Home Health & Hospice Week

MedPAC profit margin claims based on faulty cost reporting system, audits, experts charge.

You can’t draw blood from a stone, but the Medicare Payment Advisory Commission thinks Medicare should try when it comes to home health agency payments.

In its annual report to Congress, the influential advisory body admits that after years of rate freezes and rebasing cuts, key factors have all dropped for home health agencies. That includes number of HHAs, episodes, profit margin, and Medicare spending (for specific stats, see Eli’s HCW, Vol. XXV, No. 4).

The catch: But those stats have not dropped enough, MedPAC insists in the report. For example, the number of HHAs fell 1.2 percent to 12,461 in 2014, but the number is still up 65 percent compared to 2004. “Even with this decline, nationwide the number of agencies is now higher than the previous peak in the 1990s when supply exceeded 10,900 agencies,” the commission notes.

The other indicators also saw alarming, sharp growth since the early 2000s, with the small drops now paling in comparison, MedPAC repeatedly points out in the report.

Profit Margin Calculations Flawed

And MedPAC contends that the profit margin statistics showing a decline may not be all that accurate. The commission pegs HHAs’ 2014 profit margin at 10.8 percent, but “an audit of 100 sample cost reports from 2011 by [the Centers for Medicare & Medicaid Services] found that agencies overstated their costs by about 8 percent,” according to the report. That would have pushed agencies’ profit margin over the 20 percent mark that year, MedPAC claims.

The opposite: But the commission’s claim isn’t well founded, industry veterans insist. CPARick Ingber with VantaHealth Consulting was involved with two of the 100 audits MedPAC references, he says. “When the MAC proposed various adjustments to those cost reports … my clients saw no interest in their devoting time or incurring costs from me to dispute the proposed adjustments,” Ingber tells Eli. “Therefore these settled cost reports, which were then used by MedPAC in their arguments, clearly understated costs.”

CPA Tom Boyd, now with Simione Consultants in Rohnert Park, Calif., assisted five clients with the audits, he says. His company provided the services for free because of the implications for the wider industry, Boyd tells Eli. But even then, some agencies did not bother to provide requested details and paperwork because there was no direct reimbursement impact.

More problems: In addition to agency response, the audit process was riddled with problems from start to finish, Boyd insists. The contractors performing the audits had no experience auditing cost reports before the prospective payment system began in 2000. Thus, they made calls such as disallowing allowable community education expenses as marketing and confusing Internal Revenue Service requirements with Medicare requirements. “Auditors made adjustments that would have been overturned on appeal,” he says.

Plus: The desk audits also didn’t allow any dialogue between the auditors and agencies, points out CPAMark Sharp with BKD in Springfield, Mo.

There was no chance for appeal or for furnishing additional support, even if agencies wanted to. Even without audits, “filed cost reports around the country, as compared to years before 2000 when reimbursement was determined from the cost report, tend to understate Medicare costs,” Ingber believes. That’s “because the providers do not have a motivation to prepare the most accurate cost report possible. From my experience more accurate cost reports tend to mean a higher determination of Medicare costs.”

There are a number of areas where agencies understate their costs under PPS, Sharp believes. They often won’t take the time and effort to separate out allowable community education versus disallowed marketing; don’t allocate square footage accurately, leading to non-reimbursable programs receiving more costs than warranted; and don’t allocate other overhead costs accurately to reimbursable versus non-reimbursable programs, he says.

Not to mention: Medicare still doesn’t allow telehealth costs on cost reports, which understates agency costs, Sharp stresses.

Even when agencies do their best to report costs accurately, they get little to no guidance from Medicare. “The MACs barely even look at the submitted cost reports anymore,” Sharp laments. “There is absolutely no ‘policing’ of the accuracy of submitted cost reports.”

These problems with the current cost reporting system are crucial when MedPAC claims in its report that under PPS, “payments have consistently and substantially exceeded costs.” And remember, MedPAC is using only freestanding agencies’ costs to calculate the margin, not reports from providerbased agencies.

Agencies’ average margin will reach 8.8 percent in 2016, MedPAC estimates.

MedPAC Slams Rural Add-On As Unnecessary

MedPAC includes other conclusions in the report, such as:

• years with higher HHA payments have not led to better quality outcomes in those years, including hospitalization rates;
• there has been a “relative shift away from using home health care as a post-acute care (PAC) service,” perhaps partially because the number of hospital discharges has declined; and
• the rural add-on is poorly targeted, since many rural areas have high home health utilization. It is set to expire in 2017.

Based on those assertions, MedPAC recommends a slate of cuts and changes to Congress (see related story, this page).

Note: The home health chapter of the report is at http://medpac.gov/documents/reports/chapter-8-home-health-care-services-(march-2016-report).pdf.