Home Health & Hospice Week

The home care industry's call to halt cuts for so-called case mix creep fell on deaf ears at CMS.

Medicare payment rates for home health agencies will fall 2.3 percent starting Jan. 1, the Centers for Medicare & Medicaid Services says in a 236-page final rule posted to the Federal Register website Oct. 31. The new base per episode rate will be $2,138.62 in non-rural areas and $2,202.68 in rural areas (see charts, p. 307, for NRS and per visit LUPA rates.) That's down from $2,192.07 and $2,257.83, respectively.

CMS calculated the cut by reducing the 2.4 percent inflation update by 1 percent as required by law, then adding on a 3.79 percent cut for case mix creep -- an increase in case mix that CMS says isn't due to actual changes in patient acuity. The cut will strip $430 million from Medicare spending on home care in 2012 compared to this year, CMS reports in the 2012 prospective payment system final rule.

The bright side: It could have been worse. In CMS's proposed rule for 2012, it set forth a 3.35 percent cut that would have slashed $640 million from spending (see Eli's HCW, Vol. XX, No. 25, p. 192). The change comes largely because CMS agreed to phase in the originally proposed 5.06 percent case mix reduction over two years -- a 3.79 percent cut in 2012 and 1.32 percent cut in 2013.

"The phase-in ... is definitely a positive change," notes the National Association for Home Care & Hospice. "Nevertheless, that does not turn a lemon into lemonade."

"While the two-year phase in of the cuts is helpful, it fails to address the core issue of unfairness that blunt-edge, broad-brush cuts represent," adds the Visiting Nurse Associations of America.

Because of accompanying changes to the case mix system, however, some HHAs will actuallysee payment increases while others will see steeper cuts. CMS has finalized its proposals to remove two hypertension codes from the case mix model (see related story, p. 308) and to recalibrate case mix weights to pay high-therapy episodes less and no- or low-therapy episodes more.

It's not just therapy utilization that saw changes in the case mix calculation, notes Jim Robinson with Boyd & Nicholas in Rohnert Park, Calif. Early (first or second) episodes that involve therapy up to 19 visits see pay increases, while third or later episodes of all therapy utilizations see decreases, Robinson points out.

Stats: CMS is reducing therapy payments by 5 percent for patients with 20+ visits and by 2.5 percent for patients with 14 to 19 visits, explains financial consultant Ken Hooper with HC Healthcare Consulting in Boise, Idaho. And CMS is increasing payments by 3.75 percent for patients with 0 to 5 visits, Hooper reports.

The therapy and coding case mix changes are budget neutral overall, but not for agencies that have a high concentration of high-therapy cases or patients with 401.1 and 401.9 diagnoses. "A provider-specific analysis using the provider's particular case mix is the only reliable way to assess impact," NAHC advises. Even then, agencies can make only a projection of their 2012 case mix.

Impact: Freestanding proprietary HHAs will see the biggest average drop in reimbursement next year at 3.51 percent, CMS predicts in the rule. Facility-based for-profits will see the next-biggest cut at 1.88 percent, CMS estimates. Freestanding government proprietaries will experience a 1.33 percent drop in Medicare reimbursement.

On the other hand, all other categories of HHAs will see modest increases in payments. Facility-based voluntary non-profits will see the biggest pay bump at an average of 0.87 percent, CMS forecasts in the final rule.

HHAs in the East South Central region are projected to see the biggest reimbursement drop at 4.78 percent. That region is comprised of Illinois, Indiana, Michigan, Ohio, and Wisconsin. Agencies in New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) are projected to see the biggest average increase at 1.37 percent.

The therapy changes are the biggest drivers of reimbursement increases and decreases, says financial consultant Pat Laff with Laff Associates in Hilton Head Island, S.C. And because the base episode rate is going down, the case mix redistribution "for some people will be very significant," Laff tells Eli.

For example: CMS projects freestanding for-profits to have the biggest drops, but Laff has one such client who has been in business for more than 20 years whom he expects will see a rate increase due to the case mix changes.

Members of the industry lodged numerous comments taking exception to the case mix creep cuts and the other changes to case mix. One common complaint was that CMS's case mix creep calculations are unsupported and penalize agencies for improving their diagnosis and OASIS coding. CMS dismisses those arguments.

Despite the agency's protests, it appears CMS's philosophy is "because you understand [coding] better, we're doing to hit you with a stick for it," laments attorney Robert Markette Jr. with Benesch Friedlander Coplan & Aronoff in Indianapolis. CMS pooh poohs commenters' claims that the cut for creep will put agencies into the red and out of business. The Medicare Payment Advisory Commission projects HHAs' average Medicare profit margin at 14.5 percent for 2011, CMS notes -- well more than the 2.3 percent cut for 2012. But CMS fails to mention the wide range of profit margins, with many agencies barely staying above the profit line on the low end of the spectrum.

CMS "continues to believe that both urban and rural providers are profitable and will remain so by continuing to improve coding accuracy, adjust care plans and costs to compensate for payment reductions," Hooper observes. Those "are questionable assumptions," Hooper tells Eli.

Do this: "Agencies should continue to monitor coding accuracy and completeness, since CMS has assumed that in the adjusted payment," Hooper advises. "Agencies with suboptimal coding practices will be at greater risk."

Under the cuts, agencies will feel pressure to monitor plans of care to achieve outcomes without overutilizing resources, Hooper predicts. "And, as always, to reduce administrative costs," he adds.

CMS also shoots down suggestions to target the rate cuts or substitute them with aggressive fraud-fighting or medical review as "not feasible," according to the rule.

Another common complaint was that CMS's case mix redistribution regarding therapy is arbitrary and based more on dollar figures than clinical factors. CMS defends its new policies, pointing out that its data shows Medicare is overpaying for episodes with 14 to 19 visits by $1,100 and 20+ visits by $1,500.

Markette expresses skepticism that those figures truly take all of an agency's costs in a high- therapy episode into account, especially intensive labor costs.

Analysis: At least the therapy case mix changes aren't quite as drastic as those proposed earlier this year. "The final rule seems to have softened the extreme changes from the proposed rule," Robinson notes. "Where the proposed rule decreased the case mix, the final rule has softened the loss and where the proposed rule increased the case mix, the final rule lessened the increase."

More changes ahead: CMS also repeatedly mentions that therapy assistants, especially for physical therapy, are used more now than when it formulated PPS in 2000. The agency plans to monitor data from the new billing G codes for therapists vs. assistants and will likely revise PPS in the future based on the results.

CMS will also be on the alert for therapy utilization changes following the new payment rule's Jan. 1 implementation date. "Based on observation of sharp changes in distribution of episodes by the number of therapy visits, on information coming to us about provider practices in the field, as well as on analysis of margins in HH PPS, an effect on the behavior of HHAs would not be surprising," the agency notes in the rule. CMS also cites the recent Senate Finance Committee report on publicly traded home care companies' therapy utilization and even the Wall Street Journal's articles on the matter.

As proposed, CMS is keeping the outlier fixed dollar loss ratio at 0.67 and loss sharing ratio at 0.80 percent, the rule confirms. After hitting a high of 6.59 percent in 2008, the outlier payment percentage for 2010 is on track to hit about 1.91 percent, CMS reports in the rule. CMS's goal is for outliers to not exceed 2.5 percent.

The 10 percent per-agency outlier cap seems to be doing the job at lowering the percentage of outliers, CMS notes. But that doesn't mean the agency will ease up. One commenter asked for an exception to the cap for special needs certified HHAs that serve high-cost patients with multiple clinical issues. "We do not have statutory authority to exempt any providers from the 10 percent outlier cap," CMS responds in the rule.