Home Health & Hospice Week

HHA profit margins fall three years straight — with more to come.

MedPAC’s report to Congress slamming home health agencies as overpaid, overutilizing fat cats couldn’t have come at a worse time.

Why? Congress is hammering out so-called “doc fix” legislation to avert a Medicare reimbursement nosedive for physicians on April 1, and that package will require a funding source. The Medicare Payment Advisory Commission’s report that maintains there is an overabundance of HHAs furnishing too many services for too much reimbursement puts a big target on HHA spending as a place for lawmakers to cut in favor of the doc fix.

Strike #1: MedPAC takes pains to point out that the number of HHAs is at an all-time high. “The number of agencies in 2013 was 12,613, almost 1,700 more agencies than the supply at the 1997 spending peak” previous to the Interim Payment System crash, MedPAC points out in this year’s annual report to Congress. 

Plus, “almost all the new agencies since implementation of the PPS have been for-profit providers,” MedPAC points out.

Strike #2: Utilization has skyrocketed, MedPAC adds. “Between 2001 and 2013, the number of home health episodes rose from 3.9 million to 6.7 million,” according to the report.

Strike #3: As always, HHAs’ double-digit profit margins make them a target for cuts. Even though margin figures are down, MedPAC points out that unaudited cost reports may make agencies’ margins even higher than reported. An audit of 100 HHA cost reports for 2011 found that costs were overstated by an average of 8 percent, CMS warns. “Because costs were overstated, the profit margin of 15 percent for 2011 was likely understated, and actual margins could have been significantly higher.”

Strike #4: Despite ramped-up fraud-fighting including provider moratoria areas and HEAT strike force actions, shady activity appears to still be in full swing in certain areas of the country. “The Commission still observes many areas with aberrant patterns of utilization,” it notes. “For example, even though Miami has been an area of concentrated effort by [the Centers for Medicare & Medicaid Services] and law enforcement agencies, this area still has a utilization rate well in excess of other areas. The persistence of aberrant patterns of utilization” suggests the fraud has continued and perhaps even increased, MedPAC says.

“Many new agencies appear to be concentrated in states that have had a number of significant fraud reports, including California and Texas,” MedPAC adds. “These states, like most, do not have state certificate-of-need laws for home health care, which can otherwise limit the entry of new providers.”

Benefit Drifting Back Toward Long-Term Care, MedPAC Worries

Strike #5: Utilization stats (see box, p. 83) also point to a problem Medicare was trying to get away from when switching from visit-based reimbursement to the prospective payment system — home care becoming a long-term care benefit. 

Stats showing lengthening average episodes and increasing numbers of episodes that do not follow a hospital stay indicate “that beneficiaries are receiving home health care for longer periods of time and suggests that home health care serves more as a long-term care benefit for some,” MedPAC warns lawmakers. “This concern is similar to those in the mid-1990s that led to major program integrity activities and payment reductions” — in other words, IPS.

“The increase in episodes coincides with Medicare’s PPS incentives that encourage additional volume: The unit of payment per episode encourages more service (more episodes per beneficiary), and the PPS makes higher payments for the third and later episodes in a consecutive spell of home health episodes,” MedPAC adds.

Plus: MedPAC knocks the 3 percent rural add-on as being unnecessary and perhaps rewarding high utilizers. “The intent of the add-on was to bolster access, but the high level of utilization in many rural areas results in Medicare’s per episode add-on being poorly targeted,” MedPAC maintains. In fact, “most payments [are] made to areas with higher than average utilization,” the Commission says.

Stats Reveal Industry’s Decline

MedPAC may be insisting the sky is falling in Medicare home health, but its own statistics suggest a different story.

Decreases: In 2013, a number of important benchmarks actually fell:

• Episodes per home health user decreased from 2.0 million in 2012 to 1.9 million (1.4 percent drop).
• Payments per home health user fell from $18.0 billion in 2012 to $17.9 billion (0.2 percent drop). That’s down from $18.4 billion in 2011.
• Agencies’ profit margins were down the third year in a row, from a 12-year high in 2010 to 12.7 percent. And MedPAC projects the profit margins will fall even further, to 10.3 percent in 2015.

HHA Spending Dwarfed By Hospital, Physician Payments

“The crux of MedPAC’s problem with our industry usually seems to be that agencies are too profitable,” observes Washington, D.C.-based health care attorney Elizabeth Hogue. “But the margins seem to be decreasing now on a regular basis,” she protests.

Comparing pre-PPS figures to now is “a red herring,” says attorney Robert Markette Jr. with Hall Render in Indianapolis. The important point is that spending and profits have been steadily decreasing over the last three years.

And “MedPAC’s main concern seems to be that the use of home health services without a hospital stay is somehow open to more abuse,” Hogue tells Eli. “Isn’t it possible that such episodes are keeping patients out of hospitals? Isn’t that a good thing?”

Bottom line: “Everything that signals growth of any kind in the home health industry seems to be a bad thing from MedPAC's point of view,” Hogue laments.

Big picture: And while MedPAC is making a huge deal out of home health cuts, HHA spending is actually only a tiny portion of the Medicare budget — about 3 percent, Markette points out. “You could wipe out half of home health spending, and it would still only affect 1.5 percent of the Medicare budget,” he stresses.

Recommendations Would Cut Billions From HHA Reimbursement

Instead of putting the brakes on Medicare HHA reimbursement cuts as the system corrects, MedPAC recommends flooring it when it comes to reductions.

“Medicare has overpaid for home health since establishment of [PPS] in 2000,” MedPAC argues. “Our recommendation would reduce payments by more than the current law rebasing.” MedPAC would eliminate the payment update too. The cuts would strip up to $10 billion from Medicare HHA spending over five years.

“Rebasing may cause some HHAs to leave the Medicare program,” MedPAC admits. “But this effect may be offset by the entry of new providers.” Agencies would probably drop out in high density areas, so “access to appropriate care is likely to remain adequate, even if the supply of agencies declines,” the Commission forecasts.

In addition to further rebasing, MedPAC al-so recommends a copayment for beneficiaries ad-mitted from the community rather than a hospital. “The lack of cost sharing is a particular concern for home health care because PPS pays for care on a per episode basis that rewards additional volume,” the Commission says. “A home health care copay would decrease use of home health care and result in lower overall Medicare spending.” MedPAC suggests a $150 amount for the copay.

Implementing a copay would decrease Medicare HHA spending by up to $5 billion over five years.

“Some studies have found evidence of adverse effects of reduced care due to cost sharing,” MedPAC acknowledges. But it cites a RAND study showing “that, on average, nonelderly patients who consumed less health care because of cost sharing suffered no net adverse effects.”

“Some beneficiaries might seek services through outpatient or ambulatory care,” MedPAC adds.

Other recommendations: MedPAC also suggests that Congress eliminate therapy utilization from the case mix formula and expand medical review in areas that show aberrant utilization.

Instead of trying to ratchet down home health spending with recommendations reiterated from previous years’ reports, Medicare should be figuring out how to encourage home health use to avoid high-cost hospital stays, Markette exhorts. That’s where policymaking can make a big impact on Medicare’s bottom line. 

Note: The report is at http://medpac.gov/documents/reports/Mar15_EntireReport.pdf.