Home Health & Hospice Week

HHA profit margin hits 19.4 percent, but steep drop predicted.

The home care industry succeeded in fighting off a per episode copayment last year, but this year may be a different story.

Expect to see another recommendation from the Medicare Payment Advisory Commission to institute a home health agency copayment, according to the commission's December and January meetings. Since home care spending statistics have remained fairly similar to the previous year (see box, p. 35), MedPAC plans to reiterate its suggestions from 2012 for this year's report to Congress that comes out in March, commissioners decided.

Chief among those recommendations to Congress is a per episode copay, which MedPAC last year recommended be set at 10 percent, or about $300 for an average $3,000 episode. HHAs' growing profit margins were one main reason cited for the control on spending. Agencies' profit margin in 2010 was 19.4 percent, up from 17.7 percent in 2009.

Commissioners were particularly concerned about the wide range in margins. The profit margin for the 25th percentile was 3 percent while the margin for the 75th percentile was 27 percent. "Twenty-seven cents of every dollar that Medicare is spending is not doing anything for patients," criticized commissioner Mitra Behroozi, attorney and executive director of the 1199SEIU Benefit and Pension Funds. "And it's not building bricks-and-mortar facilities that are needed for stand-by capacity or anything like that," Beh-roozi said in the December meeting.

Profit margin averages for for-profits are even more damning -- 20.7 percent, versus 15.3 percent for non-profits, noted MedPAC staffer Evan Christman in the December meeting.

However: MedPAC is predicting a sharp drop in profit margins for 2012 -- 13.7 percent. The decrease is due to factors including payment cuts for upcoding and legislatively mandated reductions to inflation updates.

Commissioners Skeptical Of Home Care Providers

MedPAC has been more forthcoming in pointing out that its margin figures include only freestanding HHAs. But that information doesn't seem to hold much sway with commissioners.

Due to the flexible nature of the home care benefit, "you could make a lot of money and maybe not provide the level of care we would want," pointed out commissioner Michael Chernew, a professor in the Department of Health Care Policy at Harvard Medical School.

"This is ... a rather frustrating topic because ... we have this rather diffuse service that we're having great difficulty getting control of to provide something identifiable and of clear value to the beneficiaries," agreed commissioner Karen Borman, a physician at Abington Memorial Hospital in Pennsylvania.

"This is a service that's hard to define. It's hard to monitor," said commissioner Thomas Dean, a practicing family physician in Wessington Springs, S.D. and chief of staff at Avera Weskota Memorial Medical Center. "And it's a terribly valuable service, but it's very poorly distributed."

The copay will be a big change, allowed commissioner Scott Armstrong, CEO of health insurance system Group Health Cooperative. "Let us not understate how dramatic it was for us to endorse this copay," Scott noted in the meeting. "It's a big deal issue and we shouldn't forget that."

MedPAC Wants Rebasing Cuts Right Away

Another of MedPAC's recommendations will be to "address high overpayments by lowering rates to equal costs," Christman noted ��" in other words, prospective payment system rebasing. Agencies should expect big cuts to Medicare payment rates under such an initiative, since visit utilization per episode has gone down significantly since PPS' inception in 2000.

"The urgency is increasing to do the revision of the PPS," Behroozi said. "We keep pouring money down some drain somewhere."

And another recommendation is to revise the PPS case mix system to rely on patient characteristics to set payment for therapy and non-therapy services. In other words, Medicare should no longer use the number of therapy visits as a payment factor.

Impact: Eliminating therapy utilization from the case mix system would create some winners and losers. "This change would generally raise payments for several categories of provider that have lower-than-average margins, such as nonprofit hospital-based and ... rural agencies," Christman explained in the meeting.

Changes the Centers for Medicare & Med-icaid Services already has made to therapy reimbursement in the PPS system "do not obviate the need for the change we recommended last year," Christman told commissioners. "The changes CMS made had the effective of raising payments for non-therapy services and lowering them for therapy. However, the redistribution was likely smaller than what would occur under the commission's recommendation."

Bottom line: "CMS still retained the per visit thresholds, so the PPS still provides a financial incentive for agencies to provide more therapy visits," he said.

MedPAC also will restate its recommendation to expand program integrity efforts to combat fraud and abuse.