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13 British American Blvd., Suite 2,Latham, New York 12110 Telephone (518) 867-8383 Web

M E M O R A N D U M

TO: / Community Services Members
FROM: / Cheryl Udell, Community Services Policy Analyst
DATE: / August 18, 2017
SUBJECT: / Home Health Agency Proposed Medicare Rule for 2018
ROUTE TO: / Administrator/Director, CFO

ABSTRACT:CMS releases HH PPS proposed rule for CY 2018.

Introduction

The Centers for Medicare and Medicaid Services (CMS) has issued the Medicare Home Health Prospective Payment System (HH PPS) proposed rule for Calendar Year (CY) 2018. The complete rule is published in the Federal Register.The final rule will likely be issued sometime in the last quarter of 2017.

Public comments on the proposed changes must be received by CMS by 5p.m. on Sept. 25, 2017.Comments should reference file code CMS-1672-Pand may be submitted electronically at following the instructions under More Search Options.

For additional details on submitting comments, please refer to the Federal Registerlink referenced above.

CMS is proposing major changes that include a $950 million decrease in Medicare payments and in the methodology of how home health payments will be paid. They are proposing to change the unit of payment from 60-day episodes of care to 30-day periods of care. This proposed change is scheduled for CY 2019 under the Home Health Grouping Model (HHGM) and comprises approximately 30 percent of this proposed rule.

The proposed rule also includes proposed changes for the Home Health Value-Based Purchasing Model (HHVBP) and the Home Health Quality Reporting Program(HH QRP), as well as a Request for Information (RFI) to welcome feedback on positive solutions for program simplification, flexibility, and innovation.

In the CY 2015 proposed rule, the Face-to-Face (F2F) requirement was extensively covered with several proposals to reduce the burden to home health agencies (HHAs) and physicians, and to mitigate instances where physicians and HHAs unintentionally fail to comply with certification requirements. For the last three years, there has been no mention of the F2F requirement in the proposed or final HH PPS. LeadingAge NY will continue to work with LeadingAge National and other stakeholders to eliminate this mandate or work to reduce the all-or-nothing approach that CMS has taken.

Overall Impact and Summary of Key Provisions

CMS is proposing measures that equal a 0.4 percent decrease in total Medicare payments to HHAs for CY 2018. Nationally, total Medicare revenue would be reduced by approximately $80 million.The proposed decrease reflects the effects of a 1 percent home health payment update percentage ($190 million increase); a -0.97 percent adjustment to the national, standardized 60-day episode payment rate to account for nominal case-mix growth for an impact of -0.9 percent ($170 million decrease); and the sunset of the rural add-on provision ($100 million decrease). This is different from last year’s final HH PPS reduction of 0.7 percent,or $130 million.

CY 2018 HH PPS Case-Mix Weights

To recalibrate the HH PPS case-mix weights for CY 2018, CMS proposes to use the same methodology finalized in past HH PPS rules, including the CY 2008, CY 2012, and the CY 2015 HH PPS final rules. Annual recalibration of the HH PPS case-mix weights ensures that the case-mix weights reflect, as accurately as possible, current home health resource use and changes in utilization patterns. To generate the proposed CY 2018 HH PPS case-mix weights, CMS used CY 2016 home health claims data (as of March 17, 2017) with linked OASIS data. These data are the most current and complete data available now. CMS will use CY 2016 home health claims data (as of June 30, 2017) with linked OASIS data to generate the CY 2018 HH PPS case-mix weights in the CY 2018 HH PPS final rule. To ensure that the changes to case-mix weights are implemented in a budget-neutral manner, CMS would apply a case-mix budget neutrality factor for CY 2018 of 1.0159 to the national, standardized 60-day episodic payment rate.

See Appendix A for the CY 2018 Proposed Case-Mix Weights.

CY 2018 Home Health Market Basket Update

Prior to the enactment of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which amended section 1895(b)(3)(B) of the Social Security Act (the Act), the proposed home health update percentage for CY 2018 would have been based on the estimated home health market basket update of 2.7 percent (based on IHS Global Insight Inc.’s first-quarter 2017 forecast with historical data through fourth-quarter 2016). Due to the requirements specified at section 1895(b)(3)(B)(vi) of the Act prior to the enactment of MACRA, the estimated CY 2018 home health market basket update of 2.7 percent would have been reduced by a MFP adjustment as mandated by the Affordable Care Act (currently estimated to be 0.5 percentage point for CY 2018).

In effect, the proposed home health payment update percentage for CY 2018 would have been 2.2 percent. However, section 411(c) of MACRA amended section 1895(b)(3)(B) of the Act, such that for home health payments for CY 2018, the market basket percentage increase is required to be 1 percent.

As a reminder, section 1895(b)(3)(B) requires that the home health market basket percentage increase be decreased by 2 percentage points for those HHAs that do not submit quality data.For HHAs that do not submit the required quality data for CY 2018, the home health payment update would be -1 percent (1 percent minus 2 percentage points).

CY 2018 Home Health Wage Index

In 2015, CMS proposed and finalized changes to the wage index based on the newest Core Based Statistical Area (CBSA) changes for the HH PPS wage index and Office of Management and Budget (OMB) delineations, as described in OMB Bulletin No. 13-01. CMS believed that using the most recent OMB delineations would create a more accurate representation of geographic variation in wage levels. Therefore, in CY 2016, CMS finalized the wage index to be fully based on the revised OMB delineations adopted in CY 2015.

CMS has proposed to continue using the pre-floor, pre-reclassified hospital wage index as the wage adjustment to the labor portion of the HH PPS rates. For CY 2018, the updated wage data are for hospital cost reporting periods beginning on or after Oct. 1, 2013, and before Oct. 1, 2014 (FY 2014 cost report data). They would apply the appropriate wage index value to the labor portion of the HH PPS rates based on the site of service for the beneficiary (defined by section 1861(m) of the Act as the beneficiary’s place of residence).

The proposed CY 2018 wage index is available on the CMS website here, see Downloads.

See Appendix B for the Proposed CY 2018 Wage Index for New York.

Adjustment to Reflect Nominal Case-Mix Growth

CMS will implement a 0.97 percent reduction to the national, standardized 60-day episode rate in CY 2018 to account for nominal case-mix growth from 2012 to 2014. CY 2018 will be the third year of the three-year phase-in of the reduction to account for nominal case-mix growth. The 0.97 percent reduction to the national, standardized 60-day episode payment rate to account for nominal case-mix growth results in an estimated decrease in HH PPS payments for CY 2018 of 0.9 percent.

National, Standardized 60-Day Episode Payment Rate

To determine the CY 2018 national, standardized 60-day episode payment rate, CMS would apply a wage index budget neutrality factor; a case-mix budget neutrality factor; a reduction of 0.97 percent to account for nominal case-mix growth from 2012 to 2014; and the home health payment update percentage.

CMS calculated the wage index budget neutrality factor by simulating total payments for

non-LUPA episodes using the proposed CY 2018 wage index and comparing it to their simulation of total payments for non-LUPA episodes using the CY 2017 wage index. By dividing the total payments for non-LUPA episodes using the proposed CY 2018 wage index by the total payments for non-LUPA episodes using the CY 2017 wage index, CMS obtained a wage index budget neutrality factor of 1.0001. They then applied the wage index budget neutrality factor of 1.0001 to the calculation of the proposed CY 2018 national, standardized 60-day episode rate.The proposed national, standardized 60-day episode payment for CY 2018 is $3,038.43. See Table 1.

Table 1: Proposed National, Standardized 60-Day Episode Payment for CY 2018

Source: CMS

CY 2018 National Per-Visit Rates

The national per-visit rates are used to pay LUPAs (episodes with four or fewer visits) and are also used to compute imputed costs in outlier calculations. The per-visit rates are paid by either the type of visit or the home health discipline. They include:home health aide, medical social services, occupational therapy, physical therapy, skilled nursing, and speech-language pathology.

CMS calculated the CY 2018 national per-visit rates by starting with the CY 2017 national per

-visit rates. They then applied a wage index budget neutrality factor of 1.0005 to ensure budget neutrality for LUPA per-visit payments. Lastly, the per-visit rates for each discipline are updated by the proposed CY 2018 home health payment update percentage of 1 percent. The national per

-visit rates are adjusted by the wage index based on the site of service of the patient. The LUPA per-visit rates are not calculated using case-mix weights. See Table 2.

Table 2: Proposed CY 2018 National Per-Visit Payment Amounts for HHAs That Do Submit the Required Quality Data Source: CMS

The proposed CY 2018 per-visit payment rates for HHAs that do not submitthe required

quality data are updated by the proposed CY 2018 home health payment update percentage of 1 percent minus 2 percentage points.

CY 2018 Low-Utilization Payment Adjustment (LUPA) Add-On Factors – Same as Previous Years

LUPA episodes that occur as the only episode or as an initial episode in a sequence of

adjacent episodes are adjusted by applying an additional amount to the LUPA payment before

adjusting for area wage differences. The LUPA in the proposed CY 2018 HH PPS is the same as the LUPA “add-on factor” in the CY 2014 HH PPS final rule. In the CY 2014 HH PPS, CMS changed the methodology for calculating the LUPA add-on amount by finalizing the use of three LUPA add-on factors:

• 1.8451 for Skilled Nursing (SN);
• 1.6700 for Physical and Occupational Therapy (PT/OT); and
• 1.6266 for Speech Language Pathology (SLP).

CMS then multiplied the per-visit amount for the first SN, PT, OT, or SLP visit in a LUPA episode that occurs as the only episode in a sequence of adjacent episodes by the appropriate factor to determine the LUPA add-on payment amount. For instance, for a LUPA episode that occurs as the only episode or an initial episode in a sequence of adjacent episodes, if the first skilled visit is SN, the payment for that visit would be $261.16 (1.8451 multiplied by $141.54), subject to the area wage adjustment. The LUPA per-visit rates are not calculated using case-mix weights.

CY 2018 Non-Routine Medical Supply (NRS) Payment Rates

To determine the proposed CY 2018 NRS conversion factor, CMS updated the CY 2017 NRS conversion factor ($52.50) by the proposed CY 2018 home health payment update percentage of 1 percent. They did not apply a standardization factor, as the NRS payment amount calculated from the conversion factor is not wage or case-mix adjusted when the final claim payment amount is computed.

The proposed NRS conversion factor for CY 2018 is shown in Table 3.

Table 3: Proposed CY 2018 NRS Conversion Factor for HHAs That Do Submit the Required Quality Data Source: CMS

For HHAs that do not submit the required quality data, CMS updated the CY 2017 NRS

conversion factor ($52.50) by the proposed CY 2018 home health payment update

percentage of 1 percent minus 2 percentage points.

Rural Add-On No Longer Applies!

As we reported last year, Section 3131(c) of the Affordable Care Act amended section 421(a) of the Medicare Modernization Act (MMA) to provide an increase of 3 percent of the payment amount for home health services furnished in a rural area for episodes and visits ending on or after April 1, 2010 and before Jan. 1, 2016. This had been extended for home health services provided in a rural area for episodes and visits ending before Jan. 1, 2018.

Therefore, for episodes and visits that end on or after Jan. 1, 2018, a rural add-on payment will not apply.

CY 2018 Payment Changes for High-Cost Outliers – No Changes

In CY 2017, CMS finalized the proposed change in the methodology used to calculate outlier payments, moving from a cost-per-visit approach to a cost-per-unit approach (1 unit = 15 minutes). They thought that this approach more accurately reflects the cost of an outlier episode of care and thus better aligns outlier payments with episode costs than the cost-per-visit approach.

In the past, CMS targeted up to 2.5 percent of estimated total payments to be paid as outlier payments and then applied the 10 percent agency-level outlier cap. The 10 percent cap was a result of excessive growth in outlier payments, primarily the result of unusually high outlier payments in a few areas of the country. This was the premise on which CMS based its proposed changes.

Fixed Dollar Loss (FDL) Ratio and Loss-Sharing Ratio

In past rules, CMS continued the Fixed Dollar Loss (FDL) ratio at the same amount of 0.45 and a loss-sharing ratio of 0.80. CMS believed this was appropriate given that the percentage of outlier payments is estimated. Given last year’s different outlier payment changes, CMS finalized a different FDL ratio.

CMS had stated that for a given level of outlier payments, there is a trade-off between the values selected for the FDL ratio and the loss-sharing ratio. A high FDL ratio reduces the number of episodes that can receive outlier payments, but makes it possible to select a higher loss-sharing ratio and therefore increase outlier payments for qualifying outlier episodes. Alternatively, a

lower FDL ratio means that more episodes can qualify for outlier payments, but outlier payments per episode must then be lower.

CMS cited the statutory requirement to target up to, but no more than, 2.5 percent of total

payments as outlier payments. Therefore, they had proposed a change to the FDL ratio for CY

2017, as they believed that maintaining an FDL ratio of 0.45 with a loss-sharing ratio of 0.80 wasno longer appropriate given the percentage of outlier payments projected for CY 2017.

CMS did not propose a change to the loss-sharing ratio (0.80) in order for the HH PPS to be consistent with the payment for high-cost outliers in other Medicare payment systems. Under the current outlier methodology, they suggested changing the FDL from 0.45 to 0.48 to pay up to, but no more than, 2.5 percent of total payments as outlier payments. Under the proposed outlier methodology, which would be cost per unit, CMS finalized an increase in the FDL ratio from 0.45 to 0.55 to pay up to, but no more than, 2.5 percent of total payments as outlier payments.

For this proposed rule, using preliminary CY 2016 claims data (as of March 17, 2017) and the proposed CY 2018 payment rate, CMS estimates that outlier payments would constitute approximately 2.47 percent of total HH PPS payments in CY 2018 under the current outlier methodology. Given the statutory requirement to target up to, but no more than, 2.5 percent of total payments as outlier payments, CMS is not proposing a change to the FDL ratio for CY 2018, as they believe that maintaining an FDL ratio of 0.55 with a loss-sharing ratio of 0.80 is still appropriate given the percentage of outlier payments projected for CY 2018.

CY 2019– Proposed Implementation of the Home Health Grouping Model (HHGM)

In the proposed rule,CMS proposes case-mix methodology refinements, including a change in the unit of payment from 60-day episodes of care to 30-day periods of care, to be implemented for 30-day periods of care beginning on or after Jan. 1, 2019. This model would rely more heavily on clinical characteristics and other patient information (e.g., principal diagnosis, functional level, comorbid conditions, referral source, and timing) to place patients into what CMS considers “more meaningful” payment categories. The HHGM also would eliminate therapy service use thresholds that are currently used to case-mix adjust payments under the HH PPS. CMS has estimated that this could save as much as $950 million.

The proposed HHGM includes changes to the episode timing categories, the addition of an admission source category, the creation of six clinical groups used to categorize 30-day periods of care based on the patient’s primary reason for home health care, revised functional levels and corresponding OASIS items, the addition of a comorbidity adjustment, and a proposed change in the LUPA threshold. The LUPA add-on policy, the partial payment adjustment policy, and the methodology used to calculate payments for high-cost outliers would also be revised to be consistent with the proposed 30-day period of care.

Section II.D of the proposed CY 2018 HH PPS (page 24) states: “In this rule, we propose to better align payment with resource use so that it reduces HHAs’ financial incentives to select certain patients over others.”

In theirReport to Congress, CMS found that payment accuracy could be improvedunder the current payment system, particularly for patients with certain clinical characteristics. Findings from the report suggest that the current home health payment system may discourageHHAs from serving patients with clinically complex and/or poorly controlled chronic conditionswho do not need therapy services, but require skilled nursing care.

In addition, MedPACbelieves that the Medicare home health benefit is ill-defined, and the current reliance on therapyservice thresholds for determining payment is counter to the goals of a prospective paymentsystem. Under the current payment system, HHAs receive higher payments for providing moretherapy visits, which may incentivize unnecessary utilization. In their March 2017 Report to Congress, MedPAC reiterated theirrecommendation that CMS eliminate the use of thenumber of therapy visits as a payment factor in the home health PPS beginning in 2019.