Home Health & Hospice Week

Providers struggle with whether to increase mileage reimbursement.

Welcome news about travel reimbursement for frontline home care workers might be a budgetary night-mare for management.
 
The Internal Revenue Service announced Sept. 9 that it is increasing its mileage rates a whopping 8 cents to 48.5 cents per mile. That's a 20 percent increase over the old 40.5 cent rate.
 
The increase is retroactive to Sept. 1 and applies until Dec. 31. "In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2005," the agency says in a release. "The IRS normally updates the mileage rates once a year in the fall for the next calendar year."
 
The IRS is waiting a bit longer than usual to unveil its 2006 rates because gas prices are projected to drop. The new rate will come "closer to January," IRS Commissioner Mark W. Everson says.

Between a Rock and a Hard Place

The IRS increase will be good for home health agencies and hospices that are able to afford to increase their mileage rates, notes consultant Judy Adams with the Charlotte, NC-based LarsonAllen Health Care Group. It will allow employees to receive for travel 8 cents more per mile that isn't subject to compensation taxes and withholdings.
 
Home Care Association of New York State members have been fielding complaints from their workers about travel reimbursement not meeting actual expenses, says the association's Andrew Koski.
 
"Caregivers and clinicians have been feeling the pinch of the gas increases more than before," adds Joie Glenn of the New Mexico Association for Home and Hospice Care.
 
But a number of factors will make implementing travel reimbursement rate increases very difficult for many home care providers. While the IRS has raised its rate, Medicare and other payors haven't provided any more funding for HHAs to pay that rate, Koski notes.
 
And the increase comes at a bad time for rural agencies who pay out the most for travel, Glenn points out. They already have lost the extra 5 percent of reimbursement they used to receive through the rural add-on under the prospective payment system.
 
A lot of providers still can't afford even to pay the old 40.5 cent per mile rate, Adams notes. Many providers have only recently increased their rates to approach that old rate, relates consultant Pam Warmack with Clinic Connections in Ruston, LA.
 
Example: Alacare Home Health and Hospice based in Birmingham, AL has adjusted its travel rate six times in the last year. "We had two increases equaling $0.03 per mile in just the last month," Alacare president John Beard tells Eli. Alacare's rate is now up to 39 cents per mile.

Average Employee Pays $45 per Week for Gas

The gas prices are racking up for home care employees, the Pennsylvania Homecare Association notes in a Sept. 9 letter to state officials. The nearly 35 percent increase in gas in the past year translates to an extra $260,000 in fuel expense for the home care employees in Pennsylvania who travel 70 million miles a year for work, PHA's Vicki Hoak says in the letter.
 
An average employee who travels 260 miles a week is paying $45 per week for gas, compared to $27 a year ago, Hoak points out. And an HHA that increases its travel reimbursement rate 5 cents per mile is looking at a $100,000 increase to its annual budget, the letter maintains.
 
Here's the cost: HHAs that already are paying 40.5 cents and that decide to increase to the full IRS rate of 48.5 cents will see an 80-cent to $1 increase per visit, estimates consultant Mark Sharp with BKD in Spring-field, MO. That translates to an extra $8,000 to $10,000 expense per 10,000 visits.
 
Agencies with significant Medicaid or commercial insurance business will have a tougher time than purely Medicare agencies in absorbing the extra travel costs, Sharp expects. Typically, "home care programs funded by these sources run on small or deficit margins," he says.
 
Bottom line: With all those issues in play, plus the fact that gas prices appear to be decreasing, many HHAs won't increase their travel reimbursement rates to employees despite the IRS change. The 48.5 cent rate "is just too expensive for an agency to bear," Warmack observes.
 
"I doubt that there will be many jumping to the new rate," agrees Karen Hinkle of the Kentucky Home Health Association. Many agencies already are struggling with the budget implications of recent increases they've made that don't even reach the old rate, Hinkle tells Eli.

Competition for Staff Sparks Increase

But despite the hardships, a good number of agencies will follow the IRS' lead and increase their travel rates. Some members of the Home Care Alliance of Maine already have increased their rates to the new level, notes HCAM's Vicki Purgavie. Hinkle expects to see many Kentucky hospital-based agencies, who already reimburse at the old IRS level, increase to the new one.
 
Sharp predicts the majority of BKD's clients will adopt the new rate or close to it. "A significant portion of Medicare home health agencies still have the margins to absorb the increase," he judges.
 
Retention pitfall: Competition for staff will be a major reason providers adopt the new rate. "Those agencies that do not adjust their mileage rates will run the risk of losing staff to 'no travel' health care positions or other home care agencies that do adjust their mileage rates," Sharp forecasts. "Many agencies may not have a lot of choice for staff retention purposes."
 
Some Pennsylvania HHAs already have seen direct care worker resignations due to high gas prices, Hoak notes. If staff resources get low enough, you may have to turn away potential patients, especially in distant locations.
 
Try this: If you can't afford to raise your travel rates, urge your employees to evaluate the entire benefit package when considering a job switch, Warmack advises. "Other benefits such as insurance coverage, 401(k) contributions, bonuses, etc., may be reduced to fund the mileage increase," she cautions.

HHAs Seek Better Reimbursement

As the travel reimbursement crunch increases, home care providers are seeking more equitable reimbursement from payor sources. Many state associations are imploring their Medicaid programs to increase funding for home care.
 
That includes lobbying for funding for telehealth, says the HCANYS' Patrick Conole. "Home care agencies will continue to need increased upfront support for the capitol costs of broader implementation of telehealth," Conole notes.
 
Agencies also need higher Medicare rates to account for skyrocketing fuel costs, HCANYS protested in its comments on the 2006 PPS rule. Those costs should figure into the market basket figure ...quot; the inflation increase to Medicare rates. 
 
Note: The IRS notice is at www.irs.gov/newsroom/article/0,,id=147423,00.html.