Overhaul of Payments System Will Force Home Health Providers to Become More Efficient

Last year, the Centers for Medicare and Medicaid Services (CMS) proposed a new billing model for home health services that would adjust payments based upon “behavioral assumptions” as opposed to actual provider billing or evidence of changes in billing behaviors. The Patient Driven Groupings Model (PDGM), slated to go into effect Jan. 1, is expected to reduce payments for home health services by 6.42 percent in 2020 alone — an estimated $1 billion.

Under the current Home Health Prospective Payment System implemented in October 2000, home health providers receive payment every 60 days for all services delivered during that period. The services are categorized into 153 Home Health Resource Groups based upon the patient’s:

  • Clinical conditions
  • Functional impairment
  • Number of therapy visits


home health agency

Low Utilization Payment Adjustment (LUPA)

Providers are hit with a Low Utilization Payment Adjustment (LUPA) for four or fewer visits during a 60-day period. CMS has argued that this system encourages agencies to maximize the number of therapy visits to the detriment of other patient needs.

These changes will likely result in further consolidation of the home health industry.

The Patient Driven Groupings Model (PDGM) cuts the payment period in half and eliminates LUPA thresholds based upon therapy visits. The services provided in each 30-day period are categorized into 432 case mix groups based upon:

  • Admission source
  • Timing
  • Principal diagnosis
  • Functional impairment
  • Comorbidities

Each of these groups has a LUPA threshold. The behavioral assumptions are designed to discourage providers from structuring the delivery of services simply to avoid LUPAs.

While PDGM would appear to create a more accurate, patient-focused payment system, home health agencies say that it will create cash flow problems for companies that often have narrow profit margins and already face a significant regulatory burden. Additionally, PDGM comes on top of the phaseout of Request for Anticipated Payments (RAPs), which enables providers to collect approximately 60 percent of projected payments at the beginning of a 60-day period.


Home Health Care Agencies Will Need to be More Efficient 

Experts say these changes will likely result in further consolidation of the home health industry. When the last overhaul of the payment system went into effect in 2000, about 30 percent of agencies went out of business or were absorbed into larger entities through mergers and acquisitions. Industry advocates are most concerned about smaller agencies serving rural communities, which are also facing changes to the “rural add-on” payment policy.

In order to survive, home health providers will need to focus on revenue-cycle management and accurate coding based upon the ICD-10 system. Cost reduction and operational efficiencies will also be critical.


Help From Congress

Congress is aware of these challenges and the potential impact on an aging population. A bipartisan, bicameral group of lawmakers sent a letter to CMS Administrator Seema Verma in July, asking the agency to reconsider certain PDGM provisions. Four members of Congress have also introduced the Home Health Payment Innovation Act of 2019, which would eliminate behavioral assumptions and limit payment adjustments to less than 2 percent. However, the fate of the legislation is uncertain in light of Washington gridlock. In our next post, we’ll look at ways home health providers can leverage technology to reduce costs, become more efficient and prepare for potential consolidation when PDGM goes into effect.