Where the Rural Add-on Stands in the Senate

A recent Senate Finance Committee draft discussion paper appears to point toward a gradual phasing out of the rural add-on for home health agencies.

The Finance Committee’s discussion draft covers a number of federal programs that must receive a funding extension by the end of 2017, when their current funding expires. Commonly known as the “extenders package,” this legislative package occurs annually and covers programs that have not been permanently authorized.

In late 2000, as part of the Benefits Improvement and Protection Act (BIPA), Congress enacted a 10 percent add-on for home health services delivered in rural areas between April 2001 and April 2003. On April 1, 2003, the payment add-on expired. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 reinstated the rural payment improvement at five percent for a period of one year (April 1, 2004, through March 31, 2005). In February 2006, as part of S. 1932, the Deficit Reduction Act of 2005, a one-year (calendar year 2006) five percent rural add-on for home health services delivered in rural areas was signed into law. The rural add-on expired on December 31, 2006.

In 2010 the Patient Protection and Affordable Care Act reinstated a three percent payment add-on for home health services delivered to residents of rural areas. Under the legislation the rural add-on payment became effective for visits ending on or after April 1, 2010, and before January 1, 2016. The SGR Repeal and Medicare Provider Payment Modernization Act of 2015 included a provision extending the rural add on through the end of 2017. The Preserve Access to Medicare Rural Home Health Services Act of 2017 (S.353) would make permanent the rural add on.

The rural add-on is critical for a number of reasons. Firstly, the loss of the rural add-on will likely result in reductions in service areas and some agencies may have to turn away high resource use patients in rural areas. Access to care is a critical issue in rural America. Before the rural add on was reinstated in 2010, some agencies reported that they had to eliminate delivery of services to remote areas. For example, some agencies in Maine had to eliminate delivery of services to outlying islands.

Secondly, rural agencies have greater difficulty hiring or contracting with therapists, and frequently must use nurses instead of therapists to provide rehabilitative services, which could affect a patient’s rehabilitation progress. Additionally, when an agency does not use a physical therapist for therapy services, it cannot qualify for the higher therapy rates allowed by the prospective payment system.

Thirdly, home health agencies have difficulty competing with hospitals to hire staff because they are unable to afford the wages, benefits, and large signing bonuses that hospitals offer. Further, home health agencies are not eligible for reclassification of their wage index – an option available only to hospitals. This problem can be even greater for rural agencies in cases where their rural hospital counterparts are eligible to become critical access hospitals or sole community providers, which afford them the opportunity for greater reimbursement. Despite this, rural home health agencies must offer competitive wages for care workers that are comparable to wages paid in urban areas because of the nationwide nursing and staffing shortages. In certain frontier states, graduating nurses leave the state seeking better wages, thus compounding the workforce shortage.

Fourth, agencies in rural areas frequently are smaller than their urban counterparts, which means that costs are higher due to smaller scale operations. Smaller agencies with fewer patients and fewer visits means that fixed costs, particularly those associated with meeting regulatory requirements, are spread over a smaller number of patients and visits, increasing overall per-patient and per-visit costs. Smaller agencies have less likelihood of maintaining a high patient volume –which means they have less access to a varied case mix. There are not always enough marginally profitable cases to offset the resource-intensive, expensive cases. Outlier payments are not sufficient to cover these costs. A small agency’s census of patients is often inconsistent, which makes it difficult to retain consistent full-time staff.

Furthermore, rural agencies have less access to capital needed to invest in efficient and time-saving technologies, have lower profit margins than urban agencies, and must provide more care to many patients because home health agencies are often the primary caregivers for homebound beneficiaries with limited access to transportation.

In the Finance Committee’s discussion draft, the add-on is extended for five years. However new stipulations have been added. Traditionally a single percentage has been utilized nationwide regardless of profit margins. In this proposal however, for counties with six or fewer people per square mile, the first two years (2018 and 2019) would see a four percent add-on. They would then drop to three percent in 2020. In 2021 a two percent add-on would apply, followed by one percent in 2022. For all other eligible counties, the three percent add-on would continue for 2018, drop to two percent in 2019, and one percent in 2020. The intent of this approach appears to be a phase-out of the rural add-on.

Additionally, the discussion draft references the Medicare Payment Advisory Commission’s (MedPAC) findings that “many rural counties have well above average utilization of home health services and face little barriers to access home health services.” For these counties, the add-on would be one and a half percent in 2018, and a half percent in 2019.

A pay-for, or off-set was not included in the discussion draft.

The current Senate legislation, S. 353, the Preserve Access to Medicare Rural Home Health Services Act of 2017, introduced by Susan Collins (R-ME) and swiftly co-sponsored by Maria Cantwell (D-WA), aims to pay-for the extension of the rural add-on through a reduction in the outlier adjustment formula, but it is not yet known how popular this idea is with other lawmakers.

In the coming days, the National Association for Home Care and Hospice will be working towards gaining a better understanding of the intentions behind this extender bill and advocating for protecting rural patients and providers and ensuring them the security to continue providing high quality care.

Stay tuned to NAHC Report for updates on this important issue as developments warrant.