Home Health & Hospice Week

Advisory body revises upward profit margin projection for 2017.

It may not be a surprise, but it still stings.

In its Jan. 12 meeting, the Medicare Payment Advisory Commission unanimously approved a rate reduction recommendation to which it had given preliminary endorsement in December (see Eli’s HCW, Vol. XXV, No. 45). MedPAC commissioners agreed to urge Congress to reduce home health agencies’ Medicare pay rates by 5 percent.

MedPAC commissioners also approved recommendations to eliminate therapy from the Home Heath Prospective Payment System altogether, and to continue rate rebasing (i.e., reductions) two more years starting in 2019. The advice will go into the advisory body’s annual report to Congress in March. If enacted into law, the changes would strip $750 million to $2 billion from Medicare home health spending in 2018 and up to $10 billion over five years, MedPAC estimates.

That’s a significant chunk of Medicare home health spending, points out the National Association for Home Care & Hospice. HHAs’ total Medicare payments in 2015 were $18.1 billion.

Despite the potentially sharp payment decrease, MedPAC staffer Evan Christman said the rate cut would have a “limited” impact on home health care. That’s because 99 percent of Medicare beneficiaries live in an area served by home health, and 86 percent live in an area with five or more agencies, he said.

“The number of agencies is near the all-time high hit in 2013 … with over 12,300 agencies in 2015,” Christman added. However, he did not point out in this month’s meeting that agency numbers did actually fall by more than 100 in that year.

As usual, the driving force for justification of the cut was HHAs’ supposedly high Medicare profit margins. MedPAC calculates that freestanding agencies’ average margin in 2015 was 15.6 percent, and estimates a 13.7 percent profit margin for 2017.

The future projection is up from an 11 percent margin forecast in the December meeting. “We have revised our 2017 margins since December to completely capture all payment policies in effect,” Christman said vaguely.

Both margin figures are down from the last decade-and-a-half’s average, Christman pointed out. “The average margins since 2001 under PPS have equaled 16.5 percent for the home health industry.”

NAHC is highly critical of those margin figures. “MedPAC does not consider all costs when calculating margins,” the trade group contends. “MedPAC also ignores the wide range in margins with over 30 percent of HHAs already paid less than their costs.”

Left out: “Further, MedPAC ignores 1,200 HHAs that are ‘hospital-based,’” NAHC blasts. “These HHAs are often the sole or primary source of home health care in their communities. At the same time, these HHAs have higher costs that would bring down the margin thereby not serving MedPAC’s interest in reducing payment rates as average margins would decrease.”

Good-Bye, Therapy

Despite a falling profit margin, recent years’ rate reductions and freezes haven’t cut enough, MedPAC says. The Affordable Care Act “calls for annual rebasing of payments,” Christman acknowledged.

But “the mandated reductions do not go nearly far enough in realigning payments to costs. Given the continued high level of payments, the Congress and [the Centers for Medicare & Medicaid Services] need to correct the substantial overpayments.”

The solution: Home Health PPS revision, MedPAC says — including cutting therapy from the case mix equation.

However, CMS is already moving in that direction with the Home Health Groupings Model proposal, which would eliminate therapy as a payment factor (see Eli’s HCW, Vol. XXV, No. 45).

NAHC notes that it supports eliminating therapy from the HH PPS case mix equation. “A utilization factor to define resource use in a prospective payment system is antithetical,” the trade group says in its newsletter. And “it incentivizes unnecessary utilization and therapy creates risks of abuse that lead to a negative image of home health agencies.”

But NAHC isn’t quite ready to endorse the HHGM system yet either. “NAHC is currently evaluating the bona fides of that model,” it says.