It appears that community dwelling older adults who access home health care may have a harder time accessing services if they are referred while residing at home. The new payment structure creates potential barriers for access for those admitted to the hospital under outpatient observation status.


Update from the Center for Medicare Advocacy:


More Doors to Medicare Home Health Closing, More Harm for Observation Status Patients

Many Medicare hospital patients classified as observation status “outpatients” currently forego necessary skilled nursing facility (SNF) care and head home to continue care through Medicare’s home health care benefit. This is because they lack a 3-day inpatient hospital stay, which is required for Medicare coverage of most beneficiaries’ post-acute care in a SNF.[1] Beginning January 1, 2020, access to Medicare-covered home care will also be more difficult to obtain for post-observation stay patients.


Under the new Medicare home health payment system effective January 2020, the Patient-Driven Groupings Model (PDGM), the Centers for Medicare and Medicaid Services (CMS) will impose an “admission source category” in making home health payment determinations.[2] Admissions to home care will either be right from an “institution” or from the “community.”[3] CMS estimates that home health agencies will be paid approximately 19% more for institutional admissions than community admissions,[4] even if a patient admitted from the community requires greater resources. Based on case mix adjusted weights in PDGM, the Center for Medicare Advocacy calculates the disparity in payment for an institutional admission could be as high as 25% more than for a community admission – for the same diagnosis, the same level of functional impairment, and the same number of comorbidities.[5]


CMS has determined that home health stays after hospital observation stays will be included in the community admission, not the institutional admission category, despite CMS’ determination that average resource use for observation stay patients is almost 35% higher than for community admissions (see chart below).

CMS Data For Each 30-day Period Average Home Health Resource Use by Admission Source[6]:
Institutional: $2,171
Observation Stay: $1,820
Emergency Department: $1,661
Community: $1,351


Given the relatively higher-resource use of post-observation patients, and the decision by CMS to classify them in the lower-paying community admission category, home health agencies will be reluctant to provide care for post-observation stay patients. Recent home health industry marketing articles recommend that agencies develop plans to develop more institutional referrals and change their patient mix to reduce community admissions.[7] In the 2019 proposed rule, CMS noted there were 166,762 thirty-day home health periods for post-observation stay patients in 2017. This number is expected to drop significantly as post-observation-stay beneficiaries find it more difficult to access home care after a hospital observation stay.[8]


CMS’s decision to pay home health agencies more for patients admitted from hospitals but not include hospital observation stays will harm beneficiaries, increase problems facing observation patients, and create new barriers to home care. This action by CMS will negatively affect many seniors.

As experts in local Geriatric and Disability resources for facility or home stay clients, our private care managers are your best advocates to ensuring best care and access to Medicare benefits.


[1] Section 1861(i) of the Social Security Act.
[2], page 56468.
[3], page 1.
[4], page 32397.
[5] See, pages 56504-56514.
[6], page 32397.
[7] See, for example, Homecare Direction, Volume 27, Issue. No. 7, July 2019, pages 6-9. “Educate marketers about PDGM, and use data to formulate a strategy.”
[8], page 32397.