On November 2, 2010, the Centers for Medicare and Medicaid Services (CMS) issued the final rule on the 2011 update for the Medicare Home Health Prospective Payment System (PPS) rates—yet another document issued in 2010 to send ripples through the home health provider community. This rule, combined with the Patient Protection and Affordable Care Act of 2010 (PPACA), has created the furthest-reaching changes facing home health agencies since the implementation of the original home health PPS in 2000.

The home health industry has been thrust into the government spotlight with repeated reports from the Medicare Payment Advisory Commission (MedPAC) about excessive profit margins and accusations of questionable business practices. With this negative attention, home health took its fair share of the hit as our government looked to reform health care with the passing of PPACA in March. CMS also has taken matters into its own hands with payment reductions and implementation of additional compliance requirements for home health.

The 2011 home health payment rule was used as a vehicle to implement some of the home health provisions within PPACA. Therefore, a refresher on those provisions will help provide the groundwork to better understand the rule’s changes.

Home Health Provisions in PPACA

PPACA included specific rules for updating home health payment rates, new Medicare coverage requirements for home health services and directives for the Department of Health and Human Services (HHS) and MedPAC to perform studies on home health payment methodologies. Items affecting home health payment rates include:

• A 3 percent rural add-on effective for Medicare episodes ending on or after April 1, 2010, and before January 1, 2016
• Indefinite continuance of the agency-specific 10 percent outlier payment cap
• A 2.5 percent 2011 reduction to the Medicare home health PPS base rates due to realigning outlier budget of 5 percent versus outlier spending target of 2.5 percent
• A 1 percent reduction in the annual Medicare home health market basket update for the years 2011 through 2013
• Rebasing of payment rates to better approximate costs over a four-year phase-in beginning with 2014, with a maximum reduction of 3.5 percent per year
• Reduction of the annual Medicare home health market basket update by a productivity adjustment, beginning in 2015

New coverage requirements for Medicare home health services include:

• For certifications for Medicare home health services made by a physician, the certifying physician must have documentation supporting that the physician has had a face-to-face encounter with the individual prior to such certification and within a reasonable time frame
• For home health certifications made on or after July 1, 2010, the physician ordering home health services must be enrolled in Medicare
• Beginning with services on or after January 1, 2010, timely filing requirements are one year from date of service (by December 31, 2010, for all services provided prior to January 1, 2010)

HHS and MedPAC are required to report on or perform studies on various home health payment methodologies, including:

• The Secretary of HHS must report to Congress by October 1, 2011, the plan for implementing value-based purchasing for Medicare home health
• The Secretary of HHS must report to Congress by March 1, 2014, the results of a study on the development of Medicare home health payment revisions to ensure access to care and payment for severity of illness. If the study (and demonstration project) deems that revisions to the Medicare home health payment methodology are appropriate, the revisions are required to begin no later than January 1, 2015, and be carried out over a four-year period
• MedPAC must report to Congress by January 1, 2015, on its study of the effects of the rebasing effort

Home Health Payment Rule – Payment Updates

The base home health 60-day episode payment rate, prior to case-mix and wage-index adjustment, is decreased by 5.2 percent. The decrease consists of the following three components:

• 1.1 percent market basket increase (2.1 percent market basket index minus one percentage point as required by PPACA)
• 2.5 percent decrease for the outlier cap as required by PPACA
• 3.79 percent decrease for case mix creep as determined by CMS

Wage index changes can vastly change the ultimate effect on a specific geographic area’s payment rates. Some areas are receiving wage index decreases that double the decrease in their payment rates, while other areas are receiving wage index increases that virtually wipe out the base rate decrease.

The non-routine supply (NRS) payment and low utilization payment adjustment (LUPA) payment rates were both decreased by 1.5 percent, as they are not impacted by the case mix creep adjustment. The outlier payment provisions are unchanged, and the agency-specific 10 percent outlier payment cap is retained as required by PPACA.

Rural payment rates receive a 3 percent rural add-on as specified in PPACA. This add-on is included in the rural base rates as well as the NRS and LUPA rural payment rates.

As mentioned above, the 2011 payment rule not only provided the update for the Medicare home health PPS payment rates, it also addressed several non-rate issues. These non-rate issues address compliance concerns and implement PPACA requirements.

Physician Face-to-Face Encounters

For Medicare home health admissions on or after January 1, 2011, the certifying physician must have a face-to-face encounter with the patient either within 90 days prior to or 30 days after admission. The encounter must be performed by a qualified certifying physician or other qualified nonphysician practitioner and must be related to the primary reason the patient is being admitted to home health. Appropriate documentation must be in place as a condition of payment.

Therapy Standards

The payment rule addressed therapy standards in home health, as therapy utilization continues to be a focus of concern of CMS and others. According to clarification within the requirements, therapy documentation should focus on functional, measurable and objective goals and progress being made towards these goals. New standards require qualified therapists, excluding assistants, to assess, measure and document progress toward goals at least every 30 days, or prior to the 13th and 19th total therapy visits. Additional guidance also is provided on the coverage of maintenance therapy. These heightened therapy standards are not effective until April 1, 2011.

Additional HCPCS Codes

Effective January 1, 2011, new Healthcare Common Procedure Coding System (HCPCS) codes are to be used on Medicare claims. These new HCPCS codes include new “G” codes to be used for maintenance therapy visits as well as for visits performed by therapy assistants. New “G” codes also will be required for nursing visits for management and evaluation, observation and assessment and training and education. The intent of these new codes is to help provide CMS with a better understanding of the home health services being provided.

Capitalization

To protect patient care of new-start agencies, additional capitalization requirements were set forth in the payment rule. New-start agencies now must prove that three months’ operating capital is in place at three points: upon application, at the time of survey and when enrolling in Medicare. CMS will require cost report data of comparable agencies as a basis to determine the necessary capitalization.

36-Month Rule

The 36-month rule was actually put in place under the 2010 payment rule, but the 2011 payment rule provides further guidance on the application of the rule after a year of confusion. The 36-month rule prohibits the conveyance of the home health provider agreement to a buyer if the selling agency started within 36 months or a prior change of ownership took place in the last 36 months. Under these circumstances, the buyer must enroll in Medicare as a new, or initial, agency. The 2011 payment rule confirms it does apply to both asset and stock transactions. However, it will only be applied to changes in “majority” ownership, and several exceptions to the rule are provided, including death of an owner, indirect ownership changes and changes in entity structure.

Take Action Now

Agencies must move quickly to prepare for these far-reaching changes. Preparation should include education, assessment of opportunities to improve operational efficiencies and implementation of policies and procedures to ensure compliance. Contact your BKD advisor for further information.