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Medicare Compliance & Reimbursement

Home Care:

MEDPAC PEGS HHA PROFIT MARGIN AT 17%

Published on Mon Dec 22, 2003

Home care benefit drops chronically ill patients, research shows. 

If the Medicare Payment Advisory Commission gets its way, home health agencies could see no inflation update to their 2005 payment rates.

After industry complaints about last year's profit margin estimates of 22 percent for 2001 and 23 percent for 2003, MedPAC researchers gathered cost data from more HHA cost reports to generate 2004's estimate.

Using data from about 3,500 freestanding agencies' cost reports, MedPAC estimates agencies' Medicare payments will be 17 percent more than their costs in 2004.

The margin suggests "more than adequate payments for Medicare costs," said MedPAC staffer Sharon Bee Cheng in a Dec. 4 meeting of the body that advises Congress on Medicare payments. Other data supporting adequate payment levels for HHAs includes:

  • The number of agencies participating in Medicare has risen slightly since the prospective payment system began;

  • in 2002 and the first half of 2003, the rapid reductions in visits per episode and length of stay seen under PPS slowed;

  • the number of home health users increased from 2001 to 2002; and

  • according to OASIS-based outcomes data analyzed by Seattle-based benchmarking vendor Outcome Concept Systems Inc., quality of care stayed about the same from 1999 to 2002.

    Thus, Cheng proposed that MedPAC commissioners consider recommending a rate freeze for HHAs in 2005. That would mean no payment increase for inflation that year.

    But a number of commissioners balked at the idea. Commissioner Carol Raphael, CEO of the Visiting Nurse Service of New York, rattled off a laundry list of costs and challenges that agencies face, especially those that serve patients dually eligible for Medicare and Medicaid.

    Commissioners noted the exclusion of hospital-based HHAs from the profit margin calculations, a problem the home care industry has been trying to bring to light as well, notes William Dombi with the National Association for Home Care & Hospice. MedPAC also continues to use a weighted average that distorts the margin.

    NAHC's own analysis of Medicare cost report data this summer showed a profit margin of only 5.15 percent for agencies. "Our updated report will be out shortly," Dombi tells MLR. "That will show a lower overall margin and a growing number of HHAs losing money under Medicare."

    The 17 percent figure is "obscene," claims Gene Tischer with the Associated Home Health Industries of Florida. Ignoring NAHC's more comprehensive evaluation - which was validated by outside experts - "when folks are dying out here" shows a deliberate move to shun home care, Tischer insists.

    Public payors have proven themselves "adversaries" to the Medicare home health benefit, Tischer continues. Policy-makers are resistant to home care because patients actually like and choose home care; the program can expand quickly since it has few capital requirements; and there is no data to show home care substitutes for costlier institutional care. "They fear it is additive," Tischer says.

    MedPAC's focus on gross margins is misplaced, charges Bob Wardwell with the Visiting Nurse Associations of America. "I know lots of VNAs that have never seen a margin anywhere near that figure and areas that are hanging on with only one HHA left, and that one is on the edge," he says.

    Some commissioners appear to share that concern, noting at the meeting that some categories of patients are reimbursed well while others are not.

    Unfortunately, the commissioners' concern about appropriation of home care funds among case mix categories "does not translate into an effort to correct the current status," Dombi says. "We will be strongly suggesting" MedPAC address the issue.

    Home Care for Chronically Ill No Longer 

    Research shows that the number of patients with "less well-defined needs for skilled care" - such as those with congestive heart failure or chronic obstructive pulmonary disease - declined in home care rolls from 1996 to 2001, while those with post-acute needs increased.

    The change shows how the benefit has refocused on patients with post-acute needs, although "there is no evidence" that chronically ill patients are being systematically excluded, Cheng said.

    Patients needing aide services are reimbursed poorly under PPS, Raphael explained. Commissioner Ray Stowers, a physician, said chronically ill patients he sees in his practice used to be able to get nearly daily aide services from agencies under cost-based reimbursement. Now it's a luxury to receive aide visits twice a week under PPS.

    As a result, many chronically ill beneficiaries must enter institutions, Stowers said. Commissioners Mary Wakefield and Sheila Burke also raised concerns about shifting patient care from home care to costlier institutional settings.

    A number of commissioners protested the shift away from chronic care as unintended.

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