In the 12+ years that PPS has been around for the home health industry, the Outlier Provision has been in existence. Let me tell you right off that I have been against the Outlier Provision since Day 1! I have always felt that 99+% of the HHAs would do better off without the Outlier Provision and having the withhold (historically 5%) added back to the mix so every episodic payment would be increased by 5% (except for 2010 when the withhold was 2.5%); but more on that later.

During PPS, I have been around the country numerous times speaking/meeting/discussing with 100s of agencies about this Provision (and others) of the Home Health (HH) PPS Rule. I historically have not started out trying to convince anyone of anything, but in trying to determine their perception of this Provision and whether or not it is beneficial to them and/or to the industry (and by default, the beneficiaries we serve). What I have found, even to this day, is that people generally have a neutral to a favorable opinion of this Provision: at least until we start talking numbers (especially since 2011). What I have found is that there are two general issues to deal with:

  • the first is that there is a clear disconnect between the funding of this Provision (the reduction in PPS Pmts for ALL episodes: currently set at 5%) and the reimbursement received as Outlier Payments.
  • and the second is a general misunderstanding of the Outlier calculations.

The Outlier Provision is funded by reducing the episodic payment amount by the same amount: for 2011, 2012 & 2013 that amount was set at 5% by CMS. This means that if the Outlier Provision did not exist, all HHAs across the country would have seen an increase in their PPS episodic payments of approximately 5%, but would not have received any Outlier Payments. For 2000 through 2009, that withhold was set at 5%, and it was set at 2.5% for 2010 when a couple other changes took place:

  • the 10% Cap was established in 2010
  • the targeted Outlier Pmts (the amount CMS is targeting to pay) were set at 2.5% for 2010 (the same amount as what was withheld).

The Disconnect

The vast majority of agencies that I have spoken with had a slight-to-favorable opinion of the Outlier Provision: at least prior to my going into any detail and analysis.  Generally this has been because they realized and recognized the Outlier Payments that they had received, but hadn’t really given much thought to ‘how much’ this provision had cost them to fund because they never once had to write a check to fund it!

The Outlier Payments received were obvious; at least for those who looked.  These were amounts received over and above what was expected based on their Accounts Receivable for that particular patient/episode.  The ‘perception’ being that they were receiving reimbursement that they otherwise would never have received, but for the Outlier Provision.

They had never associated a cost to them for the funding of this Provision.  Historically, they had always considered a ‘cost’ as something that they incurred and had to eventually pay, and they never considered that there was a cost associated to their financial operations for this Provision.  As previously mentioned, they never wrote a check: which would have brought this home to them.

I did explain to them that there was a cost to them for this Provision; it was just a more obscure cost as the amounts to fund this Provision were taken from them before they ever received any reimbursement.  I identified that they have historically had their overall rates reduced approximately 5% before they ever received any reimbursement.  I went on further to note that if the Outlier Provision were eliminated (or never existed), their reimbursement rates for each and every episode would be (have been) increased by the amount of the withhold (historically 5% except for 2010 when it was 2.5%) but they would not receive any additional funds as outlier payments.  Most still believed that they/their business benefitted from this Provision: at least until I scheduled it out for them; then they clearly saw how much their reimbursement was reduced to fund this Provision (their unseen cost) as well as the amounts that they received in Outlier payments; and to date, every single person/organization I have done this for has had a ‘cost’ that was greater than the Outlier payments they received.  Often times those costs greatly exceeded the payments they received; frequently by 10s of $1,000s per year, and when you consider that this has been going on for 12+ years-certainly enough to make a very significant impact in the organizations financial health!

The Misunderstanding

I haven’t meet anyone in 12+ years that has really understood the Outlier calculation!  I am sure there are many that do, but not one of the 1,000s that I have meet with and discussed this Provision with.  Those few that knew the basic terminology, generally still didn’t fully understand even those terms, let alone the Outlier calculation:

  • Outlier Payment
    • The Outlier Payment is often considered to be the entire payment for the episode when it is in fact only the amount over and above the episodic payment for that episode (i.e., over and above the regular PPS payment).
  • Loss Sharing Ratio
    • Those that knew this term (which has been set at .80) generally took it as the amount of their loss that CMS would pay them.  That is incorrect, it is the ratio that CMS will pay for the “Imputed Loss” (not actual) that is in excess of the FDL (based on Imputed Costs, not actual).  There is quite a difference between their “Imputed Loss” and their Actual Loss!
  • Fixed Dollar Loss (FDL)
    • Most didn’t know or recall this term; and it is the “Imputed Loss” (threshold) that an agency must exceed (CMS does not share in this!) before the episode is eligible for  any Outlier payment.
  • and the most misunderstood: Imputed Costs
    • The “Imputed Costs” of an episode are based on the LUPA rates for the service area of the client; NOT your actual costs (and the costs of Medical Supplies are completely ignored in the Outlier calculations!).  This means that 99+% of the agencies in the industry will have Actual Costs that are greater than their “Imputed Costs” for any given episode 100% of the time.  This means that your loss is going to be underrepresented in the Outlier calculations: meaning more loss for you and less loss that CMS will share in.


Initial Reasons I Disliked this Provision

  • Based on the issues noted in ‘Disconnect‘ and ‘Misunderstanding‘ above, I have always felt that the Outlier Provision was much more penalizing to the industry (I estimate 99+% of all HHAs) than it was beneficial to the few agencies that realized a legitimate benefit from this Provision.
  • Additionally, CMS noted that there has been a significant amount of fraud and abuse with this Provision and didn’t bother visiting those questionable locations, they just implemented the nationwide 10% Cap: the elimination of this Provision would eliminate the opportunity to perpetrate fraud and abuse in this area.
  • Also, CMS has historically NOT paid out what was targeted to be paid to the industry (I believe 10 of the 12 years have not reached their Targeted pamyent level): for example if we look at 2012:
    • they targeted to pay $500- million as Outlier Pmts per this Provision
    • CMS projects that they will only payout $424 million
      • Therefore, CMS will have withheld $76 million too much from our reimbursement!


New Reason since 2011 I Dislike this Provision

From 2000 (the inception of PPS) through 2010, the amount our reimbursement was reduced to fund the Outlier Provision was the same as the amount targeted to be paid under this Provision (although, they historically did not reach that level).  However, beginning in 2011 that changed, and changed significantly to the detriment of the industry.

For 2011, 2012 and now for 2013, the withhold per this Provision was set at 5% (our reimbursement rates were reduced 5%); however, CMS only targeted to pay out up to 2.5% as Outlier Pamyents: meaning that 2.5% was withheld, never meaning to be paid to the industry!

That may not sound as significant as what it really is: at least when it is solely looked at on the % basis as it is identified in the Proposed/FINAL HH PPS Rule.  However, when you attribute a $ value to those percentages, all the sudden it really gets ones’ attention.  Approximate overall HH spending in each year (2011, 2013 & 2013) equates to about $20 Billion!  So if we attribute $ amounts to those percentages, we get the following:

  • 5% withhold                                    =   $1,000,000,000  ($1 Billion)
  • 2.5% targeted Outlier payments =        500,000,000  ($500 million)

CMS is reducing our overall reimbursement by 2.5% ($500 million) that they have no intention of paying back to the industry!  WHY?

The 2.5% targeted Outlier Cap is mandated in the Patient Protection and Affordable Care Act (this is the piece of legislation that Nancy Pelosi famously said (paraphrasing) “Let’s pass it now so we can read it later and see what’s in it”); Why was the 5% withhold included in that legislation. Undoubtedly because CMS, MedPac and the like filled the legislators ears with propoganga and misrepresentations to get it included; and I imagine that they didn’t bother telling the legislators that this one issue would strip approximately $500 million in industry reimbursement each year that this discrepancy was allowed to exist!  Therefore, if my belief is correct, CMS is basically ‘stealing’ 2.5% ($500 million) of our industry’s allowable reimbursement (for 2011, 2012 & here in 2013: that’s $1.5 Billion!) and making all the HHAs pay a price for that thievery! And these are the people; the organization that was entrusted to oversee our industry. Well this needs to change; and not just that, it needs to be redressed!

Keep in mind Thomas Jefferson’s quote: “I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.” This is something worth fighting for! Just to put a number on it, simple math would say that if there are on average 12,000 HHAs that have been impacted by this discrepancy over the three years, the dollar amount applicable to each would be $125,000! Now if redressed, it would have to allocated based on revenues, but you can see how significant this discrepancy is!