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Managing your referral risk

Coping with IPS changes to patient referrals

By Elizabeth Hogue, JD
Health Care Attorney
Elizabeth Hogue Chartered
Burtonsville, MD

With all the changes that are being heralded in by the interim payment system (IPS), one oft-overlooked outcome is the effect on hospital-based home health agency’s patient referrals. Once perceived as a benefit, the agency’s "captive audience" of patient referrals from the hospital may now be a distinct disadvantage under IPS.

Referring to history

Historically, hospital-owned home health agencies have long been seen as a thorn in the side of freestanding agencies who perceive the former as having an unfair advantage when it comes to patient referrals. As the independents see it, hospital-based agencies have a "captive audience" of referrals who are transferred from the hospital bed to the hospital’s home health agency in a seamless move. This ability to control referrals "downstream" upon a patient’s hospital discharge amounts to an unfair advantage in the marketplace, independents say.

Relationships between hospitals and their home health agencies traditionally have taken two basic forms:

  • Hospitals tended to use home health agencies to reduce patients’ lengths of stay (LOS) and thereby maximize their reimbursement under the diagnosis-related group system of Medicare reimbursement. The logic was that the less time patients spent in the hospital, the more money hospitals made from Medicare.

  • Also, a hospital may have realized significant benefits as a result of owning a home health agency in the form of cost shifting — the practice of transferring hospital expenses to the agency’s Medicare reimbursement cost report. So long as it stayed within the agency’s cost cap limits, a high volume of visits would mean more money that was available for the hospital to shift.

    Concerns — legal and otherwise

    Those concerns were often addressed legally and from varying points of view. Some agency administrators argued that control of referrals amounted to antitrust violations, while others pointed to fraud and abuse concerns, primarily the violation of a patient’s freedom to chose his or her provider — a freedom that is guaranteed to Medicare and Medicaid patients under federal statute. Agencies adopting the latter position argue that such violations are examples of fraud because of the tendency to increase utilization, whether it’s the number or volume of patients referred for home health services.

    Now IPS may turn around these perceived advantages to the detriment of hospital-owned agencies. If hospital administrators continue to use home care agencies as a means of reducing their LOS as they have in the past, the results may prove disastrous. In one case because of rate reductions, funds that were once available for cost shifting are likely to be reduced severely or entirely.

    Still another example comes as the result of an overburdened system, where hospital-based agencies may have so many patients requiring relatively high-intensity services (longs) that they cannot be balanced by relatively short-term patients (shorts) without running the risk of exceeding their aggregate per-beneficiary limit. In the meantime, freestanding agencies may be reluctant to accept referrals of longs in view of their own concerns about staying under the aggregate per-beneficiary limits. Hospitals, then, will be forced to swallow huge losses associated with their home care operations.

    Changing to survive

    Clearly, the "big tent" theory of Medicare home care that seemingly allowed for more visits to individual patients as well as a greater patient-visit volume across the board won’t work all that well under IPS. For hospitals then, it’s crucial that administrators realize the potential consequences of IPS as described above and act accordingly.

    To wit, hospital managers may be willing to shoulder the additional costs if losses are balanced by inpatient revenues resulting from shorter stays. Likewise, hospitals that already have reached capacitated agreements with managed care organizations may also be willing to stay the course. (Bear in mind, however, that hospitals with the aforementioned agreements could contract for home care services unless specifically prohibited by provisions of existing, non-negotiable agreements.)

    Certainly, there are hospital managers who are committed to the concept of integrated delivery systems, including home care services. These administrators will not flinch under the effects of IPS. With the assistance of competent home care professionals, those that adapt their behaviors to the new reimbursement system or formulate informed decisions as to how they will handle losses incurred by their home care operations will survive under the new Medicare program.

    But those hospitals that continue to use home care services as they have in the past may be in for a rude awakening. Now is the time to fish or cut bait.

    [Editor’s note: You can receive a 30-minute video on home care risk management to help agency staff members understand how to terminate services without liability for abandonment, by sending a check for $180 (including shipping and handling) to the address below. Or, to obtain a copy of a complete set of policies and procedures designed to help agencies avoid abandonment liability and to manage patient mixes under IPS, send a check for $105 (including shipping and handling) payable to Elizabeth E. Hogue, Esq., at 15118 Liberty Grove, Burtonsville, MD 20866.]