Medicare Compliance & Reimbursement

How next year's proposed Medicare reimbursement cuts affect you is going to depend largely on what services you provide and how you code patients.

The Centers for Medicare & Medicaid Services proposes a 3.35 percent cut to home health agency Medicare payment rates next year, according to the 2012 prospective payment system proposed rule published in the July 12 Federal Register. That combines a 2.5 percent market basket increase for inflation, a congressionally mandated 1 percent cut to the MBI, and a 5.06 percent reduction for so-called "case mix creep." The cut will equal a $640 million reduction in Medicare home care payments, compared to 2011 rates.

Actually, when you add together all the cuts, it comes to 3.56 percent, maintains the National Association for Home Care & Hospice. The reduction to the base rate amount is 3.63 percent, says financial consultant Pat Laff with Laff Associates in Hilton Head Island, S.C.

The proposed reduction is actually lower than this year's, when CMS cut HHA payment rates by 5.2 percent. The new base rate for non-rural areas will be $2,112.37, CMS proposes, down from $2,192.07 currently. The new base rate for patients in rural areas would be $2,132.87, down from $2,257.83.

The home care industry has argued hard against the coding creep cuts in previous years, and this year CMS came prepared with lots of justifications for the case mix reductions, including a study of its case mix assessment methodology from Harvard University. CMS says the study validates its coding creep reduction process.

Stats: When PPS began in 2000, the average case mix amount was 1.0960. In 2009, it was 1.3435 -- a 22.59 percent increase, CMS points out. For-profit agencies have seen the highest case mix growth under PPS.

This year, CMS makes big case mix changes through two mechanisms -- removing two hypertension codes from the case mix calculation and reallocating high-therapy case mix dollars across all therapy levels, particularly low-therapy episodes.

Over the course of PPS, "most of the case mix change has been due to improved coding, coding practice changes, and other behavioral responses to the prospective payment system, such as increased use of high therapy treatment plans," CMS notes in the rule.

From 2008 through 2010, CMS reduced HHA payment rates by 2.75 percent due to alleged coding creep. Then it upped that cut to 3.79 percent in 2011. Now it wants to increase that figure to 5.06 percent in 2012. The case mix creep cuts are offset by other payment adjustments, such as inflation MBI updates.

Handwriting Was On The Wall

"It's disappointing to see more and larger case mix creep cuts," says Bob Wardwell, the former CMS official who oversaw the creation of HHPPS. "These across-the-board cuts are easy for CMS to implement but are inherently unfair to agencies that have lower average case mix weights as well as to patients at lower case mix weights who are at increased risk of access problems."

Agencies shouldn't be surprised to see the cuts continue. After last year's PPS rule, "the industry knew it was coming and providers should have been preparing for this since last year," notes attorney Bob Markette with Benesh/Dann Pecar in Indianapolis. "PPACA made it pretty clear that home health providers should not anticipate any rate increases for awhile. And by a while, I mean forever," Markette jokes.

But even if agencies knew the cuts were coming, "that does not turn a lemon into lemonade," says the National Association for Home Care & Hospice in its initial analysis of the proposed rule.

The cuts will hit agencies hard as they deal with increased costs and lost productivity due to the faceto- face physician encounter rule that took effect this year and the OASIS-C form that took effect last year, Laff says.

Thanks to the therapy and diagnosis coding changes, this year's cuts won't affect all agencies equally. The type of agencies seeing the biggest cut will be freestanding proprietaries with a 4.68 percent cut, CMS estimates in its impact analysis. Facility-based proprietaries will see the next-biggest reduction at 3.02 percent.

On the other end of the spectrum, facility-based nonprofits will actually see a 0.17 percent increase in 2012 versus 2011, CMS predicts. Freestanding non-profits will see the smallest cut at 0.49 percent.

That's good news for safety net providers like many visiting nurse associations, says Andy Carter with trade group VNAs of America. But even the more moderate impact will hurt VNAs, Carter tells Eli. "Many of our members will still have to absorb reductions at the same time they struggle to manage cuts in state Medicaid  programs," he says. "The safety net therefore remains at risk."

The continuation of the 3 percent rural add-on continues to help out providers who serve patients in rural CBSA codes. CMS expects rural providers to see a 2.15 percent cut to payments under the proposal, while urban agencies would experience a larger 3.57 percent cut.

Do this: You can't just look at the general impact predictions and figure out how your agency will fare under the proposal. "A provider-specific analysis using the provider's particular case mix is the only reliable way to assess impact," NAHC advises.

Despite the cuts CMS has proposed, the rule has been good news for publicly traded home care companies' stocks, notes Reuters. "The 2012 proposal is likely better than most investors' expectations," Ellen Spivey of Stephens Inc. said. "This should signal investors that CMS is not aggressively 'going after' the industry as many fear." "It is not the worst case scenario. The cut could have been 5-7 percent," Spivey said, according to Reuters.

But don't count out a bigger reimbursement cut yet, Laff warns. The current budget talks in Washington, D.C. focused around the debt ceiling are homing in on home care spending cuts in Medicare. And copays are a significant part of the discussion as well. "I don't think it's over," Laff says. Watch for Congress to pull the MBI inflation update down to zero, for example.

"Is that [proposed] rate going to hold?" Laff asks. "I don't think so. I hope I'm wrong." "The Washington noise on (the federal) debt ceiling is driving a lot of volatility," said Michael Wiederhorn, an analyst with Oppenheimer, Reuters reports. "It is the largest nearterm risk."

Note: The rule is online at www.gpo.gov/fdsys/pkg/FR-2011-07-12/pdf/2011-16938.pdf.