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Home healthcare spending down almost a quarter under PDGM

Providers haven't been responding to Low Utilization Payment Adjustment thresholds as expected, the analysis finds.

Jeff Lagasse, Associate Editor

Under the Patient-Driven Grouping Model, spending on home healthcare services is down -- way down. In fact, according to an analysis from health economics and policy consulting firm Dobson DaVanzo and Associates, spending on home healthcare is down 21.6% from the initial projections.

DDA largely attributes this to incorrect assumptions made by the Centers for Medicare and Medicaid Services when it comes to provider behavior under PDGM as compared to the old Prospective Payment System, which ended a two-decade run on January 1.


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In short, according to DDA, CMS assumed home healthcare providers would change their coding and documentation practices in such a way that the principal diagnosis would always be based on the highest-paying diagnosis code. The agency also thought providers would adjust these practices to receive payment for patient comorbidities; and believed providers would vie to meet Low Utilization Payment Adjustment (LUPA) thresholds to receive full episodic payments.

Those assumptions were incorporated into a 4.36% "behavioral adjustment" as part of the PDGM in an attempt to remain budget neutral, but so far that hasn't played out. Instead, case-mix groups are akin to historical trends of primary diagnoses, as opposed to groupings optimized for payment as CMS had anticipated. Simply put, coding just hasn't changed very much.

That's because providers tend to stick to whatever information is included in the patient record and the determinations of the referring physicians. Reticence over straying from historical coding and documentation practices also plays a part as providers are wary of fraud and improper billing. 

In the case of LUPAs, CMS anticipated that in at least one third of cases, providers would tack on a couple of extra visits in instances when a case is one or two visits away from receiving the full 30-day episode payment, which would have the added benefit of lowering LUPA rates. 

Instead, the rates in 2020 have been much higher than previously thought, clocking in nationally an all-time high of 28.7% in March. From January through April the average rate was 24.4%.

While this can be partially attributed to the COVID-19 pandemic, with LUPAs soaring in response to patients forgoing visits, the increase in LUPA rates actually predates the spread of the virus, suggesting providers were simply not responding as intended.

The DDA analysis suggests that CMS should eliminate the 4.36% behavioral adjustment in 2020 and 2021 so that Medicare beneficiaries have access to home healthcare services during the pandemic.


Aging baby boomers, a rise in chronic conditions and the growing belief that the home is the ideal care setting has contributed to home healthcare expenditures climbing faster than those in most other healthcare categories since 2013.

In 2019, the annual growth rate for home health spending was about 6.8%, higher than the national health expenditures growth rate of 4.8%. The spending outpaces that of nursing care facilities, continuing care retirement communities and hospitals. Medicare is the biggest payer.

Twitter: @JELagasse
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