Home Health & Hospice Week

Drop in home health spending shouldn’t deter rate cut, advisory body says.

You may feel like you’re struggling mightily under ever-declining Medicare reimbursement and ever-increasing regulatory requirements, but MedPAC thinks you can do more with less.

In its Jan. 14 meeting, the Medicare Payment Advisory Commission voted to finalize its recommendation that home health agencies receive a 0 percent payment rate increase in 2017. The influential advisory body to Congress had given its preliminary approval of the measure last month (see Eli’s HCW, Vol. XXV, No. 1). MedPAC will issue the recommendation in its annual March report.

MedPAC approved the measure, and referenced more recommendations (see story, p. 26), in an expedited voting session without discussion. But in its December meeting, Commissioners expressed more opinions about home care.

For example: In a discussion of Medicare Advantage, Commissioner Scott Armstrong praised home care. “Home health care … is a vitally important part of a care delivery system that’s going to achieve the outcomes we want,” said the former hospital administrator who is now CEO of health system Group Health Cooperative in Seattle.

Even MedPAC staffer Evan Christman acknowledged that “home health is an effective service … and can be an important service for frail community-dwelling Medicare beneficiaries.”

But: MedPAC made plenty of critical comments about home health agencies in the December meeting as well. “Eligibility for the benefit is poorly designed and does not encourage efficient use,”

Christman contended in the meeting. “There has been rapid growth in episode volume, which raises particular concerns in the current fee-for-service environment that rewards providers for additional volume,” he continued, referring to the therapy component of the home health prospective payment system case mix formula. “The benefit also has an unfortunate history of program integrity problems.”

Christman explained away the drops in HHA numbers, volume, profit margin and reimbursement. “The decline is primarily concentrated in five states that had disproportionately fast utilization growth in earlier years and have been the focus of activities to reduce fraud,” he told Commissioners.

“Though we have seen a recent slowdown in utilization and spending, I would note that over the 2002-through-2013 period, you can see that all of these measures have increased significantly,” Christman contended. “Spending has almost doubled, and utilization has increased by 60 percent” (see related stats, this page).

Plus: Christman called cause-and-effect into question. “This decline occurred at the time that several other downward pressures on volume hit, including an economy-wide slowdown in health care spending for most payers, continuing declines in hospital discharges, and an increased effort to fight fraud, waste, and abuse in home health,” he said.

Bottom line: “Medicare has overpaid for home health since the PPS was established,” Christman argued. “The fact that home health can be a high-value service does not justify the excessive overpayments.”

Focus On Profit Margin

As usual, HHAs’ profit margin was a major feature in MedPAC’s analysis. Agencies had an average profit margin of 10.8 percent in 2014. And HHAs’ “marginal profit,” a new financial indicator MedPAC is using this year, was 13.3 percent (see sidebar, this page, for details).

Christman suggested HHAs’ profit margins may be even higher in reality. “CMS audited a sample of 2011 home health cost reports and found that costs were overstated by 10 percent in 2011. If reported margins were adjusted for this error, our home health Medicare margins reported for 2011 would have exceeded 20 percent. While it is speculative to apply the 8 percent to other years, the results suggest that the margins we report for home health could be higher.”

Prediction: MedPAC estimates an 8.8 percent profit margin for HHAs in 2016.

Size Matters

HHAs that feel like CMS and policymakers are out to get small mom-and-pops may see confirmation in some of Christman’s comments. “It definitely is true that bigger is generally better,” he said in response to a question from Commissioner Warner Thomas, CEO of Ochsner Health System in New Orleans, about quality related to agency size. “The larger agencies generally have lower costs per visit and better quality,” he said in the December meeting.

“To the extent that the Medicare program could do anything about this … the quality incentive is the way to do it,” Christman continued. “It rewards providers who are providing better outcomes, ideally, and that would … probably shake out some of the smaller agencies and reward those that were providing better quality — generally, the bigger ones.”