Home Health & Hospice Week

Are the published 2006 rates here to stay?

Don't get too comfortable with the recently issued 2006 Medicare payment rates for home health agencies--Congress could wipe out the increase in the blink of an eye.

The Centers for Medicare & Medicaid Services issued the new HHA base rate of $2,327.68 and new per-visit rates (see chart, contained within this article). That's a 2.8 percent increase over 2005 rates, according to the 2006 PPS update final rule (see Eli's HCW, Vol. XIV, No. 39).

The final 2006 episode rate is up nearly $7 from the proposed rate CMS issued in July, but the increase isn't exactly motivating HHAs to dance in the streets. For an agency with 1,000 episodes annually, the bump up represents a mere $7,000 increase compared to total revenues of $1.8 to $2.5 million, estimates Abilene, TX-based consultant Bobby Dusek.

"Nobody's going back to the drawing board to figure out how to spend that money," Dusek tells Eli.

The 2006 update comes at a time when many rural HHAs are struggling without the 5 percent rural add-on that ended in March, notes consultant Jim Hamilton with David-James in Baltimore, MD.

Nevertheless, "every little bit helps," points out consultant Melinda Gaboury with Nashville, TN-based Healthcare Provider Solutions.

And "this is the type of increase that keeps giving," notes consultant Mark Sharp with BKD in Springfield, MO. "It establishes a higher base for future year increases."

The difference between the proposed and final rates equals $40 million in 2006 alone, the National Asociation for Home Care & Hospice says. The total increase from 2005 to 2006 is $370 million, NAHC adds.

Congress still deliberating: The final PPS rates might not be as final as HHAs would like, experts warn. The Senate and House budget packages so far haven't included home care cuts.

But home care is still ripe for congressional budget trimming, especially if lawmakers bow to pressure to increase physician payment rates that are scheduled for a 4.4 percent cut in 2006. "Everybody perceives home care as very profitable," Dusek laments.

Eleventh hour: HHAs may find out only right before the new rates' implementation date that they aren't coming through after all, Dusek worries.

Check out these additional highlights from the 2006 PPS final rule:

Rising Gas Prices Ignored, HHAs Protest

One of the 35 commenters on the proposed rule asked CMS to consider cost increases, especially increasing fuel expenses, in its market basket index inflation update. High gas prices impact home care providers more than other facility health care providers such as hospitals, the commenter maintained.

But CMS says the MBI methodology, which bases the inflation update on 2000 data, "reflect[s] the price changes of fuel," according to the final rule published in the Nov. 9 Federal Register.

Experts roundly agree, however, that the MBI does not account for the tremendous gas price spikes that have hit HHAs hard this year. No one thinks "the PPS rates could have possibly taken into account the higher costs of gas prices, since much of the spike occurred in September," Hamilton insists.

"It's clearly a dodge to say the MB includes gas inflation," declares Bob Wardwell with the Visiting Nurse Associations of America. "The MB lags inflation so it does not respond either quickly or completely," says Wardwell, a former top CMS official who was the architect of PPS.

Part of the increase from a 2.5 to a 2.8 percent update for 2006 is due to CMS using more current cost and pricing data, NAHC notes. "NAHC had encouraged this, particularly relating to data on transportation costs," the association says.

But the $7 per episode will hardly make a dent in agencies' transportation costs, experts agree.

Agencies may never get their full due for high fuel costs, because what they report on their cost reports is only how much they reimburse employees for travel, Dusek notes. Many agencies aren't paying employees for the full cost increase of their gas or even up to the Internal Revenue Service's new mileage rate of 48.5 cents per mile (see Eli's HCW, Vol. XIV, No. 33).

Transition Helps With Steep Wage Index Drops

Instead of going completely to the new Core-Based Statistical Area (CBSA) wage index designations Jan. 1, the final rule sets out a one-year transition from the old Metropolitan Statistical Areas to the new CBSAs. In 2006, agencies will have their wage index set on 50 percent of the old MSA and 50 percent of the new CBSA, CMS says.

The wage index transition is better than a straight-out conversion. "This one-year transition will allow HHAs a full year to plan for the full impact of the conversion," Sharp observes.

The one-year blend will help agencies that are seeing their indices drop precipitously under the CBSA system, notes Vern Peterschmidt with Peterschmidt & Associates in Albuquerque, NM. For example, HHAs serving patients in Los Alamos, NM will go from a Santa Fe CBSA index of 1.09 to a rural CBSA index of 0.85, Peterschmidt says. "Los Alamos is in the same nursing pool as Santa Fe," he laments.

Some HHAs in Texas are seeing 13 percent drops in their wage index as they transition to CBSAs, Dusek adds.

Many agencies have a hard time absorbing such swings because of their low profit margins, Hamilton contends.

Hospitals Get Better Wage Index Deal Than HHAs

While CMS did grant the transition concession, it could have done a lot more, industry proponents argue. "CMS was not as generous to HHAs ... as it was with hospitals in their conversion to CBSAs a year ago," Sharp chides.

For one, hospitals received a hold harmless provision, Sharp says. Under the clause, only losers had to take the 50-50, MSA-CBSA blend. Winners got the full benefit of the CBSA conversion in year one without a transition period.

And hospitals that went from an urban to rural designation received a three-year transition if negatively impacted by the conversion, Sharp points out. "It would have been nice if HHAs could have received the same transition provisions as the hospitals," he tells Eli.

"Both hospices and home health deserved a longer transition for reduced areas," argues Wardwell. That's because home care providers "are so dependent on Medicare funding as compared to other providers."

Watch out: HHAs should be prepared for possible billing problems when it comes to the new blended areas. As hospices have already found, figuring out which code applies to your patients can be confusing, Dusek warns (see Eli's HCW, Vol. XIV, No. 36).

And if HHAs' experience is like hospices', some claims systems won't be prepared to handle the new wage index codes, Dusek says.

CMS Denies Wage Index Reclassification to HHAs

CMS also favors hospitals on the issue of wage index reclassification. CMS allows hospitals to appeal for wage index changes to higher areas, but not agencies. "The statute does not provide authority to allow HHAs to apply for geographic reclassification," the agency insists in the final rule.

CMS could find a way around regulatory strictures if it wanted to, experts insist. "CMS has authority to bring us to parity with reclassified hospitals, even if it lacks authority in the strictest sense to allow us to reclassify," Wardwell tells Eli.

Recruitment & retention hurdle: "Agencies are in the same labor pool as hospitals," Peterschmidt protests. "We should have the same opportunity as hospitals to request wage index reclassifications."

"Not allowing HHAs to obtain wage index reclassifications makes it an uneven playing field with hospitals that compete for the same staff," Sharp agrees.

HHAs shouldn't be surprised that CMS is holding the line on the reclassification issue. "There is still a mindset that HHA Medicare payment rates are more than adequate," so wage index changes are unnecessary, Sharp believes.

And reclassification could be a huge headache because a single HHA often serves patients in a number of wage index areas and therefore could need multiple reclassifications, Dusek predicts.

Take action: But "agencies should continue to demand wage index reclassification by CMS, regardless of the agency's position," Hamilton urges.

Industry representatives say they will continue lobbying for a change to this reclassification rule and an overhaul of the wage index in general.

Outliers Still Losers Under New FDL

To reach the benchmark of 5 percent for outlier payments under PPS, CMS has made it easier to exceed the threshold after which outlier payments kick in.

CMS has reduced the Fixed Dollar Loss ratio from 0.70 to 0.65 in 2006, which means agencies must absorb $1,513 in costs before qualifying for outlier payments that aim to cover 80 percent of their costs.

The FDL ratio change "will allow for more episodes to qualify for an outlier," Gaboury notes. "And the payment will be higher for those that already did."

But the modest improvement still won't make outliers attractive for most agencies. "Outliers will still be a financial drain," Peterschmidt judges. That's especially true for patients needing costly wound care supplies, Gaboury says.

Outlier success: HHAs have had some success with certain outlier patients, however. "BID diabetic insulin injection patients have proven to be a bit more beneficial" for some providers, Gaboury relates. That's "due to the lesser amount of time spent on each visit and the fact that you don't have to give them supplies."

Some agencies that specialize in outlier patients have been able to do so profitably, Dusek concurs. That's because the FDL ratio and 80 percent outlier share are based on Medicare's per-visit costs instead of an agency's actual costs, he explains. If an agency's costs run well below the LUPA rates, it can make gains under the outlier formula.

But most agencies won't be able to achieve those super-low costs, Dusek judges.

Note: To receive a copy of the PPS Update final rule in pdf format, email Executive Editor Rebecca Johnson at rebeccaj@eliresearch.com with "PPS Final Rule" in the subject line.