On Thursday, October 29, 2015, CMS issued the pre-publication copy of the final home health PPS rule for CY 2016 (“the Rule”).  The Rule adopts most of the proposals from July but makes a few key changes.

Rates, Payments and Home Health Spending

Although CMS makes several key changes to the final rule, CMS projects that, overall, the policies outlined in the final rule will reduce home health spending by 1.4 percent or $260 million.  This is an improvement from the proposed rule, which projected a 1.8 percent reduction in home health spending, but it is still a significant reduction at a time when other factors are driving home care costs up.  In addition to the rate update, there are several important revisions to proposals outlined in the draft rule.

Value-Based Purchasing

The most significant part of the proposed rule was the Home Health Value-Based Purchasing proposal (“HHVBP”), and CMS received a significant number of comments about it.  In response to these comments, CMS has proposed a few minor modifications and HHVBP will go forward with only minor changes.  The initial states that are participating will be the states proposed in the original rule.  The changes made address scoring accuracy and reducing impact at the beginning of the program.

Many commenters were concerned that potential for extremely large adjustments would cause significant financial harm to lower tier providers.  The problem was exacerbated because provider performance will be measured against other providers.  This means a provider could have excellent quality in absolute terms but still suffer a significant reduction in reimbursement.  This would lead to providers closing despite providing high quality care as measured in an absolute sense.  CMS stated that based upon its financial modeling, the HHVBP program “does not reduce the overall payments to HHAs and, as a result, the aggregate average margins of all competing HHAs will be unaffected.”  (emphasis added.)  In other words, CMS concludes that while individual quality agencies may be impacted significantly by the rule, the industry as a whole should not suffer any negative impact.

Although CMS was generally unsympathetic to the concerns that the large adjustments would have a negative impact on providers, CMS determined to adjust the incremental payments under HHVBP to reduce the initial impact.  The maximum adjustment will continue to be +/- 8 percent, but CMS is altering the phase in by implementing a +/-3 percent adjustment in CY 2018.  This will move to +/-5 percent in CY 2019, +/-6 percent in CY 2020, +/-7 percent in CY 2021 and +/-8 percent in CY 2022.  These percentages reflect that maximum up or down adjustment available each year, depending upon the provider’s performance.  CMS concluded that reducing the first year adjustment would soften the impact of the rule.  However, the HHVBP program will still subject agencies to adjustment rates that are significantly higher than other providers.

CMS has finalized one other key change to the HHVBP program.  In the proposed rule, CMS stated that performance scores in each metric would be rounded up or down to the nearest whole number.  CMS concluded that rounding to the nearest whole number would potentially skew the data and that this potential skewing could be avoided by rounding performance and improvement scores up or down to the third decimal.  CMS states that this will lead to greater precision in scoring and ranking providers.  This is the only change to the scoring model for the HHVBP program and applies to both the improvement scoring and the performance scoring.

Recalibrating Case Mix Weights

HHS will finalize the proposed recalibration of case mix weights.  The final recalibration calculation using CY 2014 claims data through June 30, 2014 resulted in a case mix budget neutrality factor of 1.0187, which is a slight change from the proposed rule.  CMS elected to move forward with this proposal, despite concerns that the recalibration of case mix weights over the past several years has resulted in a reduction of the case mix weight for 76 percent of the Home Health Resource Groups.  Commenters also noted that the recalibration of case mix weights in past years has led to an overall decrease in case mix weight of 4.7 percent and, for certain codes, a decrease of as much as 7.2 percent.  These commenters felt that CMS had provided insufficient evidence to support the need for recalibrating case mix weights again.   CMS disagreed that this was an issue and stated that the recalibration would be implemented as proposed.

Nominal Case Mix Growth Adjustment

In response to comments, CMS recalculated nominal case mix growth using an older, more familiar, model that resulted in identified nominal case mix growth dropping from 3.4 to 2.88 percent.  CMS also agreed with concerns about the financial impact of the two-year adjustment and will implement a 0.97 percent reduction in CY 2106, CY 2017 and CY 2018 to address nominal case mix growth.

ICD-10 Seventh Character Issue

During preparation for ICD-10, a change to the guidance regarding what would be an acceptable seventh character for home health to use created significant confusion.  In the rule, CMS announced that “A” is being added as a seventh character.  To address the related issues this causes, the grouper logic is being updated effective January 1, 2016 to award points for certain initial encounter codes to episodes starting on or after October 1, 2016.  This is a retroactive change intended to prevent undue harm to providers.

Practical Takeaways

The projected reduction in home health spending of 1.4 percent, at a time when other factors are increasing provider costs, means home health providers will need to work harder to further reduce operating costs. Providers in the HHVBP states must begin focusing on the quality metrics in HHVBP now and begin diligently building practices to achieve high level performance.  Providers in the pilot project states who are not prepared may find themselves receiving significant reductions in reimbursement.  Providers who are not in the pilot states should also be working on QAPI but should also be closely monitoring the HHVBP program to measure its impact and identify strategies for surviving when HHVBP becomes the standard across the industry.