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How to Profit Under a PPS? - The Corridor Group

Hollis Mahaney
Hollis Mahaney, RN, MSN

A Managing Director with
The Corridor Group, Inc., Ms. Mahaney has over 15 years of experience focusing on home care due diligence reviews, operational assessments, process improvement projects, and business transformation market analysis for product line development in post-acute care services lines, and new program development.

Ms. Mahaney has managed, reorganized and improved certified home health agencies, developed and managed licensed home health agencies and is knowledgeable of clinical and operational issues in hospice care. She has experience in start-up pediatric home care programs, development and marketing of home uterine activity monitoring programs, and assessments for home medical equipment and home infusion therapy. In addition, she has expertise in managed care rate negotiation and network development in post-acute care and with physician groups.

Janice Potts
Janice E. Potts, RN, MBA

Ms. Potts, an Associate of
The Corridor Group Inc., has over 22 years of experience in health care. She has extensive development, strategic positioning and operations expertise covering all home care product lines. She has worked in leadership roles with freestanding agencies, multi-site companies, and integrated delivery systems in the not for profit and for profit sectors. As Vice President/Chief Operating Officer for the home care division of one of the Northwest's largest and most progressive health care delivery systems, Janice has in-depth experience in one of the most advanced managed care environments in the country. She has worked closely with insurance companies and physician groups to negotiate contracts and develop care management models. Janice has operated a statewide network for infusion and home medical equipment services. She has also been involved in several major re-engineering projects to redesign administrative and care management functions within the home care division and across the health care delivery system.

Kyle Hooper
J. Kyle Hooper, BBA, MBA

Kyle Hooper is a Principal with
The Corridor Group, Inc., a Kansas City-based consulting firm for home care, hospice care, HME/HIT, and alternate site health care solutions. The Corridor Group is a recognized leader in change management offering consulting services in, but not limited to, PPS readiness, regulatory compliance, licensure and JCAHO preparedness, due diligence, financial management, strategic positioning, clinical operations, managed care contracting, facility planning, certificate of need, transitional management and executive search.

As a Principal of The Corridor Group, Inc., Mr. Hooper is directly responsible for the development and management of consulting clients, projects and Associates for the organization. He brings over seven years of health care expertise to the organization, including serving as the National Director of Community Education and Market Development for the nation's largest hospital-based home care operation. Mr. Hooper has extensive home care background in sales, sales management, market analysis, business development, managed care contracting, network design and strategic planning. Mr. Hooper has a proven track record of working with single and multi-site home care operations to increase revenues and to grow market share. His knowledge base and expertise have led to the development and growth of home care products and services for numerous home care agencies throughout the country. For the past three years Mr. Hooper has lead numerous home care organizations through successful strategic positioning projects that were driven by reimbursement changes within the industry. His experience in data gathering and analysis has allowed Mr. Hooper to recommend positioning strategies that have resulted in positive results for clients.

Question 1 - Thank you for hosting this week. We would like to begin with the basics. What is a PPS? by HBInterview on October 9, 2000

Answer 1 - PPS stands for Prospective Payment System which is a new reimbursement methodology for home health agencies. HCFA mandated PPS and it officially went into effect October 1, 2000 and replaces cost reimbursement. Agencies are now going to be paid for 60 day episodes of care based on case mix adjustments. by Hollis Mahaney on October 9, 2000
Question 2 - We keep seeing headlines that implementation of the PPS system has been delayed. What are some of the causes of these delays? by HBInterview on October 9, 2000

Answer 2 - There has been some discussion pertaining to various systems that are not quite ready for PPS, however, it has not been delayed and went into effect October 1, 2000. by Hollis Mahaney on October 9, 2000

Answer 2 - There are delays associated with the Fiscal Intermediaries being able to process RAPs and Final Claims. Agencies must submit a letter to their FI immediately (if they have not done so already) in order to be able to receive "estimated payments" until the claims processing systems are ready. This will be critical from a cash flow perspective.Contact your FI if you have any questions. by Janice Potts on October 10, 2000
Question 3 - What impact do you (and your readers) think PPS will have on Hospice Providers? by magilm on October 9, 2000

Answer 3 - We think the impact could be significant. First of all, on a positive note, the Final Rules clearly state that patients tranferred into hospice during an episode would result in a full episode payment to the home health agency (assuming it was not a LUPA) Home health is more incentivized to assess patients for hospice appropriateness and to transfer them if they agree. On the other hand, old habits die hard and some agencies may still find it difficult to "let go". From the hospice perspective, it is imperative that you are aware of high cost transfers that agencies may want to discharge. There are many other variables to numerous to detail in this forum. by Hollis Mahaney on October 9, 2000
Question 4 - What will be the hurdles to overcome to make this new reimbursement system work for an organization? by HBInterview on October 10, 2000

Answer 4 - The most significant hurdles will be related to balancing utilization (number and type of visits) against the fixed reimbursement rate while ensuring the most appropriate clinical outcome for the patient. The balancing of fixed and variable costs as utilization is decreased will be extreemly important for providers to watch, again the appropriate clinical outcome must be the goal.

Other hurdles include producing and submitting claim, cash flow issues, revenue posting and medical reviews. by Kyle Hooper on October 10, 2000

Answer 4 - 1. Agency administrative staff must understand and manage the dynamics and interdependencies of three key drivers: the agency's cost structure, utilization patterns and case-mix (measured by OASIS data elements).

2. Clinicians must become very accurate in the performance of comprehensive assessments, particulary as it relates to scoring OASIS data elements. Increased accuracy and specificity with diagnosis coding is also very important to ensure that case-mix assignment is correct. Case-mix weighting has a large impact on episode payment rates.

3. Managing the utilization of services is very important. Agencies must ensure that they have an effective case management model in place to develop and oversee integrated multidisciplinary Plans of Care that achieve appropriate clinical outcomes in a fiscally responsible manner. Care management tools, such as clinical protocols are also important to guide clinicians in providing the right type and amount of care based on the patient's acuity level.

4. Supply management becomes very important, as the majority of supplies utilized in home care are bundled in the episode payment. Controlling access to and utilization of supplies becomes critical. Developing supply protocols for specific diagnoses or problems will be necessary to control costs. Re-evaluating existing supply vendor relationships, contracts and logistics is also important.

5. Developing a robust capbility to analyze clinical, case-mix. utilization and financial data will be critical to an agency's success. An underlying assumption of PPS is that there will be "winners and losers". Agency's must understand what type of episodes make money and what types lose money. Managing the case-mix effectively ensures financial stability.

6. Organizations need to greatly enhance the communicatioin linkages between clinical and financial staff. For example, timely and accurate communication from clinicians to billing staff regarding LUPAs, SCICs, and PEPs will speed up and increase the accuracy of claims processing. This will improve cash flow. Finance staff need to be able to provide clinicians with timely information relative to utilization and costs on a per patient and per episode basis.

7. Budgets must be built in a completely different manner, utilizing HHRGs, projected episodes, utilization and supply cost assumptions. The more sophisticated your data analysis capability is, the better your budget projections will be.

8. Financial statement preparation will also change. Agencies must decide how to recognize revenue over a 60 day episode and appropriately match revenue with expenses in a reporting period.

These are some of the challenges. by Janice Potts on October 10, 2000
Question 5 - How does the new reimbursement method work? by HBInterview on October 10, 2000

Answer 5 - The new reimbursement method works on a prospective basis. Historically, providers have been reimbursed based on their costs, however, under the new system providers will be paid a fixed amount on a per episode basis that will be adjusted based on case mix severity that is projected at the start of care for the episode. by Kyle Hooper on October 10, 2000

Answer 5 - In addition, the expected reimbursement can be adjusted between the beginning of the episode and the end of the episode if one of the following trigger events occur:
1). LUPA (low utilization provider adjustment - 4 or fewer visits).
2). SCIC (significant change in condition - unexpected increase/decrease in case-mix weighting with new physician orders)
3). PEP (partial episode payment- patient transfers to another agency during an episode or is discharged and readmitted during a 60 day period).
4). Outlier (patient's costs of care meet the PPS definition of outlier, resulting in some additional reimbursement).
5). Actual number of therapy visits is different than projected number, resulting in a change in case-mix weighting.

These potential adjustments make the processes for preparing final claims, payment posting and payment reconciliation much more complex. by Janice Potts on October 10, 2000
Question 6 - With advantages does a fixed-fee reimbursement system provide to an organization? by HBInterview on October 10, 2000

Answer 6 - A fixed-fee reimbursement system allows an organization to manage utilization and costs to hopefully achieve a profit. The model is similar in theory to a managed care capitated agreement where a fixed fee is paid and it is the providers responsibility to provide all required care to treat the patient. If propoerly managed, an organization has the opportunity to achieve a profit. But like all capitated managed care contracts, providers must understand that there will be patients that make profits and patients that yield losses. The organization must balance the winners and lossers. by Kyle Hooper on October 10, 2000
Question 7 - Regarding Hospice: Will the Home Health Agency still receive the full episode payment if the patient revokes their hospice benefit and is readmitted to home health during the 60 day period? by nmcrae on October 11, 2000

Answer 7 - Although this specific issue is not addressed in the Final Rule, HCFA will probably deal with the readmission to home health as they would for any patient that goes back to an agency within the episode. Therefore, it is critical that the patient understand the transfer to the hospice benefit and that only hospice appropriate patients are transferred.If patients are identified appropriately and are fully aware of the changes to their care, the liklihood of such an event will be minimized. by Hollis Mahaney on October 11, 2000
Question 8 - For home health, is it true that this new PPS system is a big improvement over the interim system that has been in place since 1997? by HBInterview on October 11, 2000

Answer 8 - The new PPS system will be a big improvement for agencies that had lower utilization rates, higher costs per visit and lower aggregate per beneficiary limits under IPS. These agencies had trouble under IPS because their costs often exceeded the per visit or aggregate per beneficiary limits. Under PPS, with utilization already in line, they can be profitable.

On the other hand, agencies that had high utilization, per visit costs under the limit and high aggregate per beneficiary limits did reasonably well under IPS. These agencies will have difficulty under PPS until they get their utilization patterns in line with the methodology HCFA used to build the PPS model. by Janice Potts on October 11, 2000
Question 9 - Is there any new provisions for extra payments with this PPS? What about the "outlier" payments?
by HBInterview on October 11, 2000

Answer 9 - PPS for home health has an outlier provision that was modeled in a similar way to the outlier provision for the hospital DRG payment system. HCFA has established a complex formula for determining when a patient episode becomes an outlier. In essence, the agency must have a fixed dollar loss amount of 113% or greater of the case-mix adjusted, wage adjusted episode payment. The agency will receive an additional payment of 80% of the "standard" costs that exceed the 113% fixed dollar loss threshold.

A "Significant Change in Condition", or SCIC, can also generate a higher episode payment. However, because of the way it is calculated, it could also result in a lower payment. Agencies should always evaluate the impact before submitting a SCIC, so they aren't disadvantaged with the final episode payment. by Janice Potts on October 11, 2000
Question 10 - How big of a shift must an organization make from a cost-based to a fixed-fee environment? Are their organizations who have made the transition? by HBInterview on October 11, 2000

Answer 10 - Some organizations will have to make much bigger shifts than other organizations. For instance, agencies that have had high percentages of patients under managed care plans are often better prepared for PPS. They have lower utilization patterns, better understand how to case manage patients and have lowered their costs in order to survive with deeply discounted managed care contracts. Many of these agencies are making a successful transition. Agencies that have high utiliziation and/or a high cost structure will have to work much harder to reposition themselves. Also refer to the answers to Questions #5 and #9. by Janice Potts on October 11, 2000
Question 11 - This is such an important issue. Thanks for offering your consultation. My question: How will specialty services, such as palliative home health care serving mostly high intensity patients, need to modify their practices in order to survive PPS? by TRyndes on October 11, 2000

Answer 11 - First, the home health agency needs to continue to ensure the patient meets the Medicare requirements for the benefit. Second, these type of agencies should carefully evaluate their historical patient mix by diagnosis and severity to determine where they will fall in terms of the reimbursement rate and how that compares to their past practice (costs/visits). Careful and accurate OASIS assessments are critical to maximize the clinical dimension for the HHRG. Agencies may want to revamp care delivery models based on acuity and severity to ensure the patients that need the most care are going to get it. In addition, agencies may want to direct high intensity patients to sub acute or SNF until they become more stable and then take them on. This approach allows the patient to get through the more acute phase before sending them home. In addition, agencies may want to expand the types of referrals they take to spread the impact of the higher intensity patients. There are many variables to consider under PPS and much of it will be agency specific. by Hollis Mahaney on October 11, 2000
Question 12 - Your title for this forum is "How to Profit Under PPS." Well, how does an organization..profit under PPS? by HBInterview on October 12, 2000

Answer 12 - PPS does provide an organization with the opportunity to make a profit, unlike the previous cost-based reimbursement system. In order to make a profit, agencies must carefully manage three key variables: cost structure, utilization and case-mix. These areas are discussed in Question #4. Also refer to Question #12. The importance of cash flow cannot be overlooked, either. Accurate preparation and timely submission of RAPs and final claims is very important. Reconciliation of payments against accounts receivables will be complex because of the variety of adjustments that can occur and some of them will have a sizable negative impact. In other words, you can do everything else right, but if you don't get the cash in the door - it won't matter! by Janice Potts on October 12, 2000
Question 13 - Do you see care (paths, maps, etc..) used more with this new system? Are there organizations already using this format? by HBInterview on October 12, 2000

Answer 13 - It will be essential for organizations to utilize some form of care paths or maps. We recommend taking it a step further and assigning acuity levels/diagnosis. HCFA has put higher weighting (and reimbursement)on the clinically complex cases, however, utilization will also be higher. To succeed, and agency has to differentiate between the acuity levels of patients within the same diagnosistic categories and then develop visit guidelines based on needs rather than a set number of visits/diagnosis. by Hollis Mahaney on October 12, 2000
Question 14 - Do you see the organization's personnel structure changing with a PPS? Needing More? Downsizing (rightsizing)? by HBInterview on October 12, 2000

Answer 14 - If visits decrease obviously staffing needs will as well. However, more than downsizing, we think utilization of various disciplines will change. For example, CNS will be used in the field for higher complexity patients instead of "in office" resources. In addition, nutritionists will be used more because of the significant impact nutrition has on the patients recovery and illness. Overall efficiency will be important to all agencies as they try to minimize costs so many agencies should review processes and workflows to ensure they are working in an efficient manner. by Hollis Mahaney on October 12, 2000
Question 15 - What do you think will be the top 3 operational challenges for home health agencies in dealing with PPS? by kdodd on October 12, 2000

Answer 15 - 1. Increasing the clinicians' understanding of the PPS case-mix model and abilities to manage utilization of services by severity level.
2. Developing the capability to capture, link, report and analyze clinical, utilization and financial information on a by patient, by episode and by diagnosis basis on a timely basis.
3. Ensuring adequate cash flow through timely and accurate claims processing activities and management of accounts receivables.
by Janice Potts on October 13, 2000
Question 16 - On the Acute side of healthcare, we have come to rely upon written guidelines to assist in utilization management processes. Are there guidelines specifically for homecare and hospice organizations and do you recommend their use? by HBInterview on October 13, 2000

Answer 16 - TCG has developed written guidleines for home health providers. The guidelines are based on common Medicare diagnoses and are crafted to follow the OASIS items that drive the reimbursement. TCG has shared the guidelines with some of the nations largest hospice providers but they were not specifically designed for hospice. by Hollis Mahaney on October 13, 2000
Question 17 - What kind of contract adjustments will be necessary (if any) between home health/hospice organizations and their contracted providers (DME companies, suppliers, etc.)? by HBInterview on October 13, 2000

Answer 17 - The new PPS regulations apply to home health organizations. Hospice has separate requirements and issues for DME companies and other suppliers. This answer will only address home health. First, DME was not bundled into the PPS payment. However, some DME vendors also provide supply items that are bundled. The most important thing for home health agencies to do as quickly as possible is to communicate clearly with their vendors which items are now bundled into the agency's episodic payment rate for which the vendor can longer bill Medicare directly. Then the agency needs to work with each vendor to determine how these supplies and equipment will be ordered and authorized by the home health agency. The specific supplies and equipment and the ordering and authorization requirements should be included in contract language. The agency needs to communicate clearly to its vendors that it will not pay for items not authorized. Agencies should also re-evaluate their current pricing with each vendor and renegotiate as needed to keep their costs as low as possible. by Janice Potts on October 13, 2000
Question 18 - Our thanks to each of you for spending time with us this week. Before the forum ends this week, can you take a few minutes to help us look into the future? What long term effect do you think PPS will have on home health organizations? Will we see more consolidation among organizations? Will it help to improve efficiency of care? Will it effect quality of care? by HBInterview on October 13, 2000

Answer 18 - There will definitely be additional consolidation in the home health industry. It will probably begin to happen in early 2001 when agencies begin to see the financial impact from the processing of a sufficient number of final claims and their associated payment adjustments. Agencies who cannot manage utilization, are not sophisticated enough to link and manage clinical, utilization and financialinformation and/or cannot manage cash flow will not survive. PPS will certainly reduce the high level of variation in utilization of services between the different geographic regions in the country. This will result in greater efficiencies in some regions. Agency case-mix information will be a very helpful tool for identifying clinical problem areas and changing or refining care processes to improve quality. Problems may develop in geographical areas where there have been a high utilization of home health aides for patients with chronic care needs. If/when the home health aide utilization drops and there are no state funded programs to meet personal care needs for chronic care patients in the home - problems will surface. by Janice Potts on October 13, 2000

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