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Small Home Health Agencies See Big Boost From Medicare Pay Shift

Dec. 6, 2019, 10:35 AM

The nation’s home health agencies are bracing for a new Medicare payment system that will sort out winners and losers as the agency drastically alters the way it distributes nearly $18 billion in reimbursements a year.

Beginning in January, fee-for-service Medicare switches to a payment system for home health agencies that’s designed to curb the volume of therapy services they provide.

Rather than setting reimbursement rates on the amount of care provided, the new system will base payments on patients’ clinical characteristics—including the type and severity of ailment—as part of a new regime known as the Patient-Driven Groupings Model, or PDGM.

“This is a movement away from volume-based incentives to providing the right amount of service. A value-based approach to providing care,” said Tim Ashe, chief clinical officer at Wellsky.

Reimbursements for smaller, rural, nonprofit, and facility-based home care agencies are expected to increase next year under the new system. That’s particularly true for agencies that provide more skilled nursing services or get large numbers of patients referred from hospitals, nursing homes, and other institutions, said Robert Markette Jr., an attorney with the Hall Render law firm.

But larger, freestanding, for-profit and urban home health agencies—and those that provide more therapy-related services—will likely see less money.

The changes are “going to hit the industry differently across the country,” Markette said.

Home health agencies provide occupational, speech, and physical therapy services, along with skilled nursing care. They help reduce Medicare spending by keeping beneficiaries in their homes and out of costly hospitals and nursing homes. In 2017, Medicare paid $17.7 billion for home health-care services. Nearly 11,000 home health agencies care for Medicare beneficiaries, William Dombi, president of the National Association for Home Care & Hospice, said.

Less Paid Upfront

The new system also reduces upfront payments for home care providers next year. Home health agencies can now get 50% to 60% of a final Medicare claim paid up front through a Request for Anticipated Payment. But under the new payment model, these anticipated payments will cover only 20% of the final claim next year.

The reduced payments will make it hard for some smaller agencies with tight margins to stay afloat before receiving their full reimbursement from Medicare, which typically comes two to four weeks—and sometimes even later—after a claim is submitted.

“So if you’re carrying 80% of your costs for 30 days, or 45 days, or 60 days, or whatever it might be, you still have to meet payroll. You still have other bills to pay. Where’s the money going to come from?” Dombi said.

The Centers for Medicare & Medicaid Services will eliminate RAP payments altogether in 2021. The agency “believes that phasing out the RAP payments will mitigate potential fraud and is an important step in paying responsibly and appropriately for home health services,” the CMS said in a recent statement.

Home health agencies that rely on RAP payments to ease their cash flow crunch “are going to be in for a big surprise unless they’ve taken steps” to obtain lines of credit or put cash reserves aside to get them over the shortfall, Dombi said. Some agencies may have to use credit cards or tap owners’ personal funds to keep their agencies running, he said.

The financial crunch should ease after several months, once the full Medicare reimbursements start rolling in, Ashe said.

Small Businesses Face Crunch

But for smaller agencies with tight margins and a lot of therapy patients, “the impact could be enough to put you out of business” during the first-quarter transition to the new payment model in 2020, Ashe said.

“We’re not expecting a lot of that, but I do think that could be reality for some smaller or financially challenged organizations because the margins for some organizations are already tight,” Ashe said.

Medicare accounts for roughly 30% of the 150 to 175 patients cared for by Deer Meadows Home Health and Support Services in Philadelphia.

Stan Rynkiewicz, administrator at the non-profit agency, said that after reviewing claims data and talking with his billing team, he expects Medicare payments to increase under the new payment model next year. That’s partly because the agency doesn’t provide excessive amounts of therapy and won’t see a sharp reduction in payments for those services next year.

“We utilize it appropriately,” Rynkiewicz said. But getting more patients referred from hospitals and nursing homes—which are reimbursed at higher levels by Medicare—will prove tough for smaller home care outfits like Deer Meadows, Rynkiewicz said. That’s because bigger agencies have more marketing resources and deeper pockets.

As a result, “you’ll probably see, within the next two years, some more mergers or closures of some of the smaller agencies,” Rynkiewicz said. “And then you’re just going to have the big boys. They have the cash flow and dollars behind them to weather the storm.”

‘Volume Makes a Difference’

Markette said larger home health agencies like Encompass Health Corp., Amedisys, and LHC Group, are also at an advantage under the payment rules because their diversity of patients—some lucrative, some not—allows them to offset Medicare reimbursement cuts for certain types of patients.

“They don’t have all their eggs in one basket,” Markette said. ”Volume makes a difference.”

Federal officials expect providers to make “behavioral adjustments” in their billing, coding, and documentation in order to maximize payments under the Patient-Driven Groupings Model. Because of those anticipated changes, like using higher-paying billing codes, the CMS will cut home health payments by 4.39% in 2020 in order to meet budget neutrality requirements in the Bipartisan Budget Act of 2018.

The changes are “going to hit the industry differently across the country,” Markette said.

In an Oct. 29 earnings call, Mark J. Tarr, president and CEO of Encompass Health Corp., said the payment model will decrease the company’s Medicare reimbursement rates 1%. But that won’t change the positive long-term outlook for the company as millions of aging baby boomers will likely increase demand for home care services.

“We believe we are well-positioned as a company to work through these changes and have a proven track record of being able to do so,” Tarr added.

To contact the reporter on this story: Tony Pugh in Washington at tpugh@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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