Dissecting the Patient-Driven Groupings Model (PDGM)
State of the Industry: PDGM
The new home health reimbursement rule is not the end of the road
by Christopher McCann

Editor's Note: This article is one of several featured in HomeCare Magazine's 2019 State of the Industry report.

On Oct. 31, 2018, the Centers for Medicare & Medicaid Services (CMS) published finalized plans for CY 2019 and CY 2020, which included a number of controversial and not-so-controversial changes to the home health prospective payment system (PPS).

After the proposed rule was published in July 2017, the National Association for Home Care & Hospice (NAHC) and a number of major homecare providers, including LHC Group and Amedisys, were highly vocal in opposition to a number of the changes proposed.

However, CMS has pressed ahead despite this opposition. Few people want to read all the pages within the Federal Register, so we read it for you, and below we distill what we believe are the two most important changes.

PDGM and the 30-Day Episode

As in the acute side of health care, CMS continues to disincentivize volume and incentivize value. Ultimately, the desire for CMS is to reduce the cost of health care and homecare delivery.

As it stands today, home health agencies (HHAs) receive a bundled payment for all services provided in a 60-day episode of care. This payment is adjusted based upon patient assessment—the case-mix adjustment. To do this, patients are grouped into home health resource groups (HHRGs), selected based upon collection of an Outcomes and Assessment Information Set (OASIS) for each patient. OASIS has three domains—clinical needs, functional needs and service use. Service use is based on the number of therapy visits. Theoretically, HHAs could game reimbursement by over-visiting patients.

The Bipartisan Budget Act of 2018 required CMS to halve the episode of care from 60 days to 30 days. Furthermore, it required CMS to stop using the number of therapy visits to determine home health payments. It must do all of this in a budget-neutral manner. This prompted the new Patient-Driven Groupings Model (PDGM). But PDGM is not new. It’s essentially a minor update to the Home Health Groupings Model (HHGM), which CMS proposed in 2017, then dropped. CMS similarly proposed to halve the episode of care at that point, which it also dropped. Under PDGM, each episode of care will be categorized based on five factors:

  • Early or late: Only the first 30-day episode will qualify as early. This is a significant change, as currently the first two 60-day episodes are early.
  • Institutional or community: Care will be classified as institutional if admission to the HHA is within 14 days of an acute stay.
  • Clinical grouping: Based on principal diagnosis, patients would be assigned to one of six major clinical groups.
  • Functional level: This will use the OASIS questions to group patients into low, medium or high impairment.
  • Comorbidity adjustment: This breaks down into no adjustment, low adjustment or high adjustment.

This leads to a number of new payment categories, each with its own Low Utilization Payment Adjustment (LUPA) and a minimum threshold of two visits per category.

When PDGM was first proposed, there was significant concern from HHAs that halving the 60-day episode of care may require recertification every 30 days. Having to go back to the physician every 30 days would likely lead to earlier discharge from home health services. While this may reduce upfront cost, it could also lead to increased re-hospitalizations and thus even greater costs. Thankfully, in the finalized rule, CMS has clarified that the initial certification will be valid for two 30-day periods of care. Recertifications will be valid for two additional 30-day episodes of care. This should be of some relief to HHAs, as it aligns to the status quo.

While CMS has offered relief on recertification, there is no relief when it comes to the behavioral assumptions under PDGM. The Bipartisan Budget Act of 2018 requires CMS to calculate a 30-day payment amount for CY 2020 in a budget-neutral manner. That means that the estimated aggregate expenditure under the PPS for CY 2020 must be equal to the estimated amount under the status quo. To achieve this, CMS has made assumptions about behavioral changes that will occur as a result of the change. For example, from the finalized rule: “Our proposed assumption was that HHAs will change their documentation and coding practices and put the highest-paying diagnosis code as the principal diagnosis code in order to have a 30-day period be placed into a higher-paying clinical group.”

In essence, CMS has assumed that HHAs will attempt to aggressively code to achieve highest revenue. Controversially, this is an untested model based on assumptions, not facts. If these assumptions turn out to be incorrect, HHAs face a rate cut of as much as 6.42 percent. That’s huge in an industry with thin margins.

Furthermore, by continuing to pay more for institutional referrals, in my view, PDGM continues to isolate HHAs to the post-acute world and, in doing so, CMS misses a significant opportunity to reduce cost. The best way to reduce cost would be to keep patients healthy and out of the hospital. This pre-hospitalization, pre-acute opportunity is largely disincentivized by PDGM.

The industry is already lobbying Congress. A number of bills have been introduced in both the House and the Senate to negate PDGM. For example, U.S. Sens. John Kennedy (R-La.) and Bill Cassidy (R-La.) have co-sponsored a bill to ensure rate adjustments can only be based on observations, rather than on assumptions or untested models. Furthermore, CMS hasn’t technically finalized the 6.42 percent figure.

PDGM is diametrically opposite to the actions CMS has taken in skilled nursing facility reimbursement, where they overtly state they will not attempt to predict behavior. With PDGM, it could be that CMS feels it has no legal choice under the Bipartisan Budget Act of 2018 but to take this action. Throughout the comments and response section of the final rule, CMS emphasizes that it has no choice but to implement these actions. For example: “CMS thanks commenters for recognizing that the change from a 60-day unit of payment to a 30-day unit of payment is required by law and we do not have the discretion to implement a different policy.”

Regardless, there is no doubt that value-based care is here to stay.

Incentivizing Innovation and Driving the Future

CMS wants to incentivize innovation—unsurprising. As the industry seeks to bring down the cost of health care, it is inevitable that we must come to rely on more technology to support strained health care providers and HHAs.

In particular, CMS has defined remote patient monitoring (RPM) in regulation, utilizing the description under CPT 99091 within the CMS Physician Fee Schedule. CMS defines RPM as the collection of physiologic data (for example, ECG, blood pressure, glucose monitoring) digitally stored and/or transmitted by the patient and/or caregiver to the HHA.

Furthermore, CMS has moved to allow, from Jan. 1, 2019, remote patient monitoring to be reported above the line. That is, it will be reported as an operating expense on cost reports. This is still some distance from CMS directly reimbursing for RPM. But it is a step in the right direction. It means that CMS will at least take into account RPM when deciding future payment rates.

Perhaps most crucially, CMS is extolling the benefits of RPM. In the final rule, CMS specifically calls out a number of studies that highlight the potential benefits of RPM in reducing cost, reducing re-hospitalization and improving outcomes. Thus, CMS lends credibility to the use of RPM, which will further help drive innovation.

We know of few health care providers or HHAs that make their purchasing decisions based solely on reimbursement.

Most base their decisions on how they can best deliver care to their patients. However, CMS can take steps, such as reimbursing RPM, to make those purchasing decisions easier.

We hope and expect to see further moves by CMS to incentivize innovation in the future. As our population gets older and suffers more chronic diseases, it will place increasing strain on an already strained system.

Only through innovation, such as RPM, can we truly change health care delivery and properly prepare it for the future. Find the full 2019 State of the Industry series here.