Changes in Wage-Indices for CY 2016:
After the transitional period of the Service Areas/Wage-Indices (only applicable to 2015) there are now going to be 509 distinct Service Areas, each with their own Wage-Index (there were 445 services areas in 2014). Every year I do an analysis comparing the change in the Wage-Indices proposed for the upcoming year (e.g., CY 2016) as compared to what they are for the current year (e.g., CY 2015) and I noted the following:
- 256 are proposed to increase from 2015
- 251 are proposed to decrease from 2015 AND
- 2 are proposed to remain the same as 2015
Note – Regarding the Change to the Wage Indices:
- An increase to you service area(s) Wage-Index will have the effect of lessening the overall impact of the reduction to the 2016 PPS Payment Rates (projected to be -1.8% for the industry); whereas
- a decrease to your service area(s) Wage-Index will increase the overall impact of the reduction to the 2016 rates (meaning it will be greater than the -1.8% projected for the industry)
We have a couple of analyses that we make available to the industry each year for calculating these changes, so we are very involved in helping agencies identify what the projected impact to their reimbursement rates will be each and every year based on the changes per the Proposed and/or FINAL Rule. As such, we have identified wide-variances in the change in reimbursement impact for any given service area as projected per the Proposed Rule for 2016. For example:
- We have identified a Service Area whose Wage-Index is proposed to increase 13.4% for 2016 and as such, the average HIPPS Payment Rate for this Service Area is projected to increase +7.7% for 2016; with a minimum increase for any given rate being +3.9% and a maximum increase for any given rate being +13.1%.
- Based on the above, this would be a pretty good Service Area to operate in come 2016!
FYI: there are 918 unique HIPPS Payment Rates for each/every Service Area (e.g., CBSA)
- And we have identified a Service Area whose Wage-Index is proposed to decrease -32.0% for 2016 and as such, the average HIPPS Payment Rate for this Service Area is projected to decrease -27.0% for 2016; with a minimum decrease for any given rate being -22.6% and a maximum decrease for any given rate being -29.9%.
- Meaning ALL 918 HIPPS Payment Rates will decrease at least -22+% for 2016 – that’s brutal!
- Based on the above, this would be a very difficult Service Area to operate in come 2016!
Funny thing though, we’ve done a little over 50 of these analyses thus far, and we have yet to do one where the average HH PPS Payment Rate decreased -1.8% (the amount projected for the industry). I point this out because most new agencies I work with (i.e., ‘new’, meaning just starting to work with me; NOT new as in just opening) historically have entered the new year believing that the impact to their reimbursement rates was going to be in-line with, if not exactly what CMS had published in the Federal Register each year; when that is not the case!
The -1.8% that CMS projected for 2016 per the Proposed Rule is supposed to be the industry average across all Service Areas and inclusive of all expected episodes; so the vast majority of Service Areas are going to realize impacts to their reimbursement that are different (and sometimes far different) than the industry average.
The change in your Wage-Indices from year to year will impact this.
- And one year you might be right on the National Avg. because the change in your Wage-Indices helped make it so (this could happen, but I promise you it will not be the norm!)
- But the very next year it could be quite different because of the change to the Wage-Indices for that particular year
- The Wage-Indices change for 99.9% of all HHAs every year, and the % change can be quite different from year to year, for example:
- The Service Area noted above with the big increase in their Wage-Index for 2016 (13.4%) had -1.3% decrease in this Wage-Index when comparing CY 2014 to CY 2015, and
- The Service Area noted above with the big decrease in their Wage-Index for 2016 (-32.0%) had a -6.7% decrease in this Wage-Index when comparing CY 2014 to CY 2015.
Therefore it is very important that you identify what the change in the Wage-Index is each year for every Service Area you operate in. This change impacts your reimbursement each and every year. But the only way to truly know what the impact to your reimbursement is going to be for any given year is ‘to do the math.’ From my perspective, every agency should be doing this every year for all their service areas (at the very least, all Service Areas that they do a fair amount of patient-care in). This would be considered a financial fundamental here in home health; just like some others: Budgeting (annually for the agency and by patient episode/encounter) and monthly Financial-Operational Analyses, etc…, that have fallen into disuse by most agencies since the inception of PPS. Agencies that want to continue doing things the way that they have been doing them (especially for those organizations that do not do the aforementioned activities), will find it more and more difficult to survive in this ever evolving environment that we operate in. I hear so many decry change, yet in my 23+ years in home health there has always been one constant that one could rely on with out exception, and that constant WAS change!
Identifying the changes in Wage-Indices for CY 2016, and for each and every year, will be a step in the right direction to improving the financial fundamentals by which your organization operates AND will help you identify what the expected impact to reimbursement will be for your HHA for the upcoming year. Consider this:
- How successful do you think that the HHAs will be in the Service Area with the large increase in their Wage-Index (+13.4%) and average PPS Reimbursement (+7.7%) for 2016 if they:
- Do not identify the changes to their PPS Payment Rates in advance?
- Oh, they are quite likely to be successful. Any HHAs in this service area should be very successful and profitable.
- How could they not be; right?
- Well, this is not unlike how easy it was to be very profitable in PPS for the first dozen+ years of PPS!
- Because of CMS’s inability to adequately design and model a reasonable PPS reimbursement methodology for HHAs, they really had no idea how reasonable the reimbursement rates would be for HHAs and as such, their rates were extremely generous
- and this became a primary driver for the erosion of financial fundamentals in home health!
- It was extremely easy to be quite profitable without those financial fundamentals, so why incur the cost of doing them!
- However, most HHAs would have been even more profitable had they incurred those costs!
- Do identify the changes to their PPS Payment Rates in advance?
- Well, they’ll be successful too!
- But, they are quite likely to be more successful than their neighbors that do not do this analysis because they will be employing a financial fundamental that quite likely leads to others such that they are also more readily able to identify efficiencies and exploit those, as well as identify inefficiencies and improve on those; all of which lead to improved profitability.
Ok, so what about the HHAs that operate in the other Service Area noted above (w/the 32.0% reduction to their Wage-Index)?
- How successful do you think that the HHAs will be in the Service Area with the large decrease in their Wage-Index (-32.0%) and average PPS Reimbursement (-27.0%) for 2016 if they:
- Do not identify the changes to their PPS Payment Rates in advance?
- These HHAs are going to be in BIG trouble.
- All HHAs in this Service Area are going to have a difficult time; but HHAs that did not identify this in advance are also not likely to have identified the impact to their reimbursement and as such probably did not do any advanced planning for this year
- And least not anymore that what they thought necessary to prepare for a -1.8% reduction to their reimbursement (but the reduction they will be facing will be 15 times as great – 15x!!!).
- Once 2016 reimbursement starts rolling in, survivability becomes an immediate concern!
- The lack of this review, not having this basic financial fundamental may cost them their business.
- These HHAs will undoubtedly be forced to close at a much higher rate than that of their neighbors that did identify what the expected change to reimbursement was to be for 2016!
- Do identify the changes to their PPS Payment Rates in advance?
- Well, they will be struggling as well; after all, any HHA anywhere that had to deal with a 27% reduction in reimbursement from one year to the next will struggle.
- But they will also have had some time to do some advanced planning to give themselves the best chance possible for surviving 2016!
- Would I want to be operating a HHA in this Service Area? NO!
- But if I was, I would unquestionably want to know what the projected impact was to be to my agency’s reimbursement as soon as possible.
- Regardless if it were positive or negative
I know that these were extreme examples, but they are actual situations projected for 2016 and I do believe that they make my point. Everyone should be identifying the changes in Wage-Indices for CY 2016 for all of their Service Areas; and NOT just for 2016. This is something that every HHA should be doing/having done every year as soon as you possibly can.
We here at IFS can certainly help you with this comparative analysis (and another not referenced herein); but whether you use us, use someone else or do it yourself: for your own sake (and as Nike says) “Just do it!”