Relevant Tickers: AMED, LHCG, AFAM, KND, HLS
CY 2017 Reimbursement. Last week, the Centers for Medicare and Medicaid sent to the White House for approval the proposed CY 2017 annual reimbursement update for home health agencies. With much of the Affordable Care Act mandates for rebasing and Value-based purchasing implemented, this year’s reimbursement release should be a snoozer.
The CY 2016 national, standardized 60-day episode home health care payment of $2,965.12, often referred to as the base rate, is adjusted each year for two budget neutrality factors; one for changes to the wage index and the other for annual changes to the case-mix weights. For CY 2016 , 2017 and 2018, the base rate is adjusted downward by 0.97 percent to address nominal case-mix growth not otherwise accounted for by changes to patient characteristics. CY 2017 marks the last year of a four year rebasing that requires a reduction of $80.05 in the base rate. Finally, the base rate is inflated for the Home Health Market Basket adjustment less the ACA-mandated multi-factor productivity adjustment.
CMS has not yet released the Home Health Agency Market Basket adjustment but if it follows the trend established by other releases this spring, it should be about 2.6 percent. This market basket adjustment will be reduced by the multi-factor productivity adjustment which is currently forecast at -0.5 percent. Using budget neutrality and case-mix growth adjustments similar to last year’s, we estimate the proposed CY 2017 National Standardized 60-Day Episode Payment will be about $2,975.00, a small increase over the CY 2016 rate of $2,965.12.
Table 1: Estimated CY 2017 National, Standardized 60-day Episode Rate for Home Health
Rural home health agencies, like those owned by LHC Group (LHCG), get the benefit of the 3 percent add-on payment in 2017. This add-on will increase the national, standardized 60-day episode rate to an estimated $3,064.00 in CY 2017. It is worth noting that unless Congress extends the rural add-on between now and the end of 2017, it will expire on January 1, 2018.
In the aggregate, Medicare spending on home health services will likely decline again next year due to the combined effects of near zero year-over-year growth in the base rate and a 2.82 percent reduction in reimbursement for Non-routine Medical Supplies that are not included in the base rate. With the elimination of the ACA-mandated rebasing phase-in, CY 2017 should be the final year of negative aggregate reimbursement.
Release of the Proposed Rule for CY 2017 Home Health reimbursement should take place within the next three to four weeks.
Home Health Conditions of Participation. Separately, CMS also sent to the White House a final proposal for changes to the Home Health Agencies’ Medicare Conditions of Participation This proposal has languished at CMS since Q1 2015 and is being dusted off and finalized - no doubt to check it off the “get ‘er done” list of the outgoing Obama Administration.
The proposed CoPs circulated in late 2014 represent the first change in over a decade to the standards to which home health agencies must adhere to qualify for Medicare reimbursement. Not only that, this proposal represents a significant change from a process-oriented “check the box” approach to one focused more intensely on quality of care.
We will wait to see the final proposal for a deep dive on the specifics but the key point from the 2014 proposal is the addition of four new CoPs necessary to qualify for Medicare reimbursement. There are:
- Patient Rights – Emphasizes the HHA’s responsibility to respect and promote the rights of each home health patient.
- Care planning, coordination of services and quality of care - Incorporates the interdisciplinary team approach to provide home health services.
- Quality Assessment and Performance Improvement – Charges each HHA with responsibility for carrying out an ongoing quality assessment, incorporating data-driven goals, and an evidence-based performance improvement program of its own design to effect continuing improvement in the quality of care furnished patients. QAPI programs are currently in place in ESRD suppliers, hospitals, hospice, transplant centers and organ procurement organizations.
- Infection Prevention and Control – Requires HHA to follow accepted standards of practice to prevent and control the transmission of infectious diseases and to educate staff, patients and family members or other caregivers on these accepted standards.
The meat of these changes is the implementation of QAPI and new care planning, coordination and quality of care requirements. CMS believes, and we concur, that the proposed changes to the CoP represents a fundamental shift in their regulatory scheme. Instead of a prescriptive approach in which the federal government issues a list of dos and don’ts and the state surveyors make sure the HHA complies, under the proposed CoPs the state surveyors will look at outcomes of care. The addition of a QAPI would, according to CMS, stimulate the HHA to continuously monitor its performance and find opportunities for improvement. State surveyors would be enabled to assess how effectively the provider was pursuing a continuous quality improvement agenda.
While we acknowledge that state surveyors do not inspect HHAs with the regularity that perhaps CMS expects or is counting on, the changes spelled out in the proposed rule are not good news for the many small, less capitalized and less sophisticated operators that populate the space. These operators generally lack the resources to invest in the IT systems, data analytics and clinical talent necessary to run a good quality program.
For well capitalized, sophisticated operators like AMED and LHCG that have made quality care a hallmark of their operations, the transition to new CoPs should be relatively easy. Moreover, we anticipate that their acquisition targets, already robust as CMS has increased pressure on providers to produce better outcomes, will increase. Unlike many other CMS-driven quality programs, failure to comply with CoPs means exclusion from the Medicare program and in effect, termination of operations.
When both rules are released, we will do a more thorough review since CMS always uses rulemaking as a way to signal ongoing concerns and changes under consideration. However, we anticipate that until post-acute reform ramps up in 2019-20, the regulatory and policy environment remains stable to improving.