Managing and running a home health agency is no easy feat. This is especially true as costs and complexity continue to increase with regulatory, financial, operational and quality management requirements, which are further exacerbated by a scattered work force including those that are remote and part-time. Still, the industry continues to grow. Unfortunately, this growth includes growth in difficulty and cost with the enactment of the Patient Protection and Affordable Care Act (the ACA) and the regulations being disseminated by the Centers for Medicare and Medicaid Services (CMS) in interpretation of the ACA’s directives.
CMS recently released the 2015 Home Health Final Rule, which contains new rules and policy guidance that, despite putting a damper on general operations, provides great insight into where CMS is headed in relation to home health reimbursements. It is easy to surmise that CMS intends to better align payments with costs and has set measures to reach that goal, including the already enacted rebasing process. And it is important to be aware of how exactly these changes should be dealt with in order to remain profitable.
Rebasing has it’s roots in the Affordable Care Act and is bolstered by the Medicare Payment Advisory Commission, which in March 2014, stated that the typical home health agency enjoyed a 14.4% profit margin in 2012 and that most would make a profit of just under 13% in 2013. Although the manner in which the cost data was measured was contentious, it has led to a strong and continuing argument supporting the need for rebasing as a means to reign in the cost of providing home health services.
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By the close of 2015, agencies will be halfway through the four-year rebasing project implemented by the CMS in response to ACA mandates. The margin shrinkage enacted in 2014, which amounts to 3.5% as a result of rebasing, will total 17% by the year 2017. And together with the effects of recalibrated case mixes and wage index changes for 2015, it will put a significant strain on the operational viability of some providers. Case mixes form the foundation for all reimbursement calculations since each one of the 153 Home Health Grouper Codes has a weighted case mix that is used as a multiplier of the National Standard Payment. In 2014, they went down by nearly 26% on average and the 2015 Final Rule has provisions for reweighting of case mixes relative to one another, which for many episodes will mean a further payment reduction.
For example, CMS indicates in the 2015 Final Rule that the overall payment change is estimated to be a 0.3% payment reduction, but a closer analysis of the factors in the payment equation – base rate and the applicable case mix weight and wage index – results in a very different result contingent on the location of agencies and the volume and types of services they offer. For the lucky, a detailed analysis reveals that the payment changes may actually come in the form of slight payment increases while many others may suffer payment declines of 5% or more. The question then becomes: Considering case mix volume, what is my 2015 reimbursement likely to be? More often than not, it won’t be the small reduction of 0.3% estimated by CMS.
For virtually every home health agency in operation today this means, that in order to ensure survival, significant attention needs to be placed on achieving a higher operating efficiency by better managing the utilization of services to patients in the context of available reimbursement. Also, practicing better management and operating expense reduction can aid in preserving operating margins. CMS clearly intends to close the gap between reimbursement for services and its calculations of cost and agencies need to be prepared by diversifying their sources of revenue and becoming more efficient relative to their ongoing operations.
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Russel Krengel is product manager for Kinnser Agency Manager, Kinnser's web-based solution for home health agencies. With a history of business leadership that includes the acquisition, growth and sale of a home health agency to Vanguard Health, Krengel brings the mindset of the owner to the development of home health's leading software.
