Under a “Prospective Payment System” methodology, as that term is used in the Medicaid and Medicare programs, payment is made according to a predetermined, fixed amount per unit of service.  Under some PPS systems, the PPS rate is unique to each provider, because the rate is based on allowable costs per unit of service for that provider as reflected in its cost reports covering a base year or years.  After the provider’s initial cost-based rate is established, the rate is trended forward annually by an inflation factor.  Part of the rationale behind PPS methodologies is to reimburse providers commensurately with their costs, while at the same time motivating them to provide efficient care so that increases in their costs of care do not outpace inflation over time.

PPS methodology is sometimes referred to as “cost-related reimbursement.”  The provider is not guaranteed to recover its costs under a PPS (in contrast to “cost-based reimbursement”), but the reimbursement bears a rational relationship to the provider’s costs as documented in a base year.

The basic PPS features described above will apply to the CCBHC PPS as detailed in CMS’ guidance on the demonstration.[1]

States participating in the CCBHC demonstration will have quite a bit of discretion in designing their PPS methodologies for CCBHCs.  For example, states will be able to choose whether the unit of service for the PPS will be the daily encounter (PPS-1) or the “unduplicated monthly encounter” (PPS-2).  If a state selects the PPS-2 methodology for CCBHCs, then it must also implement a separate PPS rate for specific high-needs populations (those populations can be identified by the state); implement a quality bonus payment system; and create a system for “outlier payments,” under which the costs associated with the costliest patients or encounters are excluded from the CCBHC’s cost report, and partial payment is later made for some of the outlier costs.

States will also have some discretion in choosing the method that will be used to update PPS rates from year to year.  Finally, states will be able to choose the mechanism they use to ensure that CCBHCs receive their PPS rates for services provided under a contract with a Medicaid MCO.

Regardless of how each state designs its CCBHC PPS, however, the compliance challenges for behavioral health providers transitioning to CCBHC status will have some basic similarities from state to state.

For questions about CCBHCs and PPS methodology, please contact our Health Care practice group at Feldesman Tucker Leifer Fidell LLP, www.ftlf.com or 202-466-8960.

This article was originally published in Compliance Watch, a bimonthly newsletter for behavioral health organizations, which keeps you up-to-date on regulatory changes and best practices in corporate compliance, giving you the information and guidance needed to reduce and manage risk. To subscribe, please click here and keep in mind that the National Council, Feldesman Tucker and Compliance Watch will continue to provide information and resources to help organizations navigate this and other payment reform initiatives.

[1] CMS’ guidance on the demonstration is available at http://www.medicaid.gov/medicaid-chip-program-information/by-topics/financing-and-reimbursement/223-demonstration-for-ccbhc.html.