Medicare Program; Hospice Wage Index for Fiscal Year 2005

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 2005 update is effective from October 1, 2004 through September 30, 2005. 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:

October 1, 2004.

FOR FURTHER INFORMATION CONTACT:

Terri Deutsch, (410) 786-9462.

SUPPLEMENTARY INFORMATION:

I. Background

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 (relief of pain and other uncomfortable symptoms). 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 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. The statutory authority for payment to hospices participating in the Medicare program is contained in section 1814(i) of the Act.

Our existing regulations under 42 CFR part 418 establish eligibility requirements and payment standards and procedures, define covered services, and delineate the conditions a hospice must meet to be approved for participation in the Medicare program. Subpart G of part 418 provides for payment to hospices based on one of four prospectively determined rates for each day in which a qualified Medicare beneficiary is under the care of a hospice. The four rate categories are routine home care, continuous home care, inpatient respite care, and general inpatient care. Payment rates are established for each category.

The regulations at § 418.306(c), which require the rates to be adjusted by a wage index, were revised in the August 8, 1997 final rule (62 FR 42860). This rule implemented a new methodology for calculating the hospice wage index based on the recommendations of a negotiated rulemaking committee. The committee reached consensus on the methodology. We included the resulting committee statement, describing that consensus, as an appendix to the August 8, 1997 final rule (62 FR 42883). The provisions of the final hospice wage index rule are as follows:

• The revised hospice wage index will be calculated using the most current available hospital wage data.
• The revised hospice wage index was phased in over a 3-year transition period.

For the first year of the transition period, October 1, 1997 through September 30, 1998, a blended index was calculated by adding two-thirds of the 1983 index value for an area to one-third of the revised wage index value for that area. During the second year of the transition period, October 1, 1998 through September 30, 1999, the calculation was similar, except that the blend was one-third of the 1983 index value and two-thirds of the revised wage index value for that area. We fully implemented the revised wage index during the third year of the transition period,October 1, 1999 through September 30, 2000.

Payments to hospices under the wage index (as published in the August 8, 1997 final hospice wage index rule) are subject to a budget-neutrality adjustment to ensure that aggregate adjustments to payment using the new wage index, irrespective of other payment adjustments, are not greater than they would have been had the original 1983 wage index been applied. To achieve this budget neutrality, the hospice wage index is multiplied by a budget-neutrality factor. The budget-neutrality factor is computed and applied annually. The hospice budget-neutrality adjustment is not applied uniformly to all providers in calculating payments. Based on the methodology developed and signed by the negotiated rulemaking committee and adopted by CMS, a hospice's area wage index is adjusted using either the budget-neutrality factor or the hospice wage index floor described below.

Hospice wage index values of 0.8 or greater are multiplied by the budget-neutrality factor.

Hospice wage index values below 0.8 are adjusted by the greater of: (1) The hospice budget-neutrality factor; or (2) the hospice wage index floor (a 15 percent increase, subject to a maximum wage index value of 0.8).

The wage index is to be updated annually, in the Federal Register, based on the most current available hospital wage data. These data will include any changes to the definitions of Metropolitan Statistical Areas (MSAs). We acknowledge that on June 6, 2003, the Office of Management and Budget (OMB) issued an OMB Bulletin(No. 03-04) announcing revised definitions for MSAs, new definitions for Micropolitan Statistical Areas and Combined Statistical Areas, and guidance on using the statistical definitions. A copy of the Bulletin may be obtained at the following Internet address: http://www.whitehouse.gov/omb/bulletins/b03-04.html . These new definitions will not apply to the 2005 fiscal year (FY) wage index used in this Federal Register notice because we use the FY 2004 hospital wage index that does not reflect these revisions. The new definitions will be addressed in the FY 2006 wage index.

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 2005. Therefore, payment rates for FY 2005 will be updated according to section 1814(i)(1)(C)(ii)(VII) of the Act, which states that the update to the payment rates after 2002 will be the market basket percentage for the FY. Accordingly, the FY 2005 update to the payment rates will be the full market basket percentage increase for FY 2005. This rate update is implemented through a separate Recurring Update Notification published July 2004 and is not part of this notice. Historically, the rate update has been published through a separate program memorandum issued annually in July to provide adequate time to implement system change requirements. The wage index in this notice is applied to the labor portion of the rates published in the Recurring Update Notification in order for providers to determine their payment rates.

II. Provisions of the Notice

A. Update to the Hospice Wage Index

This annual update is effective October 1, 2004 through September 30, 2005. In accordance with the agreement we 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 2004 hospital wage index was the most current hospital wage data available when the FY 2005 wage index values were calculated. We used the pre-reclassified and pre-floor hospital area wage index data.

All wage index values are adjusted by a budget-neutrality factor of 1.065819 and are subject to the wage index floor adjustment, if applicable. We have completed all of the calculations described above and have included them in the wage index values reflected in both Tables A and B below. A detailed description of the method 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).

B. Tables

III. 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.

We also believe that good cause exists to waive notice and comment rulemaking because it is in the public interest to make this notice effective on October 1, 2004. The statute in 1814(i)(1)(C)(ii)(VII) of the Act requires annual updates to the hospice payment rates and wage indices. In addition, the Federal Regulations at 42 CFR 418.306(b)(2) and (c) require annual updates to hospice wage indices and require that such updates be effective for the FY, beginning on October 1. We do not have sufficient time to engage in notice and comment rulemaking before that date. Moreover, if we do not make this notice effective on the implementation date of October 1, 2004, the hospice agencies would be required to continue to use the previous 2004 FY wage index for the 2005 payment rates.

Therefore, for the reasons stated above, we find there is good cause to waive notice and comment procedures of the Administrative Procedure Act.

IV. 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. In this notice, we identified the impact on hospices as a result of updating the hospice wage index. The methodology for computing the wage index for FY 2005 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 that methodology. We believe these changes to be insignificant. As Table C below indicates, we estimate that the total hospice payments will increase from last year by 1.0 percent, or $60,113,000. We have compared estimated payments using the FY 1983 hospice wage index to estimated payments using the FY 2005 wage index and determined the current 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 2005 Wage Index will 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 will not increase since the budget neutrality applies only to the wage index portion and not the total payment rate, which accommodates inflation.

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 government agencies. Most hospitals 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 C below, there are 2,385 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.

As discussed below, rural hospices will receive an increase in payment that is greater than urban hospices. Overall rural hospices will receive an increase of 2.9 percent and urban hospices will receive an increase of 0.7 percent. All hospices, both urban and rural, will receive a 1.0 percent increase in payment representing an increase of $60,113,000. Urban hospices in East North Central and Puerto Rico regions will experience a decrease of 0.2 percent and 0.3 percent respectively. New England and Puerto Rico rural regions will also experience a decrease of 0.5 and 4.1 percent respectively. Of the urban hospices, the West South Central and Mountain regions will experience the greatest increase of 1.7 percent and 1.8 percent, respectively. The remaining urban regions will experience an increase in payment ranging from 0.3 percent in the Middle Atlantic region to a 0.9 percent increase in New England. Of the rural hospices, the East South Central and West North Central regions will experience the greatest increase of all hospices with 6.5 percent and 4.0 percent, respectively. The remaining rural hospices, with the exception of New England and Puerto Rico, will experience an increase in payment ranging from 1.0 percent for the Pacific region to 2.3 percent in the South Atlantic region. Puerto Rico will experience decreased payment in both its urban and rural areas. Overall, Puerto Rico rural hospices will receive the largest decrease of all hospices with a decrease of 4.1 percent. Most regions, however, will experience an increase in payment in both urban and rural regions. Therefore, based upon analysis of the wage index changes for FY 2005, the urban and rural Puerto Rico, urban East North Central and rural New England hospices will be most negatively impacted. The remaining urban and rural regions will be positively impacted. The payment decreases in certain areas indicate that this notice will have an impact on a small number of small entities. However, nationwide, hospices will receive an overall increase in estimated payments. We estimate that total hospice payments will increase by 1.0 percent, or $60,113,000. Rural hospices, with the exception of Puerto Rico and New England regions, will receive the largest increase in payments for FY 2005. We estimate that rural hospice payments overall will increase by $23,336,000. We believe the anomaly of Puerto Rico rural region, with the greatest decrease overall in payment, the rural East South Central region increase of 6.5 percent, and the rural West North Central region increase of 4.0 percent are attributable to hospital wages in these geographic areas.

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. 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. Using routine home care days as a proxy for size, our analysis indicates that the impact of the wage index update on small hospices (those that provide up to 1,754 days of routine home care) will experience a 10.2 percent increase. Rural Puerto Rico with 4 hospices and 150,000 routine care days will experience a decrease of 4.1 percent while rural East South Central with 111 hospices and 1,541,000 routine home care days, which represents the highest number of routine home days, will have an increase of 6.5 percent. Rural South Atlantic and East North Central, each with 139 hospices and 1,390 and 924,000 routine home care days, respectively, will experience an increase of 2.3 percent and 1.4 percent, respectively. Rural New England region with 27 hospices and the lowest number of routine home care days of 111,000 will experience a 0.5 percent decrease.

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; 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 it was adopted into regulation in the August 8, 1997 final rule. The committee also agreed that this was favorable for the hospice community, as well as for beneficiaries. In developing the process for updating the wage index in the 1997 final rule, we fully 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.

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 an 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 has no substantial effect on State, local or tribal governments or on the private sector. We have determined that this notice will not have a significant impact on the operations of a substantial number of small rural hospitals.

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 this notice will not have an impact on the rights, roles, and responsibilities of State, local, or tribal governments.

B. Anticipated Effects

We have compared estimated payments using the FY 1983 hospice wage index to estimated payments using the FY 2005 wage index and determined the current hospice wage index to be budget neutral. This impact analysis compares hospice payments using the FY 2004 hospice wage index to the estimated payments using the FY 2005 wage index. The data used in developing the quantitative analysis for this notice were obtained from the March 2004 update of the national claims history file of all bills submitted during FY 2003. We deleted bills from hospices that have since closed.

Table C below demonstrates the results of our analysis. In column 2 of Table C, 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 of Table C indicates payments that were made using the FY 2004 wage index. Column 4 of Table C is based on FY 2004 claims (for hospices in business during that time period) and estimates payments to be made to hospices using the FY 2005 wage index. The final column, which compares columns 3 and 4, shows the percent change in estimated hospice payments made based on the category of the hospice.

Table C categorizes hospices by various geographic and provider characteristics. The first row displays the results of the impact analysis 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 indicted that there are 1,469 hospices located in urban areas and 916 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 2003. 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.

The results of our analysis shows that the majority of hospices are in urban areas and provide the vast majority of routine home care days. However, rural hospices will receive a larger percent increase in payment of 2.9 percent in contrast to 0.7 percent for urban hospices.

The greatest increases in payment are for rural East South Central and West North Central regions with a 6.5 percent and 4.0 percent increase, respectively. Four regions will experience a decrease in payment with the greatest decrease in payment for rural Puerto Rico with a 4.1 percent decrease followed by rural New England, urban Puerto Rico, and urban East North Central regions with 0.5 percent, 0.3 percent, and 0.2 percent decreases, respectively. The remainder of the urban areas varies from an increase of 0.3 percent in the Middle Atlantic region to an increase of 1.8 percent in the Mountain region.

The breakdown by size indicates an increase of 10.2 percent in payment for hospices with routine home care days under 1,754 followed by a 4.5 percent increase in moderate size hospices with 1,754 to 4,373 days and an increase of 0.8 percent for large size hospitals.

Proprietary-owned hospices will experience the highest increase of 1.4 percent while voluntary owned hospices with the largest number of routine home care days will receive 0.8 percent increase in payment.

Freestanding agency based hospices with the highest number of routine home care days and with the largest number of hospice agencies will have the highest increase of a 1.1 percent payment increase. In contrast, skilled nursing facility based hospices will have an increase of 0.3 percent, which represents the lowest number of routine home care days.

C. Conclusion

Our impact analysis compared hospice payments by using the FY 2004 wage index to the estimated payments using the FY 2005 wage index. Through the analysis, we estimate that total hospice payments will increase from last year by 1.0 percent or by $60,113,000. Additionally, we compared estimated payments using the FY 1983 hospice wage index to estimated payments using the FY 2005 wage index and determined the current hospice wage index to be budget neutral, as required by the negotiated rulemaking committee. We have determined that this rule is not an economically significant rule under Executive Order 12866. Although we believe that this rule will not have a significant economic impact on a substantial number of small entities, we took any negative effects into consideration during the negotiated rulemaking process. We have determined that this notice will not have a significant impact on the operations of a substantial number of small rural hospitals. Finally, this notice will not have a consequential effect on State, local, or tribal governments.

OMB Review

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

Authority: Section 1814(i) of the Social Security Act (42 U.S.C. 1395f (i)(1))