Home Health & Hospice Week

Medicare profit margin falls once again to 15.2 percent.

On top of PDGM and its nearly 6.5 percent payment rate cut, the Medicare Payment Advisory Commission thinks your reimbursement should be slashed another 5 percent in 2020.

As it voted in its January meeting, “for 2020, the Congress should reduce the calendar year 2019 Medicare base payment rate for home health agencies by 5 percent,” MedPAC urges in its report issued March 15. “Medicare payments are substan­tially in excess of costs,” the influential advisory body argues in its annual report. “Home health payments should be significantly reduced.”

The cut would reduce Medicare home health spending by up to $2 billion next year and up to $10 billion over the next five years, the report estimates.

MedPAC’s recommendation comes despite the fact that multiple key indicators are down for 2017, the latest year for which the body has data. The number of home health agencies fell once again, the average profit margin fell from 15.5 percent in 2016 to 15.2 percent in 2017, and the number of users and episodes per user also declined (see stats, p. 83).

MedPAC does admit that “home health care can be a high-value benefit when it is appropriately and efficiently delivered. Medicare beneficiaries often prefer to receive care at home instead of in institutional settings, and home health care can be provided at lower costs than institutional care.”

However: “Medicare’s payments for home health services are too high, and these overpayments diminish the service’s value as a substitute for more costly services,” MedPAC maintains in the report.

Industry representatives were quick to repudiate the recommendation, as well as a reduction recommendation for hospices (see story, p. 85). “We disagree with those recommendations in all respects,” National Association for Home Care & Hospice President William Dombi stresses. “As in past years, the report falls short of a full disclosure and presentation of the facts relevant to Medicare payment rates,” Dombi says in NAHC’s member newsletter.

Were Congress to take up the recommended cuts for home health agencies and hospices, the reductions would be “a huge blow to both home health and hospice providers,” says Sandy McCleve with Advantage Healthcare Consulting Cost Report & Reimbursement in North Salt Lake, Utah. “Both care types are already feeling the pain of a tight labor market and increased pressure to raise wages, which would already affect an agency’s bottom line,” McCleve tells Eli.

“Home health care already has a thin profit margin,” McCleve points out. In addition to the 15.2 percent margin, MedPAC also calculates a 17.5 percent so-called “marginal profit.” With the MedPAC proposed cut of 5 percent and “wage increases estimated to hit around 2.5 to 4 percent, this makes it very difficult for them to turn a profit,” he says.

The steep profit margins to which MedPAC refers are just not what 5 Star Consultants is seeing, says founder Sharon Litwin. “We have many small and medium HHA clients, and talk to many more agencies, and most all are struggling to stay in the black,” Litwin insists.

A cut next year would be particularly harmful due to the implementation of the Patient-Driven Groupings Model in January. “As the home health sector prepares for the shift to our new payment model, any destabilizing forces like arbitrary rate cuts will disrupt the momentum of home health, which is providing care while reducing cost by ensuring that patients can receive advanced clinical care in the comfort of their own homes,” says lobbying group The Partnership for Quality Home Healthcare in a release. “Now is not the time to inject more uncertainty into the home health sector,” insists PQHH chair Keith Myers, who is also LHC Group CEO.

MedPAC takes a preemptive strike against the PDGM argument in its report. “CMS has projected that behavioral responses by HHAs to the new policies will increase payments by 6.42 percent in 2020 (about $1 billion), and the agency plans to implement an offsetting percentage reduction in 2020,” it says. “This reduction is necessary to offset the spending increase expected in 2020 resulting from the behavioral changes; it does not reflect any assessment of the adequacy of Medicare’s payments. Further reductions are necessary to better align payments with the costs of services.”

Why Is MedPAC Comparing Utilization From More Than 2 Decades Ago?

MedPAC’s profit margin and other conclusions are problematic for a number of reasons, industry experts charge.

As always, the Medicare margin MedPAC cites excludes hospital-based agencies. “In 2017, margins for hospital-based HHAs were -16.0 percent,” the report acknowledges.

And in addition to citing a 15.2 percent Medicare profit margin for 2017, MedPAC also issues a 4.5 percent all-payer margin in the report. That figure “differs from the NAHC calculation which shows an average all-payer margin of 2 percent,” the trade group says.

MedPAC also emphasizes a shift in post-hospital care, pointing out that the percentage of home care episodes occurring after a hospital discharge shrank from about half in 2002 to two-thirds in 2017. The commission previously recommended instituting a copayment for episodes not preceded by a hospital stay, due to “concerns about … the appropriate use” of such episodes, the report notes.

“Healthcare has changed significantly in the last decade and no longer are hospitalizations the starting point of care,” NAHC contends.

MedPAC also spends a lot of time comparing current utilization and spending figures to those from five, 10, and even 20-plus years ago. That’s “not the norm for what most parties would use for trend comparison,” NAHC criticizes.

Stay tuned: It’s up to Congress whether to adopt the recommended cut. But HHAs can take comfort in the fact that “Congress is not required to act upon all the recommendations contained in the report and historically has not done so,” NAHC points out.

Note: The 24-page home health chapter of MedPAC’s report is at www.medpac.gov/docs/default-source/reports/mar19_medpac_ch9_sec.pdf.