Home Health & Hospice Week

CMS sets 3.3 percent increase in latest PPS rate update.

You may see a big change to your Medicare reimbursement next year under full implementation of new wage index designations.

Core-Based Statistical Areas (CBSAs) will fully replace Metropolitan Statistical Areas (MSAs) as the wage index geographic unit starting Jan. 1, the Centers for Medicare & Medicaid Services says in its final rule on home health prospective payment system rates for 2007.

Last year, after proposing a full switch to CBSAs, CMS heeded industry outcry and agreed to use a 50 percent CBSA/50 percent MSA blended designation, points out Abilene, TX-based consultant Bobby Dusek.

Now under full CBSA implementation, "virtually all areas have a different index value from 2006," warns the National Association for Home Care & Hospice.

The final rule sets a 3.3 percent increase to home health agency payment rates in 2007, with a base payment rate of $2,339.00 (see chart, this page, for visit rates by discipline). But "because of the full implementation of the CBSAs, some agencies will see net losses of 5 percent and higher," notes consultant Judy Adams with LarsonAllen based in Charlotte, NC.

Example: Madera County, CA will see a nearly 15 percent cut in its wage index value, NAHC notes. Thirty-seven counties in Alaska will see their wage index drop more than 10 percent from 2006 levels.

On the other hand: San Benito County, CA will see an increase of more than 20 percent, NAHC notes.

"The wage index changes can more than wipe out the gains made through the inflation update or significantly increase them, depending on the agency's service areas," the trade group observes. "Each state seemingly has one or more locations where the change between 2006 and 2007 is greater than 10 percent."

Consultant Pat Laff with Laff Associates in Hilton Head, SC hopes subsequent years under CBSAs will bring more stability and consistency to the wage index system.

Hospital fairness: CMS once again shoots down the industry's request to allow wage index reclassification as it does for hospitals. Reclassification allows CMS to assign hospitals a higher wage index when they draw employees from a higher wage index area.

NAHC "has argued for parity in wage indices between home health agencies and hospitals, since these providers compete for the same health care personnel," it says. The association plans to lobby for congressional action on the issue.

Outlier Threshold Increases For First Time

To determine which patients are eligible for outlier payments, CMS uses a "fixed dollar loss" ratio that sets out how much agencies must lose before the outlier payments kick in. When PPS began, CMS set the FDL amount at 1.13, the agency notes in the rule. But after the outlier payment pool was underused, it set the threshold lower at 0.70 and then 0.65 last year. That means in 2006, an agency was supposed to absorb $1,513 in costs before qualifying for outlier payments that aim to cover 80 percent of their costs.

Now for the first time, CMS has increased the FDL ratio slightly, to 0.67. That means in 2007, agencies are supposed to eat $1,567 in losses before outlier payments kick in.

The slight change to the threshold should affect agencies very little, says Bob Wardwell with the Visiting Nurse Associations of America. The fact that the industry is getting the full 5 percent set aside for outliers when PPS was designed is good news, says Wardwell, who headed up PPS' design as a CMS official.

Rural Add-On Expires--Almost

The 5 percent add-on for agencies serving patients in rural areas will end Jan. 1, but actually HHAs still will benefit from the provision for a little while into 2007. In the Deficit Reduction Act of 2005, Congress worded the add-on provision so that it applies to episodes that begin in 2006. That means if an episode begins prior to Jan. 1 but ends some time in the new year, the add-on still applies.

"The episode start date is the crucial factor in the application of the add-on, in contrast to the use of the episode end date when determining the base episode or per-visit LUPA rate," NAHC advises. The rural add-on base rate is $2,445.95.

Providers Keep Wary Eye On Congress

HHAs might not want to get too comfortable with the new rates, since any payment increase could be subject to legislative change before or even after its implementation date, experts warn.

However, Democratic victories in the mid-term elections means such a change is less likely.

And more big PPS changes could be ahead when CMS issues its PPS refinement regulation in the next few months, Wardwell notes.

Note: The final rule is at www.cms.hhs.gov/HomeHealthPPS/downloads/CMS1304Fdisplay.pdf.