This post deals with the impact of the CMS view of budget neutrality for HHAs. By the end of the post, like me, you might question the existence of PDGM.
In the last post, we explored the actual financial impact of the original CMS Behavior Adjustment (BA) using CMS and MedPAC data. Using this data model, we created the Reverse Temporary Adjustment to record this debt to the home health industry if it could be established that this CMS deduction was not justified.
We will continue this discussion by using the same data model to explore the second BA, implemented in the 2023 proposed rule, and its impact. Then, we can explore these results as they apply to the concept of budget neutrality.
So let’s get started with our data model as it looked at the end of our last analysis. You can review how I came up with any of these numbers in my previous post.
We looked at our data model by year and we ended with 2021, the second year of the original BA adjustment. Using the data, we calculated the BA deductions for 2020 and 2021 at the claim level and for all HHAs shown as the RTA (Reverse Temporary Adjustment). The term “Reverse Temporary Adjustment” references the total liability from CMS to HHAs if it can be determined that these behavioral adjustments were unjustified.
PDGM Year 3 (2022)
As the 2022 proposed rule was being developed in 2021, CMS went on defense. It was clear that the original BA assumptions were not happening, with the exception of the minor impact of increasing comorbidity. The comment process between the proposed and final rules was brutal for CMS as they squirmed under criticism regarding these predictions. In this response they tried to defuse the issue by pointing out that they had reduced the impact in half from the original estimate when it was applied to payments.
When PDGM was introduced, CMS established a base payment for 2020 in the 2020 final rule that would achieve budget neutrality in comparison with 2019 based on aggregate spending on home health as we transitioned to the new payment model ($1908.18). This was reduced by one half of the original BA (4.36%). The following year this base payment was modified by updated market increases and the same BA deduction (4.36%) from year one. With the validity of these BA deductions in question, the prospect of a real Reverse Temporary Adjustment was being considered by CMS and HHA stakeholders. As CMS mentioned many times in the proposed rules leading to PDGM and after, they were legally required to compare the actual behavior to predicted behaviors and reconcile them.
At some point between the 2021 final rule and this 2022 proposed rule, CMS came up with the pivot to their new definition of budget neutrality and the behavioral adjustment. In what I believe was a desperate attempt to erase their existing debt, CMS introduced the concept of treating visit management under PDGM as a “behavior” that should be considered when calculating budget neutrality.
They introduced this concept in the 2022 proposed rule. In this section of the rule, they described the process of taking PDGM claims and recombining them as 60-day claims and then calculating them again under the prior payment model (PPS). It is only a few paragraphs, no conclusions regarding the impact, no results or numbers of any kind. However, there is no doubt in my mind that they had already done this calculation and were aware of the financial impact if they could pull this off. The net result of this new deduction would surpass the original BA. If it could be applied retroactively, they could erase their outstanding errors and never have to explain or reconcile them.
After the proposed rule for 2022 was published, CMS awaited comments on their new proposed methodology for calculating budget neutrality and the BA. When these comments are submitted, CMS reviews them and responds. All of them are available for public viewing at the time, but CMS selects which ones to reply to. Regarding their new BA concepts, they provided one response. They said that a majority of commenters disagreed with the methodology described in the proposed rule for this new calculation. They provided some discussion regarding these objections that were technical concerns in the data CMS would use and how it would be applied. CMS did not address these concerns other than by stating that MedPAC supported this method of calculating budget neutrality and felt it was reasonable.
CMS must have been pleased with this result. The industry was contesting the details of the calculation; they did not appear to contest the validity of considering increases in operational efficiency as a behavior that should be corrected in the payment formula. The situation was similar to an organization receiving a bill for services that were never performed and then arguing that the hours or the payment rate were incorrect.
As I discussed in my previous posts, these savings in healthcare expenses have occurred with the introduction of every new CMS prospective payment model. This includes hospitals (DRGs) in the 1980s and SNFs (PDPM) the year prior to PDGM. Never in these situations did CMS consider provider efforts to improve margins under these new models as an opportunity to reduce reimbursement. Home health would prove to be the exception.
In the 2022 proposed and final rules, this effort slipped by us and so did our best opportunity to stop it. Instead, CMS saw the industry response as weakness. The wheels were in motion to quantify this new method of calculating budget neutrality. The following year, CMS would be prepared to launch their attack.
In the meantime, the original BA died a silent death. No BA adjustments were applied in 2022. The PDGM base rate increased by the market basket rate. With no BA reduction, providers saw a significant jump in payments per 30-day period, compared to the prior year, as is shown in our data model. Everything seemed normal again, but it was the “calm before the storm”.
PDGM Year 4 (2023)
Normally, our story would be over. In most business environments, once a year is complete so are the related financial transactions. This year would turn out differently. CMS viewed the introduction of their concept of the new BA as a success. Internally, it was a stroke of genius. It erased the debt they had accumulated through their previous inaccurate predictions and created a way to harvest the gains made by HHAs through operational efficiency in the future, and the past. It was as if the original BA was written on a large white board and someone came in, wiped it clean, and replaced it with a new one. All they had to do was make it stick.
CMS took one last swipe at the original BA, suggesting that it was an accurate prediction and actually happened, referencing their charts B4, B6 and B7 in the 2023 proposed rule. If you look at these charts, the data does not back up their conclusions on two of the three metrics when you compare this data before and after the introduction of PDGM. However, as CMS was well aware, this argument was no longer relevant with the introduction of the new BA.
CMS provided a lot of data in the 2023 proposed rule regarding the reduction of visits during the first two years of PDGM. Although the same thing was happening with SNFs and their new payment model, somehow this was a behavior that needed to be corrected for HHAs.
In the 2023 proposed rule, they reference the introduction of the new BA in the 2022 proposed rule and the associated comments. CMS seized on the fact that the comments they received were focused on technical issues of calculating the new BA and its accuracy. Like a magician, they managed the focus of the conversation restricting it to what they felt were issues like these that they could defend. Keeping the focus away from the real question, was CMS actually maintaining budget neutrality or were they now trying to regulate home health profit margins and how much of these margin improvements HHAs could keep and how much belonged to CMS.
CMS provided a detailed explanation of how they calculated payments using PDGM data as if PDGM never existed. They challenged providers to calculate the results themselves using the same methodology, once again creating a distraction from the real issue. Like the previous year, many took the bait contesting technical details of the calculations instead of the basis of the concept.
In the 2023 proposed rule, CMS introduced the retroactive comparison of PDGM payments to the payments under PPS, now, once again, considered the actual determinate of reimbursement. This annual total, far less than what was paid under PDGM, was now the accurate measure of what HHA reimbursement should have been from 2020 forward.
The difference in the annual totals was now called the Temporary Adjustment or the actual unpaid budget neutral reimbursement if PDGM did not exist. In other words, the Temporary Adjustment is the total debt owed by HHAs for paying CMS claims under the wrong payment model. They also reintroduced the permanent adjustment as a method of once again reducing current proposed payments in an effort to collect on some of this debt. Here were the numbers they came up with in the 2023 proposed rule:
Using this process, they rewrote the history of PDGM. The PDGM payment model was essentially reversed retroactively back to when it began, as if it never happened. Although PDGM was used to calculate the reimbursement on claims since 2020, and is still used today, CMS recalculated these claims using PPS and declared that this was the accurate reimbursement total. The new CMS solution to define budget neutrality with the introduction of PDGM was to retroactively eliminate PDGM as the basis of payment. Think about this for a minute.
CMS was required by congress to create a new payment model that was disassociated from therapy visits. PDGM met this requirement and as a result, these visit patterns changed, reducing the expenses related to home health services. Now, CMS wanted a piece of the action. The method they chose to harvest these gains was to retroactively eliminate PDGM as the basis of payment and reapply PPS for every year of PDGM, past and future.
With this approach, CMS eliminated PDGM as a new payment model intended to link spending to cost. Instead, PDGM became a method of calculating preliminary payments made to providers completely unrelated to the actual reimbursement model, PPS, which never changed in 2020. CMS does not present the new BA this way, but make no mistake, this is what is happening.
If you accept that the new BA, reimbursement under the prior therapy visit model, is an accurate measure of budget neutrality, then you have accepted that PDGM is no longer the methodology used to pay home health claims.
If you believe that the new permanent and temporary adjustments are legitimate deductions applied to home health revenue, as CMS and MedPAC does, you are rejecting PDGM as a payment model. The actual payment model never changed in 2020 and PDGM now is nothing but a payment calculation formula used to create payments in excess of the actual amount owed by HHAs now calculated using PPS, still very much alive and still connected to therapy visits.
PDGM Year 5 (2024)
For the 2024 proposed rule, CMS has doubled down on their strategy. They have continued the permanent adjustments related to the new BA. Armed with additional data, they updated the total Temporary Adjustments for 2020 forward.
With this chart, CMS finalized the temporary adjustment for 2020 and 2021 and projected a total for 2022.
Using these temporary adjustments, we can update our data model to see what the impact might be if these debts were actually paid or if they did not exist. Using these outcomes, we can explore the concept of budget neutrality as it applies to these results.
We can see from the totals at the bottom that the temporary adjustments from the new BA far exceed those from the original BA recorded in our Reverse Temporary Adjustment. If these original BA adjustments never existed, the CMS temporary adjustments would have increased to include these amounts in order for PDGM payments to be equal to PPS. The payments with the full BA include both the original and the new BA as required by CMS.
There are three rows reflecting payments by year with no BA, actual per period payments and payments if the temporary adjustments would have been applied in the years that they were calculated by CMS. If we plot these lines on a chart, we can view their relative impact.
The blue line represents what would have been spent under PDGM as a payment model if it was implemented without any BA. The brown line represents what was actually paid with the original BA included. The gray line is what CMS believes should have been paid per claim under PDGM to maintain budget neutrality. It also represents what would have been paid if PDGM had never been introduced, but HHAs operated as if it had.
This is my 15th post on my blog, I have presented many charts that I felt were important. None of them are more important than this one. Visualizing the intended impact of the CMS BA, we can easily see that these cuts do not reflect a trend of budget neutrality measured by any metric. Monthly claim payments, total aggregate spending, any way you look at it, CMS reimbursement to HHAs is declining after the implementation of PDGM relative to previous spending before PDGM. Even without the BA, spending would have been lower under PDGM than the previous payment model.
If we accept this CMS version of budget neutrality as fact, PDGM no longer exists. Total reimbursement for HHAs is actually determined by PPS.
In my next post, we will explore existing efforts to fight back against this definition of budget neutrality and the BA and some suggestions of my own on how to deal with this issue.
Comments