Look before leaping into freestanding pool
It's tempting, but experts have many concerns
The Interim Payment System (IPS) with its severe per-beneficiary and cost limit reductions that effectively eliminate the hospital's administrative cost shift may compel many provider-based home health agencies to seek freestanding designation.
But if your agency is considering such a move, experts contacted by Hospital Home Health issue a warning: Look carefully before taking the freestanding plunge. Tempting as freestanding status may sound, it may not be the best option for your agency.
Our experts offer this advice for agencies considering the move to freestanding status:
· Evaluate the impact on Medicare reimbursement.
If your agency operated before Federal Fiscal Year 1994 (10/1/93 to 9/30/94) and you now have high cost limits, undergoing a change of organizational structure may reduce your future Medicare reimbursement, says Jay Brecker, principal of Jay T. Brecker and Associates, located in Owings Mill, MD. After converting from provider-based to freestanding status, your agency will be reimbursed at 75% of the national rate and 25% of your regional rate. Depending on your situation, this may be lower than your present reimbursement.
· Assess state CON and licensure regulations.
As part of the provider-based freestanding transition, the parent hospital must transfer a number of assets, such as provider numbers, any trademarks and real estate to the freestanding entity. Certificate of Need (CON) regulations in certain states may prohibit provider number transfers, thus creating a roadblock to becoming a freestanding agency, cautions John Gilliland, an attorney specializing in home care, based in Crestview Hills, KY. Providers should therefore check state CON and licensure requirements early on to determine whether freestanding status is appropriate, he advises.
Unless financial or licensure considerations indicate otherwise, your agency will probably benefit from cutting its provider-based ties, sources say. "Home care generally benefits from [freestanding designation]. It may work better out of the hospital's political arena, not putting decisions up the bureaucratic chain of command. It can be leaner and meaner. It won't lose as much," says Brecker.
Gilliland agrees. "Home health is a very different business from a hospital. It has a very different competitive environment and as provider-based, carries baggage that competitors don't have. [Becoming freestanding] gives flexibility to address many issues differently," he adds.
Freestanding status also gives providers more latitude with many issues, including employment, labor relations and service pricing, to name a few, he explains. For example, provider-based agencies cannot have different benefits and wage and salary structures even though the home care labor market is very different from that of hospitals, he adds.
After deciding to become freestanding, agencies should first notify the Baltimore-based Health Care Financing Administration [HCFA] in writing of its planned change. Although providers can transition to freestanding status any time, "most do it to coincide with their fiscal year. It makes the transition so much easier," says Brecker.
Next, the agency and parent hospital should determine the freestanding entity's corporate structure. The best structure depends on both the hospital's organizational and tax status as well as the home health agency's mission, Gilliland notes.
Other transition issues include establishing the employee benefit structure, malpractice coverage, employment policies, and wage and salary administration, to name a few. The hospital's control of the freestanding entity, both legally and operationally, should also be determined. In theory, freestanding status saves an agency from the hospital's bureaucratic systems, but the hospital may require the home care entity to purchase certain supports from the mother ship.
Although changing from provider-based to freestanding status requires effort and expense, it is an appropriate move for most providers, sources say. Hospitals facing significant home health agency reimbursement reductions that have not yet seriously considered freestanding status "either they don't understand home care or are afraid to let it go," says Gilliland.
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