New home health agencies enrolling into the Medicare program are required to provide documentation showing sufficient capital to operate for their first three months of operation. The January 5, 1998
Federal Register citation is as follows "For an HHA that seeks to participate in the Medicare or Medicaid program beginning on or after January 1, 1998, we will determine whether the HHA has sufficient capitalization, that is initial reserve operation funds that the HHA will need to operate for the first three months as a participating Medicare or Medicaid provider. Capitalization is required for all HHAs that are seeking for the first time, to participate in Medicare, including new HHAs as a result of a CHOW if the CHOW results in a new provider number being issued."
Capitalization Requirements Per the January 5, 1998 Federal Register
1) Intermediary determines the average cost per visit based on first-year cost report data from the as-filed cost reports for at least three HHAs that it serves that are comparable to the HHA that is seeking to enter the Medicare program, considering such factors as geographic location and urban/rural status, number of visits, provider based vs. freestanding, and proprietary vs. non-proprietary status.
2) Intermediary multiplies the average cost per visit by the projected number of visits for all patients (Medicare, Medicaid, and all other patients) for the first three months of operation.
Note - by developing an Average CPV using first year cost data from at least three comparable HHAs in the same area, then applying this CPV to the new HHA's own projected visits, the initial reserve operating funds determined should closely approximate the needs of the new HHA.
3) If the number of annual visits projected by the HHA seeking to enter the program is less than 90% of the average number of annual visits reported by the HHAs from which the average cost per visit was developed (that is, total reported visits divided by the total number of HHAs used) the intermediary will substitute for the HHA's projected visits 90% of one calendar quarter of the average reported visits (that is, the average number of visits for three months) for the new HHAs already in the program.
4) The intermediary also will submit the average cost per visit that it has developed to the HCFA regional office that is involved in certifying the HHA.
Items needed from the home health agency to review capitalization:
1) Projected Budget - Preferably a full year budget broken out by month
2) Anticipated Visits - Preferably for full year broken out by month
3) Attestation statement defining the source of funds
4) Copies of bank statements, certificates of deposits, etc. supporting that cash is available (must be current)
5) Letter from officer of the bank attesting that funds are available
6) Proprietary v. Nonproprietary nature of HHA
7) If available, audited financial statements
Subunits
The surety bond and capitalization requirements also apply in the same manner as described above to new and existing HHA subunits, because they are required to have a provider agreement with Medicare. Also, any branch HHA location which the RO determines should be converted to a subunit must complete the HCFA 855, and provide a surety bond (when mandated) and proper capitalization information. If an HHA requests a subunit, the subunit must also be properly enrolled , have a surety bond (when mandated) and meet the capitalization requirements.
To assist providers in estimating the amount of capital needed to operate a HHA for the first three months, Palmetto GBA now offers a
Capitalization Calculator online.