Mark Bina - Krieg DeVault LLP

On November 17, 2010 the Centers for Medicare and Medicaid Services (“CMS”) published a final rule updating the Home Health Prospective Payment System (HH PPS) rates for 2011. The final rule also imposes new ownership, capitalization, and certification requirements for Home Health agencies.

CMS is reducing Home Health PPS rates by 4.89% for 2011. This reduction stems from the health care reform legislation, wage index and market basket updates, and case-mix coding changes. Under the final rule, the current home health outlier cap becomes permanent and PPS rates are reduced an extra 2.5%. CMS provides agencies an incentive to submit certain quality data; those agencies that do not report quality data receive an additional percentage point reduction. CMS notes that it continues to study the need for future reductions and thus the likelihood of continued cuts for 2012 is uncertain. In total, CMS believes the rule will decrease Medicare reimbursements to home health agencies by approximately $960 million for fiscal year 2011.

The rule also finalizes two controversial policies announced earlier this year regarding capitalization and ownership changes. First, the rule requires a newly enrolling home health agency to furnish proof it has “sufficient” initial reserve operating funds to survive a 90 day period. CMS may revoke billing privileges for enrolled home health agencies if they do not provide supporting documentation within 30 days of a request by CMS or a contractor that the agency had sufficient funds.

The second controversial policy in the final rule involves changes of ownership. Under the new rule rule, a home health agency that changes ownership within the first 36 months of initial enrollment may not transfer its provider agreement and Medicare billing privileges to a new owner. Instead, the new owner must file a new 855A and obtain a state survey or accreditation. Bowing to industry pressure, however, CMS did slightly modify the proposed rule and carved out some exceptions to benefit legitimate owners of home health agencies. The exceptions include:

• Change in majority ownership” is now defined as when an individual or organization acquires more than a 50% interest in a home health agency during 36 months following enrollment. A “change” also includes asset sales, stock transfer, mergers, or consolidations.
• Publicly traded companies acquiring a home health agency in which the buyer and seller had at least 5 years of cost reports in the previous 5 years are exempt from the 36 month policy.
• Restructuring of a current home health agency by its owners (e.g., partnership to LLC or S-Corp to LLC) are exempt where the individual owners remain the same and there is no change in majority ownership.
• Ownership changes involving the death of an owner with 49% or less interest in the home health agency are exempt from this rule.

Finally, the rule provides some guidance on the “face to face” encounter mandate. The health care reform act requires that a physician must document that they had a face-to-face encounter with a patient before certifying a patient’s eligibility for a home health benefit. This encounter and documentation must occur at least (a) 30 days preceding the start of home health care, or (b) 14 days after the start of care if no encounter occurs which is related to the primary reason the patient needs home health care. Similarly, a hospice physician or nurse practitioner must document they had a face-to-face encounter with a hospice patient 45 days prior to any 180 day recertification and prior to each subsequent recertification.

The rule and its new requirements go into effect on January 1, 2011.

For additional information on this rule, or if you have any questions about regulations affecting home health or hospice providers, please contact Mark Bina in Krieg DeVault’s Chicago office at 312-423-9305 or mbina@kdlegal.com.