Supplies still an issue as home health care prepares to embrace new PPS

Here are strategies you can use to weather the transition

Months after the Health Care Financing Administration (HCFA) released its final rule for the new prospective payment system (PPS), the supply picture doesn’t look any brighter. Supply problems — including the lack of case-mix adjustment and confusion over which supplies home health agencies are required to provide — remain the thorniest issue with HCFA over the new payment system, says William Dombi, Esq., vice president for law at the National Association for Home Care (NAHC) in Washington, DC.

The final rule, released June 28, has some welcome changes from the previous proposed rule, including measures to address serious cash-flow concerns. As a result, initial payments for the first episode of care beginning Oct. 1 are expected to be larger and come more quickly. But agencies continue to worry about the impact of HCFA’s decision to bundle supply costs into the episode rate and to require agencies to take responsibility for more nonroutine supplies, even those unrelated to the reason home care is being provided.

Ruth Constant, RN, MSN, EdD, CHCE, president of Ruth Constant & Associates of Victoria, TX, worries about the impact of the new payment system on cases such as wound care patients, for whom supply costs can mount.

H. Kenneth McNulty, vice president for finance for the Visiting Nurses Association of Boston, foresees possible conflicts between providers and suppliers over supply charges Medicare will refuse to reimburse. "This is going to be a major, major problem," he says.

Dombi describes HCFA’s stance on supply questions raised by NAHC as "evolving."

"When we’re using specific illustrations of supplies, some HCFA officials seem to be backing off. Their position is not absolutely set in stone. When we try to nail them down specifically, we get something else."

He says home health agencies are likely to see some relief in this area in the form of changes to the rule and possible congressional action. Unfortunately, neither is expected to come before the Oct. 1 start date for PPS.

How do you prepare to deal with bundled supplies, not to mention possible cash-flow difficulties and the long-term ramifications of PPS? The message from our panel of experts, many of whom earned their stripes by participating in the PPS demonstration project, is this: Be prepared, and be flexible.

"There is a way to do it, although it’s going to be a different way than we’ve been doing it under cost reimbursement," says Lucy Lee, RN, MHA, CHCE, owner of Lee Health Care Inc. in Hamilton, TX. People with the right attitude — "I’m here to meet the challenge, and I can make it work" — are going to be more successful, she says.

Who pays for what?

Dombi sees the final PPS rule as expanding home health agencies’ supply responsibilities past the point of reason or legality. "For Medicare to now say, We’re going to pay you an amount equivalent to what we were on average paying for supplies before, but we’re going to expand the level of supplies that you have responsibility for,’ is simply not appropriate," he says.

And it’s still hard to pin down the extent of that responsibility. As an example, Dombi points to the use of adult diapers. "The response we get back is, Of course we don’t intend the agencies to pay for those,’ but what distinguishes those supplies from other nonroutine supplies?" he says.

McNulty foresees problems when suppliers attempt to bill Medicare and are rebuffed, then come to agencies seeking reimbursement.

"I think providers are simply going to say, I’m not paying. I didn’t order it, and I had nothing to do with it, and the patient didn’t need it while we were taking care of them, so I’m not paying.’"

To avoid any misunderstanding, Dombi advises a thorough inventory on admission of all supplies a patient is using, even those that don’t relate to the particular diagnosis for which he or she may be receiving home care.

"The agency should give a very specific notice to this patient, explaining that they are getting a bundled service and supplies benefit," he says. "Should they go outside of that benefit to secure either services or supplies, either they or the supplier is at risk."

Comparison shopping for supplies

Dombi says HCFA may be willing to change the scope of the responsibility for nonroutine supplies. In addition, he says, HCFA officials have indicated they wouldn’t oppose a change in the law allowing supply costs to be taken out of the base rate and reimbursed on a fee basis.

Those changes could take months. In the meantime, he advises agencies to get control of their own supply costs. "They need to start looking to how they can most efficiently manage it. Where are they going to buy the supplies? Where can they get the best product at the best price?"

He says agencies may get to the point where they ask suppliers to accept payment on a capitated basis, just as they are doing.

Cathy Nielsen, RN, CPHQ, corporate compliance officer and vice president for clinical services for In Home Health Inc. in Minnetonka, MN, says the new supply rules will put the burden on clinicians to be more creative and flexible in the supplies they use.

"Typically in the past, nurses would just take a catheter they felt comfortable in using," she says. "Now, they’re going to have to understand the financial ramifications of a particular catheter. Maybe the outcome for that catheter means it has to be replaced more often. I think our clinicians are going to have to become much more astute in the financial management of the patient."

Most agree HCFA went a long way in its final rule in trying to address cash-flow issues raised by home health agencies.

It increased the upfront payment for the first episode of care to 60% (previously 50%) and erased the 14-day waiting period for Medicare to pay on a request for anticipated payment (RAP).

Dombi says the RAP must have the detail necessary to be the equivalent of a plan of care. "You have to have a detailed verbal order that’s recorded and a written care plan that’s sent to the physician before the RAP can be filed," he says. "There’s still these technical hoops to jump through, but agencies will make some adjustments, I’m sure, pretty easily, to meet those standards."

To avoid creating a new form for staff to contend with, Lee’s agency is considering changing its admissions assessment form to provide a place for the nurses to attest that they have the verbal orders.

"I think the big thing is you have to be ready to do the billing, to send in the RAP, just as soon as possible," she says.

Dombi agrees, noting that switching from periodic billing to a daily billing system is probably a more efficient way of spreading the workload, as well. But he and others note that the improvements in the final rule, as helpful as they are, won’t ensure smooth cash flow for every agency.

The following are some potential problems that might arise:

1. Loss of PIP payments. Dombi says agencies dependent on periodic interim payments (PIPs) could start to see a real crunch early on.

"Yes, they will get a check probably in the second week of October, in addition to whatever payment they get on that Oct. 1 episode of care," he says. "But . . . two weeks after that, they’re not going to get another PIP payment. Then, they’re into the same cash-flow concerns that other agencies might have, and their obligations may be six weeks ahead of those payments."

2. Delays in payments. The fiscal intermediary (FI) can deny a request for anticipated payment if it believes the agency has a history of invalid claims. Agencies subject to medical review on their claims also could see slowdowns.

"It’s impossible to predict what’s going to happen there, but we’re telling agencies: Do not expect that the day after you submit a claim, you’re going to receive a RAP," he says. "If you are, you might be extremely disappointed."

Are the intermediaries ready to deal with the new system? "All I can look to is the history we had with the FIs in the demonstration," Lee says. "They had specific people trained to handle these 45 agencies [that were part of the demonstration],

and they couldn’t get it done. Now we have the whole group of employees being trained on how to implement this prospective payment system for every agency they have. It scares me to death."

Dombi says that in the event there are complications, he’s optimistic that HCFA’s mindset will be to help, rather than to give providers a hard time. "We at least have an attitude at HCFA which will create an environment for protecting the providers as quickly as possible, whether it’s through accelerated payment or some other means," he says.

3. Charge-backs for LUPAs and PEPs. McNulty predicts that the bigger cash-flow problem will come not at the start of PPS, but several months down the road, when agencies must return overpayments for cases in which there were low utilization payment adjustments (LUPAs) and partial episode payments (PEPs).

"Agencies need to be thinking about coming up with some ways to build their reserves for the end of their fiscal year, especially if their fiscal year is a calendar year," McNulty says, "so that by Dec. 31, they have reserves in their financial statements to cover the charge-backs that are going to occur, so they don’t end up distorting two different years’ financial statements."

Dombi says that won’t be a major problem. The charge-backs will be for money the agencies were overpaid to begin with, he says. "If they’re counting on overpayments to ensure good cash flow, then they have real problems."

He says agencies should try to figure out as soon as possible which patients will be LUPAs or PEPs and refrain from submitting RAPs in those cases. He agrees with McNulty on the importance of cash reserves, lines of credit, and other fall-back systems. Dombi says agencies should have their financial records in good shape so they can quickly pull together a request for accelerated payment, if necessary.

Long-term strategy: Be creative

Constant, whose company owns and operates three Texas home health agencies, says this is a time when a home health operator’s best friend is the local banker.

"To be prepared, you need to keep a good relationship with your banker, someone who knows your history and trusts you," she says. "You need to educate the banker so he knows what’s coming down the pike in case the cash flow gets tight."

Once home health agencies weather the immediate effects of PPS, some more permanent changes in how care is offered are inevitable. The final rule, which does not adjust for the presence or absence of a caregiver in the home, for example, could lead agencies to look very carefully at a client who has no caregiver.

Constant notes that it’s safer to carefully screen patients at admission than to discharge them later and be accused of abandonment. "I know we’re going to be more cautious," she says.

Lee says assessments should be much more thorough to assure that a patient is a good fit for home care. "I’m not going to make it a condition of admission that they have an available caregiver. I do think we’ll find that we may be very careful and assess very well on admission what the abilities of the patient are and what the prognosis of the patient is for their getting to a higher level of independence."

Nielsen says the long-term impact of PPS will be to force agencies to become more creative and efficient, perhaps by relying more often on specialists or by taking advantage of technologies such as telemedicine.

"Agencies need to have a better understanding of their patient population and the services they’re providing," she explains. "They need to see if there’s any other way of providing that same service via telemedicine, via phone calls, or other types of services."


Ruth Constant, President, Ruth Constant & Associates, 1501 E. Mockingbird Lane, Suite 404, Victoria, TX 77904. Telephone: (561) 578-0762. Fax: (561) 578-1567. E-mail: Web site:

William Dombi, Esq., Vice President for Law, National Association for Home Care, 228 Seventh St. S.E., Washington, DC 20003. Telephone: (202) 547-7424. Web site:

Lucy Lee, Owner, Lee Health Care Inc., 114 E. Main St., Hamilton, TX, 76531. Telephone: (254) 386-8971. Fax: (254) 386-5040. E-mail:

H. Kenneth McNulty, Vice President for Finance, Visiting Nurse Association of Boston, 647 Summer St., Boston, MA 02210. Telephone: (617) 464-5162.

Cathy Nielsen, Corporate Compliance Officer/Vice President for Clinical Services, In Home Health Inc., 601 Carlson Parkway, Suite 500, Minnetonka, MN 55305. Telephone: (612) 449-7654. Fax: (612) 449-7664. E-mail: