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This Post deals with the initial CMS response to the NAHC lawsuit. It includes a review of the current revenue cycle process defined by CMS that includes their view of budget neutrality.
In my previous post, I discussed the class action lawsuit filed by NAHC against CMS in an attempt to eliminate the payment cuts made by CMS to HHAs through their current definition of behavioral adjustment and budget neutrality.
I discussed the content of the original lawsuit filed by NAHC and the response by CMS as reported by HHCN. After this blog post was published, I had a discussion with Bill Dombi, president of NAHC, and he provided me with a brief filed by NAHC on 1/19/24 that was a response to the CMS arguments filed on 12/15/23. He told me that he expects a final rebuttal from CMS sometime around 2/26/24.
He explained the process regarding the lawsuit and how the arguments are presented. The format is similar to the procedure I experienced in high school debates. There are four rounds in the process, here is a description as it applies to this lawsuit. Each round includes a link to the associated documents I have stored on my company site. I will provide the document for round four when I get it.
NAHC lawsuit is filed with opening arguments (10/13/23)
CMS response to lawsuit (12/15/23)
NAHC files rebuttal through brief to the court (1/19/24)
CMS responds with their final arguments (2/26/24)
In this post, I will review and summarize the second round of this argument as it was presented by CMS, including my perspectives.
Round 2
Previously, my only reference to these arguments by CMS was a repost of the associated HHCN article on this topic. Given the importance of this effort, I thought I would review the CMS response myself and provide my own perspective of the issues I understand.
In their response to the NAHC lawsuit, CMS describes their efforts to implement the legislative instructions from congress, contested in the lawsuit, in these three steps, which they claim to have executed.
CMS calculated a budget neutral payment for 2020
CMS adjusted the 2023 payment rate to account for actual vs predicted behavior changes in 2020 and 2021
CMS eliminated therapy thresholds with the introduction of PDGM
They also present arguments regarding the legality of NAHC opposition to their payment adjustments. These are the general legal arguments that they present in more detail in the document, as I understand them.
The legislation creating PDGM included language to prevent HHAs from contesting aspects of the new payment formula
NAHC members in the lawsuit have not exhausted their other administrative remedies
After presenting these arguments, they conclude that the court should enter a judgment in favor of CMS. Their position is based on these assumptions.
CMS properly implemented the budget neutrality requirement
NAHC’s interpretation of budget neutrality, $16.6 Billion per year, is invalid
CMS determined the impact between assumed and actual behavior changes
CMS eliminated the use of therapy thresholds with PDGM
NAHC’s requested relief is overbroad
Up to this point, I have presented these arguments without comment, which has been difficult. As we go into some of these positions in detail, I will include additional information and my own personal perspective.
In my last post, I presented my interpretation of the initial lawsuit from NAHC, including my perspective on how I might have presented the arguments differently. As I discuss some of the major arguments presented by CMS in round two, I will provide a similar subjective viewpoint of these positions based on my knowledge of these events and the data behind them.
While discussing the positions from CMS, I have not yet researched the responses by NAHC to these issues in their subsequent brief, defined as round three in my list. In my next post, when we review their responses, we will see how my conclusions on these topics match those of NAHC and how they might be different.
Many of these CMS arguments deal with legal issues regarding the jurisdiction of the court, standing, exhausting other remedies and so forth. I have opinions on some of these issues, but I am far from an expert. Instead, I will focus on the most obvious problem with the CMS argument, their new definition of budget neutrality and how it is implemented.
Budget Neutral Calculation
The legislation that created PDGM required the new payment model to be budget neutral with the old one (PPS). CMS describes this calculation using amounts discussed in my previous posts exploring this payment model transition. Budget neutrality for 2020, compared to 2019, would require an aggregate total of $16.6 billion which worked out to a $1908.18 base payment per 30-day period under PDGM.
As CMS states in their response to the lawsuit, NAHC does not contest this calculation, nor do I.
However, CMS takes this a step further. Many times in their response to the lawsuit they focus on this total aggregate figure ($16.6 billion) as the measure of budget neutrality by NAHC not only for 2020, but for all subsequent years. They point out, correctly, that this cannot be an accurate measure of budget neutrality after 2020 since service periods (claims) by HHAs are contracting due to the transition of beneficiaries to Medicare Advantage and an additional overall reduction in home health services to Medicare Part A patients.
They point this out as a flaw in the NAHC lawsuit in their response, but I think this is a misinterpretation of the NAHC position. The budget neutral amount is not the $16.6 billion, but the $1908.18 per claim, both mentioned in the lawsuit by NAHC. Differences in annual home health service periods and transitions to MA do not impact this per claim amount. If there are fewer claims under Medicare Part A, CMS spending on Medicare home health decreases, but the amount paid per claim remains budget neutral as long as the base payment is budget neutral compared to previous years.
It was the intent of congress to make PDGM budget neutral compared to PPS when it was introduced. It would be impractical to maintain any comparison between the two payment models after the introduction of PDGM in subsequent years. PDGM was designed with the primary objective to remove any connection or incentives for therapy visits that existed in PPS. It introduced many other new concepts intended to better match costs to reimbursement and stabilize margins across the different PDGM groups. After the first year, the new model would have its own basis for budget neutrality, the prior year.
This has been how CMS has approached regulations to change the base payment with each proposed rule under PPS back to around 2000. Changes in the base payment are related to the values used the prior year(s) with explanations for each calculation that changed or was added. This is also how CMS documents their current PDGM adjustments to the base payment rate, by describing the changes in proposed rule in relation to the prior year’s values.
CMS Determined the Difference between Actual and Assumed Behavior Changes
CMS describes in their response the history of their efforts to predict the behavior changes by HHAs in response to PDGM and how they ultimately included these behaviors as adjustments in their reimbursement under this new payment model intended to maintain budget neutrality. It is here that their arguments weaken substantially.
CMS describes the original BA and the assumptions behind it. That HHAs would ultimately, across the board, attempt to increase their revenue by manipulating the primary diagnosis on the claim, managing visits to reduce LUPAS, and increase comorbidity through management of secondary diagnosis codes.
To this day, there is no data to support that this ever happened and CMS has never reconciled these predictions to these actual behaviors. CMS, in their response to the NAHC lawsuit, points to data they provide in the proposed and final rules as evidence of this behavior even though this data actually contradicts what they claim.
Case mix weights that would have increased with primary diagnosis manipulation actually went down, LUPAs that should have decreased when the predicted visit management behaviors were implemented went up instead. Only the comorbidity prediction proved correct, but according to CMS’s own estimates, this was responsible for only a 0.25% increase of the 8.389% revenue increase that CMS predicted for 2020 and 2021. Half of which they took from HHAs in the form of the permanent adjustment for those years.
CMS then describes the decision to change the definition of the behavior adjustment in 2023 from the original assumptions related to “revenue enhancement” to a new definition, reimbursement under the old payment model, PPS. In previous blog posts, I have referred to this transition as “the Pivot”.
CMS has never explained the pivot. They have never provided reasoning in the proposed and final rules regarding why they chose this new method of determining budget neutrality over the old one. They simply implemented it and then explained how it worked. However, In their response to the lawsuit, they provide a simple but unbelievable origin story.
CMS did not anticipate that when they implemented PDGM, specifically designed to disconnect therapy visits from reimbursement, that visit patterns would change in response to this new payment model. Here is the section of their response where they make this claim, on page 19 of 54.
Elsewhere in their response, they include references to the legislation creating PDGM and why this legislation was enacted. They include the primary premise that the connection of therapy visits to payments under PPS may have led to unnecessary visits and inflated Medicare spending on home health. They mention other data supporting this that they say shows HHAs managing visits to leverage these PPS therapy thresholds.
PDGM was to be created without any association with therapy visits. The intent was that if the payment model was not influenced by therapy visits, these visits would “rebalance” to a level more associated to the needs of the patient than reimbursement. In other words, therapy visits would go down.
CMS made many complex calculations and predictions regarding how agencies might manipulate their revenue when PDGM was introduced. They not only predicted the behaviors, but made very specific predictions about how many of the HHAs would take each of these actions. However, these same data scientists, according to CMS, failed to predict that HHAs might actually lower therapy visits under PDGM when they were no longer connected to reimbursement.
I am declaring total BS on this part of their argument. The reason you see it presented by CMS is that they were desperate to explain to the court their motive regarding why they pivoted to this new definition of budget neutrality. The reality is that any reasonable person who reviewed the proposed rules for 2020 understood that therapy visits would decrease under PDGM. I personally engaged with many home health stakeholders, before PDGM was implemented, who discussed this predicted outcome and the impact it might have on quality of care and other related issues. If you believe this CMS statement, it would seem that they were the only ones who did not see this coming.
The more likely explanation is that CMS did realize, like the rest of us, that PDGM would reduce therapy visits. However, they did not consider this to be a “behavior” at the time that could be applied against reimbursement, like the revenue manipulation predictions they made initially.
As I have discussed in previous posts, when the initial BA predictions by CMS failed, they began looking for a way to dig themselves out of the hole they had made through incorrect assumptions associated with the original BA and their associated liability. I believe this effort is the true origin of the Pivot.
CMS provides a detailed explanation of how PDGM claims are recalculated under PPS and how this is used to determine the actual amount owed by HHAs under their new view of budget neutrality. They defend this process as being a fair representation of budget neutrality for HHAs and what they now owe CMS.
In the name of budget neutrality, CMS has developed a new payment formula that is neither PDGM or PPS. PDGM is used to calculate claim payments, but PPS is used to calculate the actual reimbursement owed by HHAs to CMS. The amount assessed for this additional debt from the PDGM overpayments is a percentage of your base payment in the form of the permanent adjustment or in future assessments toward the temporary adjustment.
This portion of CMS “reimbursement” is a tax or a flat fee against your current claims. This transaction is equal for all HHAs regardless of visits performed or the clinical acuity of the patients these HHAs treated documented on the corresponding submitted claims.
To prove this, let’s break down the steps in calculating reimbursement as described by CMS in their response to the NAHC lawsuit.
The current reimbursement formula used by CMS
Step 1 - PDGM Payment
Claims are paid under the PDGM payment formula. This formula is designed to match costs against payments with case mix weights influenced by these clinical factors proven by CMS research to influence costs.
Was the patient just discharged from acute care
What level of comorbidity is present
What is the group associated with the primary diagnosis
What is the functional impairment level of the patient
The case mix weight (CMW) is calculated based on these factors and this is multiplied by the base payment and a wage index to come up with the final payment per claim. Unlike PPS, this formula is not influenced by therapy visits with the exception of LUPAs which were present under both PPS and PDGM.
Step 2 - Claim Recalculation Under PPS
After claims are processed for a given year and the data becomes available to CMS, CMS recalculates these claims using the PPS payment model, the model in existence before 2020 and PDGM. They recombine these PDGM claims into 60-day periods and use the 2019 PPS grouper to calculate reimbursement on these claims as if they were still paid under PPS.
Step 3 - Creating aggregate totals
CMS then creates a total for all home health claims for a given year under each model, PPS and PDGM.
Step 4 - Calculating the temporary adjustment
CMS calculates the difference between the aggregate industry totals under PPS and what was actually paid under PDGM for a given year. Due to the fact that PPS payments are partially based on the volume of therapy visits, which are now lower than the past, the PPS total is lower than the PDGM total using this current claim data. This difference in PPS and PDGM totals, in aggregate for the industry, is the temporary adjustment or the additional debt owed by all HHAs to CMS in order to meet the new CMS definition of budget neutrality under each year of PDGM.
Step 5 - Calculating and applying the permanent adjustment
The permanent adjustment is made against current claims, paid under PDGM, intended to reduce the debt associated with the temporary adjustment and anticipated additions to this debt through future current claims. CMS calculates a deduction rate (permanent adjustment) applied to claims intended to pay down this debt. It is a percentage applied against the base payment of the claims, all claims equally, unrelated to any specific practices by the individual HHA associated with visits performed on each claim or the acuity of the patients they treated.
What is the payment model now?
When PPS was the payment model, each claim was paid according to that payment formula just like it is done with PDGM. Whatever issues may have existed with this payment model, claims were paid based on a CMW for a specific period of service and patient. These payments were directly associated with the services provided by the HHA on each claim and the CMW associated with the treatment. HHA claims with fewer visits were generally paid less, those with more therapy visits, received a higher payment.
Now, PPS is the true payment model, not PDGM. The temporary adjustment represents the difference between PDGM overpayments and the amount owed by HHAs using the same claims calculated under PPS. According to CMS, this is the legitimate amount owed by HHAs to CMS to maintain budget neutrality.
To make matters worse, PPS is no longer used to calculate individual claims, but the aggregate total of all claims. Part of this difference is then used to reduce reimbursement for each individual current claim through the permanent adjustment. The remainder is added to the outstanding temporary adjustment. CMS has stated that future reductions of the temporary adjustment will be applied to PDGM payments through additional adjustments in the base payment, just like the permanent adjustments, but in addition to them.
Under this new hybrid payment model, HHAs are reimbursed through one giant PPS claim each year that includes all the collective claims submitted that year under PDGM, recalculated under PPS. The difference in aggregate payment is then applied to all current claims equally through the permanent adjustment and any remaining debt from this calculation is added to the temporary adjustments.
What this means is that the current payment model is PPS with actual reimbursement owed being directly related to a total for the industry required to pay all claims under PPS, with all industry PDGM payments made subtracted from this total. This additional debt to CMS, recorded as the temporary adjustment, has no connection to therapy visits performed by the individual HHAs or primary diagnosis, comorbidity, functional impairment level and admission source/timing related to the claims used to calculate this amount. In other words, the actual reimbursement for all home health Medicare claims is based on PPS calculations for each year for all claims and not a PDGM CMW calculated for each individual claim, as CMS would have us believe.
PDGM payments are not related to true reimbursement, but are simply an overpayment compared to the actual reimbursement due, based on overall industry performance using PPS, which will be determined a year or two after the patient is treated and the claim is paid.
This is not how this reimbursement model is depicted by CMS in their response, but make no mistake, this is what is happening. True home health reimbursement is now an annual PPS payment applied to all claims with the unpaid balance of PDGM overpayments to be paid by all HHAs equally. Not only have therapy visits been eliminated as a determining factor, but everything built into the PDGM formula as well.
In my next post, we will review round 3 of this lawsuit, the NAHC responses to these CMS arguments.
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