Reimbursement Update

[Reginald Hislop III]

Just recently (within the last ten or so days), President Obama signed a $26 billion jobs bill, including $16 billion (of the $26 billion) allocated for a six month continuation of the enhanced FMAP (Medicaid match) originally provided under the ARRA (Stimulus). Without the extension and funding, the enhanced match was set to end on December 31, 2010. This additional funding provides a slightly less gloomy outlook for provider reimbursement under Medicaid although I caution that without additional extensions, most states will continue to face reimbursement and program cuts as a means of balancing huge structural Medicaid deficits. As economic recovery is stalling (or stalled), the prospect for revived revenues via increased tax collections for nearly all states continues to be dim. In effect, no recovery equals insufficient revenue at the state level to forego some level of near term budget restructuring where Medicaid is involved.

Looking toward Medicare and the upcoming end and thus beginning of a new federal fiscal year on October 1, below is a summary of reimbursement changes effective October 1, 2010.

• Skilled Nursing Facilities (SNFs): Payment update (increase) of 1.7% for a total increase of $542 billion. The actual calculated market basket increase for SNFs was 2.3% but when error rates are incorporated from previous updates (CMS uses a rolling forecast for updates based on prior year cost reports and then compares the forecast to actual, adjusting each update by the difference between forecast and actual), a reduction of .6% was included, netting a positive update of 1.7%. Perhaps more crucial to SNF providers this federal fiscal year is the transition to MDS 3.0 and the resultant new RUGs IV rates/payment categories. While MDS 3.0 goes into effect on October 1, the RUGs IV categories come online via a hybrid phase, combining RUGs III with RUGs IV. This elaborate and somewhat complicated and yet fully unknown hybrid phase is the result of Congress finally requiring, via new legislation, that CMS transition to RUGs IV at the same time as the transition to MDS 3.0. Unfortunately, due to misguidance, the PPACA (health care reform bill) contained a provision delaying RUGs IV implementation by an additional year but not the implementation of MDS 3.0. The problem with this convolution is that MDS 3.0 assessments don't correlate with RUGs III payment categories. By the time Congress acted, and the President signed the legislation, CMS no longer had sufficient time to transition fully to RUGs IV, hence the hybrid solution. I suspect that this process or hybrid phase will have its issues as fiscal intermediaries will, as typical, lack sufficient guidance and support from CMS to efficiently adjudicate payments within this convoluted system. My belief is that providers will end up having to resubmit claims and to watch diligently, their payments and their Medicare receivables to assure that underpayments (far more likely than overpayments) stay at minimum.
• LTACHs: .5% update for discharges occurring after October 1, 2010 through September 30, 2011. This update includes a 2.5% increase in the market basket offset by a reduction of 2.5% for case-mix creep or more plainly put, an overestimation on the part of CMS regarding the actual condition of patients in LTACHs vs. the payment required to care for them. It is only via a .6% increase in high cost outlier payments and .3% increase in short-stay outlier payments that a net .5% increase occurred. On average, this update correlates to a $170 increase in payment per case.
• Home Health Agencies: A reduction or decrease equal to 4.75%. This reduction occurs as a result of direct reductions to the Home Health PPS to cover the effects of continued case-mix creep without a supported underlying change in patient health status. More simply stated, CMS believes that the industry has generally "up-coded" or over-stated the needs of patients and therefore, received more payment than is necessary to actually care for the average patient population. Additionally, the PPACA required for fiscal 2011, a 1% reduction in the Home Health market basket update. Per CMS, it is targeting overall payment reductions to Home Health Agencies via rate decreases of 3.79% in calendar year 2011 and an additional 3.79% in calendar year 2012 (different from fiscal year which is October to September). CMS also adjusted outlier payments to Home Health Agencies as required by the PPACA. Due to extensive growth in outlier payments, the PPACA mandated a reduction from 5% to 2.5% and permanently capped the total amount of outlier payments to 10% of agency (individual licensed agency location) reimbursement. Without question, these changes will create more losses for the marginal portion of the industry that is already struggling (about one-third of the industry). It is likely that the same changes will propel the merger/acquisition trend forward as larger agencies with larger Medicare "books of business" will acquire smaller or more regional agencies as a means of offsetting reimbursement cuts via increased volume and hopefully, increased efficiency ( see related articles I’ve written for other sites at http://wp.me/pD9Ac-4Q and http://wp.me/ptUlY-6k )
• Hospice: A rate increase, effective October 1, of 1.8%. The increase is a result of a 2.6% increase in the market basket offset by a .8% reduction due to the second year (of seven) phase-out of the Budget Neutrality Factor combined with updated wage index data. The Budget Neutrality Factor (BNAF) was instituted in 1997 to offset the movement on the part of CMS from outdated wage data to more accurate wage data as used in determining payments. In order to adequately and/or efficiently recalibrate payments, CMS introduced the BNAF. In final rule making for 2010, CMS created a seven-year phase-out for the BNAF, reducing it by 10% in 2010 and by 15% for FY 2011 through FY 2016.

[Tony Perry]

Thanks for the update Reginald.

[Reginald Hislop III]

Tony:

You are welcome.

Reg