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Home Health & Hospice Week

Reimbursement:

PPS RESHUFFLING WILL AFFECT YOUR PAYMENT RATES IN 2005

Published on Thu Jun 10, 2004

Outlier, wage index changes most significant in new PPS rule.

Outlier patients may be less of a drain on your bottom line starting Jan. 1.

The Centers for Medicare & Medicaid Services has proposed lowering the threshold patients must exceed before qualifying for extra outlier payments under the prospective payment system. That will mean more episodes would qualify for the outlier payments, and those episodes that already qualify would see higher payments, explains Vern Peterschmidt with Albuquerque, NM-based Peterschmidt & Associates.

CMS wants to change the "fixed dollar loss" amount home health agencies must hit from 1.13 percent of the episode payment to 0.72 percent of the payment, the agency explains in its new PPS rule published in the June 2 Federal Register. PPS was designed for 5 percent of payments to go to outlier patients, but only about 3 percent of expenditures have gone toward out-liers so far, CMS says.

The basics: Using the 2005 episode payment amount of $2,268.70, HHAs would have to eat $1,663 of the outlier costs before extra payments would kick in with the 0.72 fixed dollar loss. Medicare will continue to cover those extra payments at 80 percent of costs.

Under the current 1.13 fixed dollar loss amount, HHAs would have to absorb $2,564 of the patient's costs before the PPS outlier payments began, CMS explains in the proposed rule.

After you take into account the 80 percent loss sharing ratio, HHAs will see about an extra $700 per outlier episode, estimates consultant Mark Sharp with BKD in Springfield, MO. "It will put some money in agencies'pockets," Sharp notes.

"The outlier change is helpful," comments reimbursement consultant Rick Ingber with ZA Consulting in Jenkintown, PA.

The result: "Now more HHAs should be willing to take some [outlier patients] on," adds reimbursement consultant Tom Boyd with Boyd & Nicholas in Rohnert Park, CA.

"The change of the outlier threshold should act to alleviate financial pressures on home health agencies that provide care to higher-cost patients," agrees the National Association forHome Care & Hospice. "In turn, the proposed improved outlier payment should help to reduce any actual or perceived barrier to access to care for higher-cost patients."

"Agencies are generally doing a pretty good job at minimizing outliers," Ingber notes. While CMS claims 3 percent of PPS payment have gone to outliers, Sharp's clients are running at outlier rates more like 1 and 2 percent, he tells Eli. CMS estimates 6 percent of episodes will reach outlier status under the new fixed dollar loss figure.

HHAs still will lose money on outlier patients, however, Boyd points out.

It would help HHAs more to change the low per-visit rates that calculate outliers than to change the fixed dollar loss figure, Sharp says. Many HHAs'per-visit costs have increased significantly under PPS as they have cut visits and implemented efficiencies. As a result, CMS'per-visit rates are often much lower than what it really costs agencies to make a visit, Sharp contends. That means in calculating outliers, HHAs are really losing more money than the numbers show.

The fixed dollar loss change "will put some money in agencies'pockets." -- Mark Sharp, consultant, BKD

Other changes in the PPS reg include:

  • Rates and dates. As required by the Medicare Modernization Act passed last December, HHA payment rates now will be updated on Jan. 1 instead of Oct. 1. The base payment rate for a 60-day episode will be $2,268.70 starting in 2005. That reflects the 3.3 percent market basket index increase minus the 0.8 percent reduction mandated in MMA, to total a 2.5 percent increase over fiscal year 2004 rates.

    The base payment rate for rural areas, which includes a 5 percent add-on through April 2005, will be $2,382.14, the rule spells out. (For new per-visit rates -- used in calculating outliers and low utilization payment adjustments -- see chart).

  • Labor portion. To arrive at HHA payment rates, Medicare multiplies a portion of the base payment rate by the wage index. In the proposed rule, CMS says it wants to decrease the portion multiplied by the wage index to 0.76775 of the rate. That's down from the current 0.77668, NAHC notes.

    "The change in the labor portion of the PPS rate will be positive for those agencies with a wage     index under 1.00 and hurt those agencies with a wage index of over 1.00," Peterschmidt tells Eli.

    On one hand, the change would insulate HHAs a bit more from wage index fluctuations, NAHC forecasts. On the other hand, the change is likely to cost the industry money overall, Boyd predicts. That's because the non-labor portion of the rate is increased by the market basket index update factor -- based on the consumer price index -- for inflation, while the labor portion is updated based on payment data. "In the home health care industry the costs of wages and benefits are increasing faster than CPI and most other costs," Boyd observes.

    Because the change is fairly slight, individual HHAs are unlikely to see a big reimbursement difference, Sharp and Ingber agree.

  • Wage index. Since the date for updating home health PPS rates has changed from Oct. 1 to Jan. 1, CMS now can use the current year's hospital wage index to calculate home health reimbursement rates, it says in the proposed rule.

    "Under previous fiscal year updates, the most recent pre-floor and pre-reclassified hospital wage index available at the time of publication of the HH PPS fiscal year update was that of the previous year," CMS explains. NAHC "has pushed for this change for several years," the association notes.

    As usual, this year's wage index changes have produced groups of winners and losers, NAHC notes. On top: the Brownsville-Harlingen-San Benito, TX MSA, with a 16 percent increase to wage index. On bottom: Lubbock and Killeen-Temple, TX will see 14.2 percent and 11.9 percent decreases, respectively.

    Still up in the air is whether CMS will impose the most recent MSA redesignations on agencies this year. The MSAchanges, proposed in the hospital PPS proposed rule published May 18, will significantly reduce many HHAs' payment rates (see Eli's HCW, Vol. XIII, No. 20).

    "We believe it is appropriate to wait until the public comments on [the hospital] proposed rule have been submitted and analyzed before we consider proposing any new labor market definitions in the home health context," CMS says.

    "That leaves open the possibility that the final rule on the home health rate will contain the area designation changes," NAHC warns. The MSA changes' impact on agencies, "based on the most recent audited financials, would be a total operating loss of $4.5 million," says the Home Care Association of New Hampshire in a message to members.

    HHAs going from rural areas to MSAs will do well, but agencies in MSAs bumped down to lower-paying MSAs or rural areas will feel the blow, Sharp notes.

    Agencies should be able to apply for reclassification to a different wage index area, just like hospitals can, Boyd argues.

  • MBI. CMS proposed to rebase and change the calculation of the market basket index, used for inflation updates to the rates. The MBI currently is based on FY1993 data, but CMS will rebase it on FY 2000 data, the rule proposes. And it will make some technical changes to how the MBI is calculated.

    "For CY 2005, these changes have no ultimate affect on the calculation of the market basket index," NAHC says. "However, in the future, this rebasing may have some effect in increasing or decreasing the actual calculation."

    Not addressed in the regulation are changes to two PPS factors that hurt HHAs, Boyd adds: LUPAs and paying agencies based on where patients live. "The industry loss on LUPAs will continue and increase," Boyd laments. That's because LUPArates are way too low to cover agencies'visit costs.

    For example, while the LUPA rate puts a skilled nursing visit at $99.05 next year, Sharp's clients often have per-visit rates of $110, $120 and even $140 in some cases, he says. And when HHAs deliver just a few visits to patients, the high costs of completing OASIS and other paperwork in the initial visits pushes that cost up even higher.

    Receiving home care payments based on where patients live ignores the overhead costs HHAs have to incur. "I have yet to see an HHA that serves more than one MSA pay different pay rates as determined by index," Boyd remarks.

    Editor's Note: The PPS proposed rule is at www.access.gpo.gov/su_docs/fedreg/a040602c.html. Comments on the regulation are due by Aug. 2.

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