Home health agencies make legal case against CMS’ proposed cuts

Home health providers have set the stage for a legal fight if the Centers for Medicare and Medicaid Services finalizes a proposal to cut home health Medicare reimbursement by 4.2% next year. 

In comment letters to CMS, home health association leaders included findings from law firms hired to analyze the draft policy—though the leaders say it’s too early to discuss taking legal action. 

“The Secretary’s proposal conflicts with the statute it purports to implement, is arbitrary and capricious, and ignores notice-and-comment requirements. The proposed rule will thus be vulnerable to an [Administrative Procedure Act] challenge in court,” said a memo prepared for the Partnership for Quality Home Healthcare by law firm King & Spalding.

The National Association for Home Care and Hospice commissioned a separate legal analysis from law firm Foley Hoag that came to a similar conclusion. 

CMS proposed the pay cut in June as part of the annual home health prospective payment system update. While home health rates would increase by 2.9% under the proposal, the figure doesn’t account for elevated labor and supply costs providers face, the industry groups said. 

Moreover, the proposed increase would be entirely offset—and then some—by a 7.69% pay cut. 

CMS said the cut is necessary because a new payment model implemented in 2020 inadvertently increased payment to home health agencies. Regulators already anticipated home health agencies would get higher reimbursement under the new model than before, and imposed a 4.36% pay reduction the same year to account for that. But the model still led to $2 billion in excess payment to home health agencies following its implementation, CMS calculated. The proposed cut aims to make expenditures under the new framework as similar as possible to what they had been under the old one.

Home health industry groups and the lawyers they retained argued CMS hasn’t fully disclosed the calculations it used to reach its proposed pay cut and said the policy would hinder patient access to home healthcare. 

CMS’ proposal doesn’t compare the behaviors the agency assumed would result from the model with actual behavior on aggregate expenditures, the home health groups wrote in their comment letters. 

The American Hospital Association called on CMS to change course in its own comment letter, saying that the agency based its calculations on inaccurate assumptions. 

When home health agencies switched to the new payment model, the number and distribution of therapy visits changed. Using 2020 and 2021 data to estimate what payments would have been without the new model, as CMS’ proposal does, reflects the effects of the model and not its absence, the groups said. 

CMS used a different—and more reasonable—method to correct for a similar problem in skilled nursing facility payment, home health groups added. A new payment model implemented for nursing homes in 2019 improperly increased payments in 2020. 

CMS acknowledged in the final nursing home payment rule for 2023 that it would typically use claims and data from a given year to compare patients under the current and previous system to determine how payments need to be adjusted. However, differences in payment incentives between the two systems mean the old method could lead to an overcorrection, CMS said. 

Bill Dombi, president of the National Association for Home Care and Hospice, said the same logic should apply to the home health payment system. 

“You’ve got very much an apples-to-apples circumstance here with inconsistent methodologies. We really don’t have an understanding from CMS as to why they use such dramatically different methodologies,” Dombi said. 

This isn’t the first time home health agencies have expressed concerns. CMS asked for feedback on its initial analysis last year but did not make a formal proposal. At the time, home health agencies argued CMS’ tentative methodology didn’t conform to Medicare law.

“I’m sure it’s not surprising to CMS,” said Joanne Cunningham, CEO of the Partnership for Quality Home Healthcare. “We have been talking to them over the course of the past year about this.”

Despite taking the step this year to commission legal analyses of the policy, Dombi and Cunningham both said they’re not ready to discuss suing CMS if the agency finalizes the policy. 

“There are multiple steps before anybody says, ‘Oh, I’m going to file a lawsuit,’” Dombi said. “Obviously, it’s a very early stage of the regulatory process.” 

The associations hope their comment letters and earlier conversations persuade CMS to take an alternate approach in its final rule. The Partnership and NAHC have turned to Congress as a backstop: They’ve endorsed a bill that would stop CMS from implementing the behavioral adjustment reductions until 2026. 

But independent Medicare advisors stand by CMS’ proposal. CMS’ method for calculating the adjustment is reasonable, and regulators should consider decreasing 2023 rates even further to recover overpayments to home health agencies in 2020 and 2021, the Medicare Payment Advisory Commission said in its comment letter. CMS did not propose recouping the money next year, although it did ask for feedback on how to do so.

According to MedPAC, freestanding home health agencies averaged Medicare margins of more than 15% from 2001 to 2020. 
 

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