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Centers for Medicare & Medicaid Services (CMS) Releases Proposed Calendar Year 2014 Updates to Home Health Prospective Payment System

On June 27, 2013, the Centers for Medicare & Medicaid Services (CMS) released its proposed Calendar Year 2014 rate update to the Home Health Prospective Payment System.  In addition to reducing reimbursement rates, CMS is proposing a number of other changes, including the introduction of certain hospital visit/readmission reporting requirements that may have sweeping implications.  Home health providers should take note of the proposed changes in this rule and identify opportunities to provide comments and concerns to CMS on these proposals.

On June 27, 2013, the Centers for Medicare & Medicaid Services (CMS) released the proposed Home Health Prospective Payment System Rate Update for Calendar Year (CY) 2014, Home Health Quality Reporting Requirements, and Cost Allocation of Home Health Survey Expenses (the Proposed Rule).  The Proposed Rule would make a significant number of adjustments to how payment rates for home health services are calculated.  As such, stakeholders should take note and identify opportunities to provide feedback to CMS on these proposals.  Comments on the Proposed Rule are due August 26, 2013.

Rebasing the National Standardized 60-Day Episode Payment Rate, LUPA Per-Visit Payment Amounts and Nonroutine Medical Supply Conversion Factor

CMS reimburses home health providers under a prospective payment system where reimbursement is based, in large part, on a national, standardized 60-day episode payment rate.  In the Proposed Rule, CMS proposes significant changes to the calculation of the 60-day episode payment rate, articulating that its goal is to “reset the payments under the HH PPS.”  Section 3131(a) of the Affordable Care Act (ACA) requires the Secretary of Health and Human Services (HHS) to adjust the national standardized 60-day episode payment rate to account for factors including, but not limited to:

  • Changes in the number of visits in an episode

  • The mix of services in an episode

  • The level of intensity of services in an episode

  • The average cost of providing care per episode 

To implement this ACA provision, CMS proposes a four-year reduction—in equal increments—of the statutorily imposed maximum of -3.5 percent each year for CYs 2014–2017.  It is estimated that this rebasing will result in approximately $290 million in decreased payments to home health providers.

To arrive at the -3.5 percent figure, CMS employed a complex trimming methodology to obtain the relevant universe of Fiscal Year (FY) 2011 Medicare cost reports to be used to calculate FY 2013 costs.  (When determining the costs, CMS directed a Medicare Administrative Contractor (MAC) to conduct an auditing exercise of certain cost reports.  The MAC determined that a majority of providers overstated their costs by an average of 8 percent, and referred eight providers to the Zone Program Integrity Contractors.)  CMS concluded that the estimated cost per episode in FY 2013 is $2,559.59, and the estimated payment per episode in FY 2013 is $2,963.65, which is a difference of 13.63 percent and is the foundation for the rebasing reduction.  These calculations are not consistent with those of the National Association for Home Care & Hospice (NAHC).  Notably, NAHC, using a larger database than that employed by CMS, estimates the 2013 margin to be between 8 and 9 percent.  Because the CMS calculation would require an annual reduction of 3.6 percent, CMS is proposing the statutorily maximum reduction of 3.5 percent per year for the next four years.  However, CMS proposes to apply the full home health market basket update of 2.4 percent, despite MedPAC’s recommendation in its March 2013 report (adopted from its March 2011 report) to eliminate the market basket update.  Taking into account all of these proposed changes, the proposed CY 2014 national standardized 60-day episode payment would be $2,860.20.  Ultimately, stakeholders will want to better understand the differing calculations and determine appropriate next steps.

In addition to the national standardized 60-day episode payment rate, CMS also proposes rebasing for the low-utilization payment adjustment (LUPA) and the nonroutine medical supplies (NRS) conversion factor.  Specifically, CMS would increase the per-visit payment for LUPA by 3.5 percent each year from 2014 through 2017.  However, CMS proposes a 2.58 percent reduction over four years for the NRS conversion factor because average NRS payments exceeded average NRS costs by -9.92 percent in CY 2012.  View a copy of the Technical Report explaining the rebasing estimates.

Proposed Adjustment to Case-Mix Weights

CMS explains that when the Home Health Prospective Payment System was created, CMS expected the case-mix weight to be approximately 1.00.  In practice, the case-mix weight has consistently been above 1.00.  As a result, CMS proposes to take the CY 2012 average case-mix weight (1.3517), reduce this to 1.00, and then apply the same reduction factor to each case-mix weight for CY 2013 to maintain relative values.  To offset this reduction, CMS would inflate the national 60-day episode payment rate by 1.3517.  Insofar as CMS based its calculation of the 1.3517 average on data from January 1, 2012, to May 31, 2012, CMS notes that the average may need to be adjusted in the final rule as more data become available.  CMS noted that it also plans to address MedPAC’s concerns with the effect of therapy visits on the case-mix system by conducting “more comprehensive analysis and potentially additional structural changes to the HH PPS.”

Home Health Quality Reporting Program

Section 1895(b)(3)(B) of the Social Security Act sets out the quality reporting program for home health agencies.  Unless an exception applies, those home health agencies that do not submit the required quality data face a 2 percent reduction in the home health market basket increase.  For CY 2014, CMS would adopt two claims-based measures: (1) re-hospitalization during the first 30 days of home health and (2) emergency department use without hospital readmission during the first 30 days of home health.  Both measures have been supported by the Measure Applications Partnership, and CMS will seek National Quality Forum endorsement of both measures.  CMS provided that “hospital readmissions is a high priority for HHS as our focus continues on promoting patient safety, eliminating healthcare associated infections, improving care transitions, and reducing the cost of healthcare.”  Stakeholders should consider the broader import of these new measures, particularly in light of bundled payment programs and the like.  Lastly, CMS proposes to streamline the Certification and Survey Provider Enhanced Reports (CASPER) by reducing the number of measures reported from 97 to 79.

Coding Changes

In the Proposed Rule, CMS articulates its concern that there are a number of ICD-9 codes that are producing “inaccurate overpayments” through their inclusion in the home health prospective payment system Grouper.  Accordingly, CMS proposes to remove two categories of codes: (1) ICD-9-CM codes that, in CMS’s clinical judgment, are too acute for the home health setting, and (2) ICD-9-CM codes where the condition does not require home health intervention, would not impact the home health plan of care or would not result in additional resource use when providing home health services to the patient.
In addition, CMS proposes to make several revisions for purposes of the ICD-9 to ICD-10 conversion (effective October 1, 2014).  The draft translation list is available here.  CMS will post an ICD-10 home health prospective payment system Grouper on or before July 1, 2014, for review and comment by relevant stakeholders.  CMS is also looking for providers who would be interested in participating in a beta-tester program.

Wage Index

CMS adjusts the payment amount per episode of care by the pre-floor and pre-classified wage index to reflect the relative level of wages and wage-related costs in an area.  Although the Office of Management and Budget released new labor market area definitions on February 28, 2013, consistent with the Inpatient Prospective Payment System Proposed Rule, these revised definitions would not be implemented until the FY 2015 home health wage index (if these revised definitions are adopted by CMS).

Interested stakeholders should review this Proposed Rule in the broader context of the evolving reimbursement landscape for home health services.  Notably, there continues to be ongoing interest in quality-based incentives and bundled payment programs.  In addition, President Obama’s FY 2015 budget proposal to shift payment liability to beneficiaries continues to be hotly debated.  Interested stakeholders would be prudent to continue to monitor these critical issues as they position themselves for next year and beyond.

© 2020 McDermott Will & EmeryNational Law Review, Volume III, Number 191



About this Author

Jason B. Caron, health care attorney with McDermott Will & Emery law firm

Jason B. Caron is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.