Home health agencies warn of fallout if Medicare cuts payments

More than half of the nation’s roughly 12,000 home health agencies would operate with a deficit if the Biden administration implements a proposed — and permanent — 7.7% cut of $1.33 billion in Medicare reimbursements next year, a senior industry official said.

And if the Centers for Medicare and Medicaid Services also attempt next year to recover all of the $2 billion in apparent overpayments paid to home health agencies in 2020 and 2021, “that would almost double the effect” of the proposed reduction to about 15%, said William Dombi, president of the Assn. for home care and palliative care.

Even if the proposed clawback of $2 billion were spread over several years starting in 2023, it would likely only reduce next year’s proposed rate cut to about 13%, Dombi added.

Any of these scenarios could jeopardize the home healthcare industry, Dombi said. But they would also hurt access to care and the level of care provided to the roughly 3 million Medicare beneficiaries who rely on those services, he said.

Federal budget neutrality requirements are behind the proposed cuts. However, Medicare has historically overpaid for home health services, limiting the cost-saving effect of the cuts on the program.

The Home Care and Hospice Association wants the government to pay the current rate next year and engages with industry leaders who believe the agency is using the wrong methodology to calculate payment rates .

If those efforts fail, the industry is seeking relief from Congress, where the Preserving Access to Home Health Care Act of 2022 was introduced in the House (HR 8581) and Senate (SB 4605) with bipartisan support. The measure would delay the $2 billion in payment cuts and recovery efforts to allow more negotiations between the government and home care operators.

The Centers for Medicare and Medicaid Services are now considering hundreds of public comments from industry players who also want to drop the pay cut proposal. A final rule will come this year.

A memorandum from the King & Spalding law firm on behalf of the Partnership for Quality Home Healthcare says the proposed payment rule includes three violations of the Administrative Procedure Act, which governs how federal agencies create and issue regulations.

“The Secretary’s proposal conflicts with the law it purports to implement, is arbitrary and capricious, and ignores notice and comment requirements. The proposed rule will therefore be vulnerable to a challenge by the APA in court,” says the document, which is part of the partnership’s comment letter.

Joanne Cunningham, chief executive of the partnership, said she wants the Centers for Medicare and Medicaid Services to withdraw the proposed pay cut and drop plans to recover the $2 billion.

She said the legal analysis was needed to get “an outside opinion” on whether the government’s interpretation of budget neutrality was “outside the purview of their authority”. And it certainly appears, based on King & Spalding’s analysis, that others agree with us that there are, and should be, concerns about how CMS has addressed this.

But a major congressional advisory committee is urging the agency to stay the course.

In its public comments, the Medicare Payment Advisory Commission said it “strongly supports” cutting health care spending, adding that “Medicare has long overpaid for home health care, and lower payments would better align cost payments”.

The commission called for cuts in payments to recover the $2 billion as soon as possible to “prevent the need for deeper cuts” in future years.

The Centers for Medicare and Medicaid Services “may consider raising the funds over multiple years, such as implementing an annual reduction of $502.5 million per year from 2023 to 2026,” the commission’s letter said. The ministry has not determined how or when it will implement a payment adjustment to recover the payments.

Medicare markups for independent home health agencies “have averaged more than 15% from 2001 to 2020, and these overpayments do not help beneficiaries or the program,” the commission wrote.

Traditional Medicare spent $17.1 billion on home health care services for beneficiaries who were housebound and needed skilled nursing or therapy in 2020, according to the commission. Nearly 11,500 home health agencies were Medicare certified that year.

The nearly 7.7% “permanent behavioral assumption adjustment” in the proposed Home Health Care Prospective Payment System rule would permanently reduce Medicare payments on the “assumption” that agencies Home health care providers will modify their billing and coding activity to maximize reimbursements under the patient-focused pooling model. , or PDGM, a new payment system that Medicare implemented in 2020.

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

The PDGM resulted from the 2018 bipartisan budget law, which required the Centers for Medicare and Medicaid Services to develop a payment system in which the number of therapy visits was not used as a factor in determining home health payments.

The budget law also required that the new payment system be budget neutral and that Medicare home health spending from 2020 to 2026 be the same as it would have been under the old payment system. The government estimates that it would have spent $2bn less in 2020 and 2021 than what was paid out under the PDGM system – suggesting that spending in both years exceeded the amounts required by the finance law .

The Centers for Medicare and Medicaid Services said a proposed 2.9% increase in rates to $560 million next year, and other adjustments, would help offset the 7.7% reduction and lead to a net decrease in Medicare base rate of 5% next year.

This matches the 5% reduction recommended by MedPAC in its March 2022 report to Congress.