Outlier Payments – A Major Source of Abuse in the Healthcare System

Filed under Articles
Originally published in Market Research Letter: September/October 2009

Healthcare reform has been a hot topic this summer, triggering heated debates among politicians and their constituents throughout the U.S. As the government looks for ways to improve the nation’s healthcare system and expand health coverage to millions of uninsured Americans, a big question looms: Where will the money come from to pay for the reform? Many experts believe there is potential to find and eliminate sources of waste in the current health system, which could, in turn, be used to help fund future healthcare reform.

In this month’s feature, we use Healthcare Market Resources data to help identify a major source of abuse and waste in the current healthcare system—outlier payments made under the home health benefit. In addition, we discuss new policy proposals by the Centers for Medicare and Medicaid Services (CMS) designed to address potential fraud and abuse regarding outlier payments.

What Are Outlier Payments?
Under the current CMS Home Health Prospective Payment System, home health agencies receive additional “outlier” payments for 60-day home health episodes of care that incur unusually high costs. Diabetes is one example of a costly chronic condition that often requires a high number of visits to homebound patients as part of the treatment plan. Since the episodic payment system disincentivizes home health agencies from accepting such high-cost patients, the outlier Medicare provision was designed to assure such patients have access to necessary medical treatments.

Evidence of Abuse in the Outlier Payment System
In 2007, Medicare outlier payments reached a level of 6.3%—exceeding the target of 5%. The patterns of outlier payments also showed some highly questionable practices among a small group of home health agencies. As you can see from the Healthcare Market Resources chart showing the percent of outlier payments by state, there is a disproportionate geographical dispersal of outlier funds. For example, Florida has received the lion’s share of outlier payments. Concurrently, several Miami-Dade’s home care providers have been investigated for Medicare fraud.

Using Healthcare Market Resources data, the following also show evidence of abuse in the outlier payment system:

  • While Medicare home health payments totaled $15.7 billion, payments under the outlier provision were $996 million, or 6.3% of expenditures. This is a significant increase over the 3% level of outlier claims paid in the early years of the program (2000 through 2002.).
  • More than 84% of the outlier payments were made to agencies in three states— Florida, California and Texas—that account for only 23.4% of Medicare enrollees.
  • Some agencies in these three states “specialized” in outlier patients, with as much as 80% of their Medicare reimbursements coming from supplemental outlier payments.
  • Of the 282 agencies, with outlier payments representing at least 45% of their total Medicare reimbursements and were paid approximately 50% of all Medicare outlier reimbursements:
    • 96% were located in Florida, California or Texas
    • 97% were for-profit agencies (significantly higher than the average 70% for-profit level).

Proposed Changes to Outlier Payment Policies
On July 30, 2009, CMS proposed to cap outlier payments at 10% per agency and lower target total aggregate outlier payments to 2.5% (from 5%) of total Home Health Perspective Payment System reimbursements. If adopted, the proposed changes will take effect in January 2010. In addition to reducing Medicare’s vulnerability to fraud and abuse, this proposal could help save the program an estimated $340 million annually.

If you’re looking for expert advice and a reliable source of local market research for home health agencies and hospices, Healthcare Market Resources is the place to turn. Click here or give us a call at 215-657-7373 for more information about how Healthcare Market Resources can help you use local market data and trends to successfully grow your business.