Home Health & Hospice Week

CMS considering numerous changes to payment system.

If you have a higher case mix, are larger, for-profit or rural, chances are you're faring better than your peers under the prospective payment system.

The Medicare Payment Advisory Commission found home health agencies with those characteristics also had higher profit margins in 2002, according to MedPAC's new report to Congress, "HHA Case Mix and Financial Performance."

But the relationships between those factors and agencies' profitability were not strong, MedPAC cautions. "Policymakers should neither make too much out of the relationship, nor dismiss it," the Commission says in the report.

The report "basically said that Congress asked them to study the wrong question" when it asked about case mix and profit margins, notes William Dombi, vice president for law with the National Association for Home Care & Hospice's Center for Health Care Law.

Since Congress asked for the study, it has become obvious that the problems with home health PPS are distributional, notes Bob Wardwell with the Visiting Nurse Associations of America. "The now five-year-old PPS system needs to be revised to better track the relative resources needed to care for patients," urges Wardwell, who designed the system as a former Centers for Medicare & Medicaid Services top official.

"The real problem is the weakness of the case mix adjuster," Dombi points out. "There is wide variation in service within most of the 80 case mix categories."

"MedPAC has already jumped on the bandwagon for changes to PPS to better distribute the dollars," Wardwell notes. MedPAC does so again in this report, calling for additional case mix-level research.

HHAs' 2002 profit margins point to the disparity in agencies' financial performance, with about a quarter of agencies recording margins of more than 30 percent and about a quarter with margins under 4 percent, according to the report.

Don't Overlook Traditional Business Elements

Researchers may be looking in vain for payment design reasons for profitability. There are more variables that go into profit margin that just PPS' set-up, notes consultant Mark Sharp with BKD in Springfield, MO.

"When Medicare implemented PPS for home health, it put HHAs in a traditional business environment where you have the opportunity to make or lose money," Sharp observes. "Just like some restaurants make a profit and some incur losses, you are likely to have some HHAs making a profit and some incurring losses."

A number of traditional business variables affect agencies' profitability, Sharp says. "Probably the number one variable is the effectiveness of the HHA's management team," he tells Eli.

Management teams that understand how OASIS scoring affects accurate PPS payments, control unnecessary utilization, stay in regulatory compliance and implement practices to achieve productivity goals, clinical outcomes and client and staff satisfaction contribute greatly to profitability, Sharp figures.

"No matter where the HHA is located, how big the HHA is or what type of organization the HHA is, it's the effectiveness of the management team that determines the profitability," Sharp concludes.

Expect PPS Proposal Next Year

CMS, its PPS contractor and the industry are already at work on future PPS changes, Wardwell notes. The Technical Expert Panel with representatives from all groups is set "to begin hammering out the first round of potential changes to the PPS," Wardwell tells Eli.

And CMS has floated its ideas for PPS changes, as noted in the MedPAC report. CMS is considering a cost adjuster for non-routine supplies, reducing payments for episodes after the first for long-stay patients, changing the therapy visit threshold, refining diagnosis groups and improving the OASIS tool.

CMS plans to propose PPS changes in the last half of 2006, MedPAC says. 

Note: MedPAC's report is at www.medpac.gov/publications/congressional_reports/Dec05_HHA_mandated_report.pdf.