This afternoon CMS released the home health and hospital outpatient/ASC rules. The result was a pleasant surprise for home health and another bad day for hospitals. Here is our first take on it all:
Home Health. The home health industry (temporarily) dodged a bullet this afternoon when CMS decided not to finalize the Home Health Groupings model payment system. We had expressed some skepticism in July that CMS would be able to implement the HHGM as proposed. We admit to being less confident of that view in recent weeks as the industry seemed to be getting enough of a cold shoulder from CMS to get Congress involved. Our first instinct was the right one.
While the HHGM is not being implemented in CY 2019, we recommend that you not get too comfortable.
The policy direction suggested by the HHGM is still very much alive and well. In fact, according to CMS, most commenters were supportive of the general policy underlying the HHGM – eliminating therapy as a payment factor – but there was strong opposition to implementation on a non-budget neutral basis and a change from 60 day to 30 day episodes. So, look for the proposal to proceed at some point – perhaps on a track similar to the changes to the SNF payments system that would also eliminate therapy as a payment factor.
In other respects, the payment update for home health was as expected:
340B Drug Discount Program. We are surprised the CMS is finalizing the very significant reduction in reimbursement for outpatient drugs dispensed through the 340B program. The proposal, originally suggested by MedPAC, will reduce Medicare reimbursement for certain Part B drugs from ASP plus 6 percent to ASP less 22.5 percent. The value of the change, which CMS estimates at $1.7B and we think it could be much higher, seemed to argue to for some modification.
We were wrong and the implications are significant.
Under the 340B drug purchase program non-profit hospitals purchase drugs at a discount – as much as 50 percent of ASP. In turn, the hospitals bills Medicare for the same drugs at ASP plus 6 percent (or 4.9 percent after considering sequestration) and retains the spread. In theory, the delta will help pay for charity care and other community benefits. However, there is no data to suggest that is what is actually happening. The drug industry has often cited the 340B program as one cause for drug inflation. CMS has noted that drug spending at 340B hospitals has risen faster than at non-340B hospitals.
CMS’s decision to move forward with their proposal has significant consequences:
- Hospitals will lose a source of high margin revenue that has supported capex and HCIT purchasing decisions
- Incentives for hospitals to purchase certain physicians practices like oncology and ophthalmology are significantly reduced since the drugs doctors in those practices prescribe no long represent a source of high margin revenue
- For-profit hospitals will find the playing field a bit more level
- Limitations on the program that will constrain growth will be a positive for pharma though utilization may experience some downward pressure
We will dig into the impact file and have more analysis to share in the near future.
Total Knee Replacement. As we anticipated, CMS removed total knee replacement from the inpatient only list. Effective Jan. 1, 2018, TKA procedures can be performed on an inpatient and outpatient basis, under the outpatient code of C-APC 5115. To make it easier for hospitals to adjust to the change CMS is prohibiting patient status reviews (outpatient versus inpatient) by the Recovery Audit Contractors.
CMS is not adding TKA to the list of surgical procedures that can be performed in an ASC just yet. The pressure from ASCs to do so will be enormous. If there are no major problems with the move to HOPDs we expect CMS to approve TKA in ASCs in the next year or so.
As a practical matter, commercial insurers often treat Medicare policy as a sort of “permission slip” so today’s announcement gives those payers reason to encourage TKA on an outpatient basis. As these payers represent most of the margin on TKA procedures overall, a shift to outpatient will spell trouble almost immediately for hospitals and device makers.
In other words, CMS can adopt a cautious posture but widespread outpatient TKA is inevitable.
Our biggest takeaway from these rules (before we have read them both in their entirety)? We have seen many signs that the hospital lobby has lost its clout in recent years. Today, they appear to have been out-influenced by home health agencies. Who knew?
Call with questions. We will be up late reading and probably have a lot to discuss.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
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