2017 Home Health proposed Rule

The proposed rule for 2017 is out and home health agencies once again should be preparing for a cut. While the cut is not as large as that in 2016, agencies are expected to lose, overall, another $180 million in reimbursement.  The base episode rate in the proposed rule sees a decrease of $28.47 to $2,936.65.  2016’s base episode rate is $2,965.12.


Case Mix Weights, from which your agency’s reimbursement is calculated, will also undergo more changes in 2017.  While each year has slight changes, the ability to compare the damage by the proposed rule is difficult because the adjustments in 2017 are going to be dramatic.


LUPAs (Low-Utilization Payment Adjustments) will see an increase for 2017 under the current proposed rule.  LUPA rates will increase 5.8% through changes in rebasing and due to the annual inflation update.


For agencies who frequently provide non-routine medical supplies, you can expect to receive slightly less in 2016.  The proposed rule drops the reimbursement factor down to 2.3% which results in a conversion factor of $52.40 for 2017.  The conversion factor for 2015 was $52.71.


Outlier reimbursement is going to be transformed under the proposed rule.  The new method for calculating the outlier payment will be based on 15-minute service units for each visit performed – a per visit reimbursement methodology.  The goal of this change is to provide incentive for agencies to treat patients with more complex service needs.  However, the proposed rule changes which episodes qualify for the new outlier reimbursement rates. The new reimbursement method will have a positive effect for some agencies and a negative effect for others who will lose money.


Agencies who provide services in the country will continue to receive the rural add-on.  The rate for 2017 is again, 3%.  CBSA codes that begin with 999 qualify for the rural add-on.


OASIS and HHCAHPS data is very important.  This is the data that contributes to your Home Health Compare Star Rating.  If you are an agency that doesn’t submit this data, you will be subject to a 2% reduction in reimbursement.


Why is CMS continuing to reduce reimbursement?  There are two components – one is The Affordable Care Act (ObamaCare), which continues to make everyone happy and the second is a group of self-proclaimed “healthcare experts” known as MedPac.  MedPac believes that home health profit margins are still too high.  However, since the information they’re using comes from cost reports and cost reports do not reflect the reality of running a business, the data is skewed.   Another reason for CMS reducing reimbursement is their desire to reduce the number of agencies. So far, that has been occurring each year with the weakest taking the biggest hits.


Overall, 2017 is going to be similar to 2016 – a year of change and a year of turbulence.  While this is just the proposed rule, you can be assured that it will closely line up to the final rule published in November.


Our recommendation to agencies is: continue to review operations, review workflow and review your position in your market.  Overhead is going to be the key to making or losing money.  An agency’s overhead show not be greater than 40% of total revenue and clinical (direct expenses) should not be greater than 50% of gross revenue.  This leaves you with a financial/tax net income of 10% which will also indicate that you have positive cash flow.  If you are interested in learning how to get to this point or would like some information, please call us or send an email!