Home Health & Hospice Week

MedPac, CBO hammer proposals that cut Medicare home health spending

You'll have your work cut out for you in fending off a Medicare rate freeze for next year. Two more federal bodies are proposing cuts to Medicare reimbursement rates for home health agencies.

 In its March 1 report to Congress, the Medicare Payment Advisory Commission carried out its January vote to recommend an HHA payment freeze for next year (see Eli's HCW, Vol. XVI, No. 3).

"Most agencies should be able to accommodate cost increases in 2008 without an increase in base payments," MedPAC says in the report advising Congress on Medicare reimbursement.

Main argument: MedPAC justifies the freeze by pointing out agencies' continued double-digit Medicare profit margins. MedPAC expects HHAs to have an average 16.8 percent margin in 2007 despite a rate freeze in 2006.

"There's nothing surprising" in MedPAC's report, notes William Dombi with the National Association for Home Care & Hospice's Center for Health Care Law. The recommendation closely mirrors MedPAC's proposals in previous years.

Agencies' margins have remained high despite freezes because they respond to incentives under the prospective payment system to reduce services, maintains Bob Wardwell with the Visiting Nurse Associations of America. "As agency operating costs increase, agencies have to reduce the volume of services within the average episode or go out of business," explains Wardwell, who headed up the design of PPS when he was at the Centers for Medicare & Medicaid Services.

"Episode costs have not increased dramatically because agencies have been forced to respond to the incentives deliberately included in the system," Wardwell argues.

The Commission cites good patient access, sustained care quality and higher numbers of both agencies furnishing and beneficiaries using home care as proof that agencies are doing well and thus aren't in need of a rate increase.

In fact, the number of Medicare-certified HHAs grew 25 percent between 2002 and 2006, to 8,802, the report says.

The high influx of HHAs into the program may mean more scrutiny ahead for an industry that has been relatively left alone after the interim payment system put one-third of agencies out of business in the late 1990s.

Agency Growth Throws Up Red Flag

"Hopefully it won't explode into an ORT-style situation," Dombi says. Under Operation Restore Trust in the late 1990s, regulators cracked down on many agencies in high-growth areas, running a number of them out of business.

The greatest growth in the numbers of agencies is concentrated in six states that gained more than 90 agencies between 2002 and 2006, the MedPAC report points out. California and Texas accounted for two-thirds of the growth during that time period.

The home health community needs to "be very concerned ... about the proliferation of agencies in the same areas of the country in which previous proliferation was associated with fraud and abuse," warns Wardwell. "We need to encourage targeted efforts to identify specific providers for government intervention," he adds.

If regulators don't target individual suspects, "I fear we will face across-the-board and indiscriminate interventions that were imposed in the past," he cautions.

More details: MedPAC did the industry a favor by including more information on both profit margin and HHA growth rates this year, Dombi says. Members of Congress can see the very wide range of profit margins, with about 20 percent of agencies reporting negative profit margins on one end and 25 percent of agencies reporting margins above 27 percent on the other.

What to tell Congress: Those margin figures show the home health prospective payment system "is not exactly a well-tuned distribution system," Dombi maintains. That's why agencies can argue to legislators that they should leave payment updates intact while CMS works out the distribution problems within PPS.

CBO Suggests Copay

HHAs have to fight another perennial cost-cutting measure this year too--the home health copayment.

In its 2008 "Budget Options" report, the Congressional Budget Office proposes a 10 percent copay as a way to trim Medicare's budget. The measure would strip $1.6 billion from Medicare home health spending in 2008 and $12.9 billion over five years, CBO says.

Jumping on the bandwagon: CBO follows MedPAC's lead in suggesting a rate freeze as well, which would cost agencies $300 million in 2008 and $8.5 billion over five years.

CBO justifies the cuts by noting that home care spending has risen "rapidly" under PPS and that average profit margins will remain high even under a freeze.

"We're going to see a battle," Dombi warns of the budget process this year. In addition to the MedPAC and CBO freeze recommendations, President Bush has included freezes for post-acute providers including HHAs in his budget proposal (see Eli's HCW, Vol. XVI, No. 6).

The battle is especially likely as it appears Congress will once again look for funding for a one-year physician payment fix, experts note.

Long haul: Lawmakers probably won't hammer out final budget details until the end of the congressional session in the fall, Dombi expects. That means providers will have to sustain a year-long lobbying effort with legislators to fight the proposed cuts.

Note: The MedPAC report is at www.medpac.gov/publications/congressional_reports/Mar07_TOC.pdf. The CBO report is at www.cbo.gov.