Home Health Industry Can Wave “Excessive” Margins Goodbye

The days of excessive profit margins in the home health industry may be over, writes Healthcare Market Resources in its latest market research letter, based on downtrending Medicare home health metrics between 2008 and 2011 that include revenue and visits per episode.

While Medicare’s home health business seemed unaffected by federal reimbursement policies in the last decade, the Medicare Payment Advisory Committee (MedPAC) has been consistently trying to lower what it terms “excessive margins.” 

Based on MedPAC’s recommendations, the government has been combining case mix creep adjustments with less than full inflation index updates, according to HMR.


For its part, the home health industry has counteracted attempts to narrow profit margins by lowering the low-utilization payment adjustment percentage, certifying patients for more additional episodes, or increasing case weight through using artificial intelligence  programs and staff development on coding and assessment along with specialized internal review resources. 

“Hospitals and skilled nursing facilities have employed similar tactics for years to legitimately maximize their reimbursement,” writes HMR. “The result was that home health margins stayed in the 16% to 18% range as calculated by MedPAC. For example, MedPAC estimated freestanding margins at 17.0% in 2008 and 17.7% in 2009.”



Image source: Healthcare Market Resources, Market Research Letter: March/April 2013

Based on analysis of Medicare claims data between 2008 and 2011, HMR concludes that Medicare revenues declined by more than 5.2% in 2011 compared to the previous year. In contrast, a similar comparison showed a 10.7% increase in revenues between 2009 and one year earlier.

“This swing in growth trends is striking,” says HMR.

The number of episodes billed also remained flat in 2011 compared to 2010—a much different trend from 2009’s 6.7% year-over-year jump in episodes. The episodes-per-discharge metric has historically driven a majority of year-to-year revenue growth for the home health industry in the prior decade, HMR notes, but this measurement declined in 2011.

Case mix creep also experienced very little growth 2010 and 2011, according to HMR’s analysis. Meanwhile, in reaction to a drop in revenues, home health agencies reduced their visits per episode by 7.9% in 2010 and another 4.5% in 2011 as they tried to save their margins.

“The days of ‘excessive’ profit margins for the home health industry may quickly be coming to a close,” HMR concludes. “Continued downward price pressure will provide an added impetus towards consolidation as agencies have few cards to play in response.” 

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Written by Alyssa Gerace