[BPDÄ796ÄNC]

Medicare Program; Elimination of Additional Payments for Administrative and
General Costs of Hospital-Based Home Health Agencies

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final notice with comment period.

SUMMARY: In accordance with section 13564(b)(1) of the Omnibus Budget
Reconciliation Act of 1993, this final notice with comment period provides
that the payment add-on for the administrative and general costs of
hospital-based home health agencies (HHAs) is eliminated. This notice also
explains the effects of this provision on the methodology used in calculating
the HHA cost limits.

DATES: Effective date: The notice is effective for cost reporting periods
beginning on or after October 1, 1993.

Comment date: Written comments will be considered if we receive them at the
appropriate address, as provided below, and must be received by 5 p.m. on
March 7, 1994.

ADDRESSES: Mail comments (an original and three copies) to the following
address:

Health Care Financing Administration, Department of Health and Human Services,
Attention: BPDÄ796ÄNC, P.O. Box 7517, Baltimore, MD 21207Ä0517.

If you prefer, you may deliver your comments (an original and three copies) to
one of the following addresses:

Room 309ÄG, Hubert H. Humphrey Building, 200 Independence Ave. SW.,
Washington, DC 20201, or

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, MD
21207.

Because of staffing and resource limitations, we cannot accept comments by
facsimile (FAX) transmission. In commenting, please refer to file code
BPDÄ796ÄNC. Comments received timely will be available for public inspection
as they are received, generally beginning approximately 3 weeks after
publication of a document, in room 309ÄG of the Department's offices at 200
Independence Avenue SW., Washington, DC, on Monday through Friday of each week
from 8:30 a.m. to 5 p.m. (Phone: 202Ä690Ä7890).

Copies: To order copies of the Federal Register containing this document, send
your request to: New Orders, Superintendent of Documents, P.O. Box 371954,
Pittsburgh, PA 15250Ä7954. Specify the date of the issue requested and enclose
a check or money order payable to the Superintendent of Documents, or enclose
your Visa or Master Card number and expiration date. Credit card orders can
also be placed by calling the order desk at (202) 783Ä3238 or by faxing to
(202) 275Ä6802. The cost for each copy is $4.50. As an alternative, you may
view and photocopy the Federal Register document at most libraries designated
as U.S. Government Depository Libraries and at many other public and academic
libraries throughout the country that receive the Federal Register.

FOR FURTHER INFORMATION CONTACT: Michael Bussacca (410) 966Ä4602.

SUPPLEMENTARY INFORMATION:

I. Background

Section 1861(v)(1)(A) of the Social Security Act (the Act) authorizes the
Secretary to establish limits on allowable costs incurred by a provider of
services that may be paid under the Medicare program. These limits are based
on estimates of the costs necessary in the efficient delivery of needed health
services. Under this authority, we have maintained limits on HHA per-visit
costs since 1979. The limits may be applied to direct or indirect overall
costs or to the costs incurred for specific items or services furnished by the
provider. This statutory provision is implemented in the regulations at 42 CFR
413.30. Additional statutory provisions governing the limits are contained at
section 1861(v)(1)(L) of the Act. Section 1861(v)(1)(L)(i) specifies that for
cost reporting periods beginning after July 1, 1987, the cost limits are not
to exceed 112 percent of the mean of the labor-related and nonlabor per-visit
costs for freestanding HHAs. In addition, section 1861(v)(1)(L)(ii) of the Act
has required that an adjustment be made to the cost limits for the
administrative and general (A&G) costs of hospital-based agencies. The A&G
per-visit add-on for hospital-based HHAs has been applied since 1980.

We published a notice with comment period that appeared in the July 8, 1993
issue of the Federal Register (58 FR 36748) that set forth a revised schedule
of limits on HHA costs for cost reporting periods beginning on or after July
1, 1993. The limits were computed using actual cost per-visit data from cost
reporting periods ending on or after June 30, 1989 and before May 31, 1991,
and were adjusted by the latest estimates in the "market basket'' index to
reflect changes in the price of goods and services furnished by HHAs.

II. Provisions of This Final Notice With Comment Period

A. Elimination of the A&G Add-on

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA '93),
Public Law 103Ä66, was enacted. Section 13564(b) of OBRA '93 amended section
1861(v)(1)(L)(ii) of the Act to require that, effective for cost reporting
periods beginning on or after October 1, 1993, we no longer include a payment
adjustment for the administrative and general costs of hospital-based HHAs in
computing the HHA limits. Under this provision, hospital-based HHAs and
freestanding HHAs will be treated identically for payment purposes. Thus, in
computing a hospital-based HHA's cost limits for cost reporting periods
beginning on or after October 1, 1993, the A&G add-on amounts that were to
apply, as set forth in Table II of the July 8, 1993 notice (58 FR 36753), will
not be used. Other components of the July 8, 1993 notice, specifically the
per-visit limits in Table I, the wage indexes in Tables IIIa and IIIb, and the
cost reporting year adjustment factors in Table IV, will continue to be used
to compute the limits.

We note that section 13564(a) of OBRA '93 amended section 1861(v)(1)(L)(iii)
of the Act to provide that there be no changes in the per-visit cost limits
for home health services for cost reporting periods beginning on or after July
1, 1994, and before July 1, 1996. Since the effective date of that provision
is different from that of the elimination of the A&G add-on, we intend to
publish a separate notice in a future Federal Register to explain the effects
of the delay in the update. Again, the only change in the methodology for
computing the HHA cost limits that is effective for cost reporting periods
beginning on or after October 1, 1993 is the elimination of the A&G add-on for
hospital-based HHAs.

B. Computing the Cost Limit for a Hospital-Based HHA

The example below illustrates how an adjusted occupational therapy per-visit
cost limit is calculated for a hospital-based HHA in Dallas, Texas, with a
12-month cost reporting period beginning October 1, 1993. Because the A&G
add-on has been eliminated, this example is identical to the example contained
in our July 8, 1993 notice (58 FR 36752) of the calculation of a limit for a
free-standing HHA, with the exception of the application of a different cost
reporting period adjustment factor, as set forth in Table IV of that notice.
These factors are based on the month and year in which an HHA's cost reporting
period begins, and are used to account for inflation in costs that occurs
after the effective date of the latest schedule of HHA limits. Thus, in the
example below, the adjustment factor from Table IV of the July 8, 1993 notice
for an HHA with a cost reporting period beginning October 1, 1993 is applied.

To arrive at the adjusted limit, the HHA's intermediary first determines the
adjusted labor-related component by multiplying the labor-related component of
the limit by the appropriate wage index value, and then adjusts for budget
neutrality. The adjusted limit is the sum of the adjusted labor-related
component, plus the nonlabor component, plus other adjustments (if
applicable), multiplied by the applicable cost reporting period adjustment
factor.

Example: Calculation of an Adjusted Occupational Therapy Limit for a
Hospital-Based HHA in Dallas, Texas for a Cost Reporting Period Beginning
October 1, 1993 (using the appropriate tables from the July 8, 1993 schedule
of limits)

c2,L0,tp0,p0,8/9,g1,t1,i1,s20,10

   [col head 1]   [col head 1]

Labor Component (Table I) 	$76.27

Wage Index Value (Table III) 	x 0.9599
=====

Labor Portion 	$73.21

Special Labor Adjustment for Budget Neutrality 	x 1.027
=====

Adjusted Labor Portion 	$75.19

Nonlabor Component (Table I) 	+16.68

OSHA Adjustment 	+0.18
=====

	$92.05

Cost Reporting Period. Adjustment Factor (Table IV) 	x  1.0126
=====

Adjusted Occupational Therapy Limit 	$93.21

If an HHA uses a cost reporting period that is not 12 months in duration, a
special adjustment factor is calculated. This is necessary because inflation
projections are computed to the midpoint of the cost reporting period, and the
adjustment factors in Table IV are based on 12-month cost reporting periods.
For cost reporting periods other than 12 months, the calculation must be made
for the midpoint of the specific cost reporting period. In these cases, the
intermediary for the HHA obtains this adjustment factor from HCFA.

In the July 8, 1993 notice, we also set forth an example of a cost-limit
calculation with A&G add-on for a hospital-based HHA in State College,
Pennsylvania (58 FR 36754). That example, as well as any other references in
that document to the A&G add-on, are no longer applicable for cost reporting
periods beginning on or after October 1, 1993.

III. Impact Statement

Executive Order 12866 (E.O. 12866) requires us to prepare an analysis for any
rule that meets one of the E.O. 12866 criteria for a "significant regulatory
action''; that is, that may

  Have an annual effect on the economy of $100 million or more; or adversely
affect, in a material way, the economy, a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State, local,
or tribal governments or communities;

 Create a serious inconsistency or otherwise interfere with an action taken or
planned by another agency;

 Materially alter the budgetary impact of entitlements, grants, user fees, or
loan programs or the rights and obligations of recipients thereof; or

 Raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in E.O. 12866.

      In addition, for final notices such as this, we generally prepare a
regulatory flexibility analysis that is consistent with the Regulatory
Flexibility Act (RFA) (5 U.S.C. 601 through 612) unless the Secretary
certifies that this notice would not have a significant economic impact on a
substantial number of small entities. For purposes of the RFA, all HHAs are
treated as small entities.

This final notice with comment period announces the provisions of section
13564(b) of OBRA '93, which provides for the elimination of the A&G add-on for
hospital-based HHAs, effective for cost reporting periods beginning on or
after October 1, 1993. None of the provisions of this notice interprets or
extends requirements beyond those set forth in OBRA '93.

Section 13564(b) of OBRA '93 will result in significant Federal cost savings.
The impact of this provision is discussed further below. This notice explains
how the provision affects the methodology for calculating the HHA limits. We
do not believe that merely explaining the results of this provision in this
notice produces any effect that will meet any of the criteria of E.O. 12866
for a significant regulatory action or will have a significant effect on a
substantial number of small entities. Therefore, we have determined and the
Secretary certifies that neither an impact statement under E.O. 12866 nor a
regulatory flexibility analysis under the RFA are required.

To the extent that a legislative provision being announced by a notice such as
this may have a significant effect on beneficiaries or providers or may be
viewed as controversial, we believe that we should address any potential
concerns. In this instance, we believe it is desirable to inform the public of
our estimate of the substantial budgetary effect of this statutory change. We
estimate that the elimination of the add-on for hospital-based HHAs will
result in the following savings to the Medicare program:

c2,L2,i1,s20,9

Table 1. Impact of the Elimination of Hospital-Based Add-On*

 [col head 1] Fiscal year  [col head 1] Savings

1994 	$70

1995 	120

*All figures are rounded to the nearest $10 million.

We have attempted to examine the overall effects of this provision on
hospital-based HHAs. As illustrated in Table 2 below, we estimate that the
elimination of the A&G add-on for hospital-based HHAs will result in
substantial increases in the number of hospital-based HHAs that meet or exceed
the cost limits.

     c4,L2,i1,s20,9,9,9

Table 2. Hospital-Based HHAs At or Over the Cost Limits

 [col head 1]   [col head 1]  HHAs in Model [col head 1]  July 1993 [col head
1]  October 1993

Hospital-Based 	1599 	774 	1144

Urban 	780 	397 	596

Rural 	819 	377 	548

The model used for our analysis is based on data from 1,599 hospital-based
HHAs. In our July 8, 1993 notice, which used the same model, we estimated that
774 hospital-based HHA in the model would meet or exceed the HHA cost limits.
Thus, we believe that the proportion of hospital-based HHAs that will meet or
exceed the cost limits is likely to increase from approximately 48 percent
(774/1599) to 72 percent (1144/1599) as a result of the elimination of the A&G
add-on.

We are unable to identify the effects of this provision on individual
hospital-based home health agencies. However, we anticipate that overall FY
1994 Medicare payments for hospital-based HHAs will be approximately 6 percent
less than they would have been if the A&G add-on had not been eliminated. The
effects of this reduction on the total revenues of individual hospital-based
HHAs will depend on the HHA's ability to operate within the cost limits and on
the proportion of the HHA's revenues that come from the Medicare program.

Section 1102(b) of the Act requires the Secretary to prepare a regulatory
impact analysis if a final notice such as this may have a significant impact
on the operations of a substantial number of small rural hospitals. Such an
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 with fewer than 100 beds located outside of a Metropolitan
Statistical Area.

We have not prepared a rural impact statement since we have determined and the
Secretary certifies that this final notice will not have a significant
economic impact on the operations of a substantial number of small rural
hospitals.

IV. Other Required Information

A. Waiver of Proposed Notice and 30-Day Delay in the Effective Date

In adopting notices such as this, we ordinarily publish a proposed notice in
the Federal Register with a 60-day period for public comment as required under
section 1871(b)(1) of the Act. We also normally provide a delay of 30 days in
the effective date for documents such as this. However, we may waive these
procedures if we find good cause that prior notice and comment or a delay in
the effective date are impracticable, unnecessary, or contrary to the public
interest.

Section 13564(b)(1) of OBRA '93 amended section 1861(v)(1))(L)(ii) of the Act
to eliminate, effective for cost reporting periods beginning on or after
October 1, 1993, the adjustment to the HHA cost limits to recognize the
administrative and general costs of hospital-based HHAs. In conformance with
the clear direction of section 13564(b)(1) of OBRA '93, this notice announces
the elimination of the adjustment to the HHA cost limits to recognize the
administrative and general costs of hospital-based HHAs and explains the
effect that this action will have on methodology for calculating the cost
limits of hospital-based HHAs. We have made no changes in this methodology
beyond those directly required by section 13564(b)(1) of OBRA '93, nor are
there any other discretionary aspects to this notice. Moreover, section
13564(b)(2) of OBRA '93 mandates that these provisions are effective beginning
with cost reporting periods beginning on or after October 1, 1993. Thus, we
have concluded that in this instance, it would be impracticable, unnecessary,
and contrary to the public interest to publish a proposed notice or to provide
for a 30-day delay in the effective date of this notice. Therefore, we find
good cause to waive publication of a proposed notice and the 30-day delay in
effective date. However, we are providing a 60-day period for public comment,
as indicated at the beginning of this notice.

B. Paperwork Reduction Act

This final notice does not impose information collection 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 1980 (44 U.S.C.
3507).

C. Public Comments

Because of the large number of items of correspondence we normally receive on
a notice with comment period, we are not able to acknowledge or respond to
them individually. However, we will consider all comments concerning the
provisions of this notice that we receive by the date and time specified in
the "DATES'' section of this notice, and, if changes are made in another
notice, we will respond to these comments in that notice.

Authority: (Section 1861(v)(1)(L) of the Social Security Act (42 U.S.C.
1395x(v)(1)(L)); section 4207(d) of Pub. L. 101Ä508 (42 U.S.C. 1395x (note));
section 13564(b) of Pub. L. 103Ä66 (42 U.S.C. 1395x (note)).

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare Hospital
Insurance)

Dated: November 19, 1993.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: December 5, 1993.

Donna E. Shalala,

Secretary.

[FR Doc. 94Ä61 Filed 1Ä5Ä94; 8:45 am]

BILLING CODE 4120Ä01ÄP