‘All They Have Is A Hammer’: Home Health Payment Cuts Could Define Industry For Years

For most home health provider leaders, the Centers for Medicare & Medicaid Services’ (CMS) proposed rule was disappointing, but not surprising.

Between now and the fall, they’ll be straddling a line. One foot will be in advocacy, doing whatever they can to keep these cuts from becoming finalized, whether that’s through persuasion, congressional action or both.

But the other foot will be more grounded in reality, back home at their company’s headquarters, preparing for what is likely to be an even tougher operating environment ahead.

CMS is hellbent, it seems, on lowering costs on behalf of Medicare. But the agency is viewing “lowering costs” in silos, cutting here and cutting there to save money overall. A more holistic view, in my opinion, would mean further investment in home health services – especially at a time the Biden administration is showing such support for home- and community-based services.

CMS operating that way makes it no different than bad-actor conveners in the Medicare Advantage (MA) space. CMS is acting on behalf of Medicare, while those conveners are acting on behalf of the MA plans.

Neither is acting in the best interest of America’s seniors right now.

CMS is likely to back off – marginally – from the 2.2% aggregate payment cut for FY 2024 it proposed in late June in its final rule (the agency may even tone down its permanent adjustment of -5.1%). The fundamental issues with the cuts, though, will still be there.

In this week’s members-only, exclusive HHCN+ Update, I’ll dive into CMS’ missteps and whether congressional or litigious action to prevent cuts will be successful.

CMS, the biggest convener

CMS is well aware that home health care takes place in the most cost-efficient setting. The agency also knows it to be a subsector that can drive even more value and savings in the future.

The national implementation of the Home Health Value-Based Purchasing (HHVBP) Model – and CMMI’s recognition of its widespread success – is one of the best examples of that.

Still, the agency is recklessly ripping away margins from providers across the country. It’s likely many of those providers will have to shutter or be absorbed by a larger health care services providers in the wake of more cuts.

“I continue to be disappointed that CMS seems to be on this march to reduce costs and reduce reimbursement for services that have gotten more expensive to deliver,” Michael Johnson, president of the home health division at Bayada Home Health Care, told me this week. “What the pandemic taught us, among other things, is that a well functioning system – where home health serves as bed capacity of hospitals – is good for patients and good for the economy. It’s good for the cost of the health care system.”

Just like MA plans, Medicare patients need home health services. But, in lieu of recognizing the overall good that can come from a solid home health ecosystem, conveners are taking the provider organizations for granted.

“These cuts just don’t seem to be supporting that hypothesis, when I think we’ve got evidence that it’s more true than we’ve ever realized,” Johnson continued.

Johnson acknowledged that it does “look and feel like” CMS is acting like the worst of MA conveners.

He did stop short of fully embracing that thesis, however.

“In working with folks from CMS, I find I’m generally very impressed with smart people trying to do good work,” Johnson said. “I always try to make sure I don’t vilify these folks, because I think they really are trying to do good work. But the primary tool they have is payment. All they have is a hammer. So, if you need a screw adjusted, you’re still using a hammer, and we know what the outcomes of that look like.”

The proposed rule includes various other adjustments to home health care as well. HHCN wrote about the HHVBP, case-mix and workforce adjustments CMS is considering this week.

Proposed changes to payments for specific groupings, and how that will affect therapy utilization, are also at the top of Johnson’s mind.

“With PDGM, we reduced therapy and the additional payments [there], which I get and which we can manage,” he said. “With HHVBP, they’re going to start to look more at functional outcomes and discharges to community, which are really the outcomes you want. You don’t get those by simply healing the wound; you get those by improving people’s strength, balance and function. And that’s therapy services. That’s one of the things that these [continued] changes don’t seem to recognize.”

Attempts to stop the cuts

CMS implemented mitigated permanent cuts to home health payments in 2023. In 2024, it is proposing a 2.2% overall cut to payments, an aggregate of $375 million less compared to 2023, plus the rest of the permanent cuts the agency wanted to make (and a little bit extra).

At the same time, CMS continues to maintain that home health providers were overpaid in 2020, 2021 and 2022 – to the tune of $3.4 billion. All signs point to the agency attempting to claw that money back at some point via temporary payment adjustments.

The home health industry’s effort to stop these cuts is three-pronged.

There’s the comment period, where providers and advocates can plead their case directly to CMS. That hasn’t worked out in recent years.

Then, there’s The Preserving Access to Home Health Act of 2023, which was introduced in the Senate in late June. That bill – if passed – would stop future cuts to home health payments. It has yet to be introduced in the House. A similar bill was introduced in 2023, but didn’t gain enough traction.

It’s important to note that Congress, in the Bipartisan Budget Act of 2018, mandated that PDGM needed to be “budget neutral.” In other words, home health providers shouldn’t be paid less under PDGM than they would have been under the old Prospective Payment System (PPS).

In working with folks from CMS, I find I’m generally very impressed with smart people trying to do good work. I always try to make sure I don’t vilify these folks, because I think they really are trying to do good work. But the primary tool they have is payment. All they have is a hammer. So, if you need a screw adjusted, you’re still using a hammer, and we know what the outcomes of that look like.

Michael Johnson, home health and hospice practice president, Bayada

Finally, there’s the last-ditch effort that’s been employed: the National Association for Home Care & Hospice (NAHC) filing a lawsuit against CMS. That lawsuit argues that CMS has applied an “invalid” methodology to determine payment rates and that its cuts are “unlawful.”

“We continued our conversations, discussions and advocacy with CMS in hopes of seeing something happening in the proposed rule that was issued last week,” NAHC President William A. Dombi told HHCN. “When that rule came out, CMS absolutely stuck to its position on the budget neutrality calculation methodology. It was decided that we really had no other option left to try to deal with that other than to go to court.”

While most providers have become disheartened, unwilling to believe any of these efforts will bear fruit, there is precedent to suggest that the lawsuit could work.

I wrote about this last year, drawing from the American Hospital Association’s (AHA) recent lawsuit against CMS, which was due to a reduction of payment within the 340B drug pricing program. AHA won that case.

“In the proposed rule, CMS is proposing to make an additional payment to affected providers for 340B-acquired drugs as a one-time lump sum payment,” the agency explained in a recent proposed rule announcement. “CMS estimates that for CY 2018 through the approximate third quarter of 2022, certain OPPS 340B providers received $10.5 billion less in 340B drug payments than they would have without the 340B policy.”

There are other cases in which the Supreme Court has essentially ruled that federal agencies are overreaching of late, too. Those cases are reason to believe that the home health industry has a solid chance at stopping cuts through this lawsuit.

It won’t come soon, however. It took the AHA years for it to finally get the ruling it felt it deserved on behalf of the hospitals.

The home health-specific lawsuit came after no other options were left, as Dombi said. But it may also be the best chance the industry has at stopping CMS’ cuts to payment.

“I like the fact that we’re getting a little bit more aggressive in our push back as an industry,” Johnson said. “But it doesn’t make me happy that we have to do that. Because, to me, working with CMS should really be more of a partnership, even if it doesn’t feel that way.”