The future is not what it used to be; Medicare's PPS may only be temporary
The future is not what it used to be; Medicare’s PPS may only be temporary
Agencies will feel the pinch as constraints on money tighten
This much is certain: A prospective payment system (PPS) for home health reimbursement under Medicare is coming. What isn’t so clear is the way it will affect hospital-based agencies.
To survey the changing home health care financial landscape, Hospital Home Health asked experts what they thought might happen. They all agree that PPS, or some form of it, is coming soon and managers of hospital-based agencies should be thinking about their futures now. It’s later than you might think.
In a statement before the House Ways and Means Subcommittee on Health last July, outgoing Health Care Financing Administration (HCFA) chief Bruce C. Vladeck vowed, "We are committed to implementing a full PPS beginning in FY 1998, and our proposed legislation reflects this commitment."
Prospective payment, as generally defined, is a method of paying providers at pre-established rates regardless of a provider’s actual costs. Congress, faced this year with the challenge of keeping Medicare Part A afloat, has grabbed the PPS life preserver with both hands.
HCFA has been testing two methods of prospective payment already. Phase I of the demonstration, which proved ineffective in controlling expenditure growth, tested a per-visit prospective payment. Phase II of the demonstration, which began in 1995 and should end this summer, is testing a per-episode prospective payment.
"PPS is a certainty," says David Baker, corporate director for Home Care Services at Sisters of the Third Order of St. Francis in Peoria, IL. "The time is good in Congress. But, looking at the big picture, I think PPS is a transitional phase. I don’t think it’s going to be long-term. We’ll move straight into managed care. HCFA is trying to move toward a managed care strategy."
It’s no longer business as usual
According to data released in December for a study by the Prospective Payment Assessment Commission (ProPAC), 18.9% of all hospital-based agencies had costs in excess of 120% of the Medicare cost limits. This compared to 6% of freestanding home health agencies and 1.4% of visiting nurse associations having costs exceeding 130% of the limits.
The experts are cautious not to arouse undue alarm over such findings, but they make clear one pertinent idea: Agencies that are preparing for PPS now will fare far better than agencies that ignore it, hoping it will just go away.
"PPS is going to be a radical departure from the way of doing business for all [kinds of] agencies," says Baker, whose hospital system includes six home care organizations. "They need to look at their resource consumption, costs, and how to prepare for PPS. Agencies that are doing this will be okay."
But, Baker hastens to add, "If they’re not now looking at care maps, protocols whatever you want to call them to get some control over those areas of costs, they are going to be ill-prepared."
In Baker’s view, hospital-based agencies are mistaken in thinking market pressures won’t affect them as they do their freestanding counterparts.
"Hospital-based agencies are no different," he asserts. "They need to be run from a business perspective. They need to look at operating costs, their direct costs, separate from allocated costs from the hospital."
That’s what St. Francis is doing to prepare for managed care. "We’re developing an ABC [activity-based costing] accounting system," Baker says. "We are into quality improvement totally, we’re serious about that. We’re looking at both costs and quality." (See related story on ABC, p. 21.)
Partnerships, alliances will prevail
Under PPS, hospitals no longer will be able to allocate costs indirectly as they have done under Medicare’s present reimbursement system. With their flow of Medicare money constrained, hospitals will be forced to come up with new ideas to stay competitive. Experts see a future filled with alliances and partnerships.
"PPS may stop some hospitals from getting into the home care business," Baker observes. "They see the window closing."
Or hospitals may decide to contract with outside providers to manage their home health agencies. Independent home care giant Olsten Health Services (formerly Olsten Kimberly QualityCare) already manages about 200 hospital-based agencies throughout the country.
"I think there’s tremendous opportunity now for home health agencies." Baker says. "But it will be difficult for those that don’t already run their operations well. That’s where an Olsten can come in."
Cathy Frasca, RN, BSN, FACHCA, executive director of South Hills Health System in Homestead, PA, also recognizes the paradigm shift toward managed care and agrees that hospital-based agencies can’t resist it.
"Care at some hospital-based agencies is very costly," explains Frasca, who has been involved in home care for more than 30 years. "That’s because the hospital chooses to allocate costs. The home health agency is viewed as a department of the hospital, and that’s a high-rent district."
Yet, like Baker, she sees opportunity knocking.
"Because of government pressure to lower costs and there is nothing more low-cost than de-institutionalization of services ambulatory care and home care are going to grow," Frasca says.
But not as a department of the hospital. "Hospitals won’t go it alone," she says. "They’ll offer [payers] a full package of services, one-stop shopping. They will all be getting into home care in some way, through partnerships and alliances."
Frasca cites the example of the Dallas-based Visiting Nurses Association of Texas, one of the largest independent home health agencies in the country, aligning with Baylor University Hospital.
"Those kinds of businesses will skyrocket," she says.
A history of misunderstanding
Not only must home care agencies change their thinking to accommodate PPS; hospital CEOs also must recognize home care’s value, Baker points out. Historically, he says, hospitals have thought of home care as just another kind of outpatient care. "When negotiating [managed care] contracts," he explains, "hospitals will offer a 25% discount on their charges, but actually have no idea what that means in terms of home care."
The hospital and agency react to a different set of business dynamics, Baker says. "The world sees home care as an industry. Hospitals look at it like a department of the hospital, like surgery, or something else. When hospitals need to cut back on costs, for example, and order a 10% budget reduction and a hiring freeze, they may not know that home care is the only part of the hospital that’s growing. One size one decision doesn’t fit all."
The reason CEOs are so often hazy about home care, Baker says, is because they tend to focus on the more lucrative areas of the hospital, such as the emergency department, surgery, or radiology. "CEOs are so busy," he explains. "They may run a 75- or 100-million dollar operation. Home care may only be one or two million of that, so CEOs don’t give home care as much attention. Home care executives must educate the CEO as much as they can about their agency’s value."
Baker suggests opening communication lines, or even inviting CEOs to home care conferences as a way to get their attention.
Kevin O’Donnell, head of the Lewisville, TX-based consulting firm Healthcare Resources of America, says, "As more and more of what hospitals own and operate gradually shifts from being profit centers to cost centers, home health agencies are winners."
Nancy Lee Paulson, MSN, PHN, a Medicare reimbursement expert in Northridge, CA, observes that hospital-based agencies may be better off than freestanding ones.
"Any [hospital-based] agencies looking at PPS really need to look at utilization versus cost. Look at the length of hospital stay and number of visits. Hospital-based agencies typically make fewer visits than freestanding agencies, and they have shortened length of stays. They could be in better shape under PPS."
But, like Frasca, Paulson recognizes that changes in organization are inevitable.
"Some agencies are going to be rearranging the way they do business. For example, an agency may want to move off the hospital campus to another site to save money on rent."
Dan Lerman, MHSA, the president of the Center for Hospital Homecare Management in Memphis, TN, also predicts a future of change for the hospital-based industry. "There will be bundling, coupling, multiple services," he says. "We may see lots of different payment methodologies."
Other ideas considered
According to ProPAC, "prospective payment alone may not slow, and could even exacerbate, the growth in the number of post-acute care users," because "the need for post-acute care is not well defined."
One solution is what ProPAC calls "linked payments."
Also known as bundling, this is a method of linking acute and post-acute care payments to control the number of users and improve continuity of care over the entire acute/post-acute episode.
"Linked payments would reward the efficient use of a range of services across various provi ders," the study says. "The payment system also could be designed to promote patterns of service delivery that lead to the best outcomes."
A key issue is determining the entity that should receive the payment. Would it be the acute care hospital, the post-acute care provider, or an independent broker? ProPAC is even considering a preferred provider organization (PPO) as a payment-receiving entity.
According to the ProPAC study, a PPO "for Medicare’s fee-for-service beneficiaries could be a way for Medicare to implement a linked payment method. The PPO would receive the payment for the acute/post-acute episode in return for arranging and paying for a range of services needed during the episode [of care]."
The objective, ProPAC states, is to coordinate care in the "least intensive, most appropriate settings." If Baker, Frasca, and others are prescient in their assessments, that setting will be home care.
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