With the publication of the Proposed Rule for CY 2016, back on July 10, 2015, the information necessary for calculating the changes in the 2016 PPS Payment Rates has been available.  There’s a lot going on in this rule, but it ultimately boils down to reimbursement: what’s going to happen to it in 2016?

Do you know what the changes to your reimbursement are going to be based on the Proposed Rule?

    •  YOU SHOULD!


We are offering to the industry two analyses to help you identify in advance, what the changes in your PPS Payment Rates are likely to be.  We do this for both the Proposed and FINAL Rule.  We will provide the first analyses for both the Proposed and FINAL Rule at one low price per Service Area; so you can get it now to begin preparing for the expected changes to your reimbursement for next year, and when the FINAL Rule is published, we will automatically update this analysis for all the Service Areas previously prepared and send to you  (you will not have to do anything for this to happen; you can, but you do not have to).  We will talk about one of these analyses here, the other one you will need to contact us to discuss.

Per the 2016 Proposed Rule, CMS is proposing to:

  • make changes to the 153 Case-Mix Weights
    • and they want to start doing this every year!
    • this should be of some significant concern to the industry
    • they constantly accuse us of gaming the system to increase our own reimbursement; well, this could give them an avenue to game reimbursement themselves in a manner not easily discernible!
  • The Wage-Indices are changing
    • they do every year, but there are some significant changes to many counties across the country, and the transitional period existing in 2015 is over for 2016
    • In fact, we’ve identified two Service Areas that are having their Wage-Index reduced by over 22% for 2016 (one being reduced a whopping 32%!!!)
  • re-introduce the “Nominal Change in the Case-Mix Weight” Adjustment
    • they are proposing to implement this adjustment (-1.72%) for both 2016 and 2017
      • for CY 2016, this -1.72% reduction is projected to reduce home health reimbursement by $300 million!
    • this is the same adjustment that they implemented in 2008 and used it all the way through 2013, right up to rebasing; which was in fact a type of extension of this same adjustment.
    • From 2008 thru 2013, this adjustment alone reduced HH reimbursement by approx. 19%; and if the current year adjustment of -1.72% equates to $300 million, can you guess what the -19% amounted to? 
    • And, they identify that they are going to be keeping a close eye on the Case-Mix Weights (although they really have no idea what it should actually be) and will utilize this adjustment again in the future as they see necessary.


As previously noted, we have been doing analyses on these service areas for clients since shortly after the publication of the Proposed Rule in the Federal Register.  A few points about the PPS Payment Rates:

  • The PPS Payment Rates are specific to the Service Area where the services are provided.
  • For 2016, there are 509 unique Service Areas covered by Medicare:
    • 459 Urban Service Areas – CBSAs
    • 50 Rural Service Areas (CBSA Code starts w/a 999xx)
  • There are 918 Unique PPS Payment Rates for each Service Area, as identified by:
    • The 153 Case-Mix Weights (CMW) and
    • The 6 NRS Severity Level Add-on amounts (for Medical Supplies) added to each CMW
    • Therefore 153 CMWs x 6 NRS = 153 x 6 = 918
    • Each of these 918 PPS Payment Rates has a specific HIPPS Code associated with it
  • These 918 PPS Payment Rates for every Service Area change every year, and that change is impacted by:
    • The annual inflationary update
    • any changes to the OASIS Point Scoring Variables
    • any changes to the Case-Mix Weights
    • changes to the Wage-Indices
    • any other adjustments proposed by CMS
      • like the “Nominal Change in the Case-Mix Weight” adjustment
    • and Sequestration
      • a note on Sequestration: the PPS Rates I identify are post-Sequestration.  I don’t like that so many softwares out there show you the PPS Episodic Revenue at pre-Sequestration amounts.  To me, this is ludicrous.  You are NOT ever going to receive the Sequestration amount as long as Sequestration is active (and it’s legislated to remain in effect until at least 2021 unless other legislation repeals it); so why would you ever want it included in any number that you are operating by?  If you ever want to know the impact, just take your pre-Outlier reimbursement and divide it by .98 (assuming a 2% Sequestration Rate) and the difference between the inflated amount and the amount you actually received is the Sequestration amount!  That is why in any PPS Revenue presentations that I do (e.g., this analysis, patient-budgeting, company budgeting, etc…) I ONLY use actual amounts that are expected to be received.


Now I have talked about/blogged about some of the aforementioned issues (as noted by the associated hyper-links for those topics/issues), so I don’t want to overly repeat myself,  but I do want to talk some about this first analysis and why this (and the other analysis) are a financial fundamental that you should really consider implementing each and every year.  Financial Fundamentals, I’ll talk about these in another blog, but suffice it to say that financial fundamentals have greatly eroded in the home health industry since the inception of PPS and as such, much that should be done from a financial perspective is not done; and most don’t do it because either:

  • they think that their software will do it for them (which is a mistake) or
  • They just don’t know what it is that they should be doing.


This financial fundamental; this PPS Payment Rate Analysis, will help you prepare for next year (every year).  You have an opportunity to see what CMS is planning to do to reimbursement up to five+ months ahead of when CMS is actually going to make those changes.  Can you honestly say that this would not have any impact on your ability to run your agency?  Too many agency owners/operators just don’t know this yet though, because their software doesn’t identify this for them, and their financial leaders (internal and/or external) don’t know to do (or how to do) this.  Sometimes the impact may be minor, but often times it is not (as we will see later); and how many ‘not minor’ situations does it take to have a debilitating effect on your agency?

Here is some summary information about the changes to the Wage Indices and what we have seen based on the analyses run thus far:

  • Again, there are 509 Service Areas in 54 states and US protectorates, all of which are having changes to their reimbursement, of which
    • 6 states/protectorates will have a reduction to 100% of their Service Areas
    • 21 will have reductions to 60+% of their Service Areas, and
    • 28 will have reductions to at least 1/2 of their Service Areas
      • This also means that 26 will have increases to at least 1/2 of their Service Areas
  • The industry is projected to realize a 1.8% reduction to reimbursement amounting to $380 million
    • That averages out to approx. -31k per HHA (simple math)
      • But it does not work like that though!
  • So if the industry is going to average a 1.8% reduction to reimbursement, is it safe to assume that is going to be the impact to your agency(s)?
    • NO!
    • The -1.8% is for the entire industry and HHAs are going to see rates much larger and much lower (some, even positive) and all points in-between.
  •  So, you have to also take in consideration the change in the Wage-Index for all your Service Areas.
    • If your Wage-Index increases, your reduction should be lessened; and if it increases enough, you could even end up with an increase in the PPS Payment Rates for some, or in rare cases, for all of your 918 PPS Payment Rates.
    • However, if your Wage-Index decreases, you will undoubtedly realize reductions to your Payment Rates in excess of the -1.8% industry average; and the bigger the decrease in your Wage-Index, the bigger the reduction to your reimbursement rates.


What we have seen regarding changes to the Wage-Indices for the 509 Service Areas as per the Proposed Rule for 2016:

  • 256 Service Areas are to have an increase in their Wage-Index
    • Ranging from +0.01% to +13.45%
  • 251 Service Areas are to have a decrease in their Wage-Index,
    • Ranging from -0.03 to -32.4%
  • and 2 Service Areas are having no change in their Wage-Index
    • Guam and
    • Puerto Rico


Changes to the Wage Index by Service Area per the Proposed Rule:

 Increases     Decreases

  •  Change >= 3.0%                       76                72     –     Service Areas
  • Change >= 5.0%                        29                22     –     Service Areas
  • Change >= 10.0%                       9                  6      –     Service Areas
  • Change >= 15.0%                       0                  2  (both over 22.0%!)

 Note: the above changes are based on the average of all 918 Payment Rates for each Service Area.  Individual PPS Payment Rates can change much more than the average noted for the Service Area; both positively and negatively.

 Our belief is that every agency should be identifying the change to their Wage-Index and to their PPS Payment Rates every year (when both the Proposed and when the FINAL Rule are published) for any Service Area that they do a modicum of business in each year so as to establish this as an annual routine and as a sound financial fundamental for your agency.  This will help you prepare for the upcoming year, every year.

An overview/summary of the first of the two analyses we provide:

Our initial analysis is comparing the Wage-Index and all 918 payment rates for the Service Area(s) selected.  We will provide a Summary of the changes in the Wage Indices and what the MAX, MIN and AVG change is in the 918 reimbursement rates for each of your agency(s) Service Areas.  See the following:

Summary 10001






So in the above presentation, we are listing out all the Service Areas by CBSA Code & Description, what the Wage-Index was for each year and the change in the Wage-Index, and what the MIN, AVG and MAX Reimbursement Rate change is for the 918 PPS Rates for that Service Area.

  •  MIN means the largest decrease or the smallest increase
  • AVG is the mathematical average change of all 918 PPS Rates and
  • MAX means the largest increase or the smallest decrease


Part II of this initial analysis includes an interactive schedule (see the following) in which you can specify the CBSA (e.g., 11111 in the below example) for this summary, and then you enter the first-four characters of any HIPPS Code (e.g., 1AFK in the below example: there are five total characters in the HIPPS Code) and this schedule will identify the PPS Payment Rate for each NRS Level for the current (CY 2015) and upcoming (CY 2016) years, as well as what the change (Diff) in the payment rate is and the % change (% Diff).


 The bottom-half of this presentation identifies the largest increase and decrease by the HIPPS Code for each NRS Severity Level (which is identified by the 5th character of the HIPPS Code [S, T, U, V, W or X]), as well as what the average change in reimbursement is for the 153 PPS Payment Rates for each NRS Severity Level and what the Overall Average Change for all 918 HIPPS Payment Rates is for the CBSA selected.

Additionally, we will provide a schedule that identifies the % change in all 918 HIPPS/PPS Payment Rates by Service Area and provide a summary that identifies all HIPPS Codes that exceed a certain threshold (+ or -) that you establish.

And this is just the first of the two analyses we offer each year.  As previously noted,  we will prepare this first analysis/presentation for each Service Area for both the Proposed and FINAL Rule at one-low price to try to give you as much time as possible to prepare for the upcoming year.  As you know, CMS is making it more and more difficult to remain profitable in Medicare for home health agencies and only those agencies that are strong on both the clinical and financial sides of the business (or have extremely deep pockets) will ultimately survive this tumultuous time.  There is HH Compare and the Star Ratings to measure your agency(s) clinical measures/outcomes against other HHAs, but there is nothing like this for comparing your agency financially, and even if there were, its value would be quite limited because of the lack of financial fundamentals in our industry.  These types of analyses are a step in the right direction to re-introducing strong financial fundamentals to your organization to improve your chances to survive and/or to better position your agency should you look to sell.

If you would like some assistance in this area from someone that has been doing this since the early days of PPS, please contact us at your earliest convenience to discuss.  This is one small step to prepare for 2016, and one giant leap onto the path that leads to a successful future.