Home Health & Hospice Week

Stricter Capitalization Requirements Throw Up Enrollment Roadblocks

Medicare wants to standardize new HHAs' capitalization amounts.

If you're waiting on your Medicare enrollment to process, you might be in for a surprise. That's because your regional home health intermediary might make a change to the capitalization amount required of you, the Centers for Medicare & Medicaid Services said in the Jan. 20 home health Open Door Forum.

What's required: "Prior to enrolling in Medicare as an Home Health Agency (HHA), the provider must ... have available sufficient funds (known as 'initial reserve operating funds') to operate the HHA for the three-month period after its Medicare provider agreement becomes effective -- exclusive of actual or projected accounts receivable from Medicare or other health care insurers," RHHI

Palmetto GBA explains on its Web site. RHHIs have been applying the IROF capitalization requirements differently, a CMS official noted in the forum. Now, "the Medicare contractors are trying to make sure that the capitalization provisions found in 42CFR 489.28 are applied consistently across all of our regional home health intermediaries."

That means an enrolling HHA may receive a letter from its RHHI "showing that the amount of capital that they need at the time of enrollment into the Medicare program has increased or changed or decreased," the CMS staffer said. "If there's ... an increase, then the home health agency would be required to demonstrate that they meet those capitalization requirements."

Watch out: Don't expect smooth sailing if you already were checked at the time of enrollment. RHHIs will check again before you receive your Medicare billing privileges, the official noted. Not only "is CMS doing a second capitalization evaluation prior to the tie in notice, it is using a standard that is not consistent with the initial evaluation or the formula for evaluation that the intermediary uses," William Dombi with the National Association for Home Care & Hospice tells Eli.

In a post to Palmetto's Web site updated this month, the RHHI sets out the steps for calculating the IROF amount. It involves gathering cost data from peer group agencies and using figures submitted by the enrolling agency. (For a free copy of Palmetto's capitalization article including the specific calculation steps, e-mail editor Rebecca Johnson at rebeccaj@eliresearch.com with "Capitalization" in the subject line.)

Unlucky Agencies Caught In Transition

Traditionally, RHHIs have had "wiggle room" on whether they included peer group data or used the provider's own data to calculate the capitalization amount, notes consultant Tom Boyd with Boyd & Nicholas in Rohnert Park, Calif. If agencies submitted visit projections that were overzealous, then they had to back them up with larger IROF amounts.

But now CMS wants all RHHIs to follow its strict formula for IROFs -- and that's putting some newly enrolled agencies at risk.

A number of HHAs working with Corpus Christi, Texas-based Astrid Medical Services are being slapped with new and bigger capitalization amounts after enrollment but before receiving their billing privileges, says Astrid's Lynn Olson.

For example: One small Dallas agency Astrid works with saw its capitalization amount increased to more than $68,000 while it was waiting on its billing privileges. That's "more than likely beyond [the agency's] means," Olson tells Eli.

The IROF regulations have been on the books since 1998. "Why are the intermediaries suddenly enforcing them now?" Olson asks.

A likely answer: The fraud and abuse crackdown the Department of Health and Human Services has been touting recently could be behind the sudden enforcement of the regulation, observers say. "If you want a moratorium or a certificate of need system to limit enrollment, then say that," Olson fumes.

HHAs that were given lower capitalization amounts and weren't expecting a re-check should be grandfathered into the system, Olson believes.

Otherwise agencies and their owners who have spent major time and resources into starting an agency based on the old number may sink instead of swim under the new requirement.

More providers than expected may fall victim to this increase because of longer waits between survey approval and billing privileges being awarded. "It used to be 10 days, now it's more than 90," Olson observes of the time lag he has seen between the two events.

But these agencies may not get a sympathetic ear from the rest of the industry. "If it helps keep fly-by-night [new entrants] out of the program, I'm not going to complain about it," says one industry veteran.

Don't forget: These new capitalization requirements will apply to change of ownership (CHOW) transactions within 36 months of enrollment from the last CHOW and to HHA divisions becoming subunits too, Palmetto notes. NAHC is in contact with CMS about the issue, Dombi says.