Assess Key Areas to Alleviate PDGM’s Financial Pressure
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6 September 2019 - 9:47, by , in Blog, Post Acute, Comments off

With all the complexities PDGM brings, it poses a threat to home health budgets everywhere. Many understand that PDGM will have a significant financial impact on their organization — however, it is quite overwhelming to think about how to prepare, what strategies to implement, and how to remain profitable. Without proper preparation, organizations could face many challenges, which could lead to unnecessary spending. Though the updates also focus on budget neutrality that was mandated under the Bipartisan Budget Act of 2018, the last time the reimbursement model was changed approximately one out of every four home health agencies went out of business.

Analyzing Current Financial Structure

It is vital to understand financial impact data before making any changes to your organization. Organizations should diligently and thoroughly examine data to determine where the greatest PDGM impact will occur to forewarn unseen adverse effects. Organizations can do this by using the CMS PDGM Grouper Tool, which shows the clinical grouping impact. It would also be beneficial to have third-party perform an impact analysis to identify target areas that will be financially impacted within their organization.

CMS estimates have indicated that the financial impact of PDGM will vary widely by organization. The impacts of PDGM will likely benefit organizations with higher nursing-to-therapy ratios. Organizations with higher therapy utilizations will likely see less reimbursement under PDGM now that therapy is no longer driving reimbursement.

Evaluate: Before making any changes to internal processes, it’s crucial that you first examine financial impact data to determine what areas in your organization need the most attention.

In addition, with the behavioral adjustment in place, PDGM could bring a 8.01% rate cut. The adjustment is based from assumptions on how providers will adapt to PDGM. The three main theoretically-based assumptions include comorbidities, LUPA avoidance, and diagnosis coding. Evaluate these three assumptions with  current and historical provider data to estimate reimbursement changes from PPS to PDGM.

  • Comorbidities
    Under PPS, providers can only code five secondary diagnoses. Under PDGM, comorbidity adjustments are made based on all of the patient’s secondary diagnoses (up to 24). As a result, CMS assumes that more claims will receive additional reimbursement for comorbidities.
  • Diagnosis coding
    CMS assumes that providers will adjust their coding and clinical documentation processes to code highest-margin diagnosis codes as the principal diagnosis.
    For guidance on PDGM comorbidities and diagnosis coding, visit here.
  • LUPA avoidance
    LUPAs will no longer be based on four or fewer visits. The new payment model considers anywhere between two to six visits per 30-day period a LUPA, depending on clinical groups, functional levels, admission timing/source (early vs. late, community vs. institutional), and comorbidities. CMS assumes providers will add more visits per billing period to prevent LUPAs.
    For creating and optimizing visit plans under PDGM, visit here.

Home health organizations can begin by measuring the financial impact of their organization, recognizing how PDGM will affect overall agency operations, and identifying the role their financial team will play.

Understanding Financial Impact

Build a strong understanding of costs and revenue of PDGM clinical groups by creating a model based on your organization’s current data. This model will provide a deeper understanding into how your organization has performed in the past compared to the new reimbursement model and can reveal the financial impact. Compare your KPIs against national benchmarks that CMS outlined with the new reimbursement model. Changes in indirect costs for back office efforts should also be considered.

Create: Organizations should build a model based on their current data that will provide understanding on their past performance compared to the new reimbursement model under PDGM

Recognize how PDGM will affect your organization and outline potential processes to adapt. Even with best practice processes in place, cash flow patterns will change dramatically with two billing periods. PDGM will require the Request for Anticipated Payment (RAP) and first 30-day claim to be billed in order to receive to the same reimbursement as the RAP under PPS. It is imperative that EMRs are updated and equipped to handle the change that comes with PDGM. Cash posting must be accurate with attention to detail to ensure correct reporting, especially in the “straddle” period during PPS and PDGM transition.. Ensure financial reporting under PDGM is reviewed for accuracy to guarantee revenue is reported correctly by the EMR and accounts receivable is not understated or overstated due to revenue adjustments. Identifying the role that the finance team plays is an integral part of preparing for PDGM.

To mitigate potential financial obstacles due to reduced cash flow at the start of PDGM, it is imperative that organization proactively work their aged PPS receivable to maximize cash on hand for operational expenses. An increased focus on cash collections during the fourth quarter of 2019 will offset payment shortfalls during the first quarter of 2020 as both Medicare and home health organizations adjust to the new payment model.

Key take-aways:

  • How do you plan to properly measure the financial impact PDGM will have on your agency?
  • Is education in place to teach staff about how comorbidities, LUPA avoidance, and diagnosis coding will affect reimbursement due to the new behavioral adjustment?
  • Do you understand revenue recognition calculations under PDGM?
  • How do you plan to model cash forecasting during the straddle period and under PDGM?
  • Will your EMR be able to address revenue recognition in the transition period between PPS and PDGM?


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