Home care to HCFA: Show me the money!’
Cash flow will depend on quality control
Quality managers may play a big role in helping their agencies remain in the black during those early months of a prospective payment system (PPS) for Medicare patients.
Unlike prospective payment when used by commercial payers, the government’s PPS is expected to be more of a retrospective payment system that possibly could mean even slower payments than what agencies now experience.
This could cause a cash flow crisis at many agencies, says H. Kenneth McNulty, vice president for finance with the Visiting Nurse Association (VNA) of Boston.
However, one variable in how long it takes for agencies to receive that first prospective payment has to do with how long it takes an agency to obtain a signed physician order upon admitting a home care patient. Fortunately, that’s a quality issue that many home care agencies have addressed in the past year. Now that most agencies have gotten their referring physicians to return those orders within 30 days, it’s time to fine-tune that process and get the orders back within a few days to a week. And that’s a job for quality managers. Here’s why the cash flow situation could get sticky under PPS:
• PPS reimbursement is likely to be slow.
Despite its name "prospective pay," that’s not how payments will actually work under PPS, according to what the Health Care Financing Administration (HCFA) has been discussing in meetings with home care industry representatives. HCFA will only set the payment rate in advance, but won’t actually pay agencies for their services up front. What HCFA is expected to put in the proposed PPS regulations is a system in which agencies are paid 50% of the home care fee upon a patient’s admission into home care. The other 50% would be paid after the patient is discharged and after the total charges are determined, McNulty explains.
This arrangement is more complex than it appears. For example, suppose a home care agency admits a patient whose case normally would result in a $1,500 Medicare payment. HCFA would pay the agency $750 up front. But before the agency could bill HCFA for that $750 upon admission, it would need to obtain a written copy of the doctor’s orders, which typically take from two to four weeks. "You can’t bill on the doctor’s verbal orders," McNulty says.
Say that three weeks after the patient is admitted, the agency finally has the doctor’s written orders and it sends in the bill to HCFA. Then HCFA will take a minimum of 14 days to pay the agency. By now, the agency has been providing care for five to six weeks to a new patient before it receives even the first $750 from HCFA.
Meantime the agency’s first six weeks with a patient are usually the most intensive with a greater number of therapy and nursing visits than what is typical for later in the patient’s care. So those first five to six weeks are the most expensive, and the agency has been providing that care with no advance payment.
Lag time for payment
McNulty says that, based on his agency’s experience in the prospective payment demonstration project, he estimates an agency will have incurred 75% of its costs of providing home care before it even receives 50% of the payment. Then, once the patient is discharged, it could be several more months before the final charge is determined. The agency’s final payment could be delayed for months. And all of this is to provide care under a system that has a goal of greatly cutting the amount of Medicare payment an agency receives for providing home care services.
• You may need to raise your line of credit.
When the VNA of Boston voluntarily joined the prospective payment demonstration project, the agency was initially paid in a similar fashion to what HCFA has been proposing. But the retrospective payment structure caused the agency such serious cash flow problems from its start in January 1996 to April 1996 that the agency had to raise its line of credit, McNulty says.
"We began to tell HCFA how this thing would not work, and we went through cash flow models and showed them that at this point, even with a higher line of credit, by mid-July we were going to be out of working capital," McNulty says.
HCFA’s solution was offer the agencies involved in the project the choice of continuing to be paid as they were or to use the periodic interim payments (PIP) system, in which they are paid an estimated rate every two weeks. The VNA of Boston, and most of the other agencies involved in the demonstration project chose to use the PIP system.
NAHC asked HCFA to include PIP in its proposed rules, but HCFA replied that the Balanced Budget Act of 1996 eliminated PIP and it would take Congress to change that.
"If they do PPS without PIP then they’ll bankrupt all the stand-alone, not-for-profits," McNulty direly predicts. "Those agencies that are divisions of hospitals will have a cookie jar to fall back on, and those with another source of working capital, such as for-profits, can go to the stock market and raise capital."
This is why home care industry representatives are lobbying for a change to this 50-50 payment system. If they are to convince HCFA or Congress to make a change, they will need hard data showing why that won’t work, says Mary St. Pierre, RN, BSN, director of regulatory affairs for the National Association for Home Care in Washington, DC.
St. Pierre says that if home care agencies take HCFA’s proposed regulations and run a retrospective model based on what they would have been paid under PPS if it had been implemented last year, then they could find out how difficult their cash flow would have been under the 50-50 payment structure. If enough agencies report devastating consequences, perhaps the industry will succeed in its call for a change.
Besides reinstating PIP, another change could be to pay agencies 75% or 100% of their prospective payment after admission.
Could there be a bright side?
Health care financial consultant John Gaynor, CPA, president of John Gaynor Associates in Chicago, says there is always the possibility that HCFA’s 50-50 plan might not be as damaging as home care agencies now fear.
The way many agencies are now paid already puts them four to eight weeks behind from the time they provide services, he says. If PPS is implemented on Oct. 1, 2000, and agencies immediately switch from their current fee-for-service payment system to PPS, some home care agencies might experience a minor windfall because they’ll be paid retrospectively for their clients served under the old system during the time when they are starting to bill for PPS clients who have just been admitted.
This, of course, depends on how fast an agency can submit its PPS bills after admitting new patients and how long HCFA takes in making the payment, Gaynor adds.
If McNulty’s predictions hold true, then it is not likely to help an agency’s cash flow situation. But if an agency is efficient at obtaining doctors’ orders immediately, and if HCFA tidies up its turnaround operation, then it might help agencies, he explains.
"Whether HCFA chooses to eliminate any hold periods of payments or initiate payment upon receivable of information is still yet to be determined," Gaynor says. "So we are dreaming here a little bit to think that home care would actually get a situation that would help its case, because during the last couple of years almost everything has been detrimental to agencies’ cash flow. But that’s the hope anyway."
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