In the August 3, 2006, Federal Register, the Centers for Medicare & Medicaid Services (CMS) proposed a 3.1% increase in Medicare rates for CY 2007, which was finalized at a rate of 3.3% in November. The CMS proposal would raise the national episode rate from $2,264.28 to $2,339.00 before local wage index adjustments.

For 2007, the full effect of the new wage index classifications would be felt as well. In 2006, the indexes were a 50-50 blend of the old Metropolitan Statistical Areas (MSAs) with the new Core Based Statistical Areas (CBSAs). For 2007, only the CBSAs will be used. (For further explanation of CBSAs, see our July 20, 2005 article.)

Projected Reimbursement Rate Increases

With the proposed rate increase and the move to 100% CSBA indexes, the overall Medicare reimbursements are expected to increase as follows:

New Per-Visit Amounts for LUPAs

CMS has also proposed new national per-visit amounts for LUPAs. The new amounts, including the 3.3% increase but excluding the wage index adjustment, are as follows:

Don’t Forget the 5% Rural Add-On for 2006

For episodes beginning in 2006 but ending in CY 2007, remember that the rural add-on still applies. For example, an episode beginning December 20, 2006 and ending February 17, 2007, for services furnished in a rural area would be paid at 2007 rates since the episode ended after January 1, 2007, and the episode would also receive the rural add-on since the episode started before January 1, 2007.

Now You See It, Now You Don’t, or How to Turn 3.3% Into Only 1.3%

CMS is also proposing a 2% reduction in the rate increase if an agency is not submitting the required quality measures they should be reporting. These are 10 measures deemed appropriate for the measurement of health care quality. CMS proposes to use both the OASIS data and the 10 quality indicators to measure quality of care.

As a refresher, the 10 measures are as follows:

1. Improvement in ambulation/locomotion
2. Improvement in bathing
3. Improvement in transferring
4. Improvement on management of oral medications
5. Improvements in pain interfering with activity
6. Acute care hospitalization
7. Emergent care
8. Improvement in dyspnea
9. Improvement in urinary incontinence
10. Discharge to community

Submission of OASIS data is a Medicare condition of participation. Therefore, one would expect no HHA would be subject to this reduction.

CMS believes the proposed 2007 rates would generate an additional $420 million of funding for CY 2007.

Outlier Payment Changes

CMS has increased the “fixed dollar loss” ratio used to decide outlier eligibility to 0.67 in 2007 from 0.65 in 2006. Remembering that patient cost has to exceed the normal episode payment by the FDL before your agency can receive supplemental payments will represent an additional $56 per episode in 2007.

Other Items Being Proposed Before Finalization

Some other changes CMS is currently deliberating before enactment of the new rates are actually thought provoking. CMS is contemplating replacing the 10-visit threshold with three different thresholds of 6, 14, and 20 visits.  Another proposal is to increase a beneficiary’s third and subsequent episode payment since these are thought to be more expensive and, conversely, decrease the amounts paid for the first and second episode to maintain fiscal balance.

Final Words of Caution

The above describes “proposed” rates. Last year, at the last minute, Congress stripped the HHA industry of its increase to save Medicare physicians a proposed 4% rate cut. This year the physicians are facing a similar reduction.