Home Health & Hospice Week

‘Medicare has always overpaid for home health services,’ advisory body insists in new report to Congress.

If lawmakers listen to the influential Medicare Payment Advisory Commission, they risk “the collapse of the whole home health system.” So warns one industry veteran of the commission’s annual report to Congress released on the ides of March.

Recap: As discussed in public meetings in December and January, MedPAC calculates the home health agency Medicare profit margin at a whopping 24.9 percent for 2021, the latest year for which data is available. That’s an “historic high,” the report stresses. (See profit margin figures for the past 10 years in related story, p. 75.)

That “all-time high” margin indicates “that the increase in payments in 2021 far exceeded the increase in costs,” MedPAC emphasizes in the report. In fact, “Medicare’s payments have always been substantially more than costs,” the advisory group argues.

Even worse, if you take COVID relief funds such as Paycheck Protection Program disbursements into account, HHA Medicare margins were actually 25.9 percent in 2021, MedPAC notes.

Home health “payments continue to substantially exceed costs, as they have for many years,” the report highlights. “The high aggregate margin indicates that the HH PPS provides few incentives for HHAs to furnish care efficiently.”

Bottom line: “Medicare’s payments for home health services are too high, and the excess payments diminish the service’s value as a substitute for more costly services,” MedPAC tells lawmakers. Thus the commission recommends “for calendar year 2024, the Congress should reduce the 2023 Medicare base payment rate for home health agencies by 7 percent.”

HHAs’ Costs Underreported Due To Telehealth Exclusion

As usual, MedPAC’s take on this is far from accurate — and may prove downright dangerous, industry representatives warn.

For one, MedPAC’s profit margin calculations suffer from a number of problems, including that they only include figures for freestanding HHAs. Hospital-based agencies had a margin of -18.1 percent in 2021. “The lower margins of hospital-based HHAs are attributable chiefly to their higher costs, some of which are a result of overhead costs allocated to the HHA from its parent hospital,” the report notes.

Another flaw is that costs for telehealth visits don’t count toward HHAs’ costs. “If telehealth visits had been counted, the 2021 per visit payment increase would likely have been lower,” the report admits. That issue will be at least partially addressed when the Centers for Medicare & Medicaid Services requires HHAs to report telehealth codes starting in July.

MedPAC’s 7 percent rate cut rec for home health “suffers from the same shortcomings as its past recommendations,” National Association for Home Care & Hospice President William Dombi tells AAPC. The recs “are based on a siloed review of traditional Medicare along with a failure to include all providers and all necessary costs of care,” Dombi argues.

“The reality is that the MedPAC margin calculation is not a profit margin, as home health agencies rely on that margin to subsidize Medicaid and Medicare Advantage underpayments,” Dombi continues. “Considering that reality is no different than MedPAC considering that other providers have high margins through commercial payers to justify Medicare underpaying those providers,” he says.

Action: “We call on MedPAC to recognize the true economic model that these agencies live under where government and quasi-government payers do not pay their fair share,” Dombi exhorts. “Cutting payment rates in that context only leads to the collapse of the whole home health system,” he warns.

The report contains other flaws, in addition to those related to the profit margin figure.

Access: MedPAC persists in characterizing access to home health services as “more than adequate,” according to the report. “Almost all beneficiaries have access to home health services,” MedPAC maintains. “In 2021, over 98 percent of fee-for-service (FFS) beneficiaries lived in a ZIP code served by two or more HHAs, and 87.6 percent lived in a ZIP code served by five or more agencies,” the report offers.

However, even MedPAC commissioners themselves have said that is not what they are seeing on the ground, especially in rural areas (see HHHW by AAPC, Vol. XXXI, No. 2 and Vol. XXXI, No. 45). “The reality doesn’t seem to match what we’re seeing on the paper,” Commissioner Stacie Dusetzina, professor of health policy at Vanderbilt University Medical Center in Nashville, Tenn., said in MedPAC’s December meeting.

Falling stats: A number of key data points, including the number of providers, has also continued to fall over recent years (see related story, this page). That belies MedPAC’s assertion that home health providers are making out like healthcare fat cats.

Again, even MedPAC commissioners themselves have questioned this apparent contradiction. “If we look over the past decade, there’s actually been a smaller number of HHAs over time, and yet the payments are still very profitable,” Commissioner Amol Navathe at the University of Pennsylvania’s Perelman School of Medicine pointed out in the December meeting. “Why do we see that they’re so profitable from a Medicare payment perspective and an all-payer margin perspective, yet we see a declining number of HHAs and what looks like a lack of for-profit entry?” asked Navathe, who is the MedPAC vice chair.

Stay tuned to see whether lawmakers pick up MedPAC’s extreme recommendation during the budget negotiation process this year, which has just kicked off with President Biden’s budget proposal (see related story, p. 76).

And keep in mind that more cuts are still coming. “In 2023 CMS implemented a permanent reduction to the 30-day period base rate of 3.925 percent, half the amount required by law to maintain budget neutrality following the

implementation of the PDGM classification system and associated changes to the PPS,” MedPAC reminds. “Assuming this estimate does not change, in future years CMS will have to reduce the base rate for 30-day periods by an additional 3.925 percent to keep spending at the level required by law.”

And "CMS also found that spending in 2020 and 2021 was $2 billion above the budgetary targets for these years,

Plus: “Even after such a reduction, payments to home health agencies would remain far above costs,” MedPAC underscores.

Note: The home health chapter of the report is at  www.medpac.gov/wp-content/uploads/2023/03/Ch8_Mar23_ MedPAC_Report_To_Congress_SEC.pdf.