PPS refinements will affect HME providers and HHAs

The Medicare home health prospective payment system (PPS) has been in effect for almost 6 years, without any major refinements. CMS has contracted with Abt Associates, which designed the original home health PPS demonstration, to recommend adjustments to the system. The three primary areas of focus for Abt are the Home Health Resource Group (HHRG) case mix system, the 10-therapy visit threshold, and reimbursement for nonroutine medical supplies (NRS)—for which home health agencies are responsible under PPS consolidated billing.

CMS may be on track to issue a Notice of Proposed Rulemaking (NPRM) later this year, with a final refined PPS system ready for implementation in 2008. We should expect any refinement of PPS to be budget neutral, neither increasing nor decreasing what total payments would otherwise be in the absence of changes to PPS.

The home health industry has long recognized the need to address flaws in the system and has made a number of recommendations to CMS to accomplish this. Abt and CMS have assembled a Technical Expert Panel (TEP), which has members from all of the national home health associations, to provide input on possible PPS revisions. The TEP has met twice, last December and March 14, with further sessions to come.

At the March 14 meeting, Abt stated that its analysis of home health data is based on a 20% sample of 1.7 million episodes that occurred between October 1, 2000, and September 30, 2003. The data indicates that Medicare margins are highest for larger agencies, and those with higher wage indexes, lower overhead, and/or higher average case mix weights. Of the 80 HHRGs, seven had negative margins and 15 had margins of more than 40%.

Abt discussed options for refining the HHRG case mix system by looking at the predictive power of a number of diagnoses, both alone and in combination, including home IV; parenteral and enteral therapy; pressure and stasis ulcers; multiple sclerosis; wounds and burns (postoperative, trauma); Type I and II diabetes with injectable drugs; blood diseases (though not specifying which ones); and psychiatric disorders. Abt has determined that diagnosis is more predictive of resource use and costs than interactions among diagnoses and comorbidities.

In addition, following up on the TEP discussion at the December 15 meeting, Abt reviewed options for replacing the 10-visit therapy threshold with three therapy thresholds set at 6, 14, and 20 visits. Under the current system, an episode with 10 or more physical, speech, and/or occupational therapy visits is reimbursed (on average) almost $2,300 more than one with nine or fewer therapy visits. CMS is mulling over whether to provide a per-visit add-on for visits 7 through 13 and 15 through 20, in addition to the jump up at 6, 14, and 20 visits (“smoothing”).

TEP participants also discussed methodologies for more accurately com-pensating home health agencies for episodes with high NRS costs, especially those involving patients with pressure ulcers, wounds, and ostomies.

Options for refinement of the low utilization payment adjustment, significant change in condition (SCIC)payments, and partial episode payments were also presented, including possible elimination of SCICs. CMS promised to look again at the issue of the presence or absence of a caregiver in the patient’s home. These issues will be discussed during an upcoming TEP teleconference.

At the March 14 meeting, CMS and Abt presented variables under review to improve the predictive power of the HHRGs. These include:

• creation of additional therapy thresholds, ie, 6, 14, and 20

• age—over 80, under 65 (upon analysis, it was determined that age does not have significant predictive power);

• review of 58 diagnoses/variables that may be combined into larger diagnostic groups (8 orthopedic, 10 neurological, 1 vision, 8 diabetes, 10 skin/wound/trauma, 4 cancer, 1 blood disease, 4 cardiovascular, 2 pulmonary, 4 GI, and 6 psychiatric);

• a new “four-leg” model made up of: 1) “Kitchen sink” with additional therapy variables (6, 14, 20); 2) Kitchen sink without additional variables (14 only); 3) “Pared down” with additional therapy variables (6, 14, 20); 4) “Pared down” without additional variables (14 only).

Home health PPS payments currently include about $56 for NRS in each episode, before application of the HHRG case weight and the area wage index. Abt reported that about two thirds of home health episodes involve no NRS, while some require a lot. PPS does not reflect this variation.

Abt reviewed 2,864 home health agency cost reports, of which it was able to use 1,207, linked to 496,237 episodes. The fact that only about 40% of medical supply data on the home health agency cost report is useable should be of concern to both home health agencies and HME providers. Costs not captured or not captured correctly could lead to future downward rebasing of PPS rates.

If CMS adopts a budget neutral system of payment based on severity level on a scale of 0 to 4, and different payments by episodes 1 and 2 versus the third and subsequent episodes, costs would range from $10 (lowest severity level, episode 1 or 2) to $426 (highest severity level, episode 1 or 2) and $525 (highest severity level, episode 3 or greater). If based on severity level only, the score would range from $13 to $476. According to Abt, currently HHRGs underpay 46% of episodes for NRS, for an average underpayment of $216 for episodes that have NRS.

The alternate system would underpay 43%, or approximately $178 where there are NRS costs. Payment based on five levels of severity but not factoring in episode groupings “might be preferable because it is simpler,” says Abt.

Supplies that are costly, but for which CMS has little data from home health PPS episodes, include the Pleuravac, chest drainage tubes, and tracheostomy supplies. The lack of data makes it difficult to account for these high-cost items in case mix payments. DP

Ann Howard is director of federal policy for AAHomecare, Alexandria, Va. She can be reached via e-mail: ahoward@aahomecare.org.