Home Health & Hospice Week

$350 million spending cut will decimate home health agencies.

A double whammy of reimbursement reductions in the 2016 HH PPS proposed rule are poised to drive small, rural and safety net home health agencies out of business. So warned a chorus of commenters on the 2016 home health prospective payment system proposed rule published in the July 10 Federal Register.

Recap: The Centers for Medicare & Medicaid Services proposes a rebasing reduction of 2.5 percent, the third in a four-year series of rebasing cuts. CMS also proposes a case mix creep adjustment of 1.72 percent for 2016 (with an estimated 1.6 percent impact). An Affordable Care Act requirement reduces the 2.9 percent inflation update by 0.6, resulting in only a 2.3 percent update. The end result: Proposed rates decreasing by 1.8 percent, CMS details in the rule. That will lead to a $350 million cut to Medicare payments next year, the agency estimates (see Eli’s HCW, Vol. XXIV, No. 24 for proposed per visit rates and more details).

In its comment letter on the rule, the Medicare Payment Advisory Commission praised CMS for proposing the cuts, and even suggested that the agency should go further. “The reductions are too small,” MedPAC said. In the rule, CMS notes that it actually estimated that the rebasing cut should be more like 5 percent, but it is limited by law to impose only the 2.5 percent reduction it has proposed. “Existing reductions are not sufficient to bring Medicare payments in line with agencies’ actual costs of providing care,” MedPAC maintained.

MedPAC estimated that HHAs will average a 10.3 percent profit margin this year, and contends that rebasing’s impact is “modest.” In fact, HHA margins “suggest an opportunity to rebase further,” the advisory body to Congress says in its letter.

The Commission does acknowledge that the number of agencies dropped by 1.6 percent in 2014. But that’s fine, MedPAC argued. The drops “do not reflect an access problem attributable to rebasing.”

Most of the agency closures occurred in the overcrowded states of Florida and Texas and so should not impact access. The closures “come after many years of rapid expansion,” it said. They also may be partly due to moratoria in those areas.

MedPAC also admitted that the number of home health episodes fell by 3.8 percent in 2015. But a lot of that decline was in high-utilization states, the Commission said. Face-to-face visit requirements may have contributed to the drop, it suggested.

Bottom line: The reductions should “not imperil access or quality,” MedPAC judged.

Case Mix Creep Data Seriously Flawed

HHAs tried to fight the rebasing cuts when CMS first proposed them in 2013 for 2014 rates, but failed (see Eli’s HCW, Vol. XXII, No. 34 and No. 42). Then the industry tried to secure legislative relief from the cuts, without success. Now most providers seem to have accepted that the ship has sailed on getting rid of the rebasing reductions.

However, HHAs are not taking the additional cuts for so-called case mix creep lying down. Commenters on the proposed rule attacked the case mix adjustments on multiple fronts:

• Margins. “Medicare margins at current rates are forecast to be negative in 2017, and overall margins are even worse,” contended Catherine Gill of Missouri in her comment letter.

“In its CY 2014 HHPPS rulemaking, CMS estimated that 43 percent of all HHAs would face negative Medicare margins … by 2017 with the impact of rate rebasing starting in 2014 and the application of the annual Productivity Adjustment starting in 2015,” the National Association for Home Care & Hospice reminded the agency in its comment letter. “A recent analysis by NAHC indicates that the percentage of such-impacted HHAs is now forecast at 53.71 percent by 2017 with the addition of the case mix weight adjustment proposed by CMS.” Some agencies “that are the sole homecare providers in their communities are facing doubledigit negative margins,” pointed out the Visiting Nurse Associations of America in its letter.

“I strongly disagree with MedPAC’s opinion that the home health margins will likely remain high despite the 2 percent cut in reimbursement,” physical therapist John M. DiCapo from Illinois said in his comment letter. “A 2 percent cut drives margins to near zero. These margins are not sustainable.”

Other costs: CMS and MedPAC also fail to take in a bevy of increased costs for agencies, commenters offered. The Department of Labor’s elimination of the companionship exemption, ICD-10 implementation, face-to-face compliance, IT, joint replacement bundling, Value-Based Purchasing and increased staffing costs were just a few areas of increased expense that commenters cited.

• Outdated data. The case mix creep cut “is based upon an outdated analysis from CY2000 through CY2010,” charges Elizabeth Wessel of California in her comment letter. “CMS did not update its analysis with specific consideration of any of the data from 2012-2014.” The result: “The level of ‘real’ case mix change in 2012-2014 is different than the percentage applied by CMS in its proposal,” Wessel said.

“CMS has not considered the range of policy changes during this [2012-2014] time frame, as well as changes in patient populations, market structures and advances in medicine,” insisted Washington-based Providence Health & Services, a nonprofit Catholic health system on the West Coast, in its comment letter.

“CMS has recalibrated the case mix adjustment model several times along with rate rebasing, thereby eliminating the effect of any impact from or relevance of previous ‘nominal’ changes in case mix weights,” NAHC maintained in its letter. “In 2012, CMS adjusted case mix weights by modifying the impact of therapy utilization and eliminating certain hypertension diagnostic codes from the HHRG scoring system. In 2014, CMS imposed ICD-9 coding adjustments that had the effect of reducing home health spending that year by $100 million. In addition, CMS reset the average case mix weight to 1.000. Finally, in 2015, CMS completely restructured the case mix adjustment model, recalibrating all 153 case mix categories and significantly modifying the variable considered in the case mix weighting.”

“It does not make sense to make changes based on out dated information,” said AllPro Home Health in Florida in its letter. “It’s only fair to use the most current information available.”

• Increased acuity. CMS maintains that most of the case mix increase is due to upcoding, not to real changes in patient conditions. But providers argue that’s not the case.

Quicker and sicker: Hospital length of stay is declining. The average hospital LOS has decreased from 5.7 days in 2005 to 5.4 days in 2010 to 5.3 days in 2012, NAHC noted.

“On the whole HHAs’ patient case mixes have increased over time and HHAs are treating more high-need patients than they have in the past,” said Trinity Health in Livonia, Mich., in its comment letter. “HHAs’ case mix codes reflect these changing health service needs and patient clinical characteristics,” not upcoding, maintained the Catholic health system that operates in seven states.

Other factors leading to higher acuity in patients are an increase in Medicare Advantage enrolment (leading to older, more frail patients left in fee for service Medicare); an increase in the number of home health episodes with preceding hospital stays; and an increase in the number of hip and knee replacements performed, added NAHC.

• Decreased spending. If HHAs were gaming the case mix system with upcoding, then home health spending would increase too, Providence reasoned in its letter. Instead, Medicare spending on home health decreased from 2012 to 2014.
• Faulty measuring stick. CMS’s case mix creep calculations are marred by the data it uses as its base period, argued Main Line Health Home- Care & Hospice. “We strongly disagree with the ‘starting point’ used … to measure any ‘case mix creep,’” said the agency in Radnor, Penn. For 2008, CMS reached back to 1999 claims data for the base period. “The data used was never collected on the episodic basis of payment mandated by the HH-PPS, nor was the submitted data made using the OASIS,” the agency contended in its letter. CMS instead should use either 2002 or 2003 data to determine any base period.

Why? “In the first couple of years of the HH-PPS reimbursement regimen, many industry participants were struggling to come to grips with this new methodology requiring submission of assessment data and plans of care for sixty-day episodes of care. Yet, in performing a rebasing for 2008, CMS elected a time period to establish as a base period one which contained no home health agency data collected from an assessment standpoint for sixty-day episode of care, nor a single payment based upon episodic care,” Main Line told CMS. “In effect, CMS has held the home health agencies captive to ‘case-mix creep’ based on a wholly unjustified base period.”

• Undermining congressional intent. In the Affordable Care Act, Congress limited CMS to reducing HHA payments by a maximum of 3.5 percent per year, equal to $80.95. “In the proposed rule, CMS indicates that the limits placed on it by Congress do not authorize the agency to make a sufficiently large adjustment based on its analysis,”  VNAA noted. “Subsequently, CMS proposed to implement an additional ‘nominal case mix weight’ cut based on a subset of the same factors used to determine the rebasing adjustment. In other words, CMS seeks to reduce home health payment rates by an amount greater than what is allowed by Congress and is doing so through a cut of another name. We strongly object to this approach.”

Bottom line: Implementing case mix creep cuts on top of rebasing will lead to an array of negative consequences for HHAs, their patients and the Medicare program, the commenters emphasized (see story, this page). “CMS’s adjustment is both premature and speculative,” VNAA criticized.

Note: See the proposed rule at www.gpo.gov/fdsys/pkg/FR-2015-07-10/pdf/2015-16790.pdf.