The bottom line for reimbursement for HHAs is a 50% reduction in the proposed behavioral adjustment altering the proposed net reimbursement change of -2.2% to 0.8% for 2024, compared to 2023.
As I have mentioned in previous posts, it is worth your time to review this document in its entirety. I am doing that today. The final rule will be published officially here on 11/13. The “unofficial” version is available now as a PDF. Using extracts from this pre-released federal register content, I hope to provide some additional insights regarding CMS’s perspective of HHAs as being financially strong with increasing profits. Using the same cost report data CMS uses to represent this position, I will share a different perspective.
With the final rule, CMS has been able to review additional cost report data published since the proposed rule for 2024 was developed in the spring. Using this, they have finalized the permanent and temporary adjustments for 2020 - 2022 and adjusted some other PDGM data.
In addition to the data and assumptions from the proposed rule, the final rule includes comments on the proposed rule and CMS responses. These “conversations” with stakeholders are key to understanding the motives of CMS and their attitudes regarding the home health industry.
CMS gets hundreds of these comments each year. They group them together and address many of them collectively with a single response. As in previous years, many agencies submitted comments describing the financial difficulty they are suffering under current reimbursement conditions and the additional negative impact the BA cuts will have on the industry and its survival as a resource for Medicare beneficiaries. Here is the response from CMS from page 52:
There are several problems with these statements. I covered this as it applied to the proposed rule for 2024 in my post, “Dangerous Assumptions”.
When CMS uses the term “margins”, they do not include the word “profit” which many people viewing this data will assume is the basis of this percentage. In fact, they do not describe what numbers are used to calculate this margin percentage. My belief is that this is calculated as a ratio of revenue paid under Medicare Part A compared to the direct expenses of visit costs for Medicare Part A HHA patients.
As I discussed in my previous post, this is not an actual or accurate representation of the financial health of HHAs either under Medicare Part A, or in total.
In order to create margins that accurately reflect the financial health of HHAs, profit margins, you need to include all allowable expenses provided on the cost report. Using the same cost report revenue data that CMS is using, we can use BI tools to develop profit margins for agencies using operating expenses submitted by agencies on the cost reports instead of just visit costs.
Operating expenses for HHAs are mostly visit costs, but they include the other expenses required by HHAs to operate as a business. By dividing the annual revenue and operating expenses on the cost reports by census, we can calculate profit margins by these units of service as well as the annual industry totals used by CMS. Using the census as a unit, we can develop profit margins separately for Medicare Part A and MA plans, compare them, and then combine them.
These two charts represent these revenue and expenses by census and the overall profit margins for all free standing HHAs under Medicare Part A and PDGM.
This is not a reflection of overall HHA profits since Medicare Advantage reimbursement is not included. In the cost report data, we have this MA data with separate revenue and census totals from Medicare Part A. CMS can see this data as well, but it is not included anywhere in the proposed or final rules.
Here are the same profit margins under “Other” insurance in the cost reports which is mostly MA plans for HHAs:
If you add these two together, you have 97% of overall HHA reported revenue (less Medicaid). This is what profit margins look like for Medicare Part A and MA combined.
In table B6 in the 2024 final rule at the beginning of this post, CMS “margins” show a consistent percentage of about 22.5% of agencies having negative margins every year. They use these numbers to point out in the proposed and final rules that the home health industry has always had a consistent percentage of HHAs with negative margins before PDGM and after. They have not worsened due to PDGM and the previous BA cuts and they are not decreasing over time.
In the cost reports, agencies report “Net Income”. Just like a tax return, this is the most important KPI for anyone analyzing the financial health of these agencies. Using this metric alone, here is my version of table B6 for the PDGM years of 2020 - 2022:
Not only are these percentages of HHAs with losses much larger than what is reported by CMS in the final rule, the percentage is growing.
You will notice that my cost report counts are lower than those reported by CMS. This is because of the data cleaning rules I used to identify valid cost reports and should not affect these percentages. Anyone using the same or similar rules and current cost report data will come up with the same numbers.
HHA reported net income requires no calculations on my part and little opportunity for errors or misrepresentation. This is what HHAs share with CMS through the cost reports. This analysis shows a very different picture of the home health industry than what CMS provides in Table B6 to defend their argument that the BA cuts present no danger to HHAs.
In my previous post on Dangerous Assumptions, I shared the comments from the 2023 final rule where CMS takes the position that they bear no responsibility for reimbursement from other health plans (MA). They include a similar comment response in the 2024 final rule, just after table B6:
Another issue discussed in the final rule for 2024 that has been covered in previous final rules is that whenever CMS makes the decision to reduce permanent adjustments in the final rule, this “debt” is transferred to the temporary adjustments.
When CMS reduces these permanent adjustment cuts, they are increasing this debt which they insist must be paid in the future. Once again, in the 2024 final rule, CMS is punting temporary adjustments and does not address when this will be dealt with.
On page 144, they provide the new base payment rate. This is what is multiplied by the CMW (Case Mix Weight) and wage index to calculate 30-day period payments under PDGM. This will increase from $2010.69 for 2023 to $2038.13 for 2024. The rates are less for HHAs not submitting quality data.
On page 147, they publish the new per visit rates paid for LUPAs and the increases in 2024 over 2023:
Much of the remaining content of the final rule includes technical details regarding the recalculation of PDGM formula components. Although these have an impact on reimbursement, I will not take on this level of detail in this blog.
There is significant content related to new rules for hospices and changes related to durable medical equipment. These issues are beyond the scope of this blog.
There is a lot of data regarding current HH QRP (Quality Reporting Program) measures and new ones. I intend to address these in future blog posts exploring the impact of HH QRP on future CMS reimbursement for HHAs.
There are about 20 pages directly related to compression garments and many other detailed topics in the final rule for 2024 that are clinical in nature. Many different people reviewing these regulations may find items they feel are important from their point of view, but from a revenue cycle and reimbursement standpoint, I think I have mentioned the important ones.
The bottom line is that this final rule is very similar to the final rules published during the previous three years of PDGM. HHAs are depicted as financially healthy institutions thriving under PDGM with “margins' ' capable of withstanding the impact of the permanent behavioral adjustments applied by CMS. Like previous years, CMS, in their generosity, has reduced the proposed BA in half, demonstrating their compassion and willingness to compromise.
Like other years under PDGM, the same cost report data CMS selectively presents in these regulations, when examined in its entirety, demonstrates an industry in decline, threatened by these reimbursement cuts.
At a minimum, most agencies will struggle to remain profitable. Based on the data and the trend it suggests for 2023, we can expect that over 40% of HHAs will have a net loss this year. As rising costs continue to be underestimated by CMS in PDGM calculations and permanent BA adjustments continue to reduce reimbursement, HHA profit margins will continue to decline under Part A. As far as MA reimbursement goes, it will be July of next year before we have a clear picture of what is happening now (2023). Based on the trends I have presented, we can expect these margins to continue to deteriorate further in the red since both health plans share these rising costs when calculating profit margins.
At a maximum, without changes to the BA and Medicare Part A and/or MA reimbursement, we could be witnessing a mass extinction event that could affect the availability of home care for everyone, just when we are going to need it the most. If these 37% of agencies reporting losses in 2022 were to disappear, what would happen to total healthcare costs? The existing home health framework is already strained as it assumes a larger share of the healthcare workload with less available clinicians. Home health is the least expensive method of delivering healthcare under Medicare and the quality of this home care influences overall cost and utilization of expensive acute and SNF services.
Some reading this might think that this is an extreme prediction, but it has happened before. When I began my career in the 1980s, DRGs were introduced as the first cost based payment model for providers (hospitals). It was a big leap from the previous model where itemized billing and self pay driven models made healthcare delivery resemble the hotel business more than what we see today.
When DRGs were introduced, there was a component to the formula called urban and rural rates. It was intended to preserve rural hospitals who might suffer disproportionately from the tighter margins under this new payment model. As the story was told to me by my clients at the time, rural hospitals, politically influential large hospitals and health networks were able to urge congress to revise this aspect of the formula with rates “fairer” toward these urban networks.
The result was disastrous for these rural facilities. Many were closed before the problem was recognized and corrected. CMS developed new regulatory modifications like Critical Access Hospitals to preserve these smaller hospitals, but the damage was done. Only when these facilities were damaged financially did we understand their vital role in providing nearby emergency department facilities that could stabilize patients until they could be transferred to larger hospitals. It took the rest of the 1990s for this part of the healthcare system to recover.
I believe this is where we are regarding home health. Below cost reimbursement from MA is not sustainable. Any CMS behavioral adjustment, regardless of the justification, makes matters worse. Growing temporary adjustments threaten future investment in the business. The answers to these problems are above my pay grade. I feel it is my role, through this blog, to be the check engine light for HHAs. We can fix this problem now with a little bit of oil or wait until we need a new engine.
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