CMS Could Target LUPAs, Functional Impairment in Future PDGM Adjustments

Despite the once-in-a-generation COVID-19 pandemic, the home health industry’s transition to the Patient-Driven Groupings Model (PDGM) was pretty seamless.

Looking into the not-too-distant future, the U.S. Centers for Medicare & Medicaid Services (CMS) will now likely attempt to make modest tweaks to a handful of key areas, payment experts believe. The agency will do so while keeping its eye on what has so far been a highly problematic shift to the no-pay RAP, too.

The “no-pay RAP,” or Request for Anticipated Payment, went into effect at the start of 2021. Medicare administrative contractors (MACs) and others have struggled with the change, though they have known about the new billing requirement — part of CMS’s planned phaseout of home health pre-payments — for months.


“As seamless as the transition was to PDGM, the transition to no-pay RAPs has, quite frankly, been a mess,” Nick Seabrook, managing director of BlackTree Healthcare Consulting, said earlier this month during the Home Health Care News PDGM Summit. “That goes for MAC processing issues to EMR readiness.”

King of Prussia, Pennsylvania-based BlackTree Healthcare Consulting provides billing, OASIS and other support services to home health and hospice agencies, as well as skilled nursing facilities (SNFs).

On the whole, providers did a “great job” adapting to PDGM, the biggest overhaul to home health payment methodology in 20 years, Seabrook said. That’s especially true in regard to the model’s therapy provisions, which many believed would trigger a sudden move away from those important services.


“One of the common, I would say, cynical viewpoints heading into PDGM was, ‘Now that we’re not reimbursing for therapy, utilization is dead,’” he explained. “Really, if you look back at the data, that clearly wasn’t the case.”

Specifically, the percentage of therapy visits compared to overall visits increased in 2020 compared to 2019, jumping from 45.9% up to 46.8%, according to Strategic Healthcare Partners data.

While strong therapy utilization was somewhat of a surprise, skyrocketing Low-Utilization Payment Adjustments (LUPAs) were to be expected. The public health emergency led to many patients cancelling home health visits to mitigate exposure risks, but the general, more highly complex nature of LUPAs under PDGM was always likely to cause rate inflation.

Going into 2020, CMS assumed that home health providers would slash their LUPA rates to around 5% to maximize reimbursement. That assumption was one of three main drivers behind the agency’s 4.36% behavioral adjustment.

Yet that never materialized, with industry LUPA rates routinely hovering around 9% or higher throughout most of last year.

EvergreenHealth Home Care saw its LUPA rates hit 14.9%, Chief Home Care Officer Brent Korte said during the PDGM Summit.

“CMS’s methodology for the ‘haircut,’ for the behavioral adjustment, was just categorically off,” Korte said. “But we all did adjust to it.”

The PDGM crystal ball

In its final home health payment rule for 2021, CMS decided to keep PDGM’s behavioral adjustment intact. But LUPAs were so far off in 2020 that regulators are almost certain to revisit LUPAs for 2022, adjusting their assumptions to better meet the overhaul’s realities.

That would likely benefit home health providers’ bottom lines.

But another area where PDGM didn’t play out as expected had to do with the functional impairment. For the first time in 2020, CMS calculated agency reimbursement by factoring in “low,” “medium” and “high” functional scoring, with a correlated payment bump for each category.

In coming up with PDGM, CMS believed roughly one-third of claims would fall evenly into each of those three groups. In reality, 24% fit into the “low” category, with 32% fitting into “medium” and 44% fitting into “high.”

“If we look at what behavior adjustments might be in play for the future, if you look at the functional scoring specifically, I think that’s one area to be cautious of,” Seabrook said.

If CMS acts to readjustment how it weighs functional impairment, that could negatively impact providers moving forward.

In the grand scheme of things, any adjustments to LUPAs or functional impairment could still pale in comparison to the ongoing no-pay RAP transition, however.

BlackTree carried out its own projections specific to the no-pay RAP cash flow impact. It originally anticipated a roughly 11% reduction in cash flow for January 2021 and about a 26% reduction for February, Seabrook said.

“Well, the numbers for January, when we looked at our top-25 clients, it was about a 30% reduction in cash flow, comparing that January cash to the average monthly cash for Q4 of 2020,” he said. “The cut was a lot deeper.”

Those challenges are certainly in line with what EvergreenHealth Home Care has experienced, Korte confirmed.

EvergreenHealth Home Care is a health system-based home health and hospice organization in Washington state. With 600 clinicians and support staff, it’s ones of the largest home health providers in the Pacific Northwest

“I would say that the no-pay RAP was a wolf in sheep’s clothing — 100%,” Korte said. “And the impact for Evergreen may be even greater than PDGM.”

EvergreenHealth Home Care looks back

Back in 2019, EvergreenHealth had several straightforward goals for PDGM.

“Early in PDGM, before thinking about COVID, we had some simple goals,” Korte said. “No layoffs. No decrease in quality outcome. The moonshot was no decrease in net gain.”

The pandemic threw a wrench into the organization’s plans, with EvergreenHealth widely viewed as the first home health and hospice provider in the nation to treat a COVID-19 patient. The combination of PDGM and the coronavirus has made 2020 a difficult year to evaluate.

Korte painted a picture: EvergreenHealth’s hospital lost its first patient on March 2. Early PDGM financial information came out for the first time on March 7, but that still included some Prospective Payment System (PPS) data.

Then elective surgeries stopped in April and early May, contributing to EvergreenHealth Home Care seeing its first financial loss in the seven years Korte had served as chief home care officer.

“[Later in] May, we went from famine to feast,” he said. “We went from low census to overtime, where all of a sudden surgery started again and our therapists were overwhelmed. Our nurses were already quite busy.”

Today, EvergreenHealth’s home health census is around 1,500 patients. It had reached an all-time high of 1,600 in winter, but it strategically decided to “tap the breaks” to ensure patients were getting high-quality care.

Even with the LUPA and COVID-19 challenges, EvergreenHealth ended up “doing better in 2020 than in 2019,” Korte said.

Revenue levels remained mostly the same, but the organization became much more efficient.

“We knew that, on a per patient basis, we were going to make less money,” Korte said. “In the simplest of economies, we’re going to make less money per patient. We knew we needed to increase our census to increase our patient load.”

EvergreenHealth’s No. 1 priority for the rest of 2021? Doubling down on its recruitment and retention efforts, with the ultimate goal of raising its average employment time from 7.7 years to around 10 years.

“From an organizational perspective, we all know that when you add floors on, you test your foundation,” Korte said.

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