The Centers for Medicare and Medicaid (“CMS”) recently released a proposed rule involving 2014 payment changes for the Home Health Prospective Payment System. The rule projects that the changes could reduce Medicare payments to home health agencies by 1.5 percent. CMS estimates that 3.5 million beneficiaries currently receive home health services, costing Medicare approximately $18.2 billion in 2012, so a 1.5 percent reduction would be significant ($290 million, to be exact).

The proposed rule reduces reimbursement rates and proposes a number of other changes that will be discussed herein. Home health providers should become familiar with the rule and voice comments or concerns about it to CMS. Comments are due by August 26, 2013.

Medicare pays home health agencies through a prospective payment system, which means that Medicare pays a fixed or base amount for a particular service that is adjusted based upon the health condition and needs of the beneficiary (i.e. case mix) and differences in wages.  The case mix factor allows Medicare to pay higher rates for services that are provided to beneficiaries with the greatest needs. Payment rates are based on patient assessment data collected by Medicare participating home health agencies.

The home health payment rates are updated by a percentage annually. This percentage is calculated, in part, by the home health market basket, which measures inflation in the prices of an assortment of goods and services used in home health services.

Rebasing the National Standardized 60-Day Episode Payment Rate, LUPA and NRS 

Home health providers are reimbursed for each 60-day episode. The Affordable Care Act requires that, beginning in 2014, CMS apply an adjustment to this episode rate to account for factors including, but not limited to:

• Changes in the number of visits in an episode

• Level of intensity of services in an episode

• Average cost of providing care per episode

To meet the ACA requirement, CMS proposes a 3.5 percent yearly reduction for four (4) years (2014-2017) to the 60-day episode rate. This rebasing means that home health providers will receive approximately $290 million less in payments.

For episodes with four or fewer visits, Medicare pays on the bases of a national per-visit amount by discipline. This is referred to as a low-utilization payment adjustment (“LUPA”). CMS has proposed an increase to each of the per-visit payment rates of 3.5 percent annually from 2014-2017. In addition to rebasing LUPA, CMS is proposing a 2.58 percent reduction in the nonroutine medical supplies conversion factor (“NRS”) over the same time period.