Medicare Updates 2024 Home Health Agency Reimbursement
By Scott Manson, CPA, Managing Director, Advisory Services
Earlier this month, the Centers for Medicare and Medicaid Services (CMS) released its home health agency reimbursement updates. Since the proposed rule was released earlier this year, the new rates have been highly anticipated because they will now include behavioral adjustments. When CMS changed home health reimbursement to the Patient Driven Grouping Model (PDGM), it required that the new model be implemented in a budget neutral manner. CMS set the reimbursement rate based on historical trends; however, the actual utilization did not occur as expected based on those historical trends because of changes in behavior. This resulted in proposed behavioral adjustments to the PDGM rates. CMS states that it paid out more under the PDGM system than it would have under the prior system.
In the proposed home health rule, the full effect of behavioral adjustment was included in the proposed rates and would have resulted in an overall reimbursement decrease of 2.2% in 2024. In the final rule, the rates include only an approximate one half the proposed behavioral adjustment as a permanent adjustment, resulting in rates increasing by 0.8% as opposed to decreasing by 2.2%. It is unknown if the second half of the behavioral adjustment has been deferred to 2025 or later. Many commented to CMS that, during this time of post-COVID wage increases and supply inflation, a 0.8% rate increase will not cover cost increases. CMS provided information that in 2022, 78% of freestanding home health agencies reported positive Medicare margins on their cost reports.
For calendar year 2024, CMS recalibrated the home health market basket. The market basket increase would have been a positive 3.0% increase in the absence of any other adjustments. The other adjustments include a negative -2.89% adjustment for the previously mentioned behavioral adjustment, a 1.24% adjustment increase for case-mix weights recalibration neutrality factor, a 0.12% adjustment increase for wage index budget neutrality factor, and a negative -0.02% adjustment for the labor related share neutrality factor.
The geographical wage index component of the 2024 rates has also been calculated using the updated market basket. The prior market basket was based on 2016 data using a labor related share of 76.1%, while the 2021 data shows labor at 74.9%. Interestingly, home health agencies spent more on administrative type expenses in 2021 compared to 2016, thus decreasing the amount subject to geographical labor adjustments.
PDGM includes 432 different payment groups. The 2024 case-mix indices and Low Utilization Payment Adjustment (LUPA) thresholds have also been updated based on recently available data. Other items included in the final rule are changes to the Home Health Quality Program (HHQRP), expansion of the Home Health Value-Based Purchasing Model (HHVBP), Durable Medical Equipment Policy Issues, Hospice Enrollment, Hospice Special Focus Program, and other policy changes.
The 2024 home health rate update is not a complete overhaul, but it’s more than a routine yearly increase. While 2024 rates now known, 2025 is another issue. Conservative planning for 2025 may include an increase similar to 2024, with the assumption that the full behavioral adjustment is included. Providers will want to start planning for 2024 now and update their budgets for the changes.
Download the Medicare Home Health rate calculator and contact your Marcum adviser if you have questions on the Home Health reimbursement changes.
