PDGM’s Base Rates Set 5.76% Below Budget-Neutral Levels, Analysis Finds

The public comment period for the U.S. Centers for Medicare & Medicaid Services’ (CMS) home health proposed payment rule closed last week. Since then, the industry has voiced more substantive concerns with the rule than initially expected.

The Partnership for Quality Home Healthcare (PQHH), for instance, recently released its own perspective, which was driven by an analysis conducted by the health economics and policy consulting firm Dobson DaVanzo & Associates.

PQHH’s gripes — based on Dobson Davanzo & Associates’ findings — included CMS’ conclusion that 2020 base payments were set 6% higher than they should have been, the way in which the agency assessed budget neutrality and the behavioral adjustments, among others.

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PQHH believes the notion of payments being 6% higher than they should have been last year is “fundamentally flawed.”

“CMS’ methodology that compares aggregate payments under both the Patient-Driven Grouping Model (PDGM) and the prior 60-day system using CY 2020 data is inherently flawed — under the 60-day system case-mix and payments are largely driven by therapy visits especially when a high number of therapy visits are present,” PQHH’s report read.

In contrast to that, under PDGM, case-mix and payments rely more on patient clinical characteristics because those therapy thresholds were eliminated.

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That and the COVID-19 pandemic, PQHH believes, has distorted the data and led to one of CMS’ mistakes in the 2022 proposed rule.

“The shift of payment incentives away from therapy visits and the COVID-19 PHE drove a 29.7% reduction in CY 2020 therapy visits,” the report read. “This likely explains the inaccurate conclusion by CMS that CY 2020 base payment rates were set 6% higher than they should have been.”

To undue what PQHH perceives as a misstep, it’s recommending that CMS not consider any temporary or permanent decreases to PDGM 30-day payment amounts, calling it “an inaccurate budget neutrality assessment methodology.”

It’s likely these issues will persist, too, as there has been no PDGM data to date that has been completely unaltered by COVID-19 impact. As cases rise due to the Delta variant in the U.S., 2021’s data will also likely not be unscathed when CMS assesses it for the 2023 proposed rule.

CMS has also requested alternative approaches to assess budget neutrality in the future, and PQHH offered up one.

That is such: to compare actual 2020 30-day period payments to projected 30-day payments based on 2018 60-day episode data.

If CMS took that approach, it would show that payments were 1.4% below CMS projections with behavioral assumptions, according to Dobson Davanzo & Associates findings.

“These results mean that for every $10,000 in projected home health payments, CMS behavioral adjustments decrease payments by 4.36% to $9,565, and we find that on average home health payments are 1.4% ($9,431) below the projected budget neutral payments with behavioral adjustments,” the report read. “This suggests that the CY 2020 base payment rates were set approximately 5.76% below budget neutral levels.”

PQHH believes there are many factors that are driving the reduction in home health payment amounts, and that the “three behavioral assumptions are not the totality.”

Based on that, PQHH’s recommendation to CMS is to consider taking corrective action to increase base payment rates by 5.76% so that budget neutrality is more likely in 2022.

In regards to the three behavioral assumptions, PQHH believes that there’s a reason for the observed -1.4% difference between 2020 30-day episode payments and projected 30-day episode payments with behavioral assumptions.

That reason is because two of the three behavioral assumptions have “largely not occurred” based on data downloaded in July.

“CMS should continue to track the behavioral assumptions using data for future years not impacted by the COVID-19 PHE to determine the impact of differences between assumed

behavior changes and actual behavior changes on estimated aggregate expenditures,” the report read.

But future years not affected by COVID-19 are still, again, a pipe dream at this point.

“We caution, however, that given that CY 2021 data may also be distorted by recent developing trends related to the surge of the delta variant of COVID-19 cases, 2021 data may not be useful for such an endeavor,” PQHH warned.

Other advocacy organizations, such as the National Association for Home Care & Hospice (NAHC), had similar issues with the proposed rule, and it’s becoming increasingly clear that the industry will be fighting policy battles for the foreseeable future.

“To comply with Medicare law, CMS must apply a PDGM-related budget neutrality adjustment methodology that exclusively is focused on PDGM-triggered behavioral changes,” NAHC wrote in its comments on the proposed rule. “The change assessment methodology proposed by CMS encompasses changes unrelated to [home health agency] behavioral changes under PDGM.”

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