HCM 415 Module 3 Policy Analysis Short Paper Example

Paid for Condition and Results: What Two Medicare Policies Mean for Ashford Valley VNA

[Student Name]

Southern New Hampshire University

HCM 415: Healthcare Strategic Management and Policy

Module Three Short Paper

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Paid for Condition and Results: What Two Medicare Policies Mean for Ashford Valley VNA

Traditional Medicare pays roughly half of Ashford Valley Visiting Nurse Association's $52 million in annual revenue, about $26 million. With an operating margin near 0.6%, or about $300,000, a change of just over 1% in what Medicare pays would erase the agency's surplus. Two federal policies now determine most of that payment: the Patient-Driven Groupings Model, which sets the base rate, and the Home Health Value-Based Purchasing Model, which adjusts it by quality. This paper analyzes both, looks at the payer that sits outside them and recommends how the agency should respond.

The Problem Medicare Was Trying to Fix

Before 2020, Medicare paid home health agencies for 60-day episodes, and payment rose sharply when the number of therapy visits crossed set thresholds. Federal analysts repeatedly found that therapy visits clustered just above those thresholds, suggesting that payment rules, not patient needs, were shaping care. Agencies that emphasized therapy did well; agencies that served medically complex patients who needed more nursing and fewer therapy visits were paid less for harder work. Congress directed Medicare to remove therapy volume from the formula in the Bipartisan Budget Act of 2018.

How the Groupings Model Works

Since January 2020, Medicare pays for 30-day periods instead of 60-day episodes. Each period is placed into one of 432 payment groups built from five pieces of information: whether the patient came from a hospital or facility or from the community, whether the period is the first or a later one, one of twelve clinical groups based on the main diagnosis, a low, medium or high functional score from the admission assessment and a comorbidity adjustment. Periods with very few visits receive a per-visit payment instead. Therapy visit counts no longer affect payment at all.

Predicted Winners and Losers

Plummer and Wempe (2021) used public data from before the change to estimate which agencies would gain. They projected higher payments for rural and facility-based agencies and for those serving larger shares of non-white, dual-eligible and seriously ill patients, and lower payments for agencies that had relied heavily on therapy. They also reported an awkward result: agencies with higher patient survey scores were expected to gain, but those with higher outcome and process quality scores were expected to lose. The finding shows that a payment formula can move money in directions its designers never intended.

Budget Neutrality and Behavior Assumptions

The model was required to be budget neutral, so Medicare assumed agencies would change coding and visit patterns and cut the base rate in advance to offset them. Medicare later concluded that actual payments had exceeded what the old system would have paid and began phasing in permanent reductions. For an agency, this means that doing the same work can bring less money each year even when nothing about its patients changes. Planning must treat modest Medicare rate cuts as likely rather than possible.

Effect on Ashford Valley

Ashford Valley was a nursing-heavy agency with many medically complex and rural patients, so the new model modestly helped its average payment per period. The gains were real but fragile. Payment now depends heavily on accurate diagnosis coding and a precise functional assessment at admission. An internal audit last year found that about 9% of admission assessments understated patients' functional limits, which placed periods in lower payment groups. Correcting that is not gaming the system; it is making sure the record reflects how impaired patients actually are.

Table 1. Before and After the Groupings Model at Ashford Valley

Note. Summary by the author from Medicare payment rules and internal audit results.

How Value-Based Purchasing Works

The Home Health Value-Based Purchasing Model began in 2016 in nine randomly chosen states and expanded to all agencies in 2023. Each agency receives a total performance score built from measures drawn from its admission and discharge assessments, from claims such as hospitalization and emergency visits and from patient experience surveys. Agencies are compared with others of similar size, and their Medicare payments two years later are raised or lowered by up to 5%. For Ashford Valley, a 5% swing on $26 million is $1.3 million, more than four times its current margin.

What the Evidence Shows

Pozniak et al. (2022) evaluated the first five years in the original nine states against the other 41. Unplanned hospitalizations fell slightly more in model states, by 0.15 percentage points, and skilled nursing facility use fell by 0.34 percentage points, a 6.9% relative decline. Medicare payments fell by about $2.17 per day, or roughly $190 million a year, mainly through reduced inpatient and facility care. Functional improvement was greater, and there was no significant change in emergency department use or most patient experience measures. The model appears to save money without harming quality, but the gains per agency are small, which means scoring well requires sustained, disciplined work.

Quality Ratings and Referrals

Quality now affects referrals as well as payment. Li (2024) studied nearly 1.9 million Medicare patients and used distance to agencies to isolate the effect of choosing the highest-rated agency in a ZIP code. Care from those agencies reduced hospitalization risk by 3.2 percentage points, emergency visits by 2.2 points and institutionalization by 0.9 points, and added almost four days at home in the following six months. Hospitals under pressure to reduce readmissions pay attention to such findings. Ashford Valley's three-star quality rating is a strategic weakness, not just a public relations problem.

The Payer Outside Both Policies

Medicare Advantage plans are not required to use either policy. They set their own rates, often per visit, and use authorization to control volume. In the comparison by Skopec et al. (2020), people enrolled in Advantage plans got less home health care than those in traditional Medicare, with fewer visits in each episode. With 38% of Ashford Valley's admissions now in these plans, the agency's success depends increasingly on contracts that the federal policies do not touch. Quality scores earned under value-based purchasing can, however, strengthen the agency's hand when negotiating with plans.

Stakeholder Views

Medicare sees both policies as tools to pay for value and restrain spending. Agency associations support paying for patient condition but argue that the permanent rate cuts misread agency behavior and threaten access, especially in rural areas. Hospitals welcome agencies that keep patients out of the emergency department. Patients and families mainly notice whether a nurse comes on time and whether help is available after a hospital stay. A sound agency strategy has to satisfy each group: accurate claims for Medicare, low readmissions for hospitals and reliable visits for families.

Internal Recommendations

Four actions follow. First, train every admitting clinician in functional assessment and audit a sample of assessments monthly, aiming to cut understated function from 9% to below 3%. Second, add a coding specialist to review primary diagnoses before claims are sent. Third, pick the two value-based measures with the largest gap to peers, currently hospitalization and patient reports of timely care, and assign each an owner and a monthly target. Fourth, build a quality summary that the business development team can bring to hospital discharge planners and to Medicare Advantage plans at contract renewal.

Advocacy Recommendations

The agency should also act beyond its walls. Through the state home care association, it can submit comments on the annual Medicare payment rule describing how rate cuts affect rural visits, supported by the agency's own travel time and cost data. It can ask its members of Congress to support rural add-on payments for home health. These steps cost little, and a nonprofit that serves four counties has credibility when it describes access problems.

Conclusion

Medicare now pays Ashford Valley for how sick its patients are and, increasingly, for how well they do. Both changes suit a nursing-focused nonprofit, but only if the agency documents patients accurately, raises its quality scores and uses those scores in contract talks with the plans that fall outside federal rules. With a margin smaller than a 1% payment change, policy analysis is not an academic exercise here. It is the core of the strategic plan.

References

Li, J. (2024). Home health agencies with high quality of patient care star ratings reduced short-term hospitalization rates and increased days independently at home. Medical Care, 62(1), 11-20. https://doi.org/10.1097/MLR.0000000000001930

Plummer, E., & Wempe, W. F. (2021). Home health agencies: Empirical evidence on the Patient-Driven Groupings Model's expected effects on agency reimbursements. Home Health Care Management & Practice, 33(3), 183-192. https://doi.org/10.1177/1084822321990382

Pozniak, A., Lammers, E., Mukhopadhyay, P., Cogan, C., Ding, Z., Goyat, R., Hanslits, K., Ji, N., Jin, Y., Repeck, K., Schrager, J., Young, E., & Turenne, M. (2022). Association of the Home Health Value-Based Purchasing Model with quality, utilization, and Medicare payments after the first 5 years. JAMA Health Forum, 3(9), Article e222723. https://doi.org/10.1001/jamahealthforum.2022.2723

Skopec, L., Zuckerman, S., Aarons, J., Wissoker, D., Huckfeldt, P. J., Feder, J., Berenson, R. A., Dey, J., & Oliveira, I. (2020). Home health use in Medicare Advantage compared to use in traditional Medicare. Health Affairs, 39(6), 1072-1079. https://doi.org/10.1377/hlthaff.2019.01091