MEMORANDUM

Date: May 6, 2015

Subject: Medicare Program; FY 2016 Hospice Wage Index and Payment Rate Update and Hospice

Quality Reporting Requirements (CMS-1629)

Overview of Proposed Rule

In April 2015, CMS released a proposed rule title, “Medicare Program; FY 2016 Hospice Wage Index and Payment Rate Update and Hospice Quality Reporting Requirements.” This proposed rule would update the hospice payment rates and the wage index for fiscal year (FY) 2016, including implementing the last year of the phase-out of the wage index budget neutrality adjustment factor (BNAF). CMS-1629 also proposes to differentiate payments for routine home care (RHC) based on the beneficiary’s length of stay and to implement a service intensity add-on (SIA) payment for services provided in the last 7 days of a beneficiary’s life, if certain criteria are met. The following summary is limited to sections that may be of interest to DMEPOS suppliers.

Summary

This PR is a result of the hospice payment reform research and analysis conducted over the past several years, some of which is described in the proposed rule and in various technical reports available on the CMS Hospice Center Webpage.[1] This PR proposes to create two different payment rates for RHC that would result in a higher base payment rate for the first 60 days of hospice care and a reduced base payment rate for days 61 or over of hospice care.[2] This PR also proposes SIA payment, in addition to the per diem rate for the RHC level of care, that would result in an add-on payment equal to the Continuous Home Care (CHC) hourly payment rate multiplied by the amount of direct patient care provided by a RN or social worker that occurred during the last 7 days of a beneficiary’s life, if certain criteria were met. In this rule, CMS proposes to update the hospice wage index using a 50/50 blend of the existing Core-Based Statistical Areas (CBSA) designations and the new CBSA designations outlined in a February 28, 2013, OMB bulletin. This rule implements the final year of the 7-year BNAF phase-out finalized in the FY 2010 Hospice Wage Index final rule (74 FR 39407). In addition, CMS proposed to update the hospice payment rates for FY 2016 by 1.8 percent.

Proposed Routine Home Care (RHC) Payment

RHC is the basic level of care under the Hospice benefit, where a beneficiary receives hospice care, but remains at home. With this level of care, hospice providers are currently reimbursed per day regardless of the volume or intensity of services provided to a beneficiary on any given day. However, there is evidence of a misalignment between the current RHC per diem payment rate and the cost of providing RHC. CMS proposal is to revise the current RHC per diem payment rate to more accurately align the per diem payments with visit intensity (that is, the cost of providing care for the clinical service (labor) components of the RHC rate). CMS is proposing, in conjunction with a SIA payment, two different RHC rates that would result in a higher base payment rate for the first 60 days of hospice care and a reduced base payment rate for days 61 or over of hospice care (See Table 22). The two proposed rates for RHC are based on an extensive body of research concerning visit intensity during a hospice episode. The research is shared in the original copy of the Proposed Rule.

CMS considers a hospice “episode” of care to be a hospice election period or series of election periods. Visit intensity is commonly measured in terms of wage-weighted minutes and reflects variation in the provision of care for the clinical service (labor) components of the RHC rate. The labor components of the RHC rate comprise nearly 70 percent of the RHC rate. Therefore, visit intensity is a close proxy for the reasonable cost of providing hospice care absent data on the non-labor components of the RHC rate, such as drugs and DME. Long episode patients are potentially more profitable than shorter episode patients under the current per diem payments system in which the payment rate is the same for the entire episode. At the same time, the percent of beneficiaries that enter hospice less than 7 days prior to death has remained relatively constant (approximately 30 percent) over this time period, meaning the increase in the average episode length can be attributed to an increasing number of long stay patients.

Proposed Service Intensity Add-on (SIA) Payment

Social Security Act (the Act) states that payment for hospice services must be equal to the costs which are reasonable and related to the cost of providing hospice care or which are based on such other tests of reasonableness as the Secretary may prescribe in regulations. Given that independent analyses demonstrate a U-shaped cost pattern across hospice episodes, CMS believes that implementing revisions to the payment system that align with this concept supports the requirements of reasonable cost in the Act.

In an independent study, CMS found that on any given day during the first 7 days of a hospice election and last 7 days of life, only about 50 percent of the times are visits being made. In CMS’ view, increasing payments at the beginning of a hospice election and at the end of life for days where visits are not occurring does not align with the requirements of reasonable cost articulated in statute of the Act. Therefore, as one of the first steps in addressing the observed misalignment between resource use and associated Medicare payments and in improving patient care through the promotion of skilled visits at end of life with minimal claims processing systems changes, CMS proposes to implement a SIA payment if the following criteria are met: ( 1) the day is billed as a RHC level of care day; (2) the day occurs during the last 7 days of life (and the beneficiary is discharged dead); (3) direct patient care is provided by a RN or a social worker (as defined by §418.114(c) and §418.114(b)(3), respectively ) that day; and (4) the service is not provided in a skilled nursing facility/nursing facility (SNF/NF). The proposed SIA payment would be equal to the CHC) hourly payment rate (the current FY 2015 CHC rate is $38.75 per hour), multiplied by the amount of direct patient care provided by a RN or social worker for up to 4 hours total, per day, as long as the four criteria listed above are met.

The proposed SIA payment would be paid in addition to the current per diem rate for the RHC level of care. Since this approach would be implemented within the current constructs of the hospice payment system, no major overhaul of the claims processing system or related claims/cost report forms would be required, minimizing burden for hospices as well as for Medicare. CMS needs to further assess whether the four levels of care and the current payment amounts, as well as the amounts after implementation of the SIA, will align with the actual cost of providing hospice services. Once additional data is available, CMS will continue to assess additional refinements that may inform more extensive policy and payment approaches, in accordance with the payment methodology reform required by the Affordable Care Act.

As required by the Act, any changes to the hospice payment system must be made in a budget neutral manner in the first year of implementation. Based on the desire to improve patient care through the promotion of skilled visits at end of life, regardless of the patient’s lifetime length of stay, CMS is proposing to make the SIA payments budget neutral through a reduction to the overall RHC rate. CMS also proposes to continue to make the SIA payments budget neutral through an annual determination of the SIA payments budget neutrality factor (SBNF), which will then be applied to the RHC payment rate. The SBNF for the SIA payments would be calculated for each FY using the most current and complete fiscal year utilization data available at the time of rulemaking.

Proposed FY 2016 Hospice Wage Index and Rate Update

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 based on the location where services are furnished. Our regulations at §418.306(c) require each labor market to be established using the most current hospital wage data available, including any changes made by OMB to the Metropolitan Statistical Areas (MSAs) definitions. For FY 2016, the hospice wage index will be based on the FY 2015 hospital prefloor, pre-reclassified wage index. The appropriate wage index value is applied to the labor portion of the payment rate based on the geographic area in which the beneficiary resides when receiving RHC or CHC. In the FY 2006 Hospice Wage Index final rule (70 FR 45130), CMS adopted the changes discussed in the OMB Bulletin No. 03-04 (June 6, 2003). This bulletin announced revised definitions for MSAs and the creation of micropolitan statistical areas and combined statistical areas.[3]

In adopting the CBSA geographic designations for FY 2006, CMS provided for a 1-year transition with a blended wage index for all providers.

Elimination of the Wage Index Budget Neutrality Factor (BNAF)

This proposed rule would update the hospice wage index values for FY 2016 using the FY 2015 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 were 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, prereclassified hospital wage index values below 0.8 were adjusted by either: (1) the hospice BNAF; or (2) the hospice floor – a 15 percent increase subject to a maximum wage index value of 0.8; whichever results in the greater value.

Transition Period

CMS is proposing to implement a 1-year transition to the new OMB delineations. Specifically, to apply a blended wage index for one year (FY 2016) for all geographic areas that would consist of a 50/50 blend of the wage index values using OMB's old area delineations and the wage index values using OMB's new area delineations. That is, for each county, a blended wage index would be calculated equal to 50 percent of the FY 2016 wage index using the old labor market area delineation and 50 percent of the FY 2016 wage index using the new labor market area delineation. This results in an average of the two values. CMS refers to this blended wage index as the FY 2016 hospice transition wage index.

Proposed FY 2016 Hospice Payment Rates

There are four payment categories that are distinguished by the location and intensity of the services provided. The base payments are adjusted for geographic differences in wages by multiplying the labor share, which varies by category, of each base rate by the applicable hospice wage index. A hospice is paid the RHC rate for each day the beneficiary is enrolled in hospice, unless the hospice provides continuous home care, IRC, or general inpatient care. CHC is provided during a period of patient crisis to maintain the patient at home; IRC is short-term care to allow the usual caregiver to rest; and GIP is to treat symptoms that cannot be managed in another setting.

As discussed earlier of this proposed rule summary, CMS is proposing two different RHC payment rates, one RHC rate for the first 60 days and a second RHC rate for days 60 and beyond. As discussed, CMS is proposing to make a SIA payment, in addition to the daily RHC payment, when direct patient care is provided by a RN or social worker during the last 7 days of the patient’s life. The SIA payment would be equal to the CHC hourly rate multiplied by the hours of nursing or social work provided (up to 4 hours total) that occurred on the day of service. The SIA payment would also be adjusted by the appropriate wage index. In order to maintain budget neutrality, as required under the Act, for the proposed SIA payment, the proposed RHC rates would need to be adjusted by a budget neutrality factor. The budget neutrality adjustment that would apply to days 1 through 60 is equal to 1 minus the ratio of SIA payments for days 1 through 60 to the total payments for days 1 through 60 and is calculated to be 0.9853. The budget neutrality adjustment that would apply to days 61 and beyond is equal to 1 minus the ratio of SIA payments for days 61 and beyond to the total payments for days 61 and beyond and is calculated to be 0.9967. Lastly, the RHC rates would be increased by the proposed FY 2016 hospice payment update percentage of 1.8 percent. The proposed FY 2016 RHC rates are shown in Table 22. The proposed FY 2016 payment rates for CHC, IRC, and GIP would be the FY 2015 payment rates increased by 1.8 percent. The proposed rates for these three levels of care are shown in Table23. The proposed FY 2016 rates for hospices that do not submit the required quality data are shown in Tables 24 and 25. The proposed FY 2016 hospice payment rates would be effective for care and services furnished on or after October 1, 2015, through September 30, 2016.