Home Health Agencies to Fight Proposed Medicare Pay Cut


July 15, 2021 11:57 am

Home health agenices want the Biden administration to reconsider a proposed rule that would reduce their Medicare payment rate by nearly 4.4% for a third straight year in 2022.

The “behavior assumption adjustment” in the proposed Home Health Prospective Payment System rule would lower Medicare payments, on the “assumption” that home health agencies would alter their billing and coding activity to maximize reimbursements under the Patient-Driven Groupings Model (PDGM), a value-based payment system that Medicare implemented in 2020.

After lowering payments by nearly 4.4% in 2020 and 2021, the PDGM’s behavioral adjustment and other factors call for another 4.36% reduction in 2022 in order to meet federal budget neutrality requirements.

But industry groups say the Centers for Medicare & Medicaid Services is setting payment rates based on flawed assumptions about agencies’ anticipated behavior under the PDGM system. They cite a recent analysis of 2020 Medicare claims data by health economists at Dobson DaVanzo & Associates, that shows agencies didn’t change their billing and coding practices as the CMS expected.

The dispute is the industry’s latest dust up involving the PDGM, the biggest change in Medicare home health reimbursement in more than 20 years.

“To continue this cut for the third year, we think is not appropriate,” said Joanne Cunningham, executive director of the Partnership for Quality Home Healthcare. “We think the 4.36% cut should be halted.”

The proposed rule expects some home health agencies to list the highest paying diagnosis code as the “principal diagnosis code” in order to “be placed into a higher-paying clinical group.”

It also anticipates agencies will report more patient ailments, or “secondary diagnoses,” in order to receive a “comorbidity adjustment” to their Medicare payments. It further envisions agencies increasing home visits to get higher Medicare payments.

‘Go Back to the Drawing Board’

William Dombi, president of the National Association for Home Care & Hospice, questioned the methodology, calculations, and modeling that the CMS used to project the likelihood of these questionable practices.

“Looking at behavioral changes is completely different from simply looking at the outcome of a model from a spending perspective,” Dombi said. “They need to go back to the drawing board to come up with a methodology that fits an analysis of behavioral change.”

Home health agencies provide services to beneficiaries who are homebound and need skilled nursing care or therapy. In 2019, traditional Medicare spent $17.8 billion on home health services for 3.3 million beneficiaries, according to the Medicare Payment Advisory Commission.

While home health care is far less costly than institutional care, Medicare has historically overpaid for services. This limits their cost-saving impact on the program.

The PDGM sets Medicare payments for home health agencies based on patients’ clinical characteristics—like the type and severity of ailment—rather than the volume of care provided. It’s part of Medicare’s move to value-based care, a concept that’s replacing traditional fee-for-service payments by creating greater incentives for providers to control costs and improve patient outcomes.

The PDGM was designed to curb the volume of therapy services provided by home health agencies. But ever since it was implemented in 2020, industry groups have chafed at the behavioral assumptions Medicare uses to adjust payments.

Spending Lower Than Projected

The CMS originally expected sketchy billing and coding practices to increase Medicare’s home health payments by 6.4%, or $1 billion, in 2020. Similar estimates have since guided agency efforts to reduce the payments.

But the the industry-backed study found that Medicare home health spending was 1.3% lower than projected in 2020. 

“Given Medicare’s own data about home health provider behavior, it is troubling that the agency continued the unjustified behavioral assumption cut for 2022,” Cunningham said in a recent partnership statement. “However, we remain encouraged that the agency states their intent to continue examining the data with the prospect of a future payment adjustment. We intend to continue working with the agency to ensure an adjustment is properly made.”

Dombi said any rate cuts should be based on actual observed evidence of billing and coding misbehavior. But with only the Covid-affected data from 2020—the first year that PDGM was implemented—the CMS has to rely on its projections until enough data is available.

“We hoped we wouldn’t have any kind of contentious circumstances with this proposed rule out there. But there does seem to be, at its core, a significant difference of view as to what CMS should be looking at,” Dombi said.

Both groups are expected to submit formal comments to the CMS on the proposed rule.