It was a good news-bad news balance when CMS released its proposed rule for the home health prospective payment system (HH PPS) last Friday.

CMS' proposal announced that home health agencies (HHA) would receive a market basket update to the tune of 2.9% for calendar year 2008, equaling a $140 million raise for the industry. This proposal also contained the first changes to Medicare's HH PPS since 2000.

The proposed adjustments include the following:

• Payment adjustment based on the reporting of quality data, which would result in the market basket increase of 2.9% being reduced by 2% down to a mere 0.9% if an HHA does not submit quality measures data
• Introduction of two additional National Quality Forum-endorsed measures--emergent care for wound infections and improvement in status of surgical wounds
• Reduction of the national standardized 60-day episode payment rate by 2.75% per year for three years, beginning in 2008
• A proposal to break down the current 10 visit therapy threshold into three new therapy thresholds at six, 14, and 20 therapy visits, with graduated payment levels for each tier

"The proposed refinements [give HHAs] some things to be pleased with, but also some definite things to be concerned about," says Carl Ganter, CHCE, principal, Ganter Healthcare Consultants, LLC, in Oklahoma City. As he points out, CMS hasn't given HHAs an increase in payment rates for the past few years.

"The argument [against the 2.75% cuts] is that home health is one of the most cost-effective ways to take care of someone." The cuts, if they go into effect, could conceivably hurt agencies' capacity to care for frailer and sicker patients in their homes, Ganter adds.

Home health is an industry that is used to continuous changes, he says. "An agency's ability to adapt to these changes will determine its success. We have to be concerned about the continued adaptability that these providers have."

Other proposed changes for HH PPS in CMS' proposed rule include modification of the low utilization payment adjustment, elimination of significant change in condition payment adjustment, and revision of accounting for non-routine medical supplies in the standardized 60-day episode payment rate.

Click here to see the full proposed rule.