When the Centers for Medicare & Medicaid Services (CMS) proposed new changes in the Home Health Prospective Payment System Proposed Rule for Calendar Year 2011, the Agency raised the barrier to entry for home health agencies by extending the capitalization requirements from the time of application submission through three months past the conveyance of Medicare billing privileges by the Medicare contractor.

The CMS began interpreting existing capitalization requirements differently at the beginning of 2010 by requiring a new home health agency to demonstrate that it has sufficient capitalization to manage three months of operating expenses, and to resubmit capitalization, in some cases in much greater amounts than initially had been submitted, prior to activating Medicare billing privileges.

The proposed rule expands existing capitalization requirements by putting into regulation the need for a prospective home health agency to demonstrate at least three times that it is sufficiently capitalized:

• At the time enrollment is submitted
• Throughout the enrollment process
• For the first three months after receiving Medicare billing privileges

"We believe that this change will deter or limit the number of undercapitalized individuals and organizations from seeking to enroll in the Medicare program," the CMS states in the proposed rule. "In addition, we believe that this change will help to ensure that prospective HHAs establish and maintain the amount of capital to furnish quality services to eligible beneficiaries without reimbursement from the Medicare program during the first three months of operations."

After receiving a request for information regarding IROF, an agency has 30 days to submit documentation to verify its compliance with the IROF requirements. If the agency does not satisfy the IROF requirements before its enrollment application is approved, the application will be denied. Additionally, if the agency does not maintain compliance with the IROF requirements for the three months after Medicare billing privileges are conveyed, it will have these privileges revoked. Agencies would have appeal rights if denied or revoked on the grounds of not meeting or maintaining the IROF requirements.