Home Health & Hospice Week
$20 Million Cut From HHA Spending In 2005
Tinkering with inflation factor strips nearly $4.50 from episode base payment rate. Get ready to tighten your budget belt more than you expected starting in January.
Your home health agency may have to go on a fiscal diet now that the Centers for Medicare & Medicaid Services has dialed back its payment update for 2005 from a 2.5 to 2.3 percent increase over current payment rates.
Back in June, CMS proposed a prospective payment system base payment rate of $2,268.70 for calendar year 2004 (see Eli's HCW, Vol. XIII, No. 21, p. 162). But now CMS says the '04 rate will be $2,264.28, according to a final rule slated for publication in the Federal Register Oct. 22. Accordingly, per-visit payments used to calculate LUPAs and outliers will be less as well.
"This is a $20 million hit to home health," says William Dombi, vice president for health care law with the National Association for Home Care & Hospice's Center for Health Care Law. Under the proposed rates, CMS estimated the total payment increase at $270 million. Now that's down to $250 million.
"It's never easy to lose dollars," says Bob Wardwell with the Visiting Nurse Associations of America. The cut is disappointing, "especially when it drops out of the sky," says Wardwell, a former CMS official.
CMS made the change because it "rebased and revised" the home health market basket index, the factor used to update payment rates for inflation. Under the old MBI based on 1993 data, the inflation factor was 3.3 percent. Legislation mandates the PPS update be 0.8 percent less than MBI, so the expected increase in spending was 2.5 percent.
Under the newly updated MBI based on 2000 data, the inflation factor is 3.1 percent and the resulting increase to home health payments will be 2.3 percent.
The main change took place in the "ECI" category that mostly measures workers' wages and salaries, Dombi points out. The inflation rate for the transportation cost component also went down.
"We are not comfortable with the explanation of how this happened," Dombi tells Eli. HHAs say their wage and salary costs and transportation costs are higher than ever, Wardwell agrees. "They don't feel those costs are reflected" by the MBI, Wardwell says.
Reducing transportation costs when gas is at its highest price ever is hard to take, Dombi protests. But unless NAHC can find technical problems with the calculations used to compute the new MBI, agencies will be stuck with the reduction.
Wardwell calls on CMS to make the generation of the inflation update factor more transparent. The fact that agencies "are just supposed to accept numbers that come out of the black box" is "frustrating," he tells Eli.
While the reduced update is galling to HHAs, it probably won't be life-threatening. In the big picture, the change is "a pinch less" than what was expected, says consultant Tom Boyd with Rohnert Park, CA-based Boyd & Nicholas.
"Four dollars is not a significant change," and agencies have two-and-a-half months to adapt their 2005 budget plans accordingly, adds Abilene, TX-based reimbursement consultant Bobby Dusek.
Other issues in the update final rule include:
HHAs want, among other changes, to have the same rights hospitals do when it comes to wage index reclassification; for CMS to use the reclassified wage index rather than the pre-floor, pre-reclassified index it currently uses; and protection from large changes to wage index from year-to-year. Commenters also pointed out specific problems with certain locations' wage index changes.
CMS did make changes to Connecticut wage index levels. But for the most part, the agency brushed off the wage index requests as being outside the scope of the PPS rule.
"If the rule that updates the wage index isn't the place for it, maybe there's not a place," Wardwell charges.
Law doesn't dictate use of the pre-floor, pre-classified wage index, Wardwell insists. And hospitals cut all sorts of deals where their wage indices are changed, but HHAs "are left swinging in the wind," he protests.
Because CMS refuses to initiate any wage index process changes for home health, lawmakers will introduce legislation in Congress this January that addresses these issues, Dombi says.
Under the final rule, the outlier payments will begin after an agency spends 70 percent of an episode's payment. The proposed rule's threshold was 72 percent.
"That's good news," Dusek cheers. CMS doesn't explain the reason for the change in the final rule. But because the overall spending will be less, outlier spending would be less as well, so CMS can lower the threshold, Dusek figures.
"It's a step in the right direction," Boyd agrees, especially given that many agencies have been forced to curtail their admissions of cost-intensive payments under the current, punishing outlier formula.
Most immediately, Congress must approve an extension to the rural add-on or it will expire in April. Both Dusek and Boyd report the add-on expiration as their clients' number-one reimbursement concern.
Unfortunately, the climate is not looking good for legislation benefiting home care providers. Especially damning is a February Government Accountability Office report pegging HHA profit margins at 17 percent in 2002 and a March Medicare Payment Advisory Commission report to Congress estimating a nearly 17 percent profit margin for 2004 (see Eli's HCW, Vol. XIII, No. 9, p. 66).
CMS even mentions the MedPAC report when justifying why it's OK that the MBI may not capture regulatory costs such as HIPAA and OBQI requirements. "The profit margins are immaterial" to a discussion of wage index, Dombi criticizes. Purported margins don't give CMS any authority to reduce MBI, he notes.
Lawmakers will look at those profit margins and the high rate of new HHAs entering the program and be reluctant to help out HHAs, experts predict.
Beyond declining an extension, lawmakers may be looking to strip further Medicare costs when the expensive prescription drug benefit comes into play. "Watch out for potential cuts next year," Boyd warns. "Now is the time to build your infrastructure."
Editor's Note: The PPS update final rule is at www.cms.hhs.gov/providers/hha/9_29_04master.pdf.
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