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CMS ANNOUNCES 2.8 PERCENT INCREASE IN MEDICARE HOME HEALTH PAYMENT RATES

Centers for Medicare & Medicaid Services (CMS) Administrator Mark B. McClellan, M.D., Ph.D.,today announced a 2.8 percent increase in Medicare payment rates to home health agencies for calendar year 2006.  The increase will bring an estimated extra $370 million in payments to home health agencies next year.

Medicare pays home health agencies through a prospective payment system (PPS), which pays at higher rates to care for those beneficiaries with greater needs.  Payment rates are based on relevant data from patient assessments conducted by clinicians as already required for all Medicare-participating home health agencies.

“This payment increase will continue to help home health agencies provide high quality care to beneficiaries,” said Dr. McClellan. “Rural home health agencies will experience an estimated 3.4 percent increase in payment, while urban agencies will see a 2.5 percent increase in payments.” 

Home health payment rates are updated annually by either the full home health market basket percentage, or by the home health market basket percentage as adjusted by Congress.  CMS establishes the home health market basket index, which measures inflation in the prices of an appropriate mix of goods and services included in home health services.  For CY 2006, the home health market basket percentage is 3.6.  Section 701(b)(4) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provided that updates for CY 2005 and CY 2006 will equal the applicable home health market basket percentage increase minus 0.8 percentage point.

CMS is adopting the revised Metropolitan Statistical Area (MSA) definitions as announced by the Office of Management and Budget in their July 6, 2003, OMB Bulletin (OMB.03-04).  CMS uses MSAs to set payment adjustments to reflect variation in costs across geographical areas.  In implementing the new MSA designations, CMS will allow for a one-year transition with a 50/50 blend, consisting of 50 percent of the new MSA designations’ wage index and 50 percent of the previous MSA designations’ wage index.  Providing home health agencies with a one-year 50/50 blend of new and old wage index values will help to mitigate the impact on agencies as CMS moves towards a wage index based entirely on the new MSA definitions in CY 2007.

CMS is also updating the fixed dollar loss (FDL) ratio, which is used in the calculation of outlier payments.  We are updating the FDL ratio from 0.70 to 0.65 for CY 2006.  We believe that an FDL ratio of 0.65 continues to preserve a reasonable degree of cost sharing, and continues to meet the statutory requirements while still allowing a greater number of episodes to qualify for outlier payments.

To qualify for Medicare home health visits, a beneficiary of Medicare must be under the care of a physician, have an intermittent need for skilled nursing care, or physical therapy, or speech therapy or continue to need occupational therapy.  The beneficiary must be homebound and must receive home health services from a Medicare approved home health agency.

Information regarding CMS’ CY 2006 update to the home health PPS rates is available at Medicare’s consumer web site, http://www.medicare.gov and through Medicare’s help line, 1-800-MEDICARE (1-800-633-4227). 

The final rule may be viewed at http://www.cms.hhs.gov/providers/hha/.