2010 Outlier Cap
2010 Outlier Cap: Clearly the Wrong Prescription
Home health agencies generally view outliers as a blessing. To the vast majority of providers, the payments are an equitable solution to unforeseen costs generated during a treatment episode. On the surface, the benefits appear obvious. In effect, Medicare is assuring providers reimbursement in excess of the full episode rate for outlier patients. These, of course, are individuals who generate additional treatment expenses during a 60 day episode. To brighten the picture, agencies are eligible to receive outlier reimbursement for one or more consecutive episodes of care. The amount and frequency of payment depends on the costs incurred during each episode. But are outliers really the silver lining to the cloud of unanticipated treatment costs?
Before exploring this territory, it’s important to know exactly what is an outlier. In simplest terms, an outlier is an additional Medicare reimbursement based on high utilization during an episode.
Relying on Outliers is a Losing Game
Now consider the way an outlier is calculated. At present, home health providers are eligible for outlier payments if their actual charges exceed a specified threshold amount. The outlier threshold is 1.67 x Expected Episode Payment (EEP). But there is a significant limitation placed on the amount actually paid. An outlier reimbursement for a particular patient equals only 80% of the difference between a provider’s actual charges and the specified threshold amount. Or looked at in equation form –
Outlier Payment = .80 x (charges – threshold).
The 80% limitation ensures that outlier reimbursements fall short of covering all expenses. The ramifications of this costly reality are best illustrated with a hypothetical example, utilizing the aforementioned formula. We’ll assume an agency has a patient episode that generates an EEP of $3,000.00 and 50 SN visits.
1. Multiply $3,000.00 x 1.67 to in order to obtain the outlier threshold of $5,010.00.
2. Multiply the 50 SN visits by an SN LUPA rate of $108.65 to get a total of $5,432.50
3. Since $5432.50 is larger than $5,010.00, this qualifies as an outlier episode.
4. The outlier payment is the difference of $422.50 ($5432.50 – $5,010.00) x 80%, or $338.00
5. The total payment for the episode is $3,338.00 ($3,000.00 EEP + $338.00 outlier)
Even with the inclusion of the outlier, the home health provider receives only $66.76/SN visit. In effect, the agency is not even covered for the cost of administering treatment. Therefore, the outlier system doesn’t bring providers additional profits. At best, it covers up significant losses.
The 2010 Outlier Cap Makes a Bad Situation Worse
Clearly, the outlier system has always been a money loser. But the picture has grown even bleaker since January 1, 2010. That’s the date Medicare’s new outlier cap went into effect. Under the new regulation, outlier payments cannot exceed 10% of the provider’s total home health payments for the year up to the time of a claim. Therefore, not only is the ‘extra’ money paid as an outlier typically insufficient to cover expenses, but now it is available only on a very limited basis. Basically, the outlier cap guarantees that there is even less of an already-low amount available to providers. In effect, it’s taking a bad situation and making it worse. Thanks to the new regulation, an agency intent on generating healthy profits now has a much higher hurdle to jump. A closer look at the main points of the new regulation clearly reveals how much the deck is stacked against providers:
1. Beginning on January 1, 2010 and effective for the entire year, outlier payments made to each home health agency will be limited. Medicare will restrict outlier payments so that they do not exceed 10% of the provider’s total home health payments for the year up to the time of a claim. As part of this process, Medicare will monitor both the total amount of payments received by each agency and the total amount of outlier payments received by that agency.
2. Each time a claim is processed, Medicare will compare these two amounts to determine if the 10% amount has been met. If the limitation has not been met, an outlier payment will be made to the provider. If the limitation has been reached on the current claim, an outlier payment will be denied. In the case of a denial, agencies will be notified by a claim adjustment code that is defined as – “Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.”
3. Since the payment of ensuing claims may change whether or not an agency has exceeded its outlier limitation, Medicare systems will conduct a quarterly reconciliation. All claims filed that didn’t originally qualify for an outlier payment will be re-processed to determine if an outlier is now payable. If such an amount is payable, the claim will be adjusted accordingly. Medicare’s quarterly reconciliation process will take place in February, May, August and November.
How the Outlier Cap is Affecting the Home Health Industry
The effect of the outlier cap is rippling through home health agencies in other ways, as well. Because of the regulation, many providers will likely limit the number of outlier patients they accept. Potentially, a significant number of individuals requiring home health could be denied this crucial service. Home health employees are also feeling the impact of the cap. Already, providers treating a large number of high utilization patients are reducing nurse salaries to compensate for the lowered reimbursements resulting from the regulation. These salary reductions likely will have a negative impact on overall service, and consequently, agency revenues.
Bad Medicine
The facts and figures speak for themselves. What was once considered a boon to home health agencies is in actuality a misleading dose of bad medicine. If an agency hopes to achieve a healthy bottom line, it must eliminate outliers from the category of revenue boosters. Except for a few rare instances, outlier payments seldom bridge the gap between costs and profits. Agencies will achieve far better results by implementing managerial processes capable of overcoming such pitfalls. To achieve this objective, numerous agencies are utilizing a variety of effective tools such as Revenue Cycle Management.