Home Health & Hospice Week

CMS should reexamine the FDL ratio.

Medicare’s outlier payment policy may actually be costing you money.

Under Medicare’s original outlier payment policy for the prospective payment system, fraud and abuse of outlier payment ran rampant, especially in South Florida. Therefore, the Centers for Medicare & Medicaid Services put a 10 percent cap in place per home health agency, in 2011, it notes in the 2015 home health prospective payment system proposed rule.

Thanks in a large part to that history of fraud and abuse, CMS’s policy now is to “reduce payment rates by 5 percent and target up to 2.5 percent of total estimated HH PPS payments to be paid as outliers,” the agency notes in the proposed rule. CMS estimates it paid out 2.18 percent of PPS payments in outliers in 2013, and will pay 2.01 percent in 2014 and 2.26 percent in 2015, according to the rule.

How it works: CMS achieves its target by setting the loss-sharing ratio at 80 percent. In other words, “Medicare pays 80 percent of the additional estimated costs above the outlier threshold amount,” while agencies pick up the other 20 percent. The loss sharing ratio “preserves incentives for agencies to attempt to provide care efficiently for outlier cases,” CMS notes in the rule. Of course, if an agency’s real costs are below those estimated by CMS, the share it actually “pays” is lower than 20 percent.

The other factor in the outlier calculation is the fixed dollar loss (FDL) amount, which sets how much of the outlier cost agencies must shoulder before the outlier payments kick in. The figure has dropped significantly with the 10 percent per agency cap in place, and CMS proposes to keep it at 0.45 for 2015. In contrast, it was at 1.13 percent in 2004. As with the loss-sharing ratio, the figure is based on estimated costs, so if an agency’s costs are less than CMS projects, it absorbs less of a loss before outliers kick in under the policy.

Give Agencies More Outlier Funds

Given the low outlier payment levels in recent years, multiple commenters exhort CMS to lower the FDL amount to let agencies access more outlier payments. “For the past few years, the outlier episode eligibility standards have resulted in spending that is far short of the outlier ‘budget,’” the Arkansas Department of Health says in its comment letter on the proposed rule. “This has deprived State operated nonprofit HHAs that take on the high cost cases of payment for the care and services provided.”

CMS forecasts seem to overstate outlier spending, notes Mohamed Abdelli of Florida in his comment letter. “CMS should revise the standards used to determine outlier eligibility,” Abdelli says.

Or better yet, CMS should scrap the outlier policy altogether, one commenter argues. Outlier underpayment “has deprived the industry of billions of dollars over the years,” says John Reisinger of Florida in his comment letter. “This provision provides little benefit to the industry,” he insists. “The costs of this program to the industry far-and-away outweigh any benefits derived.”

Eliminating the outlier provision would also stop any lingering fraud and abuse issues surrounding the policy, Reisinger adds. Those fraud and abuse problems have not really ever been controlled, even with the imposition of the 10 percent cap, he says.