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Home health operators should dig in even further ahead of the Medicare reimbursement battle coming later this year.
The U.S. Centers for Medicare & Medicaid Services (CMS) released its 2023 proposed payment rule for the nursing home industry earlier this month. In it, the agency called for a 3.9% increase to Medicare payments for skilled nursing facilities (SNFs) – with a 4.6% cut to the Patient-Driven Payment Model (PDPM).
Broadly, CMS says the downward adjustment to PDPM is to make up for the payment overhaul’s unintended payment boost to SNF operators. Nursing home advocates, however, claim the proposed cut would be damaging to an already beleaguered corner of health care.
“Any reduction in government resources could deepen the economic crisis currently within the long-term and post-acute care sector,” Mark Parkinson, president and CEO of the American Health Care Association (AHCA), said in a statement. “Many nursing homes already face imminent closure, and this Medicare cut could force more seniors across the country to relocate and find alternative care farther away from family and loved ones.”
Historically, SNFs have been the canary in the coal mine for home health agencies. What CMS does in the former, it often tries to do in the latter.
That could turn out to be particularly true this year, considering the agency is just starting to recalibrate PDPM and the Patient-Driven Groupings Model (PDGM) after multiple years of observation. PDGM was implemented Oct. 1, 2019, while PDGM was implemented Jan. 1, 2020.
“On the home health front, you know, it is absolutely an important time to watch what’s happening,” National Association for Home Care & Hospice President William A. Dombi said during the 2022 HHCN Capital+Strategy conference. “We are looking at the likelihood that CMS will undertake its efforts to examine budget neutrality for the shift to the PDGM [overhaul]. They skipped over the last couple of years, as data was not yet available on it.”
In this week’s exclusive, members-only HHCN+ Update, I forecast what home health executives should expect when CMS releases its 2023 proposed payment rule this summer. I also explain why, I believe, 2023 is shaping up to be the first bearish Medicare payment environment for home health agencies in years.
A little bit of background
PDGM and PDPM are as different to one another as home health agencies are to SNFs. Yet the two Medicare payment overhauls do share certain big-picture commonalities.
First of all, PDGM and PDPM were both designed to be budget neutral, meaning their implementation shouldn’t have led to home health agencies or SNFs receiving any more – or less – in reimbursements than they were already.
In addition to that, both payment models were meant to better link Medicare payment to patient characteristics, where care for sicker, more complex patients translated to more in reimbursement dollars. Both overhauls also offered major changes to how home health providers and SNFs were reimbursed for the delivery of therapy services.
But the problem, according to CMS, is that PDGM and PDPM simply aren’t playing out as expected.
“Since PDPM implementation, CMS’ data analysis has shown an unintended increase in payments of approximately 5%, or $1.7 billion in FY 2020,” agency officials wrote in a fact sheet on the 2023 SNF proposed payment rule.
Meanwhile, CMS has previously suggested that PDGM caused 2020 base payments to home health agencies to be 6% higher than they should have been. Home health advocates have pushed back on that assertion, claiming it’s “fundamentally flawed.”
Using a different methodology, an analysis commissioned by the Partnership for Quality Home Healthcare (PQHH) found that, on average, home health payments were 1.4% below the projected budget-neutral payments with behavioral adjustments in 2020. If accurate, that meant the 2020 base payment rates were set about 5.76% below budget-neutral levels.
CMS says it hasn’t already adjusted either PDGM or PDPM because of the COVID-19 emergency.
What CMS is saying now
By including a 3.9% increase to Medicare payments and a 4.6% cut to PDPM, CMS effectively is looking to trim SNF reimbursement by 0.7% next year.
“CMS estimates that the aggregate impact of the payment policies in this proposed rule would result in a decrease of approximately $320 million in Medicare Part A payments to SNFs in FY 2023 compared to FY 2022,” the agency wrote in its proposed rule.
Forward-looking home health operators looking for signs on what to expect on their turf should also take note of CMS’ immediacy. Instead of easing into PDPM cuts, the agency is diving in head first.
“After careful consideration, we are proposing to recalibrate the parity adjustment in FY 2023 with no delayed implementation or phase-in period, particularly after considering that we have already granted a 1-year delayed implementation by not proposing or finalizing the parity adjustment in the FY 2022 SNF PPS proposed and final rules,” CMS wrote.
A similar downward adjustment, without a phased-in approach, could trigger the first year-over-year rate decrease for home health agencies in years.
Specifically, the last time CMS proposed – and finalized – a cut to Medicare home health payments was way back in 2018. That led to a 0.4% cut, which translated to an estimated decrease of $80 million.
CMS called for – and finalized – cuts to aggregate home health Medicare payments every year prior to that going back to at least 2012 as well.
What may give home health agencies hope, though, is the fact that regulators appear to be listening to the industry now more than ever. That’s partially reflected in the 2022 payment rate process, as CMS initially floated a 1.7% increase but ultimately settled on a 3.2% bump after hearing from stakeholders.
Additionally, it’s important to note that aggregate cuts or increases don’t always result in the same when it comes to the standard rate. The table below, put together by health care consulting firm SimiTree, shows how the standard rate has changed every year from 2012 through 2022, highlighting differences between the proposed and final payment rules.
The first “percentage change” column shows the difference between the proposed and final rule in a given year, while the second shows the year-over-year difference of the finalized standard rate. Due to the implementation of PDGM, comparing 2020 onward to pre-2020 isn’t exactly an apples to apples comparison.
Forecasting 2023 impact
If CMS does decide to enact a similar cut with PDGM, it could potentially dampen M&A activity, prompting home health operators to spend more conservatively. A less favorable rate environment may also detract from investor interest.
At the same time, home health agencies will likewise have to grapple with the nationwide rollout of the Home Health Value-Based Purchasing (HHVBP) Model next year. Timing wise, a PDGM cut and possible HHVBP penalty could create a difficult operating environment for some businesses.
