Home Health Industry Must Plan for Future PDGM Fight

With a 1.7% bump to Medicare rates and seemingly few modifications to the Patient-Driven Groupings Model (PDGM), the home health proposed payment rule for calendar year 2022 felt relatively benign at first glance.

In reality, though, the June 28 proposal from the U.S. Centers for Medicare & Medicaid Services (CMS) likely sets up a policy battle of epic proportions for 2022 and after. In fact, nuanced aspects of the proposed rule are “fatally flawed,” according to the National Association for Home Care & Hospice (NAHC).

“Unfortunately, the pandemic has continued throughout 2021, continuing the chaos in health care that began in March 2020,” NAHC wrote in a letter to CMS. “Accordingly, NAHC continues its support of a policy that maintains the general structure of PDGM without material modification in 2022.”

Understandably, the CMS plan to expand the Home Health Value-Based Purchasing (HHVBP) Model nationwide has captured most of the industry’s interest thus far. Yet to NAHC’s point, the proposed rule included a few subtle but important changes to the framework of PDGM and how the overhaul is evaluated.

Specifically, CMS officials outlined plans to recalibrate all 432 of PDGM’s case-mix weights based on 2020 care utilization data. On top of that, they also described in detail how the agency planned to evaluate PDGM’s overall price tag — and whether it meets budget-neutrality standards — by doing a fairly straight comparison between the new model and the previous Prospective Payment System (PPS).

That, however, is like comparing apples to oranges, NAHC argued in its letter.

“To comply with Medicare law, CMS must apply a PDGM-related budget neutrality adjustment methodology that exclusively is focused on PDGM-triggered behavioral changes,” the Washington, D.C.-based advocacy organization explained. “The change assessment methodology proposed by CMS encompasses changes unrelated to [home health agency] behavioral changes under PDGM.”

CMS normally releases its final payment rule for the coming year at the end of October.

If it moves forward with the case-mix recalibrations and its PDGM-adjustment methodology, home health providers may ultimately end up underfunded at the worst possible time, some industry insiders fear.

That could spiral into the “historic” levels of M&A activity that some predicted for 2020, with well-capitalized providers acquiring cash-strapped operators. It could also weaken access to home health services amid soaring demand from patients and referral partners.

Figuring out PDGM’s price tag

To gauge just how far apart the home health industry and CMS are on PDGM’s price tag, one need only look at their respective cost analyses.

In August 2020, the Partnership for Quality Home Healthcare (PQHH) released findings from an independent analysis conducted by health economics and policy consulting firm Dobson DaVanzo & Associates. Among its findings, the analysis determined that total aggregate home health payments were about 21.6% lower than projected during the early part of PDGM’s first year.

Meanwhile, in its proposed rule from June, CMS noted that home health agencies were overpaid 6% in 2020, at least according to its internal assessment methodology.

“We determined the CY 2020 30-day base payment rate was approximately 6% higher than it should have been, and would require temporary retrospective adjustments for CY 2020 and subsequent years until a permanent prospective adjustment could be implemented in future rulemaking,” the agency wrote in the proposed rule.

In addition to NAHC, the American Hospital Association has also pointed out the giant discrepancies when it comes to the cost of PDGM.

“These concerns raise serious doubt about the accuracy of both the initial 4.36% PDGM behavioral adjustment and the modified 6% overpayment now estimated by CMS,” the hospital group wrote in its own letter to CMS. “In order to reliably compare CMS projections versus actual behavior for the first year under PDGM, additional work is warranted.”

As for tweaking all 432 of PDGM’s case-mix weights based on 2020 care utilization data to make PDGM more budget neutral, CMS says the move is simply necessary to better align payment with patient characteristics and the delivery of home health services.

Recalibration to case-mix weights isn’t uncommon, as it is something CMS has done on an almost annual basis. The issue with doing so now, though, is using an unprecedented period in health care as a measuring stick.

Particularly in home health care, the patients who providers were treating came on service sicker and more complex, requiring more care as a result. Moving forward, the “typical” home health patient will likely match 2018 and 2019 profiles.

“It is axiomatic that 2020 was an unprecedented year in health care,” NAHC’s letter continued. “It is highly unlikely that the experiences of 2020 will be repeated in 2022. Certainly, they will not be repeated in home health care, as we have already seen significant signs of a return to the more usual manner and mode of care delivery by [home health agencies].”

Reading the post-acute care tea leaves

To better read the post-acute care tea leaves, it’s important to also factor in what CMS has said about the Patient-Driven Payment Model (PDPM), the reimbursement overhaul for skilled nursing facilities (SNFs) that went into effect in October 2019.

In its April proposed rule for SNFs, CMS announced that PDPM payments were 5% — or about $1.7 billion — above expectations in fiscal year 2020. In turn, SNF operators believed the agency would attempt to claw that money back through its 2022 final rule.

“We believe that, based on the data from this initial phase of PDPM, a recalibration of the PDPM parity adjustment is warranted to ensure that the adjustment serves its intended purpose to make the transition between RUG-IV and PDPM budget neutral,” the agency wrote.

But that scenario didn’t play out. Instead of looking to recoup PDPM money, CMS punted any adjustments to next year.

“As with past payment model transitions, CMS has conducted the data analysis to recalibrate the parity adjustment used to achieve budget neutrality under PDPM,’ the agency’s SNF final rule from July stated. “However, CMS also acknowledges that the COVID-19 public health emergency could have affected the data used to perform these analyses.’’

If CMS confirms its belief that home health agencies have been overpaid under PDGM, it will likely take a similar stance in its October rulemaking.

While “no clawbacks this time around” sounds positive, it may have hidden dangers. With both PDGM and PDPM, CMS kicking the recalibration can down the road could just mean the agency looks to recoup even more money the following year.

“My issue is with the budget-parity adjustment [is],” Marc Zimmet, president of Zimmet Healthcare Services Group, said in mid-August at the organization’s annual conference. “They want $1.7 billion. If we don’t do something about this now, we won’t be facing a 5% recalibration. We’ll face a 10% to 12% reduction.”

‘Troubling’ increase in homebound Americans

In the past, CMS and the Medicare Payment Advisory Commission (MedPAC) have felt comfortable making home health cuts because agency margins and patients’ access to care were perceived as strong.

That is starting to change.

With a worsening staffing crisis, providers have had to spend more on labor. With the COVID-19 pandemic, they’ve also had to spend more on masks, gowns, goggles and other forms of personal protective equipment (PPE).

Just how bad is the staffing crisis? David Totoro, chief government affairs officers for the Bayada Home Health Care, said Tuesday that his company has had to decline 64% of referrals in Pennsylvania, Delaware and New Jersey, its largest coverage area.

“The workforce shortage is not a new crisis,” Totaro said. “It’s been decades in the making. “However, from the beginning of the pandemic until now, Bayada has seen an unprecedented increase in the caregiver staffing shortage in New Jersey.”

Additionally, recently published research suggests that the population of homebound older Americans is skyrocketing.

The number of homebound older adults before this decade was about 5%, according to Mount Sinai researchers, who studied homebound trends in a paper published in JAMA Internal Medicine. In 2020, the homebound figure grew to 13% of the population, with homebound rates highest in non-Hispanic Black and Hispanic/Latino populations.

Further payment pressure on home health agencies would likely exacerbate staffing woes, subsequently affecting access to care.

If CMS is set on readjusting PDGM, that’s also something the agency will need to take into consideration.