Medicare Compliance & Reimbursement

MedPac pushes freeze at House hearing.

The final decision on 2007 Medicare payment rates is probably at least half a year away, but the battle over home care reimbursement is already escalating into an all-out war.

In the Medicare Payment Advisory Commission's annual March report to Congress, it recommends keeping home health agency payment rates at 2006 levels for 2007. Beneficiaries' access to home care services is good, and quality has actually increased under the prospective payment system, MedPAC maintains in the report.

HHAs Protest Omissive Profit Margin, Growth Calculations

The influential advisory body to Congress justifies a rate freeze next year in part due to HHAs' Medicare profit margins. Agencies' average margin for 2004 was 16 percent, and MedPAC estimates the 2006 margin will be 14.7 percent.

The number of home health providers and users is also growing, MedPAC points out. In 2003, 2.6 million Medicare benes used home health services, while in 2004 that number was 2.8 million.

And while the number of HHAs dropped to about 7,000 after the interim payment system in the late 1990s, 8,082 agencies were participating in the Medicare program as of October 2005.

States have seen a significant HHA boom. The number of HHAs increased by 10 percent in the last year alone, MedPAC Chair Glenn Hackbarth told the House Ways and Means Subcommittee on Health in a recent hearing on the commission's report recommendations. About one-third of the new agencies are in Texas, and Florida also has many new entrants.

Home health patients are using more services as well, the report notes. The average length of stay increased from 62 days in 2003 to 65 days in 2004. The average number of episodes per beneficiary grew from 1.5 in 2001 to 1.7 in 2004.

Finally, the Centers for Medicare & Medicaid Services projects home health spending will grow 5 percent per year from 2005 to 2015, MedPAC notes.

"Agencies should be able to accommodate cost increases over the coming year without an increase in base payments," Hackbarth testifies.

"No adverse impacts are expected," MedPAC says in the report. "This recommendation is not expected to affect providers' ability to provide care to Medicare beneficiaries."

HHAs had better stay on their toes, however. MedPAC has "assembled statistics ... to make a case for a freeze that will be very damaging," warns Bob Wardwell with the Visiting Nurse Associations of America.

But the home care industry isn't taking MedPAC's assertions lying down. MedPAC's profit margin data is way off, national trade groups charge.

The commission leaves nearly one-quarter of HHAs out of its margin calculation by excluding provider-based agencies' data, VNAA notes in a release. "The Medicare margins of hospital-based HHAs are generally much lower than MedPAC's average for all other HHAs," VNAA's Kathy Thompson says in a statement.

With provider-based data included, the 2004 Medicare profit margin is a mere 1.56 percent, the National Association for Home Care & Hospice says in testimony submitted to the subcommittee hearing.

MedPAC also gives more weight to larger HHAs by using a weighted methodology in calculating margins, the American Association for Homecare explains in a release. "There is no statistically sound reason for either of these actions."

About 20 percent of HHAs had negative Medicare margins in 2004, the commission acknowledges.

But using the more fair methodology, more than 33 percent of all HHAs had Medicare margins less than 0 percent in 2004, NAHC contends. And that number will rise to more than 42 percent with payment freezes in 2006 and 2007, the association predicts.

Agencies' margins also go way down when all payors, including Medicaid and Medicare managed care, are taken into account, the associations note.

The trade groups also took issue with MedPAC's characterization of industry growth. "The growth in the number of agencies is likely to cause concern" among law- and policy-makers, cautions Wardwell, a former top CMS official.

"Between 2003 and 2004 the total number of HHAs grew by a net total of about 335, representing growth of less than 5 percent nationally," AAH counters. But "virtually all" of the growth came from Florida and Texas. "Twenty-eight states saw a decline in the number of HHAs, seven states had no change, and the remaining 15 states had fractional increases."

And in 2004 HHAs still served about 800,000 fewer Medicare benes than in 1997, NAHC notes.

Access problems are a big threat, NAHC says. Even MedPAC itself admits only 80 percent of the benes say they have no problem accessing home care. "In 2006, NAHC does not consider 80 percent success in finding home care to be a passing grade."

Policymakers should support home care to cut Medicare costs overall, especially compared to costly institutional settings, AAH maintains. "The home health benefit is clinically effective, patient-preferred and cost-effective," AAH's Sue Mairena says in a statement.

The subcommittee didn't allow a home care provider to be an in-person witness, but Indianapolis-based health system Clarian Health Partners included the impact on its home care businesses in its testimony. An HHA rate freeze would cost Clarian $400,000 from 2007 to 2009, and the hospice inflation rate reductions President Bush proposes would cost Clarian $100,000, Clarian CEO Daniel F. Evans testified.

Editor's Note: The MedPAC report's home health chapter is at www.medpac.gov/publications/congressional_reports/Mar06_Ch04b.pdf.