Yesterday afternoon, CMS released the proposed CY 2017 payment update for home health services. They are proposing that the 60-day episode rate be reduced by $28.44. This impact represents an increase of 2.3 percent for the market basket adjustment less 2.3 percent for the final year of a four-year rebasing, less 0.97 percent for the second of a three year phase-in of a case-mix creep adjustment less a proposed change to the FDL ratio of 0.1 percent.
The most interesting part of the proposal is not the payment rate, however. Annual payment proposals are a time honored venue for floating trial balloons. This year, CMS is floating the idea of a new payment system for home health services called the Home Health Groupings Model. Instead of a system of 60-day episodes that encourage use of therapy services by providers, CMS is floating the idea of 30-day episodes that are grouped by timing in sequence of other episodes, referral source, clinical grouping, functional/cognitive level and comorbid conditions. To be clear, CMS is not making a specific proposal but in this era of the CMMI, the possibility of change within the next two to three years is very real.
Home Health Groupings Model. Policy makers have long complained that the Home Health Prospective Payment System encourages the delivery of therapy services regardless of patient characteristics. Over the years, CMS and Congress have attempted to reduce reimbursement only to be met by margin protection through increased therapy utilization. Last year, CMS conducted research on possible alternative payment models for home health services. The analysis yielded three possibilities as alternatives to the current Home Health Prospective Payment System, including the Home Health Groupings Model
In this year's payment update, CMS expands on last year's disclosure with more information on the HHGM. The features of this alternative model would include:
- 30-day episodes of care instead of the current 60 days
- Each episode would then be classified into subgroups based on five different categories: timing, referral source, clinical grouping, functional/cognitive level and comorbidities, yielding 324 possible payment groupings
- Each payment grouping would be further classified into clinical groups: Musculoskeletal Rehabilitation; Neuro/Stroke Rehabilitation; Wound Care; Medication, Management, Teaching and Assessment (MMTA); Behavioral Health Care; and Complex Medical Care.
- Each episode would have a functional/cognitive designation that estimated resource use
- Lastly, the payment grouping would include a designation for comorbid conditions, if any, that further refined resource needs
Clearly, a shift from the current structure of the HHPPS to the HHGM would be a very big change in how CMS pays for home health services. Providers and investors should take this possibility very seriously. In the last year, CMS has spent a good deal of time analyzing claims using the new payment system and plans to issue a Technical Report in the near future along with the ICD-9 and ICD-10 codes assigned to each of the clinical groups that may be included in the HHGM to "to further assist the industry in analyzing the HHGM model."
Time is a precious resource in government and the fact that CMS is spending a good deal of it on HHGM suggests its eventual roll-out as a CMMI demonstration. We do not believe that will occur until the summer of 2017, at the earliest, but it is a very real and present danger. We have been fans of home health for a number of years but the possibility of a significant change to the payment system means reduced regulatory visibility (similar to our concerns about hospice) and that gives us pause as we await more information.
CY 2017 Payment Update. The base unit of payment for home health services is the national, standardized 60-day episode rate. For each individual episode of care the rate is modified by a case-mix weight and a wage index value. The episode payment can be further modified by a Low Utilization Payment Adjustment (LUPA), a Partial Episode Payment (PEP) and/or an Outlier Payment.
The national, standardized 60-day episode rate is adjusted annually by a wage index budget neutrality factor, a case-mix weight budget neutrality factor and a market basket adjustment that is modified by the a multifactor productivity adjustment. Additionally, the national standardized 60-day episode rate is reduced by $80.95 in CY 2017 to complete a four year rebasing mandated by the Affordable Care Act and a 0.97 percent reduction for the second of three years to account for case-mx creep identified last year. As a result of these adjustments the national, standardized 60-day episode rate will be reduced from $2,965.12 to $2,936.88, assuming the HHA submits quality data as required by CMS. Table 1 illustrates the components of the CY 2017 rate.
Table 1: Proposed CY 2017 National, Standardized 60-day Episode Rate.
CY 2017 Low Utilization Payments. When a patient requires four or fewer visits, the HHA is paid on a per visit basis. Whereas the ACA-mandated rebasing reduced the episode rate by $80.95, it had the opposite effect on LUPA visits rates. Proposed increases in LUPA visits range from $6.34 for Medical Social Services to $1.79 for a Home Health Aide, assuming the HHA submits quality data. Table 2 illustrates the proposed CY 2017 LUPA visits.
Table 2: Proposed CY 2017 LUPA Per Visit Payment Amounts
Nonroutine Medical Supply Payment Rates. Medicare pays for nonroutine medical supplies such as ostemy bags and catheters by mulitplying the relative weight for a particular severity level times a conversion factor. In this final year of rebasing phase-in, the NRS conversion factor is reduced by 2.82 percent and then increased by the market basket adjustment less the multifactor productivity adjustment for an update of 2.3 percent. Table 3 illustrates the proposed CY 2017 NRS conversion factor
Table 3: Proposed CY 2017 Nonroutine Medical Supply Conversion Factor
Rural Add-on Payment. Since 2004, HHAs that deliver services in rural areas have been received the benefit of an add-on payment. Currently, this add-on payment is three percent and subject to a sunset provision on December 31, 2017. LHCG, which has a significant presence in rural areas has been the beneficiary of this add-on. The payment continues for at least another year and may be extended as it has been a number of times by Congress.
Table 4: Proposed CY 2017 National, Standardized 60-day Episode Rate for Rural Areas
Table 5: Proposed CY 2017 LUPA Per-Visit Rates for Rural Areas
Changes to Reimbursement for Disposable Negative Pressure Wound Therapy Device. Earlier this year, Congress mandated that single use or disposable NPWT devices would no longer be included in the home health episode payment but be paid separately. How that provision came to be included in the Consolidated Appropriations Act of 2016 is probably an interesting back story. The politics notwithstanding, CMS is proposing to pay for single use or disposable NPWT (HCPCS 97607 and 97608) using the Outpatient Prospective Payment System which will reimburse the provider outside of the Home Health Prospective Payment System. The change is good news for home health agencies which now have an new revenue source for these devices that previously had been included in the home health episode payment.