Home Health Care Firms See 19.4% Profit in 2010, MedPAC Recommends Less Payment

Medicare payments to home health care providers increased more than the costs of the services in 2010, prompting the Medicare Payment Advisory Commission (MedPAC) in its March 2012 report to recommend that Congress rebase the payment system and lower payments in 2013.

The industry saw rising profits in 2010 with a 19.4% margin, compared to 2009’s 18.2% margin, but MedPAC projects a reduced margin of 13.7% in 2012 after incorporating certain policy changes for payment updates in 2011 and 2012.

“These update recommendations can significantly change the revenues providers receive from Medicare and help create pressure for broader reforms to address the fundamental problem in FFS payment systems—that providers are paid more when they deliver more services without regard to the quality or value of those additional services,” says MedPAC.

In 2011, about 3.4 million Medicare beneficiaries received home health services from almost 11,900 home health agencies, according to MedPAC, and Medicare spent about $19.4 billion on home health services in 2010.

The report speaks to “generally positive” indicators of payment adequacy, including “generally adequate” access to home health care for Medicare beneficiaries, favorable health results for those who received at-home services and were not hospitalized at the end of their home health care stay, and sufficient access to capital markets for the major publicly traded for-profit home health companies.

Additionally, payments in 2010 “consistently and substantially exceeded costs in the home health prospective payment system (PPS),” with the year’s costs declining slightly while payments increased, says MedPAC.

“The ability of HHAs to consistently keep costs low while increasing revenue has contributed to the high margins HHAs have garnered under PPS,” says the Commission. “The high margins for home health care in 2011 reflect that payments substantially exceed costs and that the PPACA reductions and administrative adjustments by CMS have not significantly reduced payments.”

Because of these indicators, which are similar to the previous year’s, MedPAC repeated its recommendation to Congress that the home health payment system be rebased beginning in 2013, a policy that would lower payments beginning that year.

Also recommended are “changes to the home health case-mix system that would base payments for therapy services on patient characteristics and reduce incentives for selection of certain types of patients; that the Congress implement a copay for certain home health episodes to address the volume-rewarding aspects of the PPS; and that the Secretary use her authority to investigate and stop fraud and abuse in areas with aberrant patterns of utilization.”

The Commission cited cost growth that can change from year to year depending on economic conditions, relative market power, and other factors, leading to its suggestion that Medicare payment policy shouldn’t be designed simply to accommodate the level of cost growth a sector demonstrates, but rather a more comprehensive look at a “broad set of payment adequacy indicators.”

Read the full report here. Home health care services are covered in Chapter 8, beginning on page 211.

Written by Alyssa Gerace

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