The Inception of the Outlier Provision REISINGER,(JOHN((1(

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1 1 Following is an Outline of what we will be covering: The Inception of this Provision The Premise behind the Outlier Provision The Unique Terminology of this Provision The Common Perception/Opinion Throughout the Industry A Couple of Basic Examples to Help Understand the Outlier Calculations The Impact of the Patient Protection and Affordable Care Act (the PPACA) How much has the PPACA Impacted your Agency? Summary Q&A 2 The Inception of the Outlier Provision 3 REISINGER,(JOHN((1(

2 General Information: The Home Health Prospective Payment System (HH PPS) became effective 10/01/00. Most, if not all other segments of Medicare Reimbursement with a PPS reimbursement methodology include a provision for (extremely) highcost episodes: Outliers 4 General Information cont d: This kept HH PPS congruent with the other segments of Medicare Reimbursement that follow the PPS methodology of reimbursement. The outlier threshold for each HHRG is defined as the 60-day episode payment for the HHRG plus a fixed dollar loss amount that is the same for all case-mix groups (per the Original Rule Federal Register of July 3, 2000) This is the amount you must lose before being eligible for any outlier payments 5 General Information cont d: The Outlier Provision was not a requirement for Home Health PPS. From Pg of the July 3, 2000 Federal Register: Before deciding to exercise our discretionary authority to include a home health PPS outlier policy in this final rule, Therefore, the Outlier Provision for Home Health was created at the discretion of CMS (then HCFA). 6 REISINGER,(JOHN((2(

3 The Premise Behind this Provision 7 The Outlier Policy was a mechanism that CMS created to theoretically help minimize the financial pain that agencies periodically encounter when caring for many (but NOT all) High- Resource needs patients. This provision created a procedure in a prescribed format that would have CMS share in the financial loss an agency sustained when servicing these High-Resource needs clients. 8 Theoretically, this all sounds good and beneficial to HHAs and the industry overall. The Premise behind this provision is what I call: The Good! 9 REISINGER,(JOHN((3(

4 The Unique Terminology of this Provision 10 Unique terminology regarding the Outlier provision: Outlier: An episode that qualifies as an Outlier is an episode whose total imputed costs exceed a certain threshold as prescribed by the regulations. In these situations CMS shares in the imputed cost overages for that agency as defined in the regulations. The outlier payment is defined to be a proportion of the wageadjusted estimated cost beyond the wage-adjusted threshold. The threshold amount is the sum of the wage and case-mix adjusted PPS episode amount and wage-adjusted fixed dollar loss amount. The proportion of additional costs paid as outlier payments is referred to as the loss-sharing ratio. 11 Outlier Cap: This was a new change to the Outlier Provision effective in CY2010. Basically, this cap established that the total Outlier payments an agency could receive over the course of a calendar year was such that it s total Outlier Payments could not exceed 10% of their total PPS Payments (inclusive of Outlier Payments). 12 REISINGER,(JOHN((4(

5 Outlier Cap: This had the effect of creating a reconciliation process by CMS that has been problematic since its inception in This problematic issue has impacted many HHAs, even some that have never exceeded their 10% cap and that problem still exists today. 13 However, the implementation of this 10% Cap coincided with a change in the withhold to fund this Provision as well as the Target for Outlier Payments. Historically, the Withhold and the Target were both set at 5%. This meant that your episodic payments throughout the year were reduced 5% for every Medicare episode throughout the year, and This 5% was set aside by CMS to be used to make the Outlier payments for that year. 14 For 2010, those rates were changed to 2.5% (from the 5.0% used in year s past) This had the effect of: Reducing (by ½) the amount set aside to pay for Outliers; Giving the industry a one-time 2.5% bump in their episodic reimbursement rate for each and every episode that ended in CY2010 and Minimizing the impact of the 2.75% cut due to the Nominal Change in the Case-Mix Weights for REISINGER,(JOHN((5(

6 But another effect that this caused was that there was an additional cut to reimbursement of 2.5% for CY2011 as the withhold for the Outlier Provision was increased back to 5.0% (the amount used in prior years). This was exacerbated by the fact that CMS increased the cut due to the Nominal Change in the Case-Mix Weights to 3.79% for 2011 (from the 2.75% rate used in 2010) was a tough year reimbursement wise! 16 Fixed Dollar Loss (FDL): The wage adjusted fixed dollar loss amount is the amount of a loss that an agency must incur before an episode becomes eligible for outlier payments. This rate (the FDL) is applied against the 60-day rate to establish the Loss-Threshold. So CMS will only share in any of the wage adjusted imputed loss once this threshold is surpassed. For 2013, that threshold is $ (2, (urban) x.45) this does need to be wage-adjusted. 17 Loss Sharing Ratio: This is the portion of the loss that exceeds the Fixed Dollar Loss amount (the threshold) that CMS will share (reimburse) with the agency. The current Loss Sharing Ratio is.80 This means that CMS will reimburse you 80.0% of the imputed loss that exceeds the FDL. 18 REISINGER,(JOHN((6(

7 Imputed Costs: This is the aspect of the Outlier calculation that is probably the most misunderstood! The Outlier calculation uses the wage adjusted LUPA Rates (NOT your agency specific costs) when calculating the Imputed Costs of the episode. AND Chargeable Medical Supply costs are excluded from the calculation (i.e., ignored by the Outlier calculation)! So fewer wound care patient episodes will qualify for the Outlier Pmt! 19 Imputed Costs (continued): If your actual discipline Costs per Visit are greater than your LUPA Rates (which IS the norm across the country), then the Imputed Costs for an episode will ALWAYS be less than your actual costs; meaning that you will be absorbing much more than 45% of your loss before CMS begins any sharing of your loss! 20 Withhold: This is the amount your HH PPS Reimbursement (pre-outlier payment) is reduced to fund the Outlier Provision. That is, the amount the revenue for each Medicare episode is reduced were it not for this provision. This is a pseudo invisible cut to your reimbursement that you do not see and most do not comprehend as these amounts are removed before you ever see any funds. I believe that the industry would have a very different opinion of this provision if they had to write a check each year to fund this provision (then you would see its cost). 21 REISINGER,(JOHN((7(

8 Target Outlier Payments: This is the amount of total Medicare payments established to be the maximum percent available to be used as Outlier Payments for that year. By definition, the actual Outlier payments made each year may be less but should never be more than this rate (%). This rate is set for the industry overall, not any specific agency. 22 The Common Perception/Opinion Throughout the Industry 23 From my perspective, a major issue with the Outlier Provision is the combination of Perception with Understanding. Most everyone I have come across and discussed the Outlier Provision with are proponents of this; at least initially. But I also believe that most have not given this provision much thought. 24 REISINGER,(JOHN((8(

9 Perception: The general perception I have come across in the industry is that the Outlier Provision is good for my agency because we DO receive (at least) some Outlier Payments! And anything that brings in reimbursement in these days of continuous cuts to reimbursement must be a good thing! A benefit at what cost? 25 Understanding: This should actually be labeled Misunderstanding Their understanding as expressed to me is that the Outlier Provision has a positive impact on their cash-flow and is therefore, a good safety-net to have for these high-cost episodes. But there is a misunderstanding of the Outlier calculation in regards to Imputed Costs versus Actual Costs; just as there is in understanding the difference between what was withheld and what was paid. Again I ask: A benefit at what cost? 26 Generally, even when I explain that if the Outlier Provision was eliminated, you would get an additional increase in all your episodic payments of approximately 5%, there still is a feeling of loyalty to the Outlier Provision. There truly is a disconnect in realizing what the impact of the additional 5% across the board would equate to as their focus is on what they did actually receive as Outlier payments. 27 REISINGER,(JOHN((9(

10 However, when I have sat down with them and scheduled out the PPS and Outlier payments (as per schedules to follow), to a person, without exception they were astonished. They had no idea that they would have actually had more in Medicare Reimbursement had the Outlier Provision not existed/been eliminated. And for many, that difference was very significant. 28 I would just recommend that when you go back to your office, you take a look at this and see what impact this provision has had on your overall reimbursement. Has it really been as beneficial to your agency as you might have thought? 29 Two Basic Examples to Understand the Outlier Calculations 30 REISINGER,(JOHN((10(

11 A Basic Example: For example, lets say you have an episode with 60 SN visit; and your actual SN CPV = $ and your Imputed SN CPV = $ (LUPA Rate) And the Episode Revenue = $2, (HIPPS: 1CHKW) Let s also assume that this was a wound care or ostomy pt and you provided $ worth of Medical Supplies Note that this pt has a NRS Severity Level of 5 (W) What would be the difference between your actual and imputed costs for that episode? And what would your Outlier & Total Payment be? 31 Example 1 (continued): SN: Visits = 60; Actual CPV = $ & LUPA Rate = $ Medical Supply Costs for Episode = $ Episode Revenue (before any Outlier Pmt) = $2, Actual Costs = $9, an actual loss of $6, (pre-outlier) Imputed Costs = 6, an imputed loss of 3, FDL $ (2, x 0.45) your loss before sharing Sharing Ratio 2, (Outlier Pmt: {3, } x 0.80) Total Amount Paid $5, (2, ,335.42) Actual Loss: $4, (an actual loss of 80.0% after Outlier Pmt) Note: this is for a service area w/a Wage-Index of REISINGER,(JOHN((11(

12 Now, let s just make one small change to our example: Well provide 35 SN visits instead of 60 And we ll keep everything else the same Therefore, our givens will be: SN: Visits = 35; Actual CPV = $ & LUPA Rate = $ Medical Supply Costs for Episode = $ Episode Revenue (before any Outlier Pmt) = $2, How does the Outlier calculation work out now? 34 Basic Example # 2: SN: Visits = 35; Actual CPV = $ & LUPA Rate = $ Medical Supply Costs for Episode = $ Episode Revenue (before any Outlier Pmt) = $2, Actual Costs = $5, an actual loss of $2, (pre-outlier) Imputed Costs = 3, an imputed loss of 1, FDL $ (2, x 0.45) your loss before sharing Sharing Ratio (Outlier Pmt: {1, } x 0.80) Total Amount Paid $2, (2, ) Actual Loss: $2, (an actual loss of 89.7% after Outlier Pmt) Note: this is for a service area w/a Wage-Index of REISINGER,(JOHN((12(

13 Following are certain aspects of the Outlier Provision that we have briefly discussed: The pseudo-hidden funding mechanism for the Outlier Provision; The 10% Outlier Cap and all its inherent problems; The exclusion of Chargeable Medical Supply Costs AND the use of Imputed Costs for the Outlier calculations are what I call The Bad 37 The Impact of the Patient Protection and Affordable Care Act (the PPACA) 38 The following was from the Proposed Rule for CY2012 (this aspect was Finalized and is still applicable today) and identifies the PPACA as the rationale as to why CMS reduces the National Standardized 60-Day Rate by 5% to fund the Outlier Provision, yet only intends to use ½ of that amount (i.e., 2.5%) as the ceiling for Outlier Payments. As outlined in the CY 2011 HH PPS final rule (75 FR through 70399), sections 3131(b)(1) and 3131(b)(2) of the Affordable Care Act amended sections 1895(b)(3)(C) and 1895(b)(5) of the Act. Specifically, section 3131(b)(2) of the Affordable Care Act amended section 1895(b)(5) of the Act by redesignating the existing language as section 1895(b)(5) (A) of the Act, and revising it to state that the Secretary, may provide for an addition or adjustment to the payment amount otherwise made in the case of outliers because of unusual variations in the type or amount of medically necessary care. The total amount of the additional payments or payment adjustments made under this paragraph with respect to a fiscal year or year may not exceed 2.5 percent of the total payments projected or estimated to be made based on the prospective payment system under this subsection in that year. The result of these revisions was that, beginning in CY 2011, we reduced payment rates by 5 percent, targeted up to 2.5 percent of estimated total payments to be paid as outlier payments, and applied a 10 percent agency-level outlier cap. 39 REISINGER,(JOHN((13(

14 The following slide illustrates the trends on the various aspects of the Outlier provision for 2010 through the CY Then we ll do a little back of the envelope analysis to try to identify the financial implications of the points noted. 40 subject to the Affordable Care Act for 2013 for 2012 for 2011 for 2010 Withhold from 60-day Rate: 5.0% 5.0% 5.0% 2.5% Target of Outlier Pmts (in aggregate) 2.5% 2.5% 2.5% 2.5% Fixed Dollar Loss: (FDL Ratio) Loss Sharing Ratio: % of Outlier to Total PPS Pmts (est.):??? 2.12% 2.14% 2.10% A high FDL ratio reduces the number of episodes that can receive outlier payments, but makes it possible to select a higher loss-sharing ratio and, therefore, increase outlier payments for outlier episodes. Alternatively, a lower FDL ratio means that more episodes can qualify for outlier payments, but outlier payments per episode must then be lower. (from pg of Fed l Reg) 41 For 2012 (similar to 2011 & 2013): Total expected pmts to HH $20 billion 2.5% of Total, which would equate to the Targeted Outlier Pmts: $500,000,000 But 5% was withheld as per the FINAL Rule and that would total Leaving a discrepancy of: $ 1 BILLION! $500 MILLION!!! Does anyone else wonder where this money goes (each of the last 3 years!)? 42 REISINGER,(JOHN((14(

15 The use of the PPACA to remove approximately $500 million per year for 2011, 2012 & 2013 is what I call: The Ugly! 43 Now I want to point out something here. I have been working with an attorney up in Washington since late last year researching and putting together a FOIA request to CMS about this discrepancy. 44 I can t say that what we have been doing has impacted what CMS intends to do for 2014, but they appear to be proposing to reduce the Withhold back down to 2.5%. Therefore, it appears that the discrepancy between the Withhold and Outlier Payment Target is not applicable to REISINGER,(JOHN((15(

16 However, we are going to continue to pursue this issue to identify the who, what and why behind this discrepancy and to see if we might be able to get some recompense back to the industry for this discrepancy. I am sure that if we come up with some good news it will be spread across the industry fairly quickly. 46 How much has the PPACA Impacted your Agency? 47 How much of that $500 million might be attributable to you/your agency(s)? Simple math would say: Divide your Medicare Revenue by to get your approximate share of those lost funds! But for the PPA our 60-day Rate would have been 2.5% greater. And this would be applicable to the 2011, 2012 and 2013 Cost Report Years. Following I have a couple slides that illustrate excel spreadsheets for analyzing the impact of the Outlier Provision on your reimbursement; looking at what was withheld versus what you received. 48 REISINGER,(JOHN((16(

17 How much did you PAY FOR vs how much did you RECEIVE via the Outlier Provision? 49 The trend over the years ( Pay For vs Receive ): 50 This spreadsheet will be available for download at the HCAF website. 51 REISINGER,(JOHN((17(

18 Summary 52 We have talked about what I called: THE GOOD This was the theory behind the Outlier Provision 53 We have talked about what I called: THE BAD I consider this to be the application of this provision and the disconnect between the premisetheory of this provision and its real-word execution. The pseudo-funding mechanism so you don t see the impact The use of Imputed Costs The exclusion of Med Supp costs in the calculation and The 10% Outlier Cap (and all it s inherent problems) 54 REISINGER,(JOHN((18(

19 And we have talked about what I called: THE UGLY This is the difference between the 5% being withheld to fund the Outlier Provision and the 2.5% that is being targeted as Outlier Pmts (and this became effective for CY 2011 and is still in effect today!) This amounts to approximately $1.5 Billion for the three years 2011 thru 2013! 55 Now I am not trying to tell you what to think and what your opinion should be, I am just trying to bring to light many facts and issues related to this provision in a more straight-forward fashion than what you will see in the Federal Register. I am then hoping that you will take the tools that I am offering back to your agency(s) so you can do your own review of how this provision has impacted you/your agency(s) and make your own decision as to the value of this provision. 56 However, regardless of how the review of your Outlier Payments goes, I would expect 100% agreement with my position on what I call The Ugly aspect of this provision. 57 REISINGER,(JOHN((19(

20 Questions: the Outlier Provision 58 John M. Reisinger CPA (TN license), Principal Innovative Financial Solutions for Home Health Publisher of the Home Health Care Resource Planner: for budgeting company resources for each and every admission. We make preparing patient budgets a snap! Two minutes of effort can improve your bottom line. Empower your case managers to become the front-line for protecting your bottom-line. mailto:jreisinger@ifsforhomehealth.com Tampa, FL Ph. # (813) Cell: (813) REISINGER,(JOHN((20(