This post deals with the class action lawsuit filed by NAHC against CMS that may be the best hope for HHAs to regain fair compensation under Medicare.
In my last post, we developed a model using data from CMS and MedPAC to measure the impact of the BA on HHAs through 2022 and to calculate the outstanding balance owed to HHAs if it could be established that these cuts were not justifiable (Reverse Temporary Adjustment). In this post, we will look at an effort underway to eliminate these BA cuts and what it might look like if it succeeds.
There are currently two legal efforts in progress, both of these projects are being directed by the National Association for Home Care and Hospice (NAHC). The first is a class action lawsuit filed by NAHC on behalf of the industry against Xavier Becerra, Secretary of Health and Human Services (HHS), the parent organization of CMS. The second effort is a pending bill before congress intended to stop the CMS payment cuts if the bill is passed. In this post, I will focus on the lawsuit.
NAHC vs Xavier Becerra
In July of 2023, NAHC filed a class action lawsuit against CMS in an attempt to suspend the cuts included in the proposed rule that would reduce payments to HHAs. I was aware of this lawsuit when it was filed, but I did not actually read it until a few weeks ago. It is well written and well thought out and I encourage all of you to read it as well. It is just 30 pages and the information is easy to process considering it is a legal document.
Many of the arguments are similar to those I have made in recent posts on this subject, they even include the same and similar data regarding measurements of budget neutrality comparing PPS to PDGM. If I were to summarize the case by NAHC, it is based on the fact that PDGM payments are not budget neutral when compared to PPS and therapy visits still impact payments under PDGM through the BA. These actions by CMS are in violation of the legislation passed by congress intended to define this new payment model. In presenting this argument, NAHC has developed a very strong case, but it has some minor weaknesses as well.
In the Bipartisan Budget Act of 2018, congress directed the secretary of HHS to develop a new home health payment model where therapy visits were not included in the calculation of payments. They also required that the new payment model would be budget neutral when compared to the existing PPS model. The legislation allowed CMS to include in the calculation of the new payment formula any assumptions that might be needed in order for the new payment model to remain budget neutral with the old one. In the text of the lawsuit, NAHC presents this as an equation:
The act allowed for these predictions to be included in payments from 2020 to 2026 in advance of the behaviors actually occurring as long as CMS eventually reconciled these predictions against the data after these periods were complete. CMS took advantage of this aspect of the legislation by introducing the original behavior adjustment in 2020, the first year of PDGM. NAHC represents this initial implementation of the PDGM formula in their lawsuit by updating this equation with the actual budget neutral amounts per 30-day period used by CMS in 2020 as the industry transitioned from PPS to PDGM.
These figures accurately measure the initial amounts used when PDGM was introduced and match those I have documented in my blog previously. If CMS was accurate about these predictions in the original BA, PDGM would have been budget neutral in 2020, as required by congress.
Because of the time delay associated with the claim data required to measure the accuracy of these predictions, CMS would have to wait until the 2022 proposed rule to calculate the difference and adjust the BA, up or down, to compensate CMS or the HHAs based on actual behaviors. It is important to remember that the 4.36% was not the actual prediction of this behavior by CMS, it was half of it. If CMS was correct with their initial assumption of 8.72%, more money would be owed by HHAs through future permanent and temporary adjustments to the BA.
NAHC again presents this as a formula in the lawsuit:
In the following section of the lawsuit, NAHC describes what happened next. Instead of reconciling these predictions with reality, CMS abandoned them and replaced them with a new definition of budget neutrality and the BA. CMS applied this retroactively to the beginning of PDGM. In my blog, I refer to this as “the pivot”. In the next two paragraphs of the lawsuit, NAHC describes the pivot.
NAHC goes on from here in the lawsuit to attack this pivot as it applies to budget neutrality. They refer to this process of recalculating PDGM payments under PPS as “rebasing” claims. With this new definition of the BA, aggregate spending on home health began dropping dramatically. When PDGM was introduced in 2020, home health spending was at $16.6 billion per year. In 2023, it will end up at around $14.3 billion.
As stated in the lawsuit, CMS never provided any justifications for the pivot. They also never reconciled their original BA predictions as required by law. If I were to have developed this lawsuit, I would have focused more on this second issue. This is the most blatant violation of the act by CMS and the easiest to prove. If CMS could be forced to comply with this provision, it could create large cracks in the rest of their case.
The original BA was applied to 2020 and 2021. According to my data model, this represents over $1.5 billion in deductions in HHA payments for these two years. CMS is required to measure the accuracy of these predictions and make adjustments, no responsible party to any agreement would assume that their predictions of future numbers would not require reconciliation with the actual numbers when they were available.
Even if the pivot is defensible, which it isn’t, CMS was still required to measure the accuracy of these original predictions and make adjustments, if the pivot wiped them out, this still should have been documented through an accounting of the accuracy of the original BA compared to actual behaviors.
I believe the reason why this did not happen was because the predicted behaviors never happened. In fact, I believe that this potentially embarrassing CMS failure in predictive analytics and the associated debt from CMS to HHAs is the motive behind the pivot.
Another small issue I have with the lawsuit is the focus on aggregate spending as a measure of budget neutrality. Comparing 2023 aggregate spending under PDGM with aggregate PPS spending in 2019 is problematic. I believe that the intent of the legislation was to make sure that PDGM was budget neutral at an aggregate level when we transitioned from PPS to PDGM in 2020. This is presented by NAHC in their equation using the budget neutral base payment calculated by CMS for PDGM in 2020 of $1908.18. This is the payment required to balance PDGM to PPS for the first year using predicted 30-day periods and total spending of $16.6 Billion.
After PDGM was implemented, no one knew if these units of service would increase over time. If they increased, it would not be fair to HHAs to limit aggregate spending to 16.6 billion each year. If they decreased, CMS should not have to increase payments per 30-day period to maintain the same level of aggregate home health spending.
Looking back, we can see that current HHA services have contracted under Medicare Part A. This is due to the transition to Medicare Advantage and fluctuation of home health services by year. Here are the Medicare service units (30-day periods) by year calculated by CMS in the 2024 proposed rule:
Because of these market forces, the accurate way to measure budget neutrality is by comparing this initial base payment of $1908.18 against future year base payments, with market basket increases applied.
With this per period method, budget neutrality would not be influenced by these fluctuations in actual aggregate units of service.
In my data model in the last post, here are the actual payments per year compared to payments without any BA cuts and if all BA cuts were applied through 2022. This payment comes from multiplying the base payment each year by the case mix weight and wage index of each PDGM claim. These actual 30-day period payments are less than budget neutral compared to simulated payments calculated by CMS using PDGM on PPS claims in 2018 and 2019.
The Biden administration used this argument when asking the judge in this case to dismiss this lawsuit. Here is an administration quote from an HHCN article by Andrew Donlan, 12/19/23.
This argument is valid and could have been avoided if the lawsuit focused on service period payments instead of aggregate spending when defining budget neutrality.
That being said, the CMS side of this lawsuit is weak. CMS has failed on multiple counts to comply with the initial legislation from 2018. These are the major legislative implementation failures described in the lawsuit. I find it hard to imagine how CMS could defend any of them.
CMS never reconciled the original BA to actual HHA behaviors
The current payment model still depends on therapy visits through the CMS BA
PDGM payments are less than budget neutral compared to PPS, by any measure
In the lawsuit, NAHC documents specific damages to specific HHAs. I understand the legal necessity for this approach, but the lawsuit lacks any discussion about the overall damages to the industry. Another issue I have with the lawsuit, and the pending bill in congress, is that each considers the remedy to be for CMS to stop these payment cuts. If they did, NAHC claims, we would once again have a stable environment for HHAs to operate.
I would argue that this is not enough. Not only should these payments be stopped in the sense that there are no longer any permanent adjustments to the base payments or pending temporary adjustments, but the industry should be made whole for the previous BA deductions to these payments, if either of these legal options succeed.
This means that if CMS cannot prove that the original BA behaviors occurred, that they return the $1.5 billion they withheld from HHAs in 2020 and 2021. Any permanent adjustments from the pivot BA in 2023 and 2024 that were withheld should also be returned. This includes all future permanent adjustments that will be deducted from home health claims until this situation is resolved. Without this remedy, it will continue to benefit CMS and injure HHAs as long as this issue is unresolved. Most of the civil actions I am familiar with do not simply address future injuries, but require compensation for past damages if their side prevails.
If lawsuits like these succeed they may end with a judgement or are settled before the judgment occurs. Either way, there is no better way to bring your opponent to the table than a steadily increasing potential debt that may become real if their case is lost. This is why NAHC is here. Without this, any delays in justice for HHAs are a win for CMS. With this in mind, CMS will delay any resolution in this decision as long as possible regardless of the strength of their legal position. HHAs should not accept simply stopping these losses as an acceptable end to this story.
CMS has a long history of “takebacks”, applying current claim payments against past underpayments when underpayments are even suspected, let alone proven. In addition to the permanent BA CMS has already implemented, CMS has stated that they intend to apply the pending temporary adjustments to the base payment rate in order to begin collecting on this supposed debt. MedPAC has recommended this action the last two years. This threat is as real as the current permanent adjustment cuts and their impact on the industry.
What is it going to take to win at these efforts? What would winning look like? In both the lawsuit and the legislation before congress, it takes convincing a third party that your argument is superior to the argument of your adversary. In this entire process of transitioning from PPS to PDGM, CMS has brought numbers to the table with each proposed and final rule. These numbers are used to support their arguments and even to distract us toward the arguments they want to have and away from the arguments they can’t defend. MedPAC does the same with their reports. Both organizations reference data that include substantial errors and omissions that I have documented in my previous blog posts.
If HHAs are going to win, they are going to have to bring more to the table than anecdotal evidence and predictions of doom. There are two ways I see winning this lawsuit or the legislative effort. One is that these predictions of doom become real, as they most certainly will if nothing is done. In that event, the damage will become evident as the failed HHAs begin leaving service area “holes” vacant throughout the country.
Acute care facilities will have fewer HHAs to transfer patients to, costs will begin to increase for all healthcare as this resource contracts. Finally, congress will act to repair the broken industry, replacing these skilled and experienced provider organizations with the monolithic organizations we are all familiar with today, for a lot more money than it would have cost to simply pay them on a true budget neutral basis originally.
The other path to victory is to build a case with data. HHAs need their own version of the MedPAC report that provides an accurate perspective on cost report data and a comprehensive look at home health financial well being. This has to include the impact of Medicare Advantage, ignored by both CMS and MedPAC.
In many of my previous posts, I have provided this data as it applies to specific arguments and topics. At a minimum, this work proves that other perspectives of HHA financial health exist with the numbers to back them up. If I am wrong, nothing is at risk since we are already in the worst possible position with all the rules dictated by CMS.
If I am right, we could build our own visualization of the industry that might allow these third parties to see what we believe is really happening and how it differs from the CMS and MedPAC view. With this data, we can possibly avert the coming doom if we can show people what is happening before it is too late.
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