Home Health & Hospice Week

Pay attention to the all-payer profit margin, advocates urge.

Just like clockwork, the official recommendations from the Medicare Payment Advisory Commission have gone to Congress. And just like clockwork, providers and their reps are working double-time to combat their wrongheadedness.

In its January meeting, MedPAC Commissioners voted to recommend a whopping 7 percent reduction in Medicare home health agency payment rates (see HHHW by AAPC, Vol. XXXIII, No. 4). And they followed through in their annual report to Congress released on March 15. “The Commission recommends that, for calendar year 2025, the Congress reduce the 2024 base payment rate for home health agencies by 7 percent,” the report says.

“It is obvious” that the recommendation is largely based on profit margin and visit utilization figures, observes accounting and advisory firm The Health Group in its electronic newsletter.

MedPAC also recommends a freeze for hospice payment rates in 2025.

As usual, much of the motivation for the drastic home health recommendation comes down to perceived profiteering. “Payments remained at high levels, with FFS Medicare margins for freestanding agencies averaging 22.2 percent in 2022,” the report chastises. “These margins indicate that FFS Medicare payments in 2022 far exceeded costs.”

That’s nothing new, MedPAC argues. “In aggregate, FFS Medicare’s payments have always been substantially more than costs: From 2001 to 2021, the FFS Medicare margin for freestanding HHAs averaged 16.8 percent,” the report criticizes. “Medicare’s payments for home health care services … have substantially exceeded costs since the PPS was implemented in 2001,” it admonishes.

In fact, this year’s figure is down from an all-time high of 24.9 percent last year. MedPAC projects an aggregate FFS Medicare margin of 18 percent for 2024.

“These excess payments do not accrue to the advantage of beneficiaries or the Medicare program,” the report argues. “Further, the high aggregate margin indicates that the home health PPS reduces the incentives for HHAs to furnish care efficiently,” it adds.

“Home health care can be a high-value benefit when it is appropriately and efficiently delivered, but these excess payments diminish that value,” the commission concludes.

And as always, MedPAC says it does “not expect this recommendation to have adverse effects on beneficiaries’ access to home health care. Given the current level of payments, we do not expect the recommendation to affect providers’ willingness or ability to care for FFS beneficiaries.”

In fact, the recommended cut wouldn’t go far enough, MedPAC contends. “A 7 percent reduction to the FFS base payment in 2025 would significantly address the magnitude of excess payments,” but “this reduction would likely be inadequate to align Medicare payments with providers’ actual costs.”

At least now the influential advisory body to Congress is explicitly stating that the figures it brandishes apply to freestanding HHAs only, industry veterans note.

In addition to urging Congress to slash payment rates, MedPAC not-so-subtly tells the Centers for Medicare & Medicaid Services to go ahead and implement all of its Patient-Driven Groupings Model-related rate reductions. CMS has assessed billions in so-called overpayments and must cut to achieve budget neutrality for PDGM, MedPAC points out.

Industry reaction: Providers are fed up with MedPAC’s continued string of recommendations to cut rates, especially in the face of the many challenges the industry is facing and sinking statistics reflecting that.

The National Association for Home Care & Hospice “strongly disagrees with this recommendation,” it blasts in its member newsletter. “There are various flaws in the MedPAC’s calculations. These include certain exclusions in calculating costs, such as marketing, telehealth, and taxes. MedPAC also limits their data to freestanding agencies, omitting those that are hospital based,” NAHC points out.

That’s not all: “While noted in the report, MedPAC does not seem to give much consideration to the all-payer profit margin, instead solely focusing on the Medicare FFS alone,” NAHC criticizes. MedPAC pegged that margin at 7.9 percent for 2022. “It is well known that HHAs have had to use FFS Medicare payments to subsidize under payments by Medicare Advantage plans and Medicaid.”

Bottom line: “In many instances, a 7 percent payment reduction would prove devastating to home health agencies across the nation, forcing many out of business and leaving patients without the ability to enjoy the Medicare benefit to its full extent,” NAHC warns. Continued advocacy with Congress is required “to ensure these excessive and unnecessary cuts do not make their way into official Medicare policy,” the trade group emphasizes.

Meanwhile, MedPAC continues to reiterate “facts” that the industry had long disputed, including that access to home health is just fine because of ZIP code-based numbers it reports (see stats below). That fails to take into account when agencies serve only a portion of a ZIP code, industry representatives have repeated.

MedPAC briefly acknowledges that might be an issue, but “they did not offer any other metric that might be used,” points out NAHC in its analysis of the report.

And actually, access may be “understate[d] … if HHAs are willing to serve a ZIP code but did not receive a request in the previous 12 months,” the report counters.

When patients, providers and their reps point to the serious access problems patients are experiencing, especially in rural areas, MedPAC and CMS have implied that it’s cherry-picking on agencies’ part rather than inadequate reimbursement that is at the heart of the problem.

“Almost all FFS beneficiaries have access to home health services,” MedPAC states in the report. And “much of the decline [in agency numbers] has been concentrated in areas that experienced significant growth in agency supply in prior years,” it adds. Fraud and abuse-initiated moratoriums on new entrants contribute to that figure, according to the report.

MedPAC also downplays statistics that show the industry is shrinking. It notes that the volume of 30-day home health periods declined by 7.5 percent in 2022. “But … the number of beneficiaries enrolled in FFS Medicare has declined as more beneficiaries enroll in Medicare Advantage,” MedPAC argues. “Controlling for the number of FFS beneficiaries, home health volume declined by 4.3 percent in 2022,” it says.

A decline in hospital inpatient use also accounts for part of that figure, MedPAC maintains.

Plus: “Some of the decline in home health care use in 2022 may also be attributable to a rebound in beneficiaries using skilled nursing facilities,” the report adds. “Before the pandemic, SNFs were the most frequent first postacute care (PAC) destination among beneficiaries receiving formal PAC, with home health care services being the second most frequent PAC destination,” it highlights. “In 2020, the two services switched ranks in their share of use after an inpatient hospital stay.” Now that may be returning to baseline, MedPAC suggests.

MedPAC also reaches back to 2019 to criticize HHAs’ visit utilization. “The average number of in-person visits per 30-day period fell by 15.6 percent between 2019 … and 2022,” it points out.

The implication is that agencies may be cutting back on visits to reap profits. “The decline in in-person visits under the PDGM was similar to the industry’s behavioral response in 2000, when Medicare switched from a cost-based home health reimbursement system to a PPS that used 60-day episodes of care,” MedPAC maintains.

Visits were down the most for aides and social workers at 32.3 percent. Therapist visits followed (-18.6 percent), then skilled nursing visits (-10.5 percent).

“But some of the decline might have been offset by greater use of virtual visits through telehealth, which we are unable to observe with available data,” the report acknowledges. COVID-19 may have also affected visit levels, MedPAC allows.

“The relatively low cost of home health aide services and high FFS Medicare margins for freestanding agencies indicate that FFS Medicare payment levels should be adequate to cover the costs of beneficiaries that need additional aide services,” MedPAC puzzles. But staffing difficulties may apply, the report acknowledges.

Other concerns the report broaches include:

• Function data. The Commission continues to have concerns about the accuracy of provider-reported function data across the post-acute spectrum. PAC “providers’ recording of functional assessment information, such as change in mobility, appear to be influenced by incentives in the applicable payment systems rather than objective assessments of patients’ function,” it maintains.

One alternative may be collection of patient-reported survey data, MedPAC suggests.

• Private equity. “Recent years have seen substantial interest in HHAs by private equity and health insurance companies. According to industry reports, investor interest in home health care services slowed in 2023, but the slowdown came after a peak period for HHA mergers and acquisitions in 2021,” MedPAC reports. “Private equity firms own many home health agencies, but measuring private equity’s role in the sector is complicated by limitations in ownership data,” it adds.

“An analysis by the Braff Group indicated that private equity’s share of annual reported home health care and hospice transactions (buying or selling of agencies) increased from about 20 percent in 2013 to about 50 percent in 2021,” MedPAC continues. However, “it appears that private equity’s share of home health care transactions may have declined since 2021,” MedPAC acknowledges.

Note: The 562-page report is at www.medpac.gov/ wp-content/uploads/2024/03/Mar24_MedPAC_Report_To_ Congress_SEC.pdf. See more on the hospice section of the report in a future issue of HHHW by AAPC.