Home health agencies are dismayed with a CMS proposal issued late Monday that cuts Medicare rates by $350 million while also rolling out a new value-based purchasing system called for under the Affordable Care Act.

The proposed rule in the 2016 Home Health Prospective Payment System (PDF)includes the third year of a four-year phased “rebasing” of the standardized 60-day home-care episode rate under the 2010 healthcare reform law, intended to recover several years of overpayments.

The draft rule also calls for an additional 1.72% cut to the standard episode rate in 2016 and 2017 to account for what the CMS refers to as “nominal” growth in case-mix intensity. That is, the agency concluded that providers billed Medicarefor delivering services to more expensive patients at a rate that surpasses the actual growth in patient acuity.

Home health providers deny that they are overpaid and counter that they help hold down overall healthcare costs by keeping beneficiaries out of the hospital. The continuing cuts, including the proposed $350 million reduction announced Monday are significantly higher than the $60 million reduction providers faced in 2015, according to CMS estimates.

“The proposed payment cuts to home health providers puts some of the nation’s most vulnerable beneficiaries at risk,” said Molly Smith, vice president of policy and innovation at the Visiting Nurse Associations of America. “Cuts of this magnitude will result in home health agencies shutting their doors.” The association asserts the rebasing will ultimately leave providers with a -9.77% margin on Medicare patients.

Medicare pays for home health services for about 3.5 million beneficiaries at a cost of $17.9 billion, the CMS said.

The proposed payment rule also outlines the 2016 launch of a value-based purchasing regime model designed to support greater quality of care among Medicare beneficiaries.

“The goal is that, no matter where the care is delivered, it is supported by a payment system that rewards providers who deliver the highest-quality outcomes,” acting CMS Administrator Andy Slavitt said in a statement.

The value-based model, which will be administered by the CMS Innovation Center, takes lessons learned from other value-based purchasing programs and demonstrations, including the Hospital Value-Based Purchasing Program. The CMS would apply a 5% annual payment reduction or increase to home health agencies in nine randomly selected states. The payment adjustment would increase to 8% in later years.

Comments on the proposed rule are due Sept. 4.

There appears to be some evidence that home health providers are struggling. In 2014, CMS estimated there were 11,781 home health agencies caring for Medicare beneficiaries. That figure dropped to 11,432 in the CMS estimate issued Monday.

William Dombi, executive director of the National Council on Medicaid Home Care said, “Access to home health care in a number of states is on the precipice of collapse.”

The Medicare Payment Advisory Commission, however, calculated that Medicare was reimbursing free-standing home health agencies more than 17% above costs.

“We always whine Medicare is going to destroy us,” said Ann Rambusch, president of Rambusch3 Consulting Services, which advises home health agencies. “But we always find a way, as long as we’re smart business people, to make a little bit of money.”

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