CMS Heeds Some Concerns, Small Payment Raise in 2023 Final Home Health Rule

  • Industry trends
  • 11/21/2022
A female doctor sits in doctor’s waiting room with female patient taking notes and updating her medical records.

Key insights

  • Due to the transition to the new Patient Driven Groupings Model, CMS finalizes a permanent budget-neutrality reduction of 7.85% but will phase that in over two years.
  • CMS combined policies would result in 0.7% update, or a $125 million increase, in home health payments compared to 2022.
  • For non-Medicare/Medicaid beneficiaries in 2027, CMS finalizes reporting on OASIS data.

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This article was originally published on July 15, 2022. It was updated on November 21, 2022, to reflect current figures and finalized rules.

The Centers for Medicare & Medicaid Services (CMS) released the final Calendar Year (CY) 2023 Home Health Prospective Payment System (HH PPS) Rule. While CMS partially heeded industry concerns over the magnitude of proposed cuts, its final decision includes implementing the behavioral adjustment over the next two years. 

Table of Contents

I. Payment policies
II. Home Health Value-Based Purchasing Program (HHVBP)
III. Home Health Quality Reporting Program (HH QRP)
IV. Telecommunications technology

Payment policies

Finalized policies would result in a slight increase of 0.7%, or $125 million, in home health payments compared to 2022. This reflects the effects of the CY 2023 home health payment update percentage of 4.0% ($725 million increase), a 0.2% increase in payments due to the new lower fixed-dollar loss (FDL) ratio, which will increase outlier payments in order to pay no more than 2.5% of total payments as outlier payments ($35 million increase), and an estimated 3.5% decrease in payments that reflects the effects of the permanent behavior adjustment ($635 million decrease).

Market basket update — CMS finalizes a 4.1% update minus a mandatory 0.1% productivity adjustment, leaving the update at 4.0%.

Budget neutrality and behavioral adjustments — The HH PPS new Patient Driven Groupings Model (PDGM) was finalized in 2019 and began with home health periods of care beginning on or after January 1, 2020. PDGM is a 432-category case-mix classification system that assigns patients to a home health resource group (HHRG) based on patient characteristics and other clinical information from Medicare claims and the Outcome and Assessment Information Set (OASIS) assessment instrument.

In transitioning to PDGM, CMS is required to make the new payment model budget neutral compared to the pre-PDGM payment model and assess the agency’s assumptions versus actual impact of the new system. Based on its analysis and simulations, which it stands by in the final rule, CMS finds that multiple payment adjustments — both prospective-permanent and retrospective-temporary — will be needed.

To offset the increase in estimated aggregate expenditures for budget neutrality, CMS indicates it would need to apply a negative 7.85% permanent prospective adjustment to the CY 2023 base payment rate. Further, CMS indicates the need to recapture $2 billion in overpayments for CYs 2020 and 2021 via a temporary retrospective adjustment.

Total Permanent Adjustment for CYs 2020 and 2021 
Actual CY 2021 Base Payment Rate (Assumed Behavior)  Recalculated CY 2021 Base Payment Rate (Actual Behavior)  Total Permanent Prospective Adjustment 
$1,901.12 $1,751.90  -7.85% 
Total Temporary Adjustment for CYs 2020 and 2021 
CY 2020 Temporary Adjustment CY 2021 Temporary Adjustment Total Temporary Adjustment Dollar Amount for CYs 2020 and 2021
-$873,073,121 -$1,211,002,953  -$2,084,076,074 

However, CMS recognizes that reducing payment rates by both adjustments would be significant, and therefore finalizes only half of the permanent adjustment percentage for CY 2023 base payments and not the $2 billion temporary adjustment. Therefore, for CY 2023, a 3.925% permanent adjustment will be imposed. CMS will address how to implement the needed temporary adjustments in future rulemaking.

Case-mix budget neutrality factor — For CY 2023, CMS will continue to use the most recent complete home health claims data at the time of rulemaking, which is CY 2021 data. The case-mix budget neutrality factor is calculated as the ratio of 30-day base payment rates such that when CY 2023 PDGM case-mix weights (developed using CY 2021 home health claims data) are applied to CY 2021 utilization (claims) data, the total payments are equal to total payments when CY 2022 PDGM case-mix weights (developed using CY 2020 home health claims data) are applied to CY 2021 utilization data.

This produces a case-mix budget neutrality factor for CY 2023 of 0.9904.

Wage index — CMS finalizes a wage index budget neutrality factor of 1.0001. Further, as it has proposed for other payment systems, CMS will implement a permanent wage index reduction cap of 5%. In other words, wage index changes may not result in less than 95% of the previous year’s amount. For CY 2023, CMS continues to base the home health wage index on the FY 2023 hospital pre-floor, pre-reclassified wage index.

Table 17: CY 2023 National, Standardized 30-Day Period Payment Amount 
CY 2022 National Standardized 30-Day Period Payment CY 2023 Permanent Behavioral Adjustment Factor CY 2023 Case-Mix Weights Budget Neutrality Factor CY 2023 Wage index Budget Neutrality Factor CY 2023 HH Payment Update CY 2023 National, Standardized 30-Day Period Payment
$2,031.64 0.96075  0.9904  1.0001  1.040  $2,010.69 

Low utilization payment adjustment (LUPA) thresholds — For CY 2023, CMS finalizes it will update the LUPA thresholds using CY 2021 Medicare home health claims (as of March 21, 2022) linked to OASIS assessment data. The agency believes CY 2021 home health claims utilization data shows that visit patterns have stabilized, and that using CY 2021 data will be more indicative of visit patterns in CY 2023 than the LUPA thresholds derived from the CY 2018 pre-PDGM data.

CMS indicated the updated LUPA thresholds would result in:

  • 280 case-mix groups with no change in their LUPA threshold
  • 120 case-mix groups where LUPA threshold goes down by one visit
  • 18 case-mix groups where LUPA threshold goes up by one visit
  • 12 case-mix groups where LUPA threshold goes down by two visits
  • 2 case-mix groups where LUPA threshold goes down by three visits

LUPA add-on factor — To calculate the payment amount, CMS policy multiplies the per-visit payment amount by an appropriate add-on factor for the first SN, PT, or SLP visit in LUPA periods that occur as the only period of care or the initial 30-day period of care in a sequence of adjacent 30-day periods of care. These add-on factors are 1.8451 for SN, 1.6700 for PT, and 1.6266 for SLP.

In 2021, occupational therapy (OT) was statutorily added. CMS had used the PT add-on rate as a proxy until there was enough data available to independently assess it. CMS continues to believe the similarity in the per-visit payment rates for both PT and OT make the PT LUPA add-on factor the most appropriate proxy until full CY 2022 data is available and a specific OT LUPA add-on factor can be developed. The OT add-on factor is, therefore, 1.6700.

Home infusion therapy services update — The final home infusion therapy payment rate update for CY 2023 is 8.7%.

Outlier payments — Using CY 2021 claims data (as of July 15, 2022) and given the statutory requirement that total outlier payments do not exceed 2.5% of the total payments estimated to be made under the HH PPS, CMS finalizes an FDL ratio of 0.35 for CY 2023.

ICD-10 assignment code changes — CMS finalizes many diagnosis codes changes, including changing codes to a different clinical group when listed as a principal diagnosis, reassigning codes to a different comorbidity subgroup when listed as a secondary diagnosis, and establishing a new comorbidity subgroup for certain neurological conditions and disorders.

Functional impairment revised — Under the PDGM, the functional impairment level is determined by responses to certain OASIS items associated with activities of daily living and risk of hospitalization; that is, responses to OASIS items M1800 – M1860 and M1033. There are three functional impairment levels of low, medium, and high. CMS finalizes for CY 2023 to use CY 2021 claims data to update the functional points and functional impairment levels by clinical group.

Comorbidity adjustments — For CY 2023, CMS proposes to update the comorbidity subgroups to include 22 low comorbidity adjustment subgroups (see Table 13 in final rule) and 91 high comorbidity adjustment interaction subgroups (see Table 14 in final rule).

Home Health Value-Based Purchasing Program (HHVBP)

CMS finalized that all home health agencies (HHAs) certified to participate in the Medicare program prior to January 1, 2022, will be required to participate in the HHVBP and will be eligible to receive an annual total performance score based on their CY 2023 performance. CMS finalizes several definitional changes based on feedback.

For FY 2023, CMS finalizes replacing the term “baseline year” with the terms “HHA baseline year” and “model baseline year” and to change the calendar years associated with each of those baseline years.

  • HHA baseline year is the calendar year used to determine the improvement threshold for each measure for each individual competing HHA.

    CMS indicates that the new HHA baseline year allows for the use of CY 2022 data for the HHA baseline year for all measures and would also allow all HHAs certified by Medicare prior to CY 2022 to have the same baseline period, based on the most recent available data, beginning with the CY 2023 performance year. Accordingly, CMS changes the HHA baseline year for HHAs certified prior to January 1, 2019, and for HHAs certified during January 1, 2019 – December 31, 2021, for all applicable measures used in the expanded model, from CY 2019 and 2021 respectively, to CY 2022 beginning with the CY 2023 performance year.

HHA Baseline Years, Performance Year, and Payment Year for HHAs Certified Through December 31, 2023 
Medicare certification date HHA baseline year Performance year Payment year
Prior to January 1, 2019 2022 2023 2025
January 1, 2019 – December 31, 2021 2022 2023 2025
January 1, 2022 – December 31, 2022 2023 2024 2026
January 1, 2023 – December 31, 2023 2024 2025 2027
  • Model baseline year is the calendar year used to determine the benchmark and achievement threshold for each measure for all competing HHAs. CMS changes the model baseline year from CY 2019 to CY 2022 for the CY 2023 performance year and subsequent years. This would enable the agency to measure competing HHAs’ performance using benchmarks and achievement thresholds that are based on the most recent data available.

Home Health Quality Reporting Program (HH QRP)

Under the HH QRP, CMS had proposed to end the suspension of OASIS data collection on non-Medicare/Medicaid HHA patients and to require HHAs to submit all-payer OASIS data for the purposes of the HH QRP beginning with the CY 2025 program year. CMS would then use the OASIS data to calculate all measures for which OASIS is a data source. However, in the final rule CMS changes the start date to CY 2027.

CMS indicates it will use its two-quarter phase-in approach when adopting new reporting requirements for the HHAs. As such, CMS finalizes for the CY 2027 HH QRP, the expanded reporting would be required for patients discharged between July 1, 2025, and June 30, 2026. Beginning with the CY 2027 HH QRP, HHAs would be required to report assessment-based quality measure data and standardized patient assessment data on all patients, regardless of payer, for the applicable 12-month performance period (which, for the CY 2027 program, would be patients discharged between July 1, 2025, and June 30, 2026). HHAs will have an opportunity to begin submitting data for patients discharged between January 1, 2025, through June 30, 2025, but CMS will not use that data to make a compliance determination.

CMS believes the requirement for HHAs to report OASIS data on all patients will provide the agency with the most robust, accurate reflection of the quality of care delivered to Medicare beneficiaries as compared with non-Medicare patients.

Telecommunications technology

Over the years, CMS has finalized using telecommunications technology for home health and reporting in as an administrative expense. CMS indicates that collecting data on the use of telecommunications technology on home health claims would allow CMS to analyze the characteristics of the beneficiaries utilizing remote services. It would also give the agency a broader understanding of the social determinants that affect who benefits most from these services — including what barriers may potentially exist for certain subsets of beneficiaries.

In its March 2022 Report to the Congress from the Medicare Advisory Council (MedPAC), CMS indicates that MedPAC recommended tracking the use of telehealth in the home health care benefit on home health claims to improve payment accuracy. CMS indicates the aim to begin collecting this data by January 1, 2023, on a voluntary basis by HHAs. CMS indicates the intent to require the information to be reported on claims by July of 2023.

To do so, CMS suggests using three new G-codes to identify when home health services are furnished and will provide program instructions in advance of their use:

  • Synchronous telemedicine using real-time two-way audio/video telecommunications system.
  • Synchronous audio-only telemedicine using telephone or other real-time interactive audio-only telecommunications system.
  • Remote patient monitoring (RPM) data collected and digitally stored and/or transmitted by the patient to the home health agency. CMS would include a start date of the RPM and the number of units indicated on the claim. This may help the agency better understand generally how long remote monitoring is used for individual patients and for which conditions.

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