On October 31, 2022, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2023 Medicare Home Health Prospective Payment System (HH PPS) Rate Update, resulting in a 3.925% rate reduction for home health agencies next year. Based on CMS' methodology, this represents one-half of the 7.85% rate reduction. CMS explains the lower adjustment is applied because “we recognize the potential hardship of implementing the full 7.85% permanent adjustment in a single year.”

For CY 2023, the changes in payments under the HH PPS are estimated to have an economic impact of $125 million (0.7%). A $125 million increase in estimated payments for CY 2023 is a result of the 4.0% market basket update for home health payments ($725 million increase), an estimated 3.5% decrease due to the permanent behavioral adjustment (-$635 million), and an estimated 0.2% increase due to an update to the fixed-dollar loss ratio ($35 million).

Next year, the national standardized 30-day period payment will be reduced to $2,010.69 from $2,031.64. The 30-day period payment will decrease to $1,972.02 for home health agencies that do not submit quality data.

• Bottom Line: CMS provided some relief to home health agencies in CY 2023, but it increased the overall permanent behavioral adjustment reduction from -7.69% to -7.85%. However, CMS is still reconciling alleged overpayments for services provided in 2020, 2021, and 2022. The final rule is generally what industry leaders expected — phasing in the first year of the permanent cut. It is troubling for providers that CMS did not change its methodology for calculating the behavioral adjustment in order to achieve budget neutrality, which could prove problematic for the industry by causing massive cuts that will negatively impact beneficiaries, providers, and the home health benefit long-term.

According to the final rule:

“[W]e are finalizing our proposed behavioral adjustment methodology to reflect the impact of differences between assumed behavior changes and actual behavior changes on estimated aggregate payment expenditures under the HH PPS. We are also finalizing a -3.925 percent permanent payment adjustment for CY 2023 (half of the proposed - 7.85 percent adjustment), as we recognize the potential hardship of implementing the proposed full permanent adjustment in a single year.”

“The overall economic impact related to the changes in payments under the HH PPS for CY 2023 is estimated to be $125 million (0.7 percent). The $125 million increase in estimated payments for CY 2023 reflects the effects of the CY 2023 home health payment update percentage of 4.0 percent ($725 million increase), an estimated 3.5 percent decrease that reflects the effects of the permanent behavioral adjustment (-$635 million) and an estimated 0.2 percent increase that reflects the effects of an updated FDL ($35 million increase).”

“. . . we considered other potential methodologies recommended by commenters to determine the difference between assumed versus actual behavior change on estimated aggregate expenditures in response to the comment solicitation in the CY 2022 HH PPS proposed rule (86 FR 35892). However, most of the recommended alternate methodologies controlled for certain actual behavior changes (for example, the reduction in therapy visits or LUPA visits) and this is not in alignment with our interpretation of the statute at section 1895(b)(3)(D)(i) of the Act, which requires CMS to examine actual behavior change and make temporary and permanent adjustments to the standardized payment amounts. 

Therefore, any method that would control for an actual behavior change affecting payment would be contrary to what is required by the Social Security Act. Additionally, we considered alternative approaches to the implementation of the permanent and temporary behavior assumption adjustments. As described in section II.B.2. of this rule, to help prevent future over or underpayments, we calculated a permanent prospective adjustment of -7.85 percent by determining what the 30-day base payment amount should have been in CYs 2020 and 2021 in order to achieve the same estimated aggregate expenditures as obtained from the simulated 60-day episodes and are finalizing half of the determined adjustment which is - 3.925 percent for CY 2023. One alternative to the -3.925 percent permanent payment adjustment included taking the full -7.85 percent adjustment for CY 2023. However, due to the potential hardship to some providers of implementing the full -7.85 percent at once, we decided it would be more appropriate to take half the adjustment resulting in a -3.925 percent permanent payment adjustment for CY 2023.

However, we note the permanent adjustment to account for actual behavior changes in CYs 2020 and 2021 should be -7.85 percent. Therefore, applying a -3.925 percent permanent adjustment to the CY 2023 30-day payment rate would not adjust the rate fully to account for differences in behavior changes on estimated aggregate expenditures during those years. We would have to account for that difference, and any other potential adjustments needed to the base payment rate, to account for behavior change based on data analysis in future rulemaking. Another alternative would be to delay the full permanent adjustment to a future year. However, we conclude that delaying the full permanent adjustment would not be appropriate, as this would further impact budget neutrality and likely lead to a compounding effect creating the need for a much larger reduction to the payment rate in future years.”

A full summary of the impact of the final rule can be viewed here. Below you can download a slide deck overview of the rule by Alston & Bird.

Final Rule Analysis Home Care Connection Events Kick Off Next Week

HCAF's Fall 2022 Certified Home Care Connection series starts next week with a presentation by Healthcare Provider Solutions CEO Melinda Gaboury on all aspects of the 2023 Medicare final rule, including:

• Expansion of Home Health Value-Based Purchasing (HHVBP) nationwide;
• Patient-Driven Groupings Model (PDGM) changes; and
• Modifications to the Conditions of Participation (CoPs).

Gaboury will also review the progress of the Medicare Review Choice Demonstration (RCD). Click here to watch a preview to learn more about this timely program.

Additionally, HCAF Executive Director Bobby Lolley, RN, and Director of Government Affairs and Communications Kyle Simon will review what's happening in Congress pertaining to home health, preview what providers can expect during the 2023 Florida Legislative Session, and discuss industry trends.

Participants receive 2.0 continuing education units for nursing, occupational therapy, and speech-language pathology.

Click here to find an event near you and register now.

Related:

• CMS Finalizes Nearly 4% Rate Reduction for Home Health (HomeCare, 11/1/22)
• Providers Cry Foul Over Medicare Home Health Payment Cuts (McKnight's Home Care, 11/1/22)
• CMS Backs Off Severe Cuts, Finalizes 0.7% Increase to 2023 Provider Payments (Home Health Care News, 10/31/22)
• CMS to Enact $635M Behavioral Rate Cut for Home Health Agencies Next Year (McKnight's Home Care, 10/31/22)