The upcoming sequestration, which cuts Medicare reimbursements to health care providers by 2%, could be the straw that breaks home health care agencies’ backs in an industry that has been experiencing rate cuts for years.
The impact of sequestration is expected to be particularly acute in the healthcare industry, according to public accounting and consulting firm CliftonLarsonAllen LLP, and even more so for home health agencies.
“It has a larger effect on home health agencies because they’ve been sustaining cuts to rates for the past few years,” says Gregg Hathorne, partner at CliftonLarsonAllen. “Given those cuts, that 2% could basically mean existence or not, for agencies that are treading a very thin margin.”
While the home health industry received something of a reprieve to its market basket adjustment for fiscal year 2013, he says, it wasn’t excluded from the across-the-board sequestration cuts, which are expected to have a “significant impact.”
A majority of home health agencies are small and either family-run, owned by smaller proprietary agencies or non-profits, or are governmental in nature, according to Hathorne. Sequestration could substantially affect their margins and whether or not they can hire more employees or sustain operations, he says.
Health care providers in general, including home health agencies, are facing a “monumental shift” in revenue cycles with sequestration about to take effect, says CliftonLarsonAllen.
Medicare reductions will total about $11.1 billion from April 1 to March 31, 2014, according to the U.S. Office of Management and Budget. Providers are expected to see a reduction in reimbursements for services provided starting April 1, if sequestration goes into effect as planned.
The impact on the home health industry is still unclear in some respects, Hathorne says, based on how providers are paid for episodes of care rather than providing a service in full and then filing a reimbursement claim.
Home health providers get paid in two parts: about half up front or within about 15 days of filing an initial claim, then the rest after filing a final claim once the full service has been performed. As of now, it’s unknown whether cuts will be applied retroactively to the full episode of care, or just the “settle-up” from the final claim, says Hathorne.
“There’s still a little bit of uncertainty for providers who are paid up-front for an episode that started prior to April 1,” he says. “It could be that that half won’t be subject to sequestration cuts, while the rest of it that occurs after April 1 will be.”
The home health care industry will sustain “a bit of an unfair share of sequestration’s impact” compared to other health care providers, but it’s expected to pull through.
“Home care’s future is going to drive health care’s improvement in the country,” Hathorne says. “It’s such a resilient [industry] and has sustained so many challenges in the past, and it will have to sustain more.”
Written by Alyssa Gerace