NAHC Leadership Offers Facts, Opinions Regarding PPS Proposed Rule

Demonstrating once again why they are among home care's most respected regulatory experts, NAHC's Bill Dombi and Mary St. Pierre delivered an object lesson last week in how to make complex federal regulations understandable to common folk. During a series of telephone conferences, the pair dissected and analyzed proposed PPS changes that had only been released by CMS late the previous Friday.

"When the phone rang at 5:25PM on April 27," Dombi told an audience huddled around speaker phones across the country, "I knew how I would be spending my weekend." Dombi is the NAHC Vice President for Law and Director of NAHC's Financial Management Association. Mary St. Pierre is NAHC's Vice President for Regulatory Affairs.

Dombi and St. Pierre also announced that they will soon take their PPS show on the road, visiting six cities over the next few weeks to more fully examine the proposed rule and its expected impact. Information will be available at www.nahc.org. Other training opportunities will be available for staff not able to travel to one of the six cities. (See "PPS Seminar Series to be Launched 5/14" in this issue.)

Explaining the CMS PPS proposals
CMS has done no more or less than what Dombi had been warning the industry it would do almost since the inception of the Home Health Prospective Payment System (HH PPS) in October, 2000. After permitting home care providers seven years to fully learn the system, enjoy reasonable profit margins and invest in efficiency tools such as technology and training, CMS is beginning to ratchet payment rates downward, exactly as was done with hospital DRGs in the 80's.

In the process, CMS is also responding to several ongoing industry requests for payment system fixes. The oft-maligned SCIC system will disappear. Home care Fiscal Intermediaries will now adjust episode payments up and down instead of down only when therapy visit counts cross trigger thresholds.

A public comment period will remain open through July 3, 60 days following the May 4 publication of the rule in the Federal Register (pp. 25405-25454). Unless the unexpected happens, a final rule will appear sometime after July 3 and changes will take effect on January 1, 2008. Dombi predicted that "a few" 2007 episodes will be affected but there is no word yet on whether the changes will cover episodes that start or end in January.

Rate adjustment: both up and down
Though it admitted it only had access to OASIS and claims data through FY2003, CMS says it was able to determine that industry revenue has grown more than the government would like under PPS. Average case-mix, HHRG scores and the number of borderline therapy bonus episodes (10-11 visits) have steadily risen. CMS also asserted that "clinical documentation behavior" rather than patient condition change accounted for payment increases 8.7% of the time.

In other words, St. Pierre explained, as nurses and other clinicians improve OASIS accuracy, agencies receive payments more closely aligned with the actual cost of caring for a particular patient. In the beginning of PPS, clinicians were too conservative with their assessments and the total Medicare home care budget appeared to be adequate to cover the industry's needs. As better-trained nurses request more appropriate episode payments through more accurate OASIS assessments, payments are rising.

"The data we have been gathering bears out this opinion," stated software vendor and industry watcher Jeff Lewis at this week's annual home care technology conference in Las Vegas. "Three years ago, we warned our customers that they were giving Medicare a 10%-15% discount per episode because they weren't scoring OASIS right. Today, that discount is probably 5% or less because agency owners are investing in training and, as a result, nurses and other clinicians are submitting more accurate assessments."

The problem with CMS's reasoning, Lewis warns, is that they are rewarding seven years of discounts by cutting rates now that home care is finally asking them for correct amounts. "Nevertheless," added HCAR publisher Tom Williams, "we have always known this was coming. I saw the feds do the same thing with DRGs twenty years ago. Their playbook is not very thick."

The rate cut to which Lewis referred is CMS's proposal, based on 2003 cost report data, to first give home care the expected 2.9% market basket (inflation-based) rate increase for CY2008 but then adjust it to compensate for rising HHRG scores and HIPPS codes, which CMS refers to as "case-mix creep." That adjustment, 2.75%, nets out the CY2008 rate increase to .14%.

Dombi added that NAHC is pushing CMS to consider recent gasoline and other price increases and that therefore 2.9% is not yet set in stone. Hospitals and skilled nursing facilities receive 3.3% next year. "We are searching their analysis to see why they decided on 2.9%," he said. "Last year we did the same thing and they finally increased it based on newer data that had become available by the time the final decision was made. Stay tuned."

The 2.75% reduction is proposed to remain steady for three calendar years. Whatever the market basket increase comes to in those three years, it will adjusted by that amount. Dombi cautioned that Congress always has the final say in these numbers and that Congress, more concerned about the patient's experience than provider satisfaction, is always 100% unpredictable.

"Remember this one thing," Lewis shook his finger at his Las Vegas audience. "There is simply not enough money in the entire economy to continue providing the same level of care to increasing numbers of people. We might want to take care of Grandma. We Baby Boomers might want the same access to heart bypass procedures and home care nurses that our parents have but we can't. That amount of money is not in the government, not in the private insurance sector, not in our own pockets. It does not exist in the economy as a whole. There may be a solution but it is not simply finding more money."

For CY2008, Medicare's proposed solution is to force home care providers to cut costs. By ratcheting payments down, only those who find ways to economize will survive.

A primary attack front will be M0825, the so-called therapy threshold OASIS question. Dombi explained that CMS contractor Abt Associates determined that the number of episodes utilizing 10 or 11 therapy visits has skyrocketed since October, 2000. Without accusing the industry of gaming, CMS stated that it appeared somewhat unexplainable that in 2001 home care patients suddenly developed a need for 10 visits in 60 days far more often than they needed 9 or 15.

To compensate, NAHC's St. Pierre explained, CMS will do away with M0285 and the 10-visit threshold and replace it with M0286 and a complex system of tiers that first sets payment increases at 6 and 14 therapy visits. There will also be smaller tiers between 6 and 14, with separate rates for 7 to 9 visits, another for 10 and still a third for 11 to 13. The largest step increase will be at 14. This more complex system is intended to increase the reward to agencies for basing the number of therapy visits on patient need and reduce the incentive to base it on reimbursement.

The new M0286 will only ask whether there is an estimate of therapy visits present in the plan of care. If yes, the RAP will be subjected to a different set of equations during processing. When the final claim is processed, payment will be based on actual therapy visits, not on any guesses made during the initial assessment. Gone is the procedure under which your FI adjusts your payment down if you guessed wrong on the high side but not adjust your payment up if you guessed low. Gone too are canceling and re-submitting RAPs to regain those downward adjustments.

Abt also discovered that an agency's costs tend to increase somewhat in later consecutive episodes, mostly due to need for more nurse, aide and therapist time by more fragile patients. Therefore, one more therapy threshold will be created at 20 visits, but only for third and subsequent episodes. Between 14 and 20, those episodes will also see small additional considerations for 16-17 visits and another for 18-19. Rules will be written to specify what constitutes a subsequent episode in the event of short-duration discharges followed by quick readmissions. How short and how quick are yet to be detailed.

Some episodes most costly than others
The evidence that long-term patients with certain diagnoses become more costly to care for after the second consecutive episode was a finding that surprised Abt Associates. Even though they are the same organization that designed PPS in the late 90's, they had not looked at multiple-episode patients at that time, instead basing early pay rate recommendations on the assumption that startup costs made the initial episode the most expensive to the provider.

Knowing now that the opposite is true, Abt recommended the addition of new case-mix categories that will only be applied to later episodes in multiple-episode care cases. The result is that there will be a total of 153 HHRG categories instead of the current 80.

In addition, "subsequent episode" will not be limited to episodes provided by one agency. An agency that picks up a patient from another agency may inherit multiple episode payment increases. It will be important to know that information. Mark "unknown" on the subsequent episode question and your reimbursement will default to the first episode rate.

SCIC amputated
Congratulating CMS for finally doing away with the "Sudden Change in Condition" (SCIC) payment adjustment, Dombi asserted that NAHC has held for years that "...the only thing CMS ever got right about SCIC was how to pronounce it. They called it the "sick" provision and sick is exactly what it was." By shifting from episodic to per-diem reimbursement calculations, Dombi elaborated, SCIC more often than not caused a net reduction in agency compensation when a patient took a turn for the worse and required a higher level of care.

Agencies were forced to accept the option to ignore SCIC conditions most of the time, effectively making it a useless payment category. Plus, if an agency errantly declared a SCIC situation when it was not in its own financial best interest, which CMS said it was surprised to see happen as often as it did, CMS and its FI contractors did not offer to help negate that decision but allowed the agency to accept the lower payment.

Another elimination for which NAHC congratulated CMS is M0175. No longer will nurses have to figure out where the patient has been for the past 14 days and in exactly what bed classification they received care.

About those supplies
Venturing into her favorite area of expertise, Mary St. Pierre laid out CMS's reasoning for recommending changes to supply cost compensation. "Abt Associates discovered in its research that only 10% of claims include charges for non-routine supplies," she began.

"We are concerned about that and believe it may have two causes. One is that agencies find the paperwork too burdensome for a cost center that does not affect compensation, even though it does have long-term significance to the cost report. It is just too much trouble to put it the information on claims. The other reason many agencies do not report supplies is that they are caught in a bind by slow-reporting, 3rd-party suppliers. They choose cash flow over waiting for the information to arrive and send the claims without it."

She added a third concern with the current system. Models in use for predicting supplies utilization are only accurate for early episodes. Supplies ordered vs. supplies used were too high or too low one-third of the time during later consecutive episodes for the same patient.

Under proposed rules, base-payment for non-routine supplies (NRS) -- an average amount currently applied to every episode regardless of whether supplies were used -- will be eliminated and its amounts re-allocated to payments calculated through a new, case-mix-based system. NRS will be reimbursed as they are used and it will now be critical to include detailed, accurate supply lists on every claim.

The Bottom Line
CMS summed up its proposal explanations by saying that its recommended 2.9% inflation increase will result in $410 million of additional home care payments but the 2.75% "case-mix creep" adjustment will negate $400 million of that. Including supplies and other increases, CMS estimates a net gain of $140 million to home care in CY08.

CMS stated in its materials that some of this increase is predicated on the assumption that outlier payments will increase in CY08. "That has never happened in the past," Dombi countered. "It is somewhat disingenuous on their part to operate on such an assumption."

How will that increase affect individual agencies? Dombi asserted that it depends on where you operate. The changes have been issued without respect to regional differences in costs and care needs, he said. "If you are in the North, you will fare better than your colleagues in the South. Some will be helped by these changes, some will be hurt."