Home Health & Hospice Week

Advisory commission pulls no punches with proposed 5 percent cut for home health agencies.

At a time when many home health agencies are squeaking by on their Medicare revenues, an influential advisory body to Congress wants that payment stream to drop significantly.

At its meeting Jan. 11 and 12, the Medicare Payment Advisory Commission will vote on its recommendations for HHA payment rates, which it will send to Congress in its annual March report. In its December meeting, MedPAC commissioners expressed support for the idea of reducing HHAs' Medicare rates by 5 percent - the same recommendation it made last year.

In addition to the 2019 cut, MedPAC will most likely approve advice to undertake two-year "rebasing" of the HH Prospective Payment System starting in 2020.

Profit Margins Are Down

As always, a main consideration for its recommendations to Congress is the industry's profit margin figures. MedPAC says HHAs' Medicare profit margins averaged 15.5 percent in 2016, and estimates a 14.4 percent margin in 2018.

The 15.5 percent figure is down slightly from last year's 15.6 statistic for 2015, but up from the 10.8 percent margin the year before that, a MedPAC staffer noted in a slide presentation for the Dec. 7 meeting.

MedPAC's statistics show that profit margins aren't the only figures going down. The number of Medicare home health episodes declined from 6.6 million in 2015 to 6.5 million in 2016, users dropped from 3.5 million to 3.4 million, and the number of HHAs declined 1.2 percent to about 4,200.

And Medicare spending on home health stayed flat at $18.1 billion, MedPAC indicated.

So with profit margin figures, utilization, and provider numbers all going down, why are drastic cuts still needed? Commissioners and staff trotted out the usual depictions of the industry as gamers or fraudulent providers.

"Eligibility for the benefit is poorly defined and does not encourage efficient use," MedPAC's Evan Christman said in the meeting. And the industry has seen suspicious "rapid growth" and "an unfortunate history of program integrity problems."

While there have been "a number of efforts to address fraud in the benefit ... many patterns of unusual utilization suggestive of fraud remain," Christman continued.

Side note: Many home health industry members agree with this assessment, but urge Congress and the Centers for Medicare & Medicaid Services to address the fraudulent and abusive providers instead of instituting across-the-board cuts that hurt legitimate providers more than the fraudsters.

Plus, "Medicare has overpaid for home health since the PPS was established," Christman maintained. "The fact that home health could be a high-value service does not justify these high payments."

And home health cost reports overstate HHA costs, he added. (Home care cost report experts argue just the opposite, since no direct reimbursement is tied to the cost report document any longer.)

Although the 5 percent cut and rebasing would lower spending, Christman argued that their impact would be "limited" and "should not affect provider willingness to serve beneficiaries."

"There's a long history" of HHAs adjusting their utilization patterns in response to payment incentives, Christman told commissioners. "This is a very nimble industry."

Both the MedPAC staffer and commissioners noted that the industry's past predictions of quickly dwindling profit margins have not come to pass. The industry's "high margins contrast with industry projections of [a] more severe impact of rebasing," the slides point out. "One estimate called for [a] 5 percent margin in 2014, 1 percent margin in 2015, and -3 percent margin in 2016."

"The sector has proved itself to be flexible with consolidating, changing the way the service is delivered," Commissioner Pat Wang, CEO of Medicare health plan Healthfirst, said in the meeting.

Comparing Apples To Oranges

Not all commissioners were willing to throw HHAs under the bus, however. A few commissioners spoke up about including only freestanding HHAs, about 85 percent of the industry, in the margin calculation.

And Commissioner Warner Thomas, CEO of Ochsner Health System in New Orleans, raised the issue of agencies' overall profit margins, not just the margin for Medicare. HHAs' "all-payer" margin is in the "mid-single digits," according to Christman. That means a 5 percent reduction would "pretty much take it to a breakeven," Thomas said.

That led to a somewhat wide-ranging discussion on how much MedPAC should be concerned with non-Medicare payments.

Stay tuned: MedPAC will vote on its final recommendations in the January meetings, but it's likely they will very closely resemble the ones informally approved in the December meeting.