Community hospitals are struggling, and 21 more closed in 2018. Under Medicare’s PDGM commencing in January 2020, home health agency referrals are one of the primary determinants of the calculated reimbursement amount for billing claims. Since most home health agency (and hospice) clients are Medicare-insured, recognizing the markedly increased importance of both referral source and referral timing to your agency’s revenue stream is critical. 

Enabling the percentage of referral sources for Medicare-insured prospective clients to be skewed toward those linked to a higher PDGM reimbursement rate is one approach to financially coping with this payment model change. Described below is the impact under the PDGM of referral sources, referral timing, and diagnoses on home health agency (and hospice) potential revenues. Additionally described is one marketing strategy that may mitigate your agency’s potentially-decreased revenue stream under the PDGM.

In the impending transition to the PDGM, the staff of Liberty Consulting and Management Services can assist your home health (or hospice) agency by providing billing and financial services.

What is the Patient-Driven Groupings Model (PDGM)?

In contrast to the current Fee-for-Service (FFS) payment model of the Centers for Medicare and Medicaid Services (CMS), the PDGM is a value-based model that involves a significantly different case-mix adjustment. Besides requiring assignment of clients into one of 12 possible clinical subgroupings (and classification of the timing of each 30-day payment period as “early” or “late”), the referral source is categorized as either “community” or “institutional”.

The functional impairment level (per OASIS documentation) and comorbidity adjustment are two other components that are utilized by the CMS to determine the Home Health Resource Group (HHRG) classification for each client – and the HHRG classification determines the claims reimbursement amount for each client.

Determining Institutional versus Community Referral Source

Hospitals are not the only institutional referral source allowable under the PDGM, but hospitals are the usual referral sources for home-based services to patients following cardiac bypass grafting or post-surgical cancer patients. As such, hospitals are also assumed to be the source of more “needy” and complex clients for home-based services (per an article in Home Health Care News).  

However, clients transferred to either a short-term or long-term Skilled Nursing Facility (SNF) within 14 days prior to receiving home health care are also considered institutional referrals under the PDGM. Notably, these clients are subsequently considered community referrals after the first 30-day payment period – as well as if they enter a SNF from either home or hospital after 14 days of discharge prior to receiving home-based care from your agency. Therefore, your agency needs to carefully-track the history of post-hospitalization clients in order to classify them correctly after acceptance for care by your agency.

Percentage of Community Referral Clients and Why It Matters

According to the aforementioned Home Health Care News article, 60 percent of referrals for home healthcare services are community referrals. Furthermore, findings of the federal Office of the Assistant Secretary for Planning and Evaluation (ASPE) in 2019 revealed that 19 percent of long-term post-acute care (PAC) patients entered a SNF within 120 days of their home health care episode.

The ASPE findings also showed a higher community referral source percentage among “fraud-committing” HHAs and hospices. Indeed, deterrence of such Medicare billing fraud was the primary rationale by the CMS for the higher calculated reimbursement methodology for institutional referrals.

On the other hand, post-stroke and dementia clients who would have been placed in a nursing home in the past are more likely to remain for far more years in the home environment (due to medical research findings concluding familiar environments are beneficial for them). This is also the case for many permanently-disabled young adults who are Medicare-insured.

Understanding Hospitalized Patient Discharge Decisions by Physicians

A medical research article in the University of Pennsylvania’s LDI Research Brief reported the following:

  • More than 40 percent of all Medicare-insured patients receive post-hospital care at home or in a SNF.
  • At least 17 million Medicare patients between 2010-2016 were discharged to post-acute home health care (39 percent) or to care at a SNF (61 percent). 
  • Patients discharged from the hospital to home health care had a 5.6 percent higher readmission rate than patients discharged from hospital to SNF care. 

Consequently, physicians may assume their hospitalized patients will fare better in terms of improved health status if discharged to a SNF rather than home-based care. Since observational hospital stays are disqualified as justifications for Medicare coverage of SNF care, patients not meeting Medicare’s three-day admission requirement may be discharged home rather than to a rehab center regardless of physician’s preference.

Functional Status and Higher Medicare Reimbursements

Functional status coding is changed under the PDGM, with new codes that can affect calculated reimbursement amounts. Moreover, a lower functional status linked to a specific functional code can result in a HHRG classification linked to higher billing claims reimbursements.

For example, M1800 (grooming) is not included as a calculated functional status item for determining reimbursement amount in the present FFS payment model. However, this code is included under the PDGM for this purpose.

Therefore, a corresponding functional level of “low”, “medium”, or “high” for each included functional item in OASIS-D1 results in an overall functional status determination linked to the client’s HHRG classification.

The PDGM also includes M1033 (risk of hospitalization) within its functional status assessment. Overall, clients with complex care needs (often associated with intermittent hospitalization) are more likely to receive a “low” functional status score under the PDGM – and therefore a HHRG classification linked to a higher payment amount.

Which Clients are Most Likely to Have Low Functional Status?

Clients with neurological disorders such as Multiple Sclerosis (MS) – or a combination of  cancer and diabetes – are more likely to have overall low functional levels. For MS-afflicted clients, this is because the disorder is both linked to weakness of the extremities and cognitive deficits. For diabetic clients with cancer, chemotherapy and other cancer treatments can exacerbate glucose-control difficulties.

The more co-disorders diagnosed in a client, the more likely the client will have an overall lower functional level. The existence of multiple co-disorders in someone with a recent history of hospitalization can necessitate a wider range of home-based services, as well as result in a higher reimbursement for the given client’s Medicare billing claims.

Instead of avoiding the acceptance of clients with multiple co-disorders that require intensive care, educating clinical staff to be able to care for these “high maintenance” clients may be a way to boost your agency’s Medicare revenues under the PDGM.

Budgetary, Marketing, and Hiring Considerations

Attracting Medicare-insured clients with more complex needs may enhance Medicare revenues under the PDGM. However, maintaining a higher percentage of institutionally-referred clients than community-referred clients on a monthly basis is another way to boost Medicare revenues. Most of all, ensuring that a solid percentage of your clients are privately-insured is a way to preserve your annual revenue stream during the first few years of adjusting to the PDGM.

Inclusion in as many commercial insurance networks as possible is advisable to increase the client population served by your HHA (or hospice) that is privately-insured. While marketing to commercial insurance companies may take a bigger “bite” out of your annual budget during the upcoming years under the PDGM, this cost may be off-set by decreasing the number of full-time staff on your payroll.

Liberty Consulting and Management Services is knowledgeable regarding the PDGM, and is available to assist you in adapting your HHA (or hospice) to meet its requirements.