Look at the numbers: The Interim Payment System

For cost reporting periods beginning on or after Oct. 1, 1997, home health agencies are to be paid the lowest of : (1) their actual, reasonable, allowable costs; (2) the per-visit cost limits reduced to 105% of the median per visit costs for freestanding HHAs; or (3) a new blended agency-specific per beneficiary annual limit, applied in the aggregate to the agency's unduplicated census count of Medicare patients.

The IPS reduces cost limits in two ways. First, they will be calculated based on 105% of the median per visit costs of freestanding HHAs, rather than the previous method of 112% of the mean. Second, the cost limits can take into account the market basket increase in prices that occurred during the July 1, 1994 to June 30, 1996, freeze on the cost limits (approximately 5.6%). The combined effect of these two provisions result in cost limits that are on average 15% lower than if the limits published on July 1, 1997, were updated to Oct. 1, 1997. The range of reductions is 14% to 22%. Skilled nursing and HHA limits are expected to be reduced by approximately 14% in both urban and rural locations.

The updated cost limits published July 1, 1997, are nullified by the new law. Agencies with a July, August, or September fiscal year beginning will return to their 1996 cost limits until they implement the new payment system in 1998.

Aggregate per beneficiary limit

IPS introduces a new limit - the per beneficiary annual limit - that will prevent further increases in average utilization per patient. This limit does not place a restriction on visits to individual patients; rather, it is applied in the aggregate, allowing the balancing of higher cost patients and lower cost patients.

The per beneficiary limit will be calculated based on 75% of the agency's reasonable costs per beneficiary and 25% on the census division average reasonable costs per patient. These calculations will be made using 98% of reasonable costs for cost-reporting periods ending in fiscal year 1994 (FY 94, Oct. 1, 1993 to Sept. 30, 1994), including non-routine medical supplies, and updated by the home health market-basket index excluding the freeze period.

The per beneficiary limits for new provi-ders and those providers without a 12-month cost reporting period ending in FY 94 would be equal to the median of these limits for all home health agencies applied as determined by the Secretary of Health and Human Services.

The agency's per beneficiary limit is multiplied by the unduplicated Medicare census count to determine its aggregate limit. The unduplicated census count of patients refers to the number of individual Medicare beneficiaries served in the year, regardless of the number of times the patient was admitted and discharged by the HHA.

According to the National Association for Home Care (NAHC), Utilization in terms of number of visits per patient is projected to be 78.3 for the calendar year 1997. This represents a 12.7% increase over the 1994 utilization average of 69.5 visits per patients. Most agencies will need to reduce utilization to maintain costs below this limit.

Notification of limits

The HHS Secretary will establish by April 1, 1998, the per beneficiary limits that will be effective for FY 98, and thereafter by August 1 of each year. The per visit cost limits are to be established by Jan. 1, 1998, and thereafter by Aug. 1 of each year.