Home Health & Hospice Week

CMS sticks to its case mix adjustment guns.

A tweak to the inflation update means your episode base rate for 2013 will tick slightly downward instead of slightly upward starting in the new year, according to the home health prospective payment system final rule released Nov. 2.

In its proposed PPS rule back in July, the Centers for Medicare & Medicaid Services floated a base rate increase from the current $2,138.52 to $2,141.95 in 2013. Now CMS has finalized the base rate at $2,137.73, according to the final rule published in the Nov. 8 Federal Register. Episodes furnished to patients in rural CBSAs will have a 3 percent rural add-on, while agencies who fail to submit required CAHPS and OASIS data will be docked 2 percent.

CMS had estimated an inflation update of 2.5 percent for 2013, but more recent data showed an update of 2.3 percent, the agency says in the final rule. Then the Affordable Care Act mandates a 1 percent reduction to that market basket inflation update.

All in all, CMS expects home care spending to decrease by 0.01 percent in 2013, or $10 million. While the inflation update adds an estimated $260 million for next year, wage index updates ($70 million decrease), a new fixed dollar loss ratio for outliers ($50 million increase), and a negative 1.32 percent case-mix coding adjustment ($250 million decrease) will cancel that out, CMS calculates. The $10 million decrease is actually $10 million less than CMS had proposed in July, due to factors such as the outlier formula change.

Of course, individual agencies' payment rates will go up or down based on factors such as case mix and wage index adjustment.

Background: This slight decrease comes after two years of cuts -- a 2.3 percent reduction in 2012 and 5 percent in 2011. The two years before that saw only small rate increases at 1.75 percent in 2010 and 0.15 percent in 2009.

Providers hoping for big changes in the final rule were disappointed, notes financial consultant Tom Boyd with Boyd & Nicholas in Rohnert Park, Calif. The final rule was mostly consistent with the one proposed this summer.

The HH PPS base rate has increased just 1 percent since the payment system's start in 2000, commenters protested. Another commenter pointed out that home care spending increased just 1 percent from 2010 to 2011.

But CMS points to the 84 percent increase in overall home care spending during that time, from $10.1 billion to $18.6 billion. Yet, CMS says it is unable to target providers abusing the case mix coding system for penalties rather than imposing across-the-board cuts.

That's no surprise, says financial consultant Pat Laff with Laff Associates in Hilton Head Island, S.C. Pinpointing agencies for abusive upcoding would be difficult, and could discriminate against high-needs patients, Laff notes. Instead, you can expect to see contractors like RACs and ZPICs try to hone in on agencies gaming the system.

It Could Be Worse

As it said in the proposed rule, CMS reiterates that it could have made a larger case mix creep adjustment than the 1.32 percent cut it settled on. More recent data found a 2.18 percent increase due to so-called case mix creep.

In response to the proposed rule, commenters such as the National Association for Home Care & Hospice thanked CMS for holding back on the larger case mix creep cut due to other financial pressures such as face-to-face encounters and therapy reassessments. CMS makes clear in the proposed rule that it didn't take those factors into consideration. "Case-mix reductions are not intended [to] take into account the costs of regulatory burdens," the agency maintains. "The 1.32 percent payment reduction, rather than the full 2.18 percent reduction, was proposed ... not because of any potential additional costs associated with the face-to-face encounter and therapy assessment rules," CMS adds elsewhere in the final rule.

Revisions to PPS methodology in 2012, mostly related to therapy, may bring case mix averages back down, CMS predicts in the rule. That was one factor in the agency's decision to stick with its initial, lower case mix reduction figure.

Another factor: CMS is likely keeping the status quo in anticipation of the major PPS rebasing project that it plans to propose next year for 2014 implementation, Laff points out.

CMS spent many pages in the 298-page rule refuting the industry's varied arguments about why case mix inflation adjustments are not valid. In fact, you can expect to see CMS make more of them on an ongoing basis.

Watch out: "Analysis, to date, would seem to indicate a high likelihood of continued growth in nominal case-mix going forward," CMS insists. "As such, we will continue to monitor real and nominal case-mix change and make updates as appropriate."

Good News For Resource-Intensive Patients

In response to industry comments on outlier utilization, CMS has made a change to the outlier formula. Starting Jan. 1, Medicare now will use a fixed dollar loss ratio of 0.45, instead of 0.67, to calculate when outlier payments will kick in.

The change came about after CMS finally fixed its outlier claims processing problems earlier this year. "Analysis of corrected claims data and updated simulations using CY 2010 claims data show that outlier payments in 2013 are estimated to comprise approximately 2.18 percent of total HH PPS payments," CMS notes in the rule. "In order to pay up to, but no more than 2.5 percent of total HH PPS payments as outlier payments, the FDL ratio would need to be revised to 0.45 for CY 2013."

"Our new outlier policy for CY 2013 of using an FDL ratio of 0.45 and a loss-sharing ratio of 0.80 strikes an effective balance of compensating for high cost episodes while allowing more episodes to qualify for outlier payments," CMS believes.

The outlier change won't affect that many HHAs, however, Laff observes. For the vast majority, "it will have a minimal effect."

On the horizon: Don't forget that 2 percent across-the-board sequestration cuts may take place on top of the 2013 reduction, industry observers point out. And brace for major changes to PPS methodology when CMS releases its PPS rebasing proposal next year for 2014 implementation.

Note: The rule is at www.gpo.gov/fdsys/pkg/FR-2012-11-08/pdf/2012-26904.pdf.