constant.

We note that certain events may combine to limit the scope or accuracy of our impact analysis, because such an analysis is future oriented and, thus, 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.

For the purposes of this notice, we compared estimated payments using the FY 1983 hospice wage index to estimated payments using the FY 2007 wage index and determined the hospice wage index to be budget neutral. Budget neutrality means that, in a given year, estimated aggregate payments for Medicare hospice services using the FY 2007 wage index would equal estimated aggregate payments that would have been made for the same services if the 1983 wage index had remained in effect. Budget neutrality to 1983 does not imply that estimated payments would not increase since the budget neutrality applies only to the wage index portion and not the total payment rate, which accommodates inflation.

As discussed above, we use the latest claims file available to us to develop the impact table when we issue the annual yearly wage index update. For the purposes of this notice, we used data obtained from the National Claims History file of all FY 2005 claims processed through March 2006 since this was the latest file available. We deleted bills from hospices that have since closed. This impact analysis compares hospice payments using the FY 2006 hospice wage index to the estimated payments using the FY 2007 wage index. We note that estimated payments for FY 2007 are determined by using the wage index for FY 2007 and payment rates for FY 2006. As noted in previous sections, payment rates for FY 2007 are published through administrative issuance.

Table 1 demonstrates the results of our analysis. In column 1 we indicate the number of hospices included in our analysis. In column 2 of Table 1, 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 estimates payments using the FY 2006 transitional wage index values and the FY 2006 payment rates. Column 4 estimates payments using FY 2007 CBSA based wage index values as well as the FY 2006 payment rates. Column 5, which compares columns 3 and 4, shows the percent change in estimated hospice payments made based on the category of the hospice.

Table 1 also categorizes hospices by various geographic and provider characteristics. The first row 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 1,849 hospices located in urban areas and 961 hospices located in rural areas. The next two groupings in the table indicate the number of hospices by census region, also broken down by urban and rural hospices. The sixth 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 2,810 hospices. Approximately 78 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 79 percent of hospice patients are Medicare beneficiaries, we have not considered other sources of revenue in this analysis. Furthermore, the wage index methodology was previously determined by consensus, through a negotiated rulemaking committee that included representatives of national hospice associations; rural, urban, large, and small hospices; multisite hospices; and consumer groups. Based on all of the options considered, the committee agreed on the methodology described in the committee statement, and it was adopted into regulation in the August 8, 1997 final rule. In developing the process for updating the wage index in the 1997 final rule, we considered the impact of this methodology on small entities and attempted to mitigate any potential negative effects.

As stated previously, the following discussions are limited to demonstrating trends rather than projected dollars. We used the CBSA designations and wage indices as well as the data from FY 2005 claims processed through March 2006 in developing the impact analysis. For FY 2007 the wage index and the implementation of the CBSA designations for geographical variations are the variables that differ between the FY 2006 payments and the FY 2007 estimated payments. FY 2006 payment rates are used for both FY 2006 actual payments and the FY 2007 estimated payments. The FY 2007 payment rates will be adjusted to reflect the full FY 2007 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 issuances. As discussed in the FY 2006 final rule (70 FR 45129), hospice agencies may utilize various wage indices to compute their payments based on the geographic location of the beneficiary for routine and continuous home care or the CBSA for the location of the hospice agency for respite and general inpatient care. 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 have been analyzed according to type of hospice, geographic location, type of ownership, hospice base, and hospice 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 followed by large hospices. Hospices are almost equal in numbers by ownership with 1,276 designated as voluntary and 1,231 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 days (RHC) representing over 70 percent of the services provided by a hospice. Therefore, the number of routine home care 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: small agencies having 0 to 3,499 RHC days; medium agencies having 3,500 to 19,999 RHC days; and large agencies having 20,000 or more RHC days.

Using RHC days as a proxy for size, our analysis indicates that the wage index update on all hospice agencies by size is anticipated to have virtually no impact with a slight increase of 0.1 percent anticipated for medium sized hospices while no change is anticipated for small or large hospices.

2. Geographic Location

Our analysis demonstrates that the FY 2007 CBSA-based wage index will result in little change in estimated payments with urban hospices anticipated to experience a slight increase of 0.1 percent while rural hospices are anticipated to experience a slight decrease of 0.4 percent. The greatest increase of 1.0 percent in urban hospices is anticipated to be experienced by the Pacific region while the West North Central is anticipated to experience the greatest urban decrease of 0.6 percent. Slight decreases are anticipated in urban New England, South Atlantic, East North Central and Mountain regions while increases are anticipated in urban Middle Atlantic, East South Central, West South Central and Puerto Rico.

For rural hospices, the New England region is anticipated to receive the highest increase of 2.1 percent followed by the Pacific region with a 1.0 percent increase in estimated payments. Conversely, the mountain region is anticipated to receive the greatest decrease of 1.8 percent followed by the South Atlantic region of 1.0 percent. Decreases are also anticipated for rural Middle Atlantic, East South Central, West North Central and West South Central regions. Rural East North Central and Puerto Rico are anticipated to remain unchanged.

3. Type of Ownership

By type of ownership, government and proprietary hospices are anticipated to experience an increase in anticipated payments of 0.4 and 0.1 percent respectively. Voluntary hospices are anticipated to remain unchanged.

4. Hospice Base

For hospice-based facilities, decreases in payment are anticipated for skilled nursing facility and hospital based hospices of 0.7 and 0.1 percent respectively. Freestanding and home health agency based hospices are anticipated to remain unchanged.

C. Conclusion

Our impact analysis compared hospice payments by using the FY 2006 wage index to the estimated payments using the FY 2007 wage index. Through the analysis, we estimate that total hospice payments will increase from FY 2006 by $2,194,000. Additionally, we compared estimated payments using the FY 1983 hospice wage index to estimated payments using the FY 2007 wage index and determined the current hospice wage index to be budget neutral, as required by the negotiated rulemaking committee. As noted above, the payment rates used reflect the FY 2006 rates. The FY 2007 payment rates will be adjusted to reflect the full FY 2007 hospital market basket, as required by section 1814(i)(1)(C)(ii)(VII) of the Act. We publish these rates through administrative issuances.

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

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital Insurance; and Program No. 93.774, Medicare—Supplementary Medical Insurance Program)

Dated: July 25, 2006.

Mark B. McClellan,

Administrator, Centers for Medicare & Medicaid Services.

Approved: August 21, 2006.

Michael O. Leavitt,

Secretary.