Home Health & Hospice Week

Sky-high profit margin puts target on HHAs’ backs.

Home health agency numbers and Medicare home health spending are both down yet again, but that isn’t stopping the Medicare Payment Advisory Commission from readying a steep cut recommendation.

The influential advisory body to Congress discussed this recommendation in its Dec. 8 meeting: “For calendar year 2024, the Congress should reduce the 2023 Medicare base payment rate for home health agencies by 7 percent.”

That recommendation is based on an eye-popping 24.9 percent profit margin MedPAC calculates for HHAs in 2021. That compares to a margin of 20.2 percent in 2020, 15.8 percent in 2019, 15.3 percent in 2018, 15.2 percent in 2017, 15.5 percent in 2016, 15.6 percent in 2015, 10.8 percent in 2014, 12.7 percent in 2013, 14.4 percent in 2021, and 14.8 percent in 2011.

The 2021 margin would be even higher — 25.9 percent — if MedPAC included COVID relief funds in the figure, it notes in the presentation for the meeting. Due in part to inflation, MedPAC predicts the 2023 profit margin will be 17 percent.

“A 24.9 percent Medicare margin is obscene, so a 7 percent cut I think is very much warranted,” maintained Commissioner David Grabowski, a professor in the Department of Health Care Policy at Harvard Medical School. “This will not harm beneficiary quality or access,” Grabowski said in the meeting.

“Medicare’s currently overpaying for home health care,” Grabowski insisted. “I’m very supportive of the … draft recommendation,” he said.

Grabowski also warned that HHAs may be stinting on therapy visits after the Patient-Driven Groupings Model removed that as a payment factor.

In-person home health visits dropped by about 8 percent annually between 2019 and 2021, MedPAC staffer >Evan Christman highlighted in a slide deck presented by fellow MedPAC staffer >Kathryn Linehan in the meeting. About 70 percent of that drop is due to a decline in therapy visits, according to the presentation.

Many commissioners voiced strong support for the 7 percent cut rec.

“The magnitude of the margins I think justify very much going this path for now,” said Commissioner >Gregory Poulsen, an executive at health system Intermountain Healthcare in Salt Lake City, Utah.

“Profit margins are high,” noted Commissioner Cheryl Damberg with the RAND Corporation. “I don’t see any reason to not go with the … recommendation.”

Commissioners also made repeated references to instituting a copay (see story, p. 347).

Commissioners Raise Access Concerns Again

Not only will the profit margin and potential cut recommendation affect next year’s MedPAC report to Congress in March. It also may affect legislative negotiations occurring right now, while lawmakers hammer out a year-end budget package (see story, p. 350).

But lawmakers should take a look at all the relevant stats, industry observers say.

For example: Medicare home health spending declined by 1.2 percent in 2021 to $16.9 billion, according to the presentation. That compares to $18.4 billion in 2011.

And the number of HHAs also dropped 0.8 percent in 2021, to about 11,400. MedPAC highlighted that drop as an improvement, since it is smaller than the average 1.4 percent decline HHAs saw in their numbers from 2013 to 2020.

Even though multiple commissioners expressed strong support for the proposed reduction rec, they also noted the MedPAC’s access numbers don’t necessarily square with user experiences.

In the presentation, Linehan noted that 98 percent of beneficiaries live in a ZIP code with two or more HHAs and about 87 percent live in a ZIP code served by at least five HHAs. “Access to home health appears to be very good,” she said.

But commissioners weren’t so sure.

“There’s been probably half a dozen times in my career where statistics and reality don’t match,” noted Commissioner Lynn Barr, a rural health expert and founder of Caravan Health. Barr voiced difficulties with finding home health services for rural patients in last year’s meetings (see HHHW, Vol. XXXI, No. 2). “These still don’t match to me,” Barr said in the Dec. 8 meeting.

“I felt very unsatisfied with many of the measures of access … here in a way that I think kind of echoes Lynn’s points about the reality doesn’t seem to match what we’re seeing on the paper, or perception of reality in my case,” said Commissioner Stacie Dusetzina, professor of health policy at Vanderbilt University Medical Center in Nashville, Tenn.

“Just anecdotally, I’ve heard people struggling to get access to home health,” Dusetzina continued. When looking at a measure like number of agencies in an area, “I don’t know if there’s some way to dig more into, like, do they have capacity,” she said. For instance, calling agencies and asking, “do they have the bandwidth to take on more customers?” she suggested.

“I kind of know firsthand through various relatives challenges of accessing home health,” reported Commissioner Damberg. “I don’t know whether that’s … the moment in time we’re in right now with … staffing shortages just writ large in the economy. But I do think it’s something that we need to monitor long term,” she said.

More generally, “if we look over the past decade, there’s actually been a smaller number of HHAs over time, and yet the payments are still very profitable,” pointed out Commissioner Amol Navathe at the University of Pennsylvania’s Perelman School of Medicine. “Why do we see that they’re so profitable from a Medicare payment perspective and an all-payer margin perspective, yet we see a declining number of HHAs and what looks like a lack of for-profit entry?” asked Navathe, who is the MedPAC vice chair. MedPAC put the all-payer margin at 11.9 percent for 2021.

MedPAC staff suggested that labor shortages, managed care pressures, and program integrity efforts may have contributed to the problem.

“Medicare payment levels for 2013 to 2020 were well in excess of costs for this period, so the decline in supply we observed is not related to Medicare payments,” Linehan maintained in the meeting.

Meanwhile, in contrast to home health and hospice, MedPAC appears poised to recommend pay bumps for hospitals and physicians for next year.

Timeline: MedPAC will have two more meetings in January in February in which commissioners and staff will discuss the home health recommendation and finalize it, before issuing a March report to Congress that will include the rec.

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