HCFA is proposing a new way of slicing the Medicare home health pie, and some providers are riled up about the size of their piece and how fast they'll be served.
Under long-awaited prospective payment system regulations proposed last week, Medicare would pay agencies fixed fees for each patient, with higher rates for sicker patients and lower rates for patients who need four or fewer visits.
The Balanced Budget Act of 1997 mandated a new system for Medicare home-care payments. The current system pays agencies on the basis of their costs up to certain limits, regardless of a patient's clinical condition.
The proposal is based on several years of research, including two demonstration projects and a research project to determine appropriate adjusters for case mix.
By law the new system is budget-neutral, shifting money to some providers at the expense of others.
HCFA estimates that total payments would drop 18% for freestanding for-profit agencies, remain flat for hospital-based agencies, rise 19% for freestanding not-for-profit agencies, and jump 50% for government-owned agencies.
The actual impact at each agency would vary according to historical costs and current patient mix.
Despite the wide variation in impact, agencies like the broad outlines of the new PPS, which they say distributes payments more fairly than the current system and could mean higher profits for efficient providers.
"There was no incentive in cost-based reimbursement to be cost-efficient as long as your costs were under your cost limit," said Tom Galupi, chief operating officer at Partners Home Care, a hospital-based agency in Chicago.
But Galupi and other providers said the new system is too complex for most to figure out how best to be efficient and the slow pace of payments would put some operators out of business.
Payments under the new system are based on a patient classification system whereby patients are scored according to the severity of their illness, ability to perform daily tasks such as dressing or getting out of bed, history of hospitalization or skilled-nursing stay, and need for therapy.
"Its complexity is a creature of its effort to be more precise," said Bill Dombi, vice president of law at the National Association for Home Care.
For most of the nation's 8,800 agencies, determining which of 80 payment categories each patient falls into and adjusting operations accordingly will be a daunting task, he said.
Agencies would also see slower payments under the new system.
"It will be an unmitigated cash-flow disaster," said Ken McNulty, vice president of finance at VNA of Boston.
Medicare is home health's biggest single payer, accounting for 39% of total home health revenues in 1996, according to the Agency for Health Care Policy and Research.
Under the PPS, agencies will be paid 50% after they submit the initial bill, with the balance to be paid at the end of the 60-day episode. But a PPS demonstration project found that on average, agencies had spent 65% of costs by day 30, and 85% of costs by day 45.
McNulty said that none of the home health agencies participating in the demonstration project had the cash flow to continue operating even with a 100% upfront payment policy and had to rely on periodic estimated payments, which would not be available under the current PPS proposal.
Operators also say that payment rules aside, the pie just isn't big enough. Total Medicare payments to home health agencies dropped 38% to $10.4 billion in 1998 under the current interim payment system, according to recent NAHC figures, and current law requires a further 15% reduction before the PPS takes effect. Both houses of Congress are considering proposals to reduce or eliminate that cut.
The 60-day comment period for the proposed rule ends Dec. 27.