Home Health & Hospice Week

The effort to win more Medicare reimbursement for home health agencies has received a strong shot in the arm from new study findings.

The average profit margin for Medicare-certified agencies under PPS (from October 2000 to June 2002) has been 7.12 percent, say results from a study of 6,424 HHA cost reports under the prospective payment system. That's compared to the staggering 21.9 percent profit margin the Medicare Payment Advisory Commission claimed for 2001 in its March report to Congress this year.

The National Association for Home Care & Hospice conducted the study and had it verified by Muse and Associates. NAHC's study replicates the MedPAC study but uses a much larger sample size, says Muse, a Washington, DC health policy firm that provides cost estimates and analysis.

More than 30 percent of HHAs had a Medicare profit margin of zero or a Medicare loss in the 2001-2002 fiscal year, NAHC discovered in its cost report analysis. Taking the 15 percent cut and the elimination of the 10 percent rural add-on into account, NAHC expects 37 percent of providers to break even or see a loss on Medicare in 2003.

Average Profit Margins - A 10 Percent Loss

The average margin for rural agencies in 2003 will be a loss, at negative 10.36 percent, NAHC says. For all HHAs, the margin will be a slight 0.25 percent.

HHAs averaged a 5.15 percent profit margin overall on their most recent single cost reports, NAHC says.

NAHC's findings vary drastically from MedPAC's findings for a number of reasons, the trade association explains. For one, NAHC's sample size was significantly greater - more than 6,000 versus more than 600.

And MedPAC excluded hospital-based agencies' reports and many New England-based providers' reports from its analysis.

NAHC's cost report data also was more recent than MedPAC's. However, the more recent cost reports the association used also were unaudited and lacked partial episode payment (PEP) adjustments.

The industry hopes once legislators see HHAs' true profit numbers, they'll quit eyeing agencies as fat cats deserving of reimbursement reductions to fund a prescription drug plan this year. The negative 10 percent margin "provides agencies with a strong case for restoration of the rural add-on at 10 percent, not just the 5 percent level," insists Susan Young with the Home Care Association of New Hampshire.

The findings are causing a stir among congressional leadership, says NAHC's William Dombi. And they're "recharging some of our supporters," he tells Eli.

But how it will affect home care-related legislation in the long run remains to be seen (see "Legislation:  See Your Future in Current Legislation"). "We are still in the middle of the game and it's too early to gauge the outcome," Dombi notes.

Declining Use of Home Care Costs Medicare, MedPAC Says

Another boost to the home health industry's efforts come from the entity that caused all the profit margin controversy to begin with - MedPAC. Costly inpatient care utilization has gone way up and post-acute care use has gone way down since the Balanced Budget Act of 1997, the advisory body says in its June report to Congress. That dynamic is costing the Medicare program money, says the June 3 report.

Statistics included in the report highlight the BBA's decimation of the industry. Community referrals to home care fell by half from 1996 to 2001, and post-hospital discharge referrals fell 10 percent in that time period, MedPAC says.

Episodes in which patients discharged from a hospital received solely home health declined almost 50 percent in that period, while post-discharge skilled nursing facility-only episodes were up 28 percent.

And while home health spending fell by half from '96 to '01, SNF spending increased 37 percent, rehab spending went up 20 percent and long-term care facility spending jumped a whopping 87 percent. MedPAC finds "substitution of SNFs for home health services following hospital discharges," the report spells out.

"Since the implementation of the PPS, home health use has refocused from chronic maintenance care to rehabilitation and recovery," the commission says.

The bottom line: The decline in home care use is costing Medicare money in higher inpatient outlays. "MedPAC data indicates that beneficiaries are moving to more costly [long-term care hospitals] and SNFs for care they used to receive at home," notes Warren Hebert of the Home Care Association of Louisiana.

The combination of the MedPAC information and NAHC's analysis "should support no further home health reductions through either a co-payment or reductions in the home health market basket" inflation update, Hebert insists.

Editor's Note: NAHC's study is at www.nahc.org. MedPAC's post-acute findings are in Chapter 5 of the June report at www.medpac.gov/publications/congressional_reports/June03_Entire_Report.pdf.