Medicare Compliance & Reimbursement

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. 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 MLR. 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 MLR.

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: