HCFA official predicts demise of 15% reduction, minor changes in PPS

By MATTHEW HAY

HHBR Washington Correspondent

WASHINGTON – The Health Care Financing Administration (HCFA; Baltimore) will not be publishing revised payment rates for the home health prospective payment system (PPS) as some industry representatives were hoping, Bob Wardwell, director of HCFA’s post acute care division, told a group of providers at the American Association of Homes for the Aging (Washington) last week. He also reported very little enthusiasm inside or outside the agency for the additional 15% cut in Medicare home health spending.

"I don’t think there will major changes from what was in the proposed rule," said Wardwell, who is heading the agency’s development of PPS. "There are more likely to be significant but smaller changes." Those smaller changes will likely include modifications in the case mix, as well as changes in payment levels, he said.

"Right now, it looks like we are on schedule," said Wardwell. "It looks like it will happen Oct. 1, and it looks like we will get our regulation published on time." He added that HCFA is hoping to post the claims format on its Internet site in the next month.

Some people still doubt that, he admitted. "But some people did not believe (the interim payment system) was going to happen either," he warned. "Where are they today? There are 2,000 less of them.

"My best advice to people right now is to plan as if the proposed rule is the final rule, especially in terms of systems and operations changes," he added. "Be preparing now. Don’t be scared.

Wardwell said he thinks agencies will be happier with the new system than they were with the interim payment system (IPS). "I think we are on the verge of a happier time than most agencies have experienced under IPS," said Wardwell. "The distributive system that we are developing under the prospective payment system is fair," he added. "The hard part is going to be moving to a pricer system.

"The biggest concern that has come to the forefront lately in home health surrounding PPS is the fact that the budgetary amount to be distributed is 45% of the number that was originally published as the basis for our proposed rule," said Wardwell. "The assumption many people leapt to was that means the rates are going to be 45% lower."

But Wardwell said that does not follow at all. "In actuality, to the degree that the utilization has been reduced to the same degree as the budget estimate it was based upon, there would be no change in the rate at all."

The Congressional Budget Office (CBO; Washington) last week confirmed that home health spending cuts will be $69 billion over the five year period covered by the Balanced Budget Act of 1997, which is FY98 – FY00. That is more than four times what Congress originally anticipated. Total spending on Medicare home health services in 1999 was down almost 45% from in 1997 and is expected to remain largely unchanged this year, according to the CBO.

"To the degree that utilization actually went down faster than the dollars went down, you could actually see a higher rate in the final rule," Wardwell added.

Wardwell said that what actually happens when PPS goes into effect and agencies operate under the new system will govern what Congress does next. He noted the requirement under the Balanced Budget Refinement Act passed last year by Congress that six months into the home health PPS, HCFA must report to Congress whether the additional 15% reduction is still necessary.

But Wardwell said the tide is growing against the 15% reduction. "If you took a cross-section of people in our agency, as well as most people on the Hill, there is not a lot of enthusiasm for retaining that 15% reduction," he said.

If PPS saw much utilization in the first year, he said, that might change. " I could see them being less sympathetic than they are right now," said Wardwell. "But my own hypothesis is that six months into the system, we probably have at our disposal maybe three months of data, and who can tell from the first three months of data what is actually happening in that system?

"I think the last six months of the year would probably be a better benchmark for what is going to happen in the future," he added.

"The hardest thing about this is that it is not over until it is over," Wardwell cautioned. He said the agency hopes to publish a proposed rule on June 30, since July 1 falls on a Saturday. "I am certainly going to be hammering on people to do that."

In the not too distant future, he said, the proposed rule will leave his hands and go to the secretary of the Health and Human Services Department (Washington) and then to the Office of Management and Budget (Washington). "There could be a big change," warned Wardwell. "We could get slam dunked." But the likelihood is for only minor revisions, he predicted.

When IPS went into affect, providers had difficulty balancing one kind of patient against another," explained Wardwell. "The whole theory of the IPS cap was that some patients are low-care patients and some patients are high-care patients.

"One of the things we did not anticipate is the number of providers that would be at the national median," he said. "Many others concluded it was too hard to balance patients." As a result, a significant portion of the reduction in home health expenditures was not just the cap that was imposed, but providers managing to the cap, explained Wardwell.

"I think PPS is going to be much better," he predicted. He said clinicians will also like it much better because even if they have to think in terms of a cap, they will be able to think of it in terms of a case-mix adjusted cap with a 60-day episode. "I have to think this is going to be dramatically easier and better to manage," he concluded.

Wardwell said the only type of agency that will have a rough time under PPS are the roughly 10% of providers that have a high cap. "It has taken agencies, even some relatively sophisticated agencies, a while to balance this beneficiary cap with the per-visit," he said.

"What some of them got caught in unwittingly was that they reduced their utilization to try to get under the beneficiary specific cap and didn’t reduce their fixed costs," he said. "Their cost per visit went up so high they got hit by the other cap. I am hoping the PPS will bring some regularity to the system," he concluded. "Certainly the case-mix alone and the outlier alone significantly reduce this issue of not having enough money in the pot."

See next week’s HHBR for Wardwell’s rundown of likely changes in the final rule for the home health PPS.