A history of home healthcare payment models

Home healthcare payment models have changed significantly throughout their 50-year history. Here’s an overview of what you need to know.
home health

Over the past 50 years, the scope of services, degree of coverage, and reimbursement models within Medicare’s home healthcare program have evolved, even as the eligibility criteria has remained essentially the same.

The home healthcare program – which was established as part of the original Medicare program in 1965 – was created in order to address post-acute care needs of older adults; support their transition from inpatient hospitalization to recovery; and minimize the financial burden on the program. However, today’s program is moving beyond just providing post-acute care by expanding to Hospital at Home programs and incorporating virtual care modalities for chronic disease management while preserving patient autonomy and independence.

But throughout the years, concerns about the program’s financial sustainability have prompted changes, especially as home healthcare’s place in the care continuum grew. The most significant increase in home healthcare utilization was from 1989 to 1990, when the demand for services grew by over 48%. This fueled alarm that incentives created by the payment system and benefit structure – combined with a lack of administrative oversight – resulted in more services being provided than were actually needed.

A course correction

In response, the Centers for Medicare & Medicaid Services (CMS) began exploring alternative reimbursement strategies to address these rising costs. Iterations over the years have included a predetermined per-visit payment rate (1990 to 1993); a per-episode payment system (1995 to 1996); and a move toward a Prospective Payment System (PPS) in 2001. But despite these different approaches, home health spending continued to climb, and payments for home healthcare exceeded home health agency operating costs by as much as 20%.

The 2010 Patient Protection and Affordable Care Act (PPACA) included new provisions to address these concerns, such as reducing Medicare payments to home health agencies and performing an assessment of the relationship between payment reduction and quality of care.

This assessment included three quality measures during the home health episode that evaluated the:

  • Overall rate of unexpected hospitalization
  • Percent of patients demonstrating improvement in walking
  • Percent of patients demonstrating improvement in transferring. 

The results suggested that reductions in payment did not have a significant effect on the quality of care. This helped pave the way for further payment reform and alignment with the principles of value-based care, focusing on the quality of care provided as opposed to quantity of services rendered.

The HHVBP model and quality of care

With this in mind, the CMS Center for Medicare & Medicaid Innovation (CMMI) began testing a major redesign of the payment model for home health in 2016. This new model would align home healthcare with the principles of value-based care – linking quality of care directly to payment. The initial plan, titled the Home Health Value-Based Purchasing (HHVBP) model, ran from 2016 through 2021 and incorporated a set of home healthcare-specific quality and efficiency measures. It also emphasized public reporting of agency performance.

In the HHVBP model, participants competed with other agencies in their state to earn the best Total Performance Score (TPS). This score was based on measured performance, and participants were incentivized with a graduated positive payment adjustment each year. Originally implemented in nine states, the model resulted in an average 4.6% improvement in home health agencies’ quality scores as well as average annual savings of $141 million to Medicare resulting from a decrease in unplanned hospitalizations, emergency department visits, and nursing home admissions.

The PDGM model

During the time that CMMI was testing the HHVBP model, CMS also finalized changes in the home health PPS for 2020. These changes included the introduction of the Patient-Driven Groupings Model (PDGM) for home health agency reimbursement, along with proposals to change the Request for Anticipated Payment (RAP) system in anticipation of phasing it out in the future.

The new PDGM: 

  • Reduced the length of an eligible episode of care to 30 days from the previous 60 days
  • Eliminated the use of volume of therapy visits as a determinant of reimbursement level
  • Slotted patients into one of 432 case-mix adjustment payment groups determined by clinical diagnosis, functional impairment level, and comorbidities requiring precise ICD-10-CM coding and completion of Outcome and Assessment Information Set (OASIS) assessments

Furthermore, in PDGM, reimbursement was based on both the payment group and the patient’s anticipated needs, not the volume of care.

Prior to implementation of the PDGM, a RAP facilitated 60% of the anticipated payment over 60 days up front and then the remaining 40% at the final bill. In 2020, CMS reduced the RAP to 20% of the anticipated payment at the beginning of the episode and 80% at the final bill. Home health agencies were also required to submit a RAP for every 30-day period of care for the duration of the patient’s episode of care.

CMS finalized 20 new home health quality measures for 2021 by using data captured from claims; OASIS assessments by home health providers; and patient-reported information from the Consumer Assessment of Healthcare Providers and Systems Home Health Care Survey (HHCAHPS). These new quality measures were indicative of the growing emphasis on outcomes of care.

Major changes were also made in 2021 to the RAP. The split percentage was eliminated, and no payment was associated with a RAP. As the purpose of the RAP was to establish care with a home health agency, agencies were still required to submit a ‘no-pay’ RAP within five calendar days after the start of each 30-day period.

Recent and upcoming changes

It’s important to note that for 2022 CMS announced that the HHVBP would expand to all 50 states with a first performance year beginning January 1, 2023. Initially, agencies participated in a no penalty pre-implementation year to put processes in place for 2023. CMS also made changes to the home health Medicare Conditions of Participation (COP) to include telecommunications in performing patient assessments in the home and expanded the role of occupational therapists in conducting patient assessments.

Finally, the RAP was replaced by the Notice of Admission (NOA) – a one-time submission by the home health agency that covers contiguous 30-day periods of care when billing for home health, beginning with admission and ending with patient discharge.

With the first performance year of the HHVBP in 2023, the TPS scoring methodology will determine the annual distribution of value-based payment adjustments among home health agencies. This means those with the highest performance score could receive an upward payment adjustment of up to 5% in the 2025 payment year in addition to prospective payment based on the PDGM case-mix classification. CMS will begin public reporting on home health agencies TPS on a CMS website on or after December 1, 2024, facilitating transparency on agency performance to home health consumers. 

The HHVBP was one of CMMIs most successful demonstration models, establishing that better patient outcomes and lower cost is the result of linking payment for services to quality of care versus volume. As home healthcare grows – with the potential for expansion to new care modalities and new programs to support whole-person care – these changes will require that home health agencies implement new tools and technologies to manage information around that care.

Learn more about clinical documentation for home health and the shift from OASIS-D1 to OASIS-E here

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