Home Health & Hospice Week

Advisory body favors cuts due to high HHA profit margins.

The fight will be on in Congress next year over home health agency payment rates from Medicare.

The Medicare Payment Advisory Com-mission is considering which of two recommendations it wants to give Congress in its March report.

Bad: The influential advisory body to Congress may recommend another rate freeze for 2010, it said in a Dec. 4 meeting. That draft recommendation is based on the average 12.2 percent profit margin it projects for HHAs in 2009.

Worse: Or MedPAC may go a step further and recommend no inflation update plus a 5 percent cut. That would be a 7.71 percent cut added with the case-mix creep reduction already slated for that year, or a more-than-10 percent cut from what rates would be if the market basket inflation factor were allowed to go through.

"MedPAC staff has definitely set the stage for a heated contest on what MedPAC should ultimately recommend," notes the National Associa-tion for Home Care & Hospice. "Further, they have fired the first salvo in the 2009 legislative battle for home care."

MedPAC's analysis underlying the recommendations is "seriously flawed," NAHC contends. Nearly 35 percent of HHAs today have negative margins, and under the 5 percent reduction more than 50 percent of agencies would be in the red. "That result will be very difficult for any congressional office to accept," NAHC hopes.

Part of MedPAC's concern rises from the industry's significant growth. While HHA numbers still haven't reached the 1997 peak, the number of agencies has increased more than 30 percent from 2003 to 2008 with nearly 9,700 providers, MedPAC staffer Evan Christman pointed out.

And from 2003 to 2007, the number of home health users increased 16 percent to 3.1 million. In 2007, 8.9 percent of Medicare fee for service beneficiaries used home health as opposed to 7.6 percent in 2003, Christman explained.

Therapy use surges: Some types of services have risen more than others. Therapy-intensive episodes rose from 0.9 percent of all episodes in 2002 to 1.6 percent in 2007 -- nearly 12 percent.

One big reason for the agency's perceived overly generous payment rates is utilization. The Centers for Medicare & Medicaid Services based its prospective payment system rates on historical data that showed 31.6 visits per episode time, Christman said. But in reality, HHAs now furnish an average of 22 visits per episode.

MedPAC contends that a rate freeze, which would strip up to $750 million from HHA payments in 2010, would have "no adverse impact on beneficiaries or providers' willingness to deliver care."

The commission doesn't make that claim about a 5 percent cut, which would cut up to $5 billion in 2010. But some commissioners see the reduction -- or an even bigger one -- as sorely necessary in light of the continued double-digit profit margins and widely reported fraud and abuse in places like Houston, Los Angeles, and Miami.

Threat: "If the industry doesn't take care of itself, then maybe we should," declared commissioner George Miller, who heads up hospital chain Catholic Health Partners in Springfield, Ohio. "That will send a lesson because these margins are just ungodly, quite frankly."

Commissioners shouldn't think of "zero as the absolute lowest one can go," urged commissioner Jack Ebeler, a former Health and Human Ser-vices staffer and current consultant. Cuts can be necessary, Ebeler said.

Cooler heads: While a number of commissioners seemed thirsty for HHA budget blood, others pointed out the problem of across-the-board cuts when margins range so widely. In 2007, the average profit margin for an agency at the 25th percentile is 3.1 percent while the average at the 75th percentile is 26.3 percent, Christman noted.

The gap is about 20 percent greater than that for skilled nursing facilities, pointed out commissioner Mitra Behroozi, head of 1199SEIU Benefit and Pension Funds and an attorney. "You don't want to hurt the ones who may be at low margins but doing the right things," Behroozi said in the meeting.

"There is concern about pulling a number arbitrarily out of the air," added commissioner Arn-old Milstein of employer health care purchasing coalition Pacific Business Group on Health.

Timeline: Commissioners will vote on a recommendation in their January meeting and will include the measure in MedPAC's annual March report to Congress. NAHC and other industry reps will be busy educating members of Congress on the realities of HHA budgets in the meantime, the trade group says.