FY 2016 Wage Index Proposed Rule – Fundamental Changes in Hospice Payments

On April 30, 2015 CMS released its 177 page FY 2016 Hospice Wage Index Proposed RuleThis proposed rule is an annual event in which CMS announces not only its pricing plans for the coming fiscal year beginning October 1, but generally also any other significant rules it intends to impose. Although these are “proposed” rules subject to a 60-day comment period and final CMS review, CMS generally makes few material changes in the final rules. 

First, we applaud CMS for engaging world class, outside, private sector resources to assist CMS in doing its own, independent hospice analyses.  We well understand that CMS is in the hot seat, committed to continuously improve hospice access and value, while struggling with difficult end-of-life care eligibility, choice and cost issues, and operating within difficult budgetary constraints and shifting political pressures.   

The Facts – CMS proposes:

  • a FY 2016 national net market basket increase for hospice of 1.8%; 
  • to eliminate the flat per diem rate for routine home care (rhc) and instead pay 16.0% more per day for rhc for the first 60 days of a patient’s hospice stay, and 9.2% less per rhc day as a patient’s stay exceeds 60 days; for readmissions, the higher first 60 day rate will apply whenever there is at least a sixty day break in hospice services;  CMS believes this will be budget neutral nationally, acknowledges differential impacts by Hospice Segment
  • an incremental Service Intensity Add-on (SIA) payment that essentially pays by the hour for visits by RNs and SWs (but not LPNs or HHAs) when made to patients during their last seven days of life, but only for patients on routine home care and not resident in nursing facilities; the SIA is also proposed to be budget neutral, apparently meaning annual adjustments rhc payment rates will be reduced dollar for dollar for anticipated  SIA expenditures;
  • that hospices report all patient diagnoses, related and unrelated, on claims;
  • essentially no significant new CAHPS or HIS requirements, or other new information-gathering initiatives;
  • to transition the fiscal year for hospice cap calculation to October 1 to September 30, for all cap calculations, effective October 1, 2017; and
  • the phase in of new CBSA delineations mainly based on the 2010 census, including a release of preliminary FY 2016 CBSA wage index tables.  (These are preliminary and may change.)

The 177 page proposed rule was also full of language, but no new proposals, discussing Medicare spending on “unrelated” healthcare for hospice patients, continuing CMS’ emerging efforts to redefine “related” to pressure hospices to pay additional patient care costs that have since 1983 been considered unrelated.

 NAHA Preliminary Comments

We are still assessing the impact of CMS’ 177 page Proposed FY 2016 Wage Index Rule, so we’ll limit this first discussion to a preliminary quantitative analysis of the rhc payment changes, and follow in the coming days with more quantitative and qualitative comments.

The financial impact per patient day of CMS’ proposal to pay 16% more for rhc days 1 thru 60, and 9.2% less for days 61+  will be different for each hospice,  based on their distribution of length of stay and not just on their average length of stay.  There is a simple but misleading calculation that some hospices might be tempted to make that 16% higher rates for the first 60 days and 9.2% less for days 61+ suggests a per patient breakeven of 165 days.  That calculation is accurate but not very useful.  Hospices should not make the mistake of believing they benefit, or at least won’t be harmed, if their average length of stay is below 165.  It’s not true.  For example, our preliminary analysis suggests that a hospice with a median length of stay of 15 to 20 days and an average length of stay from 75 to 100 days may lose from 1% to 4% of its rhc revenues, depending on the exact distribution of its length of stay.

In addition, we believe there will be a material transition impact as of October 1, 2015 that may not have been considered in CMS’ calculation that the proposed rhc rate change will be budget neutral.  At October 1, all hospices will have an active patient population for whom they have not received the full benefit of the higher day 1-to-60 rates. This transition effect may be material for many hospices and for the hospice community as a whole.

We have not yet analyzed the likely impact of the SIA; we note that Medicare’s budget neutrality adjustment to routine home care pricing is 1.5, suggesting they think on average it will add 1.5% to routine home care payments.



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