Home Health & Hospice Week

CMS to knock 3.5 percent off payment rates for next 4 years.

 It’s time to tighten your budget belt yet again — but many home health agencies are already on a starvation diet.

The Centers for Medicare & Medicaid Services wants to reduce Medicare home health prospective payment system rates by 3.5 percent for the next four years under its PPS rebasing project. In just 2014, that would strip $650 million from the program’s HHA spending, CMS estimates in the 2014 HH PPS proposed rule published in the July 3 Federal Register. The rebasing reductions will total 14 percent over four years..

CMS does allow for a full 2.4 percent market basket inflation update next year, which will help to offset the reduction. Combined with other provisions in the rule, HHAs will see a 1.5 percent overall cut to their payment rates next year, CMS says.

That equals a $290 million reduction this year, notes financial services firm Dixon Health-care Solutions on its website. "But the future impact will be much worse," warns the Palm Bay, Fla.-based firm.

The calendar year 2014 base rate will be $2,860.20 if the proposal is finalized as is ($2,946.01 in rural areas). That’s up a significant amount from the current $2,137.73. But don’t get too excited — CMS also wants to slash all case mix weights so that the average weight of 1.3517 is now 1.00, the agency says in the proposed rule.

For example: The C1F1S1 category would go from a current 0.8186 weight to a 0.6056 weight starting Jan. 1, according to the rule that contains a chart of all the revised weights for the 153 case mix categories under HH PPS.

"When the HH PPS was created, we expected that the average case-mix weight would be around 1.00, but … it has consistently been above 1.00 since the start of the HH PPS," CMS notes in the rule. "Therefore, as part of rebasing, for CY 2014, we propose to reset the average case-mix weight to 1.00."

In addition to not reducing the inflation update, CMS also does not include a cut for so-called "coding creep" this year. However, the creep is probably figured into the case mix re-weighting, says financial expert Dave Macke with Von-Lehman in Fort Mitchell, Ky.

Agencies Shoulder Unreimbursed Costs Like F2F

 This year’s PPS adjustment "is a staggering cut, especially in light of the cuts home health has undergone each of the last few years," says attorney Robert Markette Jr. with Hall Render in India-napolis. Providers must face "the likelihood that it will be at least four years before rates may rise."

 The Visiting Nurse Associations of Ameri-ca "is concerned by the deep level of cuts as a result of rebasing," the trade group says in a summary of the rule. VNAA "will be working with policymakers to explain the impact of these deep cuts on beneficiary access to care," it pledges.

Providers shouldn’t be surprised that CMS opted for the 3.5 percent cut — the highest allowed by law. "The [Affordable Care Act] legislation called for rebasing and indicated that if the rebasing resulted in a reduction of more than 3.5 percent, that the max in the first year would be 3.5 percent," says Rick Ingber with VantaHealth Consulting in Ply-mouth Meeting, Pa. "I don’t think the ACA would have included such language unless there was an expectation of a reduction of more than 3.5 percent."

Financial consultant Pat Laff is "terribly disappointed" that CMS did not consider the many additional costs put forth by the industry that were not included in the cost report data it used to calculate rebased rates. One of the biggest: face-to-face physician encounter requirements.

One of CMS’s reasons for implementing rebasing is the high average profit margin recorded by HHAs since PPS began in 2000. But many agencies actually record negative profit margins now, insists Laff, with Laff Associates in Hilton Head Island, S.C. The tables have turned, with other product lines — including hospice and even Medicaid — subsidizing Medicare business, he tells Eli.

CMS estimates that the overall reduction to HH PPS rates will be 1.5 percent, including the 2.4 percent inflation update. But Laff is skeptical of that figure. He expects the cut to reach closer to 3.5 percent, even including the inflation factor — plus the 2 percent sequestration reduction that is likely to persist.

Rough Reimbursement, Regulation Will Thin HHAs’ Ranks, Experts Predict

Remember: To figure out how the changes to PPS impact you individually, "look at all the moving parts," Macke advises. The increase to the PPS base rate looks great — until you factor in the sharp reduction to case mix weight. And don’t forget how much your area’s wage index fluctuation can affect rates.

Financial experts agree that rebasing and other reimbursement reductions are going to lead to some lean years for HHAs. When CMS implemented the Interim Payment System (IPS) in 1997, the number of Medicare HHAs dropped by about one-third, Macke recalls. Now HHAs number more than 12,000. "The industry has exploded," he observes.

While Macke doesn’t predict an industry wipe-out of IPS proportions, he does expect to see gradual "shrinkage" over the next few years.

Adding to the financial pressure is the barrage of additional development requests (ADRs) many agencies are seeing, Laff notes. Reviewers seem very focused on functional domain scores supporting therapy usage, he notes.

Bright side: At least HHAs have been able to build up some reserves under PPS, which wasn’t allowed under cost-based reimbursement, Macke notes. Also, many agencies learned a hard lesson from IPS and diversified their business lines and payors to mitigate the impact of drastic Medicare reimbursement changes.

Note: The proposed rule is at www.gpo.gov/fdsys/pkg/FR-2013-07-03/pdf/2013-15766.pdf. CMS will accept comments on the proposal until Aug. 26.