Home Health & Hospice Week

Data analysis fails to acknowledge HHAs’ average non-Medicare payer load is around one-third, expert says.

Pandemic, what pandemic? That’s what an influential advisory board to Congress seems to say in its latest rate recommendations to lawmakers.

In its annual report, the Medicare Payment Advisory Commission urges Congress to cut home health agency payment rates by 5 percent in 2022 (see HCW by AAPC, Vol. XXX, No. 11). “Medicare has always overpaid for home health services under the [Prospective Payment System],” MedPAC says in its 531-page report. “Payments for home health care have substantially exceeded costs since Medicare established the PPS.”

As for the COVID-19 pandemic’s impact, it has “varied considerably both geographically and over time,” MedPAC judges. While home health referrals and volume were hit when the COVID-19 public health emergency began, they have since “returned to normal levels,” according to the report.

However, there is “uncertainty regarding the future effects of the pandemic on volume and provider financial performance in 2021 and 2022,” MedPAC allows.

But “to the extent the effects of the coronavirus PHE are temporary changes or vary significantly across individual HHAs, they are best addressed through targeted temporary funding policies rather than a permanent change to all home health prospective payment system rates in 2022 and future years,” MedPAC tells Congress.

Bottom line: “Though the PHE was a disruption for HHAs, the emergency has not significantly changed the financial outlook or service delivery practices of the industry,” MedPAC maintains.

“MedPAC seems to discount the impact the COVID-19 pandemic had on HHAs,” the National Association for Home Care & Hospice says in its report summary.

MedPAC doesn’t use any data from the COVID era, points out finance expert Tom Boyd, CEO of Aftercare Nursing Services. It’s “no surprise that 2020 data was not used given the pandemic effect,” Boyd tells AAPC.

On top of the COVID issue are other problems MedPAC analysis and reports have had for years. MedPAC claims an 18 percent “marginal profit” at the top of its home health chapter. The commission began using this figure in 2016, and it’s always higher than the true profit margin figure, critics note. Marginal profit supposedly takes into account whether providers have a financial incentive to serve more Medicare beneficiaries (see more details of marginal profit in HCW by AAPC, Vol. 25, No. 4).

Using the marginal profit margin is misleading, since the Medicare profit margin for freestanding HHAs is clearly 15.8 percent as stated later in the chapter, Boyd notes.

Even the Medicare profit margin figure is problematic. It “doesn’t include hospital-based home health providers whose operating costs are generally higher than freestanding agencies,” stresses Mark Sharp with BKD in Springfield, Missouri. “These reported margins are also after the removal of nonallowable costs for Medicare cost reporting purposes. These nonallowable costs are not insignificant.”

Another problem: “Focusing on the margins for tradi­tional fee for service Medicare only is also very short-sighted,” Sharp continues. The typical home health provider is seeing Medicare “replacement,” including Medicare Advantage plans, and other payers account for at least 30 percent of their patient volume, Sharp says.

The same 2019 Medicare cost report data that results in the 15.8 percent Medicare margin “shows the median overall net profit margin for freestanding home health agencies is 3.6 percent, a far cry from the 15 percent Medicare margins,” Sharp maintains. “Traditional Medicare is clearly carrying the other payers, including a significant amount of Medicare replacement payers.”

One major flaw in MedPAC’s analysis “is the continuing failure to consider data from the entire home health provider community in excluding hospital-based providers and a refusal to consider the full economic effect of the multiple payers of home health care,” NAHC President William Dombi underscores.

MedPAC does acknowledge an all-payer profit margin for freestanding HHAs of 5.9 percent, “indicating that many HHAs yield positive financial results,” according to the report. But it doesn’t seem to take that margin into account in its cut recommendation.

Yet another problem: The extremely wide range of profit margins is an indicator that the system is flawed. One-quarter of freestanding agencies saw average Medicare margins of only 2 percent in 2019, Sharp maintains.

Further, freestanding home health providers incurred overall net losses in 2019 of 3.0 percent or more, Sharp offers. “Access to care could be in jeopardy in many areas if traditional Medicare rates were cut by 5 percent as proposed,” he warns.

Why Congress Tunes Out

The cumulative effect is that “MedPAC’s recommen­dations on payment rates for home health agencies rely upon antiquated analytics and incomplete data,” Dombi says. “While the MedPAC analysis posits that the existing payment rates incentivize increases in patient volume, the past 10 years has shown a loss of over 1,000 home health agencies, reduced patient admissions, shorter lengths of stay, and fewer visits per episode” (see box, this page, for data details).

“This has occurred at a time when home health care is recognized as an essential service with significant capabilities along with a growing Medicare population,” Dombi continues. “The only explanation as to why MedPAC’s assessments do not sync with reality is that its analysis is not well-formulated.”

“The margins don’t reflect true business margins,” Sharp says.

Plus, implementing a big cut soon after the launch of the “whole new” Patient-Driven Groupings Model payment system, which itself includes potential further behavioral adjustment pay cuts, is “irresponsible,” Sharp maintains.

Given these issues, “it is no surprise that Congress has not followed MedPAC’s recommendations in most years,” Dombi observes.

Note: The MedPAC report is at http://medpac.gov/docs/default-source/reports/mar21_medpac_report_to_the_congress_sec.pdf.