Home Health & Hospice Week

Worker shortage, tech costs still limiting factors. 

If lawmakers are looking for an excuse not to help out home health agencies this year, they may find it in a new government report on the home care industry.

The Centers for Medicare & Medicaid Services' newly updated analysis of the home care market stresses that Medicare under the prospective payment system is agencies' payor of choice. "Smaller HHAs have shifted patient mix to favor Medicare patients as Medicare payments under the PPS offer the highest margins," CMS says in its report, "Health Care Industry Market Update: Home Health."

The report cites the General Accounting Office's conclusion that HHAs have increased profit margins under PPS "because of fewer visits per episode of treatment, and a higher proportion of users categorized into higher payment groups."

Companies such as Baton Rouge, LA-based Amedisys Inc. have a patient population consisting of 88 percent Medicare patients - the highest among publicly traded companies, CMS points out. "Medicare has become a better payor over the past few years and offers the highest margins," analyst Lawrence Marsh of Lehman Brothers is quoted as saying in the report.

The number of agencies exiting the program has also stabilized, CMS notes. That's after about 3,000 HHA closures under the interim payment system.

Analysts expect the home care industry to grow 5 to 10 percent per year, the report says.

Publicly traded companies' profit margins continue to rise too. Their median operating margin reached 2.3 percent in 2002, up from about 2 percent in 2001 and a dismal negative 4 percent under IPS.

The report also includes multiple references to the home care market's "dramatic growth" in the early to mid-1990s and its perceived overutilization.

Home Care's Future Not All Rosey 

Looking at the picture of the industry CMS paints, observers could conclude that such a healthy industry doesn't need any help from the government.

But analysts did tell CMS that a copayment, such as the one in currently pending Medicare legislation, could discourage growth of home care services. And the home care market has some other significant limitations.

Foremost among these limitations is the nursing and other worker shortage. The industry's "dependence on labor is pressured by the current shortage of skilled caregivers," the report says.

Many home care companies are experiencing increasing technology expenditures due to PPS and other regulatory requirements. "While ultimately a benefit, the initial investment in information technology may be a significant cost to many HHAs," the report says.

Due mostly to the typical home care provider's small size, the industry also has little access to external sources of capital. "Access to capital is critical for a company to increase its market share and remain financially viable," CMS notes.

With its market updates for each provider type, CMS' Office of Research, Development and Information aims to "provide objective summary information" culled from Wall Street investment firms "that can be quickly used by CMS, HHS, Congress, and their staffs that oversee these programs," the report says.

But those parties should keep in mind that the home care market has very few publicly traded companies compared to other markets, industry experts point out.

Therefore, it's hard to draw conclusions about the entire industry based on a handful of companies that must report their earnings.

CMS does admit in the report that "the HHA sector does not receive broad analyst coverage as a result of the small sector size and few publicly traded companies."

Editor's Note: The report is at www.cms.gov/reports/hcimu/.