Home Health & Hospice Week

Scaled-back cut won’t stave off access problems, industry reps warn.

A meager 0.8 percent reimbursement rate increase for home health services next year spells bad news for both home health agencies and their patients, even if it is a bit better than what was originally proposed.

Recap: In its 2024 home health payment proposed rule, the Centers for Medicare & Medicaid Services floated a 2.2 percent cut to home health payment rates in 2024 (see HHHW by AAPC, Vol. XXXII, No. 24-25). Industry representatives mounted a blistering public response, and the lion’s share of the 900 comment letters on the rule contained similar criticism (see HHHW by AAPC, Vol. XXXII, No. 34). The campaign resulted in members of Congress introducing legislation to avert the cuts and corresponding with CMS on the topic.

Now, in its final rule released late on Nov. 1, CMS scales back the cut. An “aggregate … 0.8 percent” increase “reflects the effects of the 3.0 percent home health payment update percentage ($525 million increase), an estimated 2.6 percent decrease that reflects the net effects of the finalized prospective permanent behavior assumption adjustment … ($455 million decrease), and an estimated 0.4 percent increase that reflects the effects of an update to the fixed-dollar loss ratio (FDL) used in determining outlier payments ($70 million increase),” the agency says in a fact sheet about the rule scheduled for publication in the Nov. 13 Federal Register.

Don’t be taken in by CMS’ math hocus pocus, warns Tom Threlkeld with the National Association for Home Care & Hospice. “There is still a significant rate cut, but there is a projected spending increase because of cost increases built into the payment rate,” Threlkeld explains. “Providers are still losing ground relative to the payment rates,” he stresses in a statement.

Background: In its 2023 rule, CMS proposed a 7.85 percent permanent rate adjustment based on the behavioral changes, CMS recounts in the 2024 final rule. It scaled that back to 3.925 percent in the 2023 final rule, but then proposed a 5.653 percent cut for 2024 to account for supposed further behavior changes. In this final rule, CMS updates that figure to 5.779 percent based on new data, and again halves the adjustment to 2.890 percent, the rule explains.

Cut For 2024 Only The Start

Industry reps have come out swinging against the cut, even if it is reduced from the original proposal.

“We continue to strenuously disagree with CMS’s rate setting actions, including the budget neutrality methodology that CMS employed to arrive at the rate adjustments,” NAHC President William Dombi says in a statement. “We recognize that CMS has reduced the proposed 2024 rate cut. However, overall spending on Medicare home health is down, 500,000 fewer patients are receiving care annually since 2018, patient referrals are being rejected more than 50 percent of the time … and providers have closed their doors or restricted service territory to reduce care costs. If the payment rate was truly excessive, we would not see these actions occurring,” Dombi insists.

“The fatally flawed payment methodology that CMS continues to insist on applying is having a direct and permanent effect on access to care. When you add in the impact of shortchanging home health agencies on an accurate cost inflation update of 5.2 percent over the last two years, the loss of care access is natural and foreseeable,” Dombi concludes.

“A nearly 3.0 percent permanent cut to Medicare payment rates will be devastating for our nonprofit, mission-driven members, who are committed to serving all beneficiaries, including the poorest and most underserved,” blasts LeadingAge President Katie Smith Sloan in a statement. “The impact of these reductions will be profound,” Smith Sloan warns.

The repeated cuts “further threaten access at a time when demand for care at home is increasing,” Smith Sloan continues. “While we recognize that CMS did not cut as much as they proposed, future payment reductions and clawbacks are a certainty under the agency’s interpretations of its current statutory obligations,” she says.

“Providers are already navigating well-documented challenges to recruit, hire and retain staff in a very tight labor market. Faced with additional cuts ... our mission-driven providers will be forced to limit their caseloads even further in order to ensure quality care,” Smith Sloan predicts.

CMS has “continued its policy of cuts, which have already had harmful impacts on the availability of care in the home for older Americans. This -2.89 percent cut for 2024 is on top of billions of dollars that have already been cut from Medicare home health,” The Partnership for Quality Home Healthcare CEO Joanne Cunningham says in a release.

The Partnership “is extremely disappointed” with the cut, it says. “CMS’s decision to only partially mitigate their proposed cut to home health will cause further harm to patient access and create financial instability that will make it harder to provide care in the home,” the lobbying group cautions.

In short: “A raise is better than a pay cut,” allows Cindy Krafft with K&K Health Care Solutions. But “there are still issues with how the whole ‘behavioral adjustment’ is being used,” Krafft tells AAPC.

“An increase in reimbursement certainly beats a decrease, but I’m still left with the conclusion that CMS continues to pay lip services to the importance and value of home health services,” says healthcare attorney Elizabeth Hogue. “CMS does not seem to comprehend the importance of an accessible home health industry in terms of managing the health needs of an increasing number of Americans, especially in view of the relative cost of home health services,” Hogue rues.

“I suppose we should be thankful CMS backed down from the large proposed cut, but the tiny increase sure doesn’t feel like a win,” laments attorney Robert Markette Jr. with Hall Render in Indianapolis. After years of reduced rate increases, “we are falling farther and farther behind,” Markette tells AAPC.

“For the typical home health agency, the financial reality is the increase in the rate doesn’t keep pace with its projected/ actual increased costs,” observes reimbursement expert M. Aaron Little with FORVIS in Springfield, Mo. “Agencies must continue to evaluate operations to identify opportunities for improved cost management,” Little advises.

And remember, straight-up rate differences are not all the matter in determining how the payment update will affect your agency. “The national standard payment rate in 2023 is currently $2,010.69 and will change to $2,038.13, which represents a 1.4 percent increase,” Little points out. “There are other payment factors to consider when estimating the potential financial impact to individual home health agencies,” he tells AAPC, including changes to:

• case mix weights,
• labor and nonlabor percentages,
• wage index adjustments,
• low utilization payment adjustment (LUPA) rates,
• functional impairment scoring, and
• comorbidity subgroupings.

With “all of the tweaks in so many areas [it] will take some time to understand the full financial impact,” observes FORVIS’ Angela Huff. “Agencies should continue to stay focused on efficiencies and cost containment,” Huff recommends.

Boost: The LUPA rates are not hit by the behavioral adjustment cut, so they go up by more than 3 percent, Little points out.

And the 2024 labor-related share is going down to 74.9 percent, compared to the current 76.1 percent, CMS notes in its fact sheet. That will mean higher reimbursement for providers in low wage index areas and the opposite for those in high wage index areas. “We are implementing the revised labor-related share in a budget-neutral manner,” CMS says.

“The changes in the wage-index adjustments and labor/ nonlabor percentages, in particular, could prove a substantial impact for individual agencies and should be considered when estimating potential overall financial impact,” Little advises.

Plus: CMS recalibrates both case mix weights and LUPA thresholds annually under PDGM.

CMS Bats Down Criticism

Many of the concerns voiced by industry reps were also laid out by commenters on the proposed rule, and CMS addresses some of them in its final rule discussion.

“We appreciate industry advocates’ dedication to ensuring continued access to home health services,” CMS says in the final rule. “We recognize there is always a level of concern that accompanies a payment rate decrease and we remind readers that, by law … we are required to ensure that estimated aggregate expenditures under the HH PPS are equal to our determination of estimated aggregate expenditures that otherwise would have been made under the HH PPS in the absence of the change to a 30-day unit of payment and changes in case-mix adjustment factors.” In other words, CMS must ensure budget neutrality.

“CMS looked closely at our data to ensure the payment rate adequately covers the costs reported by HHAs, without creating unnecessary hardship to providers and maintaining access to quality services for all beneficiaries,” the agency promises. “Maintaining access is one of CMS’s priorities when making policy decisions,” it claims.

CMS once again cites high HHA profit margins calculated from home health cost report data and reported by the Medicare Payment Advisory Commission as proof that “the cost of providing home health care remains, on average, below the base payment rate and that HHAs in general continue to experience high profit margins,” according to the rule.

“Medicare margins for freestanding agencies averaged 24.9 percent in 2021,” CMS says. That indicates “that the increase in 2021 far exceeded the increase in costs, which undermines commenters’ assertion that CMS’s modest (by comparison) cuts to the base rate in 2023 would exacerbate any problems with access to care,” the agency retorts.

CMS also stresses that Medicare rates are not meant to subsidize care for other payers and it “observed many method­ological weaknesses in the analyses submitted by commenters” showing referral rejection rates. “We are concerned by suggestions that the ‘referral rejections’ and perceived access to care issue that industry advocates have cited to us are in fact being caused by strategic behavior,” i.e., cherry picking profitable patients, the rule says.

“Given … that the home health payment exceeds the cost of providing care, we would expect that providers would not have to reject referrals because of inadequate payment,” CMS insists.

And CMS dismissed staffing concerns as a function of payment level. “Commenters did not submit any evidence that staffing shortages are due to changes in the payment rate or case-mix adjustment rather than the widespread staffing shortages that exist across the spectrum of healthcare, and in the general labor market,” the rule notes.

Note: The 531-page final rule is at https://public-inspection.federalregister.gov/2023-24455.pdf.