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Guest Article: The Uphill Struggle That IS PDGM

Monday, August 20, 2018   (0 Comments)
Posted by: Kyle Simon

By Duane Blackwell, CEO, National Home Health Analytics

As we all know, the Centers for Medicare & Medicaid Services (CMS) in July released this year’s proposed rule outlining changes in home health payment and policy for calendar years 2019 and 2020. It's essentially a rehash/redo of the Home Health Groupings Model (HHGM) – now called PDGM (Patient-Driven Groupings Model) that we all so enthusiastically embraced last summer (yeah, right), except that this time there is not a near $1 Billion reimbursement cut baked into the rule. In fact, the new proposed reimbursement figures truly appear budget neutral (at least on the surface). That said, there are always winners and there are always losers! I mean, that's life. Right?

Our good buddies at CMS were kind enough to provide an “Impact Assessment Tool” with a nationwide listing of every home health agency (via Medicare Provider Number) along with the financial impact of the new rule on each agency's existing revenue stream. There's some fascinating stuff within the bowels of that tool! To make things perhaps a bit more transparent, we decided to go in and “unblind” the data to include names of the individual home health agencies. We also tallied the financial impact state-by-state to get a better picture of how the various fifty do individually. Actually, we even did a bit more than that!

Note: If you’d like a copy of the complete unblinded Spreadsheet, shoot me an email with the subject line “Send Me The Spreadsheet”, and I’ll get a copy out to you post haste! It’s just too big a file to include in this article.

Herewith are the “Cliff Notes":

  1. There are 10,480 home health agencies listed in the spreadsheet including 926 from Florida.
  2. On average, each of the 10,480 agencies will lose a total of about $5 (as in five dollars) in revenue under the new system. That's pretty dang close to "budget neutral” (again, at least on the surface). I have some serious reservations about PDGM and “budget neutral”, but that’s another topic for another day.
  3. There are big winners and there are big losers. In Florida, it seems that the agency with the largest projected increase gains $660,664 (sweet!) while the "Biggest Loser" is hit with a drop of $3,125,963 (tart!).
  4. When you consider the State of Florida as a whole, each agency on average will lose $151,947 – some $140.7 million for the statewide total – that's a drop of some 9.4%! In fact, Florida’s $141 million bucket of red ink is easily the country’s largest. ARRGH!
  5. California comes off as the “greenest state” (at least the color of the PDGM ink there is quite green), as the left-coasters pick up $88 million. Texas isn’t far behind California in the PDGM Sweepstakes as they gain $58 million. OK, so let's dive perhaps a bit deeper to see what might be happening behind all that red ink that’s driving Floridians mad.

How About Some Therapy?

Yes, losing $141 million in revenue to the PDGM monster might tend make some Florida home health owners seek couch time with a shrink. It’s a tough and expensive pill to swallow. But while couch-therapy is perhaps warranted, that’s not the kind of ”therapy” I’m talking about.

In their tool, CMS divvied up agencies nationwide into four quartiles based on how much relative therapy (compared to nursing) they delivered. The more therapy delivered, the higher their requisite quartile ranking.

So those agencies earning a “1st Quartile” ranking delivered the highest number of therapy visits (physical therapy, occupational therapy, speech therapy) relative to nurse visits, while those agencies earning a “4th Quartile” ranking delivered the lowest number of therapy visits in relation to nurse visits. Quartiles two and three were, well, in between one and four. Are you following me?

The Concept of PDGM Quartiles

It’s an easy concept to grasp! When you break something down into quartiles like CMS has done with HHAs, you end up with four equal “buckets”, and sure enough there are exactly 2,620 agencies in each Quartile. But that’s where “quartile equality” ends – four buckets each consisting of 2,620 agencies totaling the 10,480 agencies nationwide. Let’s peek inside those buckets.

Not All Buckets Are Created Equal

No sir, and not by a long shot! Take a gander at the chart below.

Florida’s 926 HHAs included in the CMS chart are heavily weighted toward the top two Quartiles. Of Florida’s 926 total HHA’s, 575 (62%) fall in the top two quartiles (therapy heavy). In terms of Medicare revenue, those top two quartiles hold nearly 70% of Florida’s Medicare home health dollars. Yes, there are four equal quartiles, but agencies in the Sunshine State seem to prefer those high-rent buckets.

So What Does All This Mean?

Study the chart. Where does your agency fall?

If you are in Quartiles 1, 2, or 3, you are projected to lose (on average) somewhere between 5% and 15% of annual revenue as compared to the current 153 Group Methodology. If you fall in Quartile 4, you fare a bit better at +0.08% (but hey, at least the ink is green!).

Rather than sentence you to the drudgery of pouring over the stats for hours on end like I did (I really do need to get a life), allow me to again point out a couple of notable tidbits…

  • As I mentioned earlier, Florida is the biggest statewide loser under PDGM with a total reduction of some $141 million (as compared to reimbursement under the current system). California is at the other extreme, gaining some $88 million. Overall, the scheme appears to be “budget neutral.” (please remember my disclaimer here)

  • On a per agency basis, Maryland HHAs are down $241K each while those in Mississippi gain an average $453K (but there are only 46 of them).

  • OK, a sidebar here (only because this kinda gets under my skin). The freaking Virgin Islands pick up 29% under PDGM! Seems The Virgin Islands State Health Insurance Assistance Program is the Virgin Islands local Medicare source, which is locally administered by the Office of the Lieutenant Governor and federally funded by CMS)… In fairness, it’s only a total of $90,508. But with a spare $90,508 this guy could build a pretty sporty man cave! The Virgin Islands??? There, it’s out, and I feel better.

Back to Therapy —PDGM Really is All About Therapy

To this point, I’ve rather clumsily avoided pointedly discussing the proverbial elephant in the room. Just for the record, he’s a physical therapist, and CMS is out to get him!

Back in the days of cost-based reimbursement (the “olden days” as my kids would call it), many HHAs were not particularly keen on delivering therapy. Qualified home therapists were hard to find (not to mention “expensive”), and, consequently, not a lot of therapy was to be had. In 1997, PT, OT, and ST accounted for only 10% of total home health visits (see chart). CMS (then called “HCFA”) felt, and I think correctly so, that therapy was being underutilized. The Balanced Budget Act of 1997 (BBA ’97) changed all that.

BBA ’97 created the Prospective Payment System (PPS) for home health and included financial incentives for the delivery of more home health therapy through the use of payment thresholds. If you hit the magic number of 10 visits within an episode of care, Boom! - more moula!! The industry responded in a big way. By 2016, 39% of all home health visits were therapy visits. You get what you incent!

Several years ago, 2011 to be exact, Louisiana Healthcare Group (LHC Group) paid the U.S. Department of Justice the tidy sum of $65 million (plus interest) to settle allegations that the company had violated the federal False Claims Act by essentially manipulating therapy thresholds for the financial benefit of its shareholders. LHC admitted no wrongdoing, but entered into a Corporate Integrity Agreement. Amedisys wrote an even bigger check ($150 million) in 2014 and also did the Corporate Integrity Agreement dance. Well, to me at least, PDGM feels like a similar kind of occurrence, except this time, it’s for everybody – and rather than having to write a big check to the Department of Justice, CMS will be withholding future payments. The feds don’t have to prosecute a single agency.  Instead, they are simply changing the rules. Brilliant, in a perverse sort of way!

Now I’d be the very first to argue that a seemingly arbitrary visit threshold leading to higher payment was a dumb idea (a government specialty). "Set up the right incentives –  be they bonuses, subsidies or stock options – and you can get people to do nearly anything". CMS wanted therapy and they got therapy. They don’t want therapy anymore and they’re not gonna get it anymore. It really is just about that painfully simple!

Florida Home Health Agencies and Therapy

It is perhaps an inconvenient truth, but Florida HHAs in general are very good at delivering therapy. During the 12 months ended 2Q ‘17, Florida agencies delivered an average of 10.45 therapy visits per episode of care – and Florida is collectively losing $141 million under PDGM. You may recall that California is the state gaining most under PDGM ($88 million). And guess what? During that same time period California agencies delivered an average 5.76 therapy visits per episode. More gets less. Perhaps just a bit of an over-simplification, but not by much!

Now I really don’t mean to be picking on the good folks in Miami (I happen to love Miami), but agencies down there just seem to march to the beat of a slightly different drummer. We all know the history associated with outliers. It also happens to be true that a lot of home therapy is delivered in Miami-Dade County. Miami agencies averaged 13.72 therapy visits per episode (YE 2Q ’17) vs the statewide average of 10.45 – that vs. the national average of 7.95. Of Florida’s 50 agencies with the highest number of mean therapy visits per episode, 40 of them were based in Miami-Dade (of the other 10 agencies, six were located in Palm Beach County, three in Broward County, and one in Citrus County). So it’s reasonable to conclude that Florida’s PDGM revenue issue has a strong South Florida flavor to it. A good case-in-point is a particular Miami agency that delivered north of 30 therapy visits per episode (I know, that’s a lot). As might be expected, PDGM will not be this agency’s “friend”. Losing nearly $1 million and almost 40% of it’s total revenue under the new scheme, this agency is an illustration of the issues associated with high therapy under the conflicting old and new payment systems. Times they are a changin’!

What’s an Agency To Do?

Excellent question! First, let’s take a deep breath and back away from the ledge. There is life after PDGM — It just may not be quite as profitable.

My very best advice would be to begin reimagining the way you deliver care to your patients. Financially speaking, therapy has been a driver of revenue. Financially speaking, therapy will soon become just another expense line on your P&L. That doesn’t sound very “touchy feely”, but it’s true nonetheless. Get over it – deal with it – and move on.

One absolute certainty with PDGM is that our industry will be delivering far less PT, OT, and ST than we have in the past. The good news here is that our overall cost of care also will drop, which will help with that expense line on the aforementioned P&L. It’s also pretty much a “given” that concurrent with the drop in demand for therapy, agencies will be in position to negotiate more favorable payment arrangements with therapists (particularly those who provide therapy service through contracted arrangements). Supply and Demand is a powerful economic reality. I’d at least initiate those discussions today (unless you are reading this article at night, in which case I’d probably just wait till tomorrow morning – well, maybe). I truly do hate it for them, but the real losers in PDGM are the therapists who actually deliver patient care. Remember though, that’s not really your problem (you have enough problems already).

Let’s get back to that “reimagining care” thing. We’ve been conditioned by the current payment system to stretch therapy delivery to 6 visits, more likely 14 visits, or God save the Queen, 20 visits! We are now being incentivized to “get in and get out” with therapy! It’s a bit like that old TV game show “Name That Tune” except that now we’ll be doing it with therapy (the same exact way we’ve done it with nursing since the inception of PPS). We’re going to have to do more with each therapy visit. We’re gonna have to deliver better therapy, more intense therapy – more thoughtful therapy. We’re going to need better therapists. Mediocre therapists need not apply. I’d also give some serious thought to the idea of rehabilitative nursing (and I’m only loosely familiar with what rehabilitative nursing even is). My point is we need to think outside the box – starting now!

One final thought to keep in mind. Things seldom work out exactly the way they are drawn up. Tom Brady never ever envisions a play he calls resulting in an interception (but it happens – at least occasionally). The U.S. Olympic hockey team was absolutely expected to lose to the Russians back in the 1980 games (but they didn’t). The historically hapless Chicago Cubs actually won a World Series a couple years ago! PDGM will be that way too. It frankly looks pretty ugly up there on the chalkboard, but that doesn’t mean it will actually turn out to be quite that ugly. We’ll all know soon enough. In the meantime we need to suit-up, tighten the chinstraps, and play ball!

Please let me know if you have any questions or comments.

In the meantime, cheers!


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