Re: CMS-1198-NC--- Medicare Program; Update to the Prospective Payment System for Home Health Agencies for FY 2003 (67 Federal Register 43615), June 28, 2002

Liberty Place, Suite 700
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Friday, August 23rd 2002

Thomas A. Scully
Centers for Medicare & Medicaid Services
Room 443-G Hubert H. Humphrey Building
200 Independence Avenue
Washington, DC 20201

Dear Mr. Scully:

On behalf of our nearly 5,000 hospital, health system and other health care provider members, the American Hospital Association (AHA) is pleased to submit comments to the Centers for Medicare & Medicaid Services (CMS) on the FY 2003 update notice to the prospective payment system (PPS) for home health services.  Our members operate more than 2,400 home health agencies (HHA), caring for one-third of the Medicare beneficiaries who benefit from Medicare-covered home health care. 

The notice updates home health PPS rates, based on congressional mandates, for projected changes in the market basket, implements the 15 percent payment reduction (from projected Interim Payment System rates) and the 10 percent rural add-on payment, and updates wage indices based on the most recent available data.  The thresholds for determining outliers were not updated, however.  The net effect of this notice is a 4.9 percent reduction in the average home health agency’s Medicare payments for FY 2003. 

The AHA has two fundamental concerns about the update notice: lack of prior notice and comment period on CMS’ methodology used to calculate the 15 percent reduction, and lack of timely update to the outlier thresholds.

Lack of Prior Notice and Comment
The AHA believes that CMS should have published the methodology for the 15 percent reduction in a proposed rule with a comment period.  While the AHA recognizes that the 15 percent reduction is mandated by statute, the actual methodology employed by CMS contains numerous key assumptions.  CMS’ methodology employs judgments about cost behavior under the Interim Payment System (IPS) projected forward for several years after the IPS is no longer applicable.  These assumptions are necessary in order to develop a baseline for the application of the 15 percent reduction to the IPS cost limits.

At a minimum, those assumptions are subject to debate and should have been subjected to prior notice and comment.  We urge CMS to republish the methodology for public comment and provide more detailed information on the 15 percent reduction methodology to interested parties.

Lack of Update to the Outlier Thresholds
The update notice also does not contain a change lowering the outlier thresholds, despite indications that CMS is well aware that the outlier pool is only being partially expended.  The outlier thresholds should be lowered significantly, making it easier for HHAs to qualify for outlier payments.  Here’s why:

  • CMS shared data with the AHA and others on March 21, 2002 that clearly stated that only about 50 percent of the outlier pool was being expended, based on the first six months of PPS.  This indicates that CMS’ initial projections, probably made in 1999, resulted in the establishment of outlier thresholds that were too high and need to be adjusted to reflect the best available current projections.
  • The per visit rates used to impute costs in the outlier calculation are lowered by 4.9 percent as a result of the changes in the FY 2003 update notice.  This means that the average home health agency now has significantly lower “imputed” per visit costs. This makes it even harder for a given HHA to exceed the fixed loss threshold under the current outlier scheme and suggests that aggregate outlier payments will drop even lower.  (Actual agency costs per episode are imputed by multiplying the per visit payment rates by the actual number of visits during the 60-day episode of care.  If the per visit payment rates are lowered, imputed costs are lowered.)

Taken together, these two issues should result in a significant lowering of the outlier thresholds.  Since the base rates have already been lowered by five percent to reflect projected outlier spending at a five percent level, the failure to downward adjust the fixed loss threshold means that the outlier pool will continue to not be fully expended, resulting in a 2.5 percent ongoing loss of funds to HHAs.

The AHA is aware that Congress is considering several changes to the home health PPS, including the 15 percent reduction and the outlier pool calculation.  However, until those changes are made, CMS should stick with current law and existing precedent – including lowering of outlier thresholds as indicated by more recent and relevant data. 

Thank you for consideration of the above issues.  If you have any questions about these comments, please contact me or Don May, vice president for policy, at (202) 626-2356.


Rick Pollack
Executive Vice President


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