On November 1, 2023, the Centers for Medicare & Medicaid Services (“CMS”) posted a pre-publication copy of the Calendar Year (“CY”) 2024 Home Health Prospective Payment System Rate Update Final Rule (“2024 Final Rule”), which has since been filed in the Federal Register. The 2024 Final Rule was the subject of a significant amount of advocacy by the industry due to CMS’s proposed significant rate cut to offset behavioral changes under the Patient-Driven Groupings Model (“PDGM”). CMS stated that this rate cut was necessary to meet the budget neutrality requirements under PDGM. The National Association for Home Care and Hospice has challenged the methodology CMS utilized to calculate this cut in federal court. In addition to the industry’s concern about the potential rate cut, CMS included other proposals, such as the implementation of the Hospice Special Focus Program. These factors all led to the home health and hospice industry nervously awaiting publication of the 2024 Final Rule.

Annual Home Health Payment Update

Once the pre-publication copy was released, news traveled quickly through the industry that CMS had determined not to impose the full adjustment it had proposed over the summer. After reviewing the numerous comments it received regarding the proposed “behavioral adjustment,” CMS acknowledged in the pre-publication copy that “taking a large permanent adjustment in a single year, to comply with the statutory requirement that CMS ensure the estimated aggregate expenditures under the PDGM are equal to the estimated aggregate expenditures that would have been made under the prior system, may be burdensome for some providers.” As a result, CMS exercised its discretion to impose a smaller permanent adjustment than initially proposed. That decision results in the following CY 2024 standardized 30-day payment calculation.

CY 2023 National Standardized 30-Day Period Payment CY 2024 Permanent BA Adjustment Factor CY 2024 Case-Mix Weights Recalibrations Neutrality Factor CY 2024 Wage Index Budget Neutrality Factor CY 2024 Labor-Related Share Neutrality Factor CY 2024 HH Payment Update CY 2024 National, Standardized 30-Day Period Payment
$2,010.69 0.97110 1.0124 1.0012 0.9998 1.030 $2,038.13

Applying the finalized adjustments results in a CY 2024 payment that is an increase of approximately 1.4% from the CY 2023 payment despite the 3% payment update. Although the standardized payment has gone up by approximately 1.4%, CMS projects that this adjustment will only increase home health spending by 0.8% or $140 million in 2024. While this is a significant improvement over the original proposal, this increase is significantly less than inflation and fails to keep up with the home health industry’s rapidly increasing costs.

Agencies that fail to submit their quality data will have an additional 2% deducted from their reimbursement as indicated below.

CY 2023 National Standardized 30-Day Period Payment CY 2024 Permanent BA Adjustment Factor CY 2024 Case-Mix Weights Recalibrations Neutrality Factor CY 2024 Wage Index Budget Neutrality Factor CY 2024 Labor-Related Share Neutrality Factor CY 2024 HH Payment Update Minus 2 Percentage Points CY 2024 National, Standardized 30-Day Period Payment
$2,010.69 0.97110 1.0124 1.0012 0.9998 1.010 $1,998.56

PDGM Behavioral Adjustments

The increase in home health payments results from CMS’s decision to forego implementing the entire cut CMS had calculated was necessary to account for behavioral change. Under PDGM, CMS must “annually determine the impact of differences between assumed behavior changes… and actual behavior changes on estimated aggregate expenditures” every year from 2020 to 2026. CMS can make temporary or permanent changes to the prospective payment to adjust for the identified impact of behavioral change. CMS implemented a -4.36% adjustment at the beginning of PDGM in anticipation of the projected behavioral change under PDGM. In the CY 2023 Proposed Rule, CMS calculated that a 7.85% cut to home health reimbursement was needed to offset “behavioral changes” but only implemented a 3.925% cut. As already discussed, CMS proposed a 5.779% cut but reduced the cut to 2.890% this year. The pattern of proposing a large cut but then imposing a smaller cut raises a question about whether CMS ever intended to impose the larger one.

CMS received 343 comments in response to its proposed permanent behavior adjustment of -5.779%. Given the threat this rate cut posed to the industry, it was anticipated that there would be a much larger volume of comments to CMS than usual. The comments raised several concerns, including that the cuts would lead to a home health access problem. Commenters were concerned that the proposed rate reduction would force “HHAs to close, sell, reduce service areas, reduce admissions and struggle to retain staff” to survive the cuts.

CMS dismissed the industry’s concerns because “there is always a level of concern that accompanies a payment rate decrease… ” CMS did not credit the widespread concern that the proposed cut risked creating an access to care problem. CMS’s data showed them that “the cost of providing home health care remains, on average, below the base payment rate and that HHAs, in general, continue to experience high profit margins.” CMS referred back to the cost report data, which it had outlined in the proposed rules. The data purported to show reimbursement exceeded costs by 45%, which CMS used to support its claim of “high profit margins.” CMS also dismissed concerns about agencies operating with negative profit margins. CMS included the following chart, which it stated demonstrates that the percentage of agencies operating with a negative profit margin has stayed consistent at around 23% without creating access issues.

Year Positive Margin Cost Reports Negative Margin Cost Reports Total
Number Percent Number Percent Number
2017 6,024 76.5% 1,848 23.5% 7,872
2018 5,851 77.1% 1,738 22.9% 7,589
2019 5,871 79.3% 1,533 20.07% 7,404
2020 5,558 77.0% 1,657 23.0% 7,215
2021 5,532 77.5% 1,605 23.0% 7,137
2022 4,770 78.0% 1,348 22.0% 6,118
Total 33,606 77.6% 9,729 22.5% 43,335

While that 23% figure is true, the number of agencies operating with a positive margin has declined by almost 1,300 agencies during the period covered in the chart. More importantly, the number of agencies operating with a negative margin has also declined. This means that the number of agencies has declined during the period. What CMS may have missed in this chart is that, as rates are reduced, or fail to keep pace with cost increases due to inflation, labor market pressure and other factors, agencies are falling out of the positive margin category into the negative margin category and then closing. This could be what is driving the absolute numbers in each category down. CMS concludes that their rates are sufficient because it has not increased the percentage of agencies with negative margins, but 23% of 10,000 is much different than 23% of 100. CMS may not fully capture the essence by focusing on percentages rather than considering the overall number of agencies. The industry needs to develop more data to explain to CMS the access problem that is looming on the horizon and, in certain areas, is already present.

Even developing this data may not be sufficient. CMS stated, “were the data to show definitively that overall access has been affected, there remains no direct link to inadequate payment.” One example of this lack of a direct link relates to staffing. Several comments noted rate reductions were access issues because agencies were rejecting referrals due to the lack of staffing. CMS dismissed the staffing concerns by noting, “commenters did not submit any evidence that staffing shortages are due to changes in the payment rate or case‑mix adjustment rather than the widespread staffing shortages that exist across the spectrum of healthcare and in the general labor market.” CMS even added that they could not understand “why HHAs would reject referrals when payment rates have increased each year since the implementation of the PDGM and as established earlier, have continually exceeded the cost of providing care.” CMS concluded that its “analysis of HHA cost reports and margin analysis, as well as MedPAC’s analysis of profit margins, the supply of home health providers, annual changes in the volume of services, quality of care, and access to capital shows that access should remain adequate.” Based upon this analysis, CMS has concluded that any changes to access “would not be a result of CMS paying more accurately [i.e., cutting rates more] for the care provided.”

CMS’s analysis of the data poses a significant concern for the future. CMS warned the industry that “without the full permanent adjustment (-5.779 percent) in effect, the total temporary dollar amount will likely continue to increase until the permanent adjustment is fully implemented.” The proposed one-time temporary adjustment needed to address budget neutrality continues to grow and the industry needs to be preparing for that moment now. A good place to start is to prepare better data to make our financial case. CMS will continue to use our cost reports to justify cuts, so it is necessary to present a clear, objective case that imposing such cuts will create access problems. We also need to be clear about what a lack of home health access means to the overall Medicare spending. At this time, our cost reports remain an obstacle to this discussion and impede the ability to demonstrate the significant financial difficulties the industry is currently facing.

Home Health Aide Utilization

CMS included in the proposed rule a Request for Information (“RFI”) related to home health aide utilization. CMS received 85 comments in response to the RFI. Comments submitted to CMS stated that the need for aide services has not declined but that PDGM “discourages HHAs from employing aides and providing necessary aide services.” Commenters noted that “HHAs’ engage in selective practices and strategic preference for serving lower acuity patients to maximize profits.” Comments did note that low reimbursement made it difficult to recruit and retain aides which, in turn, made it difficult to provide aide services. Commenters also alleged agencies told physicians aide services were not available, deliberately understaffed aides, required family members to learn the aide tasks or deliberately refused to provide aide services. CMS’s response to these comments is as follows:

In response to the comments detailing concern that HHAs may be influencing practitioners to curtail or omit aide services, or are refusing to initiate such services as ordered, we would like to direct readers’ attention to the home health Conditions of Participation (CoPs) at 42 CFR 484.60. As a reminder, per the regulations, each patient is required to receive home health services as delineated in an individualized plan of care. Such plan of care must specify the care and services necessary to meet the patient-specific needs as identified in the comprehensive assessment, including identification of the responsible discipline(s) and the measurable outcomes that the HHA anticipates will occur as a result of implementing and coordinating the plan of care. It is improper for an HHA to unduly influence a practitioner based on the HHA’s own service constraints.

The issue of agencies “strategically” choosing patients to maximize profitability came up in other comments. One commenter, from a patient advocacy group, noted that home health had become “big business” and that agencies focus on profits for shareholders, not patient care. CMS also cited comments from prior years that raised concerns agencies would strategically decline patients to maximize profitability. CMS noted their concern that “referral rejections and perceived access to care issue that industry advocates have cited to us are in fact being caused by strategic behavior. We would be interested to receive data and analysis comparing beneficiaries who are receiving home health services versus those who are not, which could help inform future policy.” Comments regarding access were submitted by providers as well as entities who are not providers and do not represent providers. CMS noted the data they were provided did not support these conclusions and requested data on beneficiaries who receive home health versus those who do not. This could lead to additional scrutiny by CMS to identify and respond to strategic efforts by agencies to selectively admit or decline patients to maximize profitability.

Home Health Value-Based Purchasing (“HHVBP”)

CMS is finalizing its proposal to remove the following five measures from HHVBP: “(1) OASIS-based Discharged to Community (DTC); (2) OASIS-based Total Normalized Composite Change in Self-Care (“TNC Self-Care”); (3) OASIS-based Total Normalized Composite Change in Mobility (“TNC Mobility”); (4) claims-based Acute Care Hospitalization During the First 60 Days of Home Health Use (“ACH”); and 5) claims-based Emergency Department Use without Hospitalization During the First 60 Days of Home Health (“ED Use”).”

CMS will replace those five measures with the following three measures: “1) the claims-based Discharge to Community-Post Acute Care (“DTC-PAC”) Measure for Home Health Agencies; 2) the OASIS-based Discharge Function Score (“DC Function”) measure; and 3) the claims-based Home Health Within-Stay Potentially Preventable Hospitalization (“PPH”) measure.” These changes would be effective with the CY 2025 performance year and are intended to bring the expanded HHVBP model into alignment with HHQRP, as well as the measures that are publicly reported on Home Health Compare.

CMS will also proceed with its proposal to re-weight the measures.

More importantly, CMS is finalizing its proposal to change the baseline year for HHVBP. This marks the second time in two years that CMS changed the baseline year. Beginning with CY 2025, the baseline year will shift to CY 2023.

CMS received 50 comments in response to its proposed HHVBP changes. While some were supportive, many comments raised concerns about changing measures at this time, given agency efforts and focus to date. The majority of the comments in response to the proposal to move the baseline year argued that changing the baseline year now amounted to “moving the goalposts.” Commenters were concerned that this would penalize agencies who were diligent and reward those who took little or no action. CMS dismissed all these concerns and concluded, amongst other reasons, that it would be too burdensome to track multiple different performance years. Therefore, CMS is proceeding with the proposed HHVBP changes, including changing the baseline year.

Providers will see a range of impacts from this shift. There will be unintended and unanticipated outcomes. Providers will need to begin recalculating based on these changes. CMS’s response to the various comments it received puts providers on notice that future measure changes will be accompanied by changes to the baseline year. In other words, as the HHVBP program continues, the goalposts will keep on moving. This will make forecasting the impact of HHVBP more difficult, as you may not know from year to year what rules to apply.

Program Integrity Changes

The Final Rule also addresses broader program integrity issues. Two of these changes are hospice-specific and will be addressed in a separate forthcoming alert. The program integrity provisions addressed here include changes regarding the deactivation of billing privileges, requiring fingerprints for revalidating providers who enrolled during the pandemic, and expanding the application bar.

Hospice Risk-Screening Category. Due to CMS’s increasing concern “about program integrity issues within the hospice community, particularly (though not exclusively) potential and actual criminal behavior, fraud schemes, and improper billing,” it proposed to increase the risk screening category into which hospices were placed. CMS recounts one specific, egregious hospice fraud case in the 2024 Final Rule to reinforce its concern. CMS is finalizing its proposal to move “initially enrolling hospices and those submitting applications to report any new owner” into the high-risk screening category. Hospice should note this change as yet another sign that hospice scrutiny is continuing to increase. Hospices need to be much more vigilant about compliance.

Hospice 36-Month Rule. CMS also proposed to add hospice to the list of providers subject to the prohibition on changes in majority ownership within 36 months of initial enrollment or a prior change in majority ownership (the “36-month rule”). CMS proposed to add hospice due to its growing concern that hospices are being flipped quickly after enrollment in a manner similar to what CMS saw in 2010 with home health, which led to the 36-month rule. CMS is finalizing this proposal. When considering a transaction involving a hospice, providers will need to consider the impact of the 36‑month rule, just as they do with home health.

Deactivation. Medicare can currently deactivate a provider who has not billed a claim for 12 months. CMS proposed to change this to six months of inactivity. Commenters objected that this proposal did not improve program integrity but only penalized legitimate providers. One commenter noted that many state Medicaid programs require an agency to be enrolled with Medicare to participate. This then burdens the law-abiding provider, who has to continually reactivate the number. CMS disagreed with the conclusion that this provision did not strengthen program integrity. CMS did not necessarily dispute that it burdened the law-abiding providers but stated that it was not intended to burden the providers. Despite the negative feedback, CMS is moving forward with its proposal to change the regulations to allow deactivation after six months of inactivity.

Managing Employee. CMS proposed to expand the definition of managing employees for hospices and SNFs to include hospice administrators or hospice medical directors. CMS is finalizing its proposal to change the definition of “Managing Employee.” With this change, hospices will now need to report both the administrator and medical director as managing employees for their Medicare enrollment. Most hospices were already reporting their administrator but may not have been reporting their medical director. CMS reminds providers that this change is intended to provide a minimum bar for reporting.

Previously Waived Fingerprinting. During the COVID-19 Public Health Emergency (“PHE”), CMS waived the requirement that individuals with a 5% or more ownership interest in newly enrolling high-risk providers and suppliers undergo a fingerprint-based background check. It proposed that providers for whom CMS waived the requirements during their initial enrollment would undergo the fingerprint background check as part of their revalidation once the PHE ends. CMS also proposed to modify the regulation so that any time CMS waives the fingerprint background check requirements due to lawful authority, the provider would then undergo the fingerprint check during the revalidation once the emergency ends. This requirement includes home health and hospice going forward. CMS is finalizing this proposal without changes.

Expansion of Reapplication Bar. CMS put forward three proposals related to the reapplication board. It proposed to expand the prohibition on a prospective supplier or provider reapplying if their application is “denied because the provider or supplier submitted false or misleading information on or with (or omitted information from) its application in order to enroll.” Currently, a provider or supplier denied under these circumstances is barred from enrolling for three years. CMS proposed to extend this to a maximum of ten years. After reviewing comments, CMS is finalizing its proposal to extend the reapplication bar to a maximum of ten years.

CMS had also proposed to prohibit a provider or supplier subject to this reapplication bar from ordering, referring, certifying or prescribing Medicare-covered services, items or drugs. CMS would enforce this by not paying for any items “ordered, referred, certified, or prescribed by a provider or supplier that is currently under a reapplication bar.”

CMS also proposes to add a new prohibition on payment. It will not pay for “any otherwise covered service, item, or drug that is ordered, referred, certified, or prescribed by a physician or other eligible professional (as that term is defined in section 1848(k)(3)(B) of the Act) who has had a felony conviction within the previous 10 years that CMS determines is detrimental to the best interests of the Medicare program and its beneficiaries.”

CMS did not explain what constitutes a felony conviction that is “detrimental to the best interests of the Medicare program and its beneficiaries.” This led commenters to state CMS should provide a list of disqualifying convictions. CMS declined to do this because it needed to “retain our flexibility to consider each felony case on its own facts and circumstances rather than restrict ourselves to a small list of felony offenses.” CMS replied to concerns that this lack of clarity could result in subject determinations by stating, “CMS is ultimately responsible for overseeing the Medicare program and protecting its beneficiaries and the Trust Funds.” This is a surprising position for CMS to take, as it appears to be saying that protecting Medicare requires it to be unlimited and subjective. This will present providers whom CMS proposes to subject to this bar with significant challenges in avoiding having the bar applied to them. This lack of clarity, which frees CMS to make ad hoc determinations, also raises significant due process questions. Nevertheless, CMS is finalizing these proposals.

Conclusion

CMS backed away from its original rate cut and gave the home health industry a very slight increase in reimbursement for 2024. CMS finalized its other proposed changes, which will impact HHVBP going forward. The changes to HHVBP need to be assessed immediately so providers are prepared when the goalposts move in the future. The comments regarding home health utilization and strategic activity by HHAs may very well lead to new audits, survey focus or other program integrity measures. These efforts will be designed to identify improper strategic actions by agencies related to patient admissions and aide utilization that are intended to maximize profits. The other new program integrity measures, including applying the 36-month rule to hospice, are also significant. The industry is thankful that the rate cut did not occur, but other changes finalized in the rule, especially those made to HHVBP, will have a significant impact.

Practical Takeaways

Begin assessing the impact of the slight increase in revenue for CY 2024’s operations.

  • Consider how the changes to measures utilized in HHVBP and the shift of the baseline year to 2025 will impact future performance under HHVBP.
  • Assess your current provision of home health aide services and admission patterns.
  • Do those patterns appear strategic? If you decline patients who need aides or do not provide aid services, can you explain it in terms that are not about costs/profitability?
  • Be aware that CMS is concerned about the decline in home health aide utilization.