2017 won’t be reversing the trend of continued reimbursement cuts your agency has experienced since the Affordable Care Act (ObamaCare) was passed. However 2017 is likely to bring about other surprises as President-Elect Trump has already stated that his administration’s top priority is to dismantle ObamaCare and replace the system with something more efficient and less expensive.
Agencies in 2017 will receive .70% less than they do this year, resulting in reimbursement being cut by $130 million. An increase for the base episodic payment will occur, however, other CMS changes will quickly negate that increase. The episodic base rate from which adjustments will occur, based on patient OASIS data, will increase from $2,965.12 to $2,989.97.
Agencies will also see reimbursement cut by another $180 million due to other changes such as case-mix weight adjustments, rebasing, per visit rate reductions and decreases in non-routine medical supply reimbursement.
CMS’ stance on agency reimbursement is based on their belief that agencies are making too much money. However, the data used to reach such a conclusion is seriously flawed. Agencies report costs and net profit margins through their cost reports. The cost report reporting methods are very dated (from the 1970s) and do not take into account modern business expenses that are fully deductible for tax purposes. These deductions, allowed by the IRS but not CMS include, telehealth, marketing salaries and expenses, and market based rent expenses for facilities with common ownership.
Outlier payments are going under drastic changes in 2017. Based on 15 minute increments and daily billing caps, agencies will no longer be reimbursed for more than 8 hours of care in one day. CMS used 2015 data to determine that the change would only effect about 8,000 cases, therefore the net effect would not be very large.
Negative Pressure Wound Therapy
A new type of reimbursement is also being introduced for 2017. Negative pressure wound therapy devices will be billable separate from normal home health supply charges. The new billing methodology will be based on Hospital Outpatient Prospective Payment System rates. Billing for these devices, which greatly improve wound care, will be cumbersome and require manual billing outside of the typical home health EMR. Specific CPT® codes must be used along with a specific bill type (TOB 34X). Home Health Today will be providing more information on how to bill for this type of device and wound therapy in the coming editions. Patients will be subject to a 20% co-pay and the agency will be responsible for collecting this co-pay.
Value Based Purchasing (HHVBP)
CMS is making a lot of changes to the HHVBP model that was originally proposed. For the 9 states affected by the demonstration, some of these changes are good while others are likely to cause more headaches.
- Benchmarking: State level benchmarking will occur for determining how agencies rank against one another, rather than based on size groupings that would rank agencies against their peers across the US. The definition of benchmark for this demonstration is also revised to the ‘average’ of top decile performance on the specified quality measure during the baseline period for each state.
- 8 is the minimum amount of home health agencies which must be present for a size cohort to be calculated.
- Increased submission time for OASIS data has changed from 7 days to 15 days to allow agencies time for adequate review. The new time frame also takes into account holidays and weekends which the prior 7 day window did not.
- Remove Measures: Care management – types and sources of assistance, prior functioning ADLs, flu vaccine data collection, and the reason for not receiving a flu vaccine.
- Annual submission of flu vaccine data. Prior to this change, agencies were going to be required to submit data quarterly.
- Appeal your data: A new appeals process will be present, should an agency want to dispute the rankings and data – and it should be used!
2018’s rates are going to be based on 2017 measure reports and how well post-acute care is handled. As part of the 2014 IMPACT Act, CMS is required to collect, measure and use the information for the 4 measures below to determine agency rates.
- Medication reconciliation
- Discharge to the community
- Total Medicare spending per patient/beneficiary
- Potentially preventable hospitalization readmission rates.
Next year is going to have big effects on home health and agencies will need to be prepared. From increased compliance to decreasing reimbursement, efficiency and reduced overhead is going to be the driving force in making sure an agency meets their targeted profit margins. Without being ready to leverage technology, take advantage of outsourcing and keeping only essential staff within the office, agencies will experience cash flow issues on top of razor thin margins.
As agencies continue to undergo transitions and changes, it’s important to understand that certain expense ratios should be followed. These are as follows for a primarily skilled, Medicare based agency. These ratios can change for Medicaid and Medicaid Waiver agencies. Additionally, each insurance accepted should be evaluated for their profit margins and ratios to see if it is even worth accepting that insurance.
Margin Ratios for a Skilled, Primarily Medicare Agency:
Gross Profit: 50% (GP is the amount of profit after you expense direct clinical expenses such as wages, payroll taxes, travel for clinicians and medical supplies.)
Overhead Rate: 40% (Office expenses, office wages, owner wages, interest expense and other administrative costs associated with doing business.)
Profit: 10% (Target net profit – after deducting all expenses.)
We will be providing more guidance in the coming months. Please do not hesitate to contact us with questions on how your agency can implement a strong financial plan and operational structure to ensure profitability while running an efficient agency.