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More Belt-Tightening for Home Health Providers as CMS Proposes Update to Prospective Payment System
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More Belt-Tightening for Home Health Providers as CMS Proposes Update to Prospective Payment System

06.30.16

The home health industry could see its profit margins shrink further as a result of proposed updates to the Home Health Prospective Payment System (HH PPS) released by the Centers for Medicare & Medicaid Services (CMS) earlier this week. This is the fourth and final year of payment reductions mandated by the Affordable Care Act in response to perceived Medicare overpayments to home health agencies.  Profit margins are estimated to average 17.2% for the home health industry, and $17.8 billion in Medicare payments were split between approximately 11,400 home health agencies in 2015.

The proposed CMS changes call for a 1% decrease in payment rates in 2017—a roughly $180 million reduction in funds. This decrease reflects the rebalancing of a number of different aspects of the HH PPS:

  1. a 2.3% home health payment update percentage;
  2. rebasing adjustments to the national, standardized 60-day episode payment rate, the national per-visit payment rates, and the non-routine medical supplies conversion factor;
  3. a 0.97% reduction to the national, standardized 60-day episode payment rate to account for nominal case-mix growth; and
  4. the effects of the proposed increase to the fixed-dollar loss ratio used in determining outlier payments.  The first two factors effectively cancel each other out in terms of the overall payment rate and the third and fourth factors give rise to the proposed 1% reduction in payments to the industry.

This final year of cuts under the Affordable Care Act comes at a time where the industry has shrunk from an estimated 11,781 home health agencies in 2014 to 11,400 agencies in 2015.  Part of this reduction in home health agencies may be attributable to reductions in the HH PPS, and part of it reflects the moratoria CMS has placed on new home health providers in areas identified as hot spots for fraud and abuse concern, which includes Chicago, Dallas, Detroit, Fort Lauderdale, Fla., Houston and Miami. 

These proposed changes come in the wake of the U.S. Supreme Court’s decision on Monday to deny certiorari to a challenge to a new Department of Labor (DOL) rule requiring that higher wages be paid to home health workers, leaving the rule in place.  The DOL rule requires home health agencies to pay minimum wages and overtime to companionship workers providing “fellowship, care and protection”—provisions from which such workers have long been exempted.

The proposed CMS rule also provided new details for a pilot Home Health Value-Based Purchasing Model being implemented for all Medicare-certified home health agencies in Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North Carolina, Tennessee and Washington.  Payments to home health agencies in each of these states will be adjusted upward or downward based on their performance in a number of value-based metrics each year.  Furthermore, these adjustments are set to ramp up with each calendar year with: a 3% adjustment in 2018; a 5% adjustment in 2019; a 6% adjustment in 2020; a 7% adjustment in 2021; and a maximum adjustment of 8% in 2022.  Between CMS’ across-the-board emphasis on value-based payment metrics and shrinking profit margins in the home health industry, it is more important than ever that home health providers in the affected states enact plans to carefully and successfully adapt to the shift to value-based payments.

Comments to the proposed CMS rule are due by 5 pm on August 26, 2016.



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