The Prospective Payment System (PPS)

Medicare Part A and Medicare Part B reimburse home health agencies a lump sum, which is divided into two payments for a 60-day episode of care. The bundled services provided during the 60-day episode include all skilled nursing, therapy, and home health aide visits along with nonroutine supplies. Some outpatient therapy services may be covered under the PPS benefit as well. The total payment is based on the Outcome and Assessment Information Set (OASIS) assessment scoring with geographical location using core-based statistical area (CBSA) codes. 

Home health resources groups (HHRG) 

The federal prospective payment system for home health began on October 1, 2000, established by the Balanced Budget Act of 1997. This system created a case mix severity index that is adjusted for the health condition, clinical characteristics, and care needs of the patient.  

PPS payment types

 There are many different types of payment under the PPS. These include the following.

Request for anticipated payment (RAP) 

A RAP is the first payment received. The home health agency may submit a request for the initial anticipated payment based on receiving verbal orders from the physician and delivering at least one service to the patient. The RAP pays 60% of the episode’s worth for the initial episode and 50% of the episode’s worth for all subsequent episodes. Use “0322—Type of Bill (TOB)” (form locator 4) for RAP submission only. RAPs may be paid zero percent if Medicare is the secondary payer or if the patient is enrolled in a Medicare Advantage program. 

Final claim payment 

The remaining split percentage payment due for the episode will be made based on a claim submitted at the end of the 60-day period, or after the patient is discharged, whichever is earlier. The claim may not be submitted until after all services are provided for the episode and the HHA has a signed the plan of care on file at the agency. Use “0329—Type of Bill (TOB)” (from locator 4) for final claims. 

Medicare will recoup the RAP and submit final claim payment in full to the agency. The related remittance advice will show the RAP payment was recouped in full and a 100% payment for the episode was made on the final claim. The final claim payment is based upon the HHRG conversion to Health Insurance Prospective Payment System (HIPPS) code calculation, which is defined in this chapter, and the claim detail. The claim detail includes all visits provided and nonroutine supplies. The reimbursement often changes from the RAP estimate due to the number of therapy visits provided being different than what was projected at the beginning of the episode.

Partial episodic payment (PEP) 

This payment occurs when a patient is transferred/discharged and readmitted to the same home health agency within a 60-day period. The original episode payment is adjusted according to the length of time the patient received care and the services provided. This is a proportional payment amount based on the number of days of service provided (i.e., the total number of days counted from and including the day of the first billable service to and including the day of the last billable service). The readmission episode starts a new 60-day episode for full payment.

Low-utilization payment adjustment (LUPA)

 LUPA payments occur when there are fewer than five visits provided to the patient in the 60-day episode. LUPA payments are paid per visit and not according to the home health resource group (HHRG) calculation. Nonroutine supplies will not be reimbursed in addition to the visit payments, since total annual supply payments are factored into all payment rates. The LUPA add-on is an additional reimbursement for the first early episode when calculating as a LUPA episode. 

Outlier payments 

Outlier payments occur when the patient has received a high utilization of services greater than the average home health services. The term “outlier” has been used by Medicare to address exceptional cases both in terms of cost and length of stay. The cost of caring for this patient is much higher than the episode’s designated reimbursement. The combined operating and capital costs of a case must exceed the fixed-loss outlier threshold to qualify for an outlier payment. The operating and capital costs are computed separately by multiplying the total covered charges by the operating and capital cost-to-charge ratios. Outliers are calculated if the total product that results from multiplying the number of the visits and the national standardized visit rate is greater than the sum of the case-mix specific payment amount plus the fixed-loss threshold amount. The fixed-loss threshold amount is a set percentage (known as the loss-sharing ratio) of the amount by which the product exceeds the sum that will be paid to the HHA as an outlier payment in addition to the episode. 

HHAs do not submit anything different on their claims to be eligible for outlier consideration. The outlier payment will be included on the remittance advice and will be identified separately on the claim in history using value code 17, with an associated dollar amount representing the outlier payment. Medicare reimbursement has an annual 10% cap on outlier payments per home health agency. Outlier payments cannot exceed 10% of the home health agency’s total PPS revenue for the year.