Home Health & Hospice Week

A battle royale may be brewing between home care and lawmakers eager to make cuts.

Home health agencies are getting more efficient under the prospective payment system - and now you may get punished for it.

In its annual March report to Congress, the Medicare Payment Advisory Commission recommends that Congress eliminate any payment update for HHAs in 2006. "Agencies should be able to accommodate cost increases over the coming year without an increase in base payments," MedPAC says in its latest report.

To agencies, a rate freeze is tantamount to a payment cut, stresses attorney Jim Pyles with Pyles Powers Sutter & Verville in Washington, DC. "No inflation update is a cut because wages and prices keep rising," Pyles points out.

MedPAC singles out only HHAs and skilled nursing facilities for rate freezes, notes the American Association for Homecare.

Justification: MedPAC rattles off a laundry list of signs that agencies are already being paid more than enough: few access problems for beneficiaries, a 9 percent increase in Medicare-certified agencies from 2002 to 2003, a projected Medicare average profit margin of 12 percent in 2005, and agencies' growing efficiencies.

In fact, even though "input" costs such as labor and transportation have increased, agencies reduced episode costs by making fewer visits and furnishing shorter treatment plans. And those plans include more therapy and less aide service and skilled nursing than in previous years, MedPAC adds. Thus, agencies should be able to handle a rate freeze just fine, the influential advisory body to Congress concludes.

More evidence that the current PPS rate is more than ample is the increased proportion of freestanding and proprietary agencies in the pool of about 7,300 Medicare-certified HHAs, MedPAC says. In 2003, 75 percent of agencies were freestanding rather than facility-based, and 55 percent were proprietary rather than "voluntary" or government. "The distribution of agencies ... has returned to that of 1998," the report says.

MedPAC Has Congress' Ear

"The MedPAC recommendations and the March Report have great influence on Congress every year," notes William Dombi, vice president for law with the National Association for Home Care & Hospice's Center for Health Care Law. "The Congressional committees of jurisdiction start with the MedPAC recommendations when deciding on a course of action," Dombi tells Eli.

And if a Medicare bill comes to fruition, lawmakers will be happy to find cost-cutting measures where they can, warns Bob Wardwell with the Visiting Nurse Associations of America. "Many on the Hill would seize on the MedPAC recommendation of a freeze as a painless way to save a few dollars," Wardwell predicts. "But it would be a serious mistake," he warns.

Argument: There are many flaws with the justifications MedPAC uses for the rate freeze, Dombi argues. For example, its profit margin figures don't take into account facility-based agencies and also give more weight to larger agencies' costs, points out Wardwell, a former top CMS official.

NAHC's profit margin analysis shows more than one-third of agencies losing money on Medicare, while MedPAC's analysis puts that figure at 20 percent. "In some parts of the country, there are no HHAs making a profit under Medicare," Dombi maintains.

And when looking at profit margins from all payers instead of just Medicare, NAHC found an overall margin of about 2 percent, Dombi reports.

The agency growth MedPAC cites is isolated to areas like Texas and California, Dombi adds. In fact, agencies served fewer zip codes in 2003 than 2002, MedPAC admits.

MedPAC brushes off beneficiaries' reports of problems accessing home care, saying access is "good." But in fact, nearly one-quarter of beneficiaries surveyed report a small problem (12 percent) or a big problem (11 percent) accessing home care, the report reveals.

MedPAC dismissed the figure, noting that some of those beneficiaries were ineligible for home care services under the Medicare benefit. "The survey may overestimate the difficulties," the report says.

Problems like these with MedPAC's analysis help providers and their reps "to convince Congress to reject the recommendations," Dombi notes. "We have succeeded in doing so in the past and will do so again."

Warning: If lawmakers continue to cut home care payment rates to achieve low profit margins, "a homecare meltdown similar to that experienced under IPS" will take place, Wardwell predicts.

Policy-makers must realize that cutting home care reimbursement means HHAs will be forced to treat less-sick patients over a shorter period of time, Pyles says. That will result in beneficiaries with chronic illnesses seeking more hospital care- and skyrocketing Medicare hospitalization costs, he argues.

"Each time Congress cuts Medicare reimbursement for home health, the overall costs of Medicare can be expected to surge," Pyles insists.

PPS Revamp Needed

Home care reps and MedPAC do agree on one thing - huge utilization variances within HHRG case mix categories and in profit margins means PPS needs to be revamped to more accurately reflect costs of care.

While MedPAC doesn't make a formal recommendation, it points out that PPS needs serious work to accurately compensate HHAs for their care and make sure categories' payment levels aren't too high or low.

"MedPAC seems to be helping [the Centers for Medicare & Medicaid Services] get serious about correcting the distributional problems within the PPS system," Wardwell praises. "Done correctly, a recalibration of the PPS could move all or almost all agencies to a fair and sustainable positive margin. Done incorrectly, it could make things worse." 

Editor's Note: MedPAC's chapter on home health is at www.medpac.gov/publications/congressional_reports/Mar05_Ch02d.pdf.