Payments to home health agencies by Medicare, the U.S. health insurance program for older and disabled Americans, would rise by 2.1% in 2019 under a proposed regulation that also outlined significant changes in the way such providers are reimbursed.

For freestanding investor-owned home health agencies, the increase would be slightly higher at 2.2%, Cowen analyst Rick Weissenstein wrote in a July 2 note. The proposed increase would amount to about $400 million and would take effect Jan. 1, 2019, the Centers for Medicare and Medicaid Services said.

The regulation includes changes in the add-on payment Medicare makes to home health agencies in rural areas, which was required by the Bipartisan Budget Act of 2018, according to CMS.

The agency is also proposing a shift to a patient-driven groupings model, or PDGM, of payment.

Medicare currently pays home health agencies for 60-day episodes of care and depends on the number of therapy visits a patient receives to determine reimbursement.

Under the new model, the unit of payment would change from a 60-day episode of care to 30 days, effective in 2020, as required by the budget law. The PDGM also would end the use of "therapy thresholds" in determining payment, CMS said.

"The redesign of the home health payment system encourages value over volume and removes incentives to provide unnecessary care," CMS Administrator Seema Verma said in a statement.

The PDGM is similar to the home health groupings model proposed last year, Cowen's Weissenstein said. The new model includes a "behavioral adjustment" to base payment rates to account for diagnosis coding and changes in visit volume. That adjustment would lower payments by 6.42%, Weissenstein said, citing CMS.

"While the new PDGM system would likely be disruptive, at least temporarily, we believe CMS is giving home health agencies sufficient lead time to adjust to the changes," Weissenstein wrote. "Larger, better-capitalized HHAs will likely adapt quicker and better than smaller agencies, forcing more consolidation in the industry."

Home health agencies would also be allowed to include remote patient monitoring among their costs and to use medical records to justify recertifying a patient for home healthcare, rather than having to do a physician review.

The proposed regulation also details how the home infusion therapy temporary transitional payments required by the budget law would be put into place.

"We do not think the final 2019 increase will change much in the final rule, which is due out the end of October," Weissenstein wrote.