MedPAC Calls for Home Health Cost Cutting, Incentives

A Medicare advisory board is calling for reimbursement cuts to home health agencies with high rates of hospital readmissions. 

In its annual report to Congress, the Medicare Payment Advisory Commission (MedPAC) reiterates recommendations made in 2011 to revise and rebase home health payments.

Specifically, the Commission recommends that revising the prospective payment system so that it relies on patient characteristics rather than the number of therapy visits would reduce the incentive to deliver services of marginal value to the beneficiary. 


“Implementing the Commission’s prior recommendation for rebasing would reduce payments and better align Medicare’s payments with the actual costs of providing home health services,” MedPAC writes.

While MedPAC writes that overpaying for home health services has negative financial consequences for the federal budget and can cause Medicare premium hikes for beneficiaries, home health industry groups have voiced opposition to rebasing.

Home health trade groups like the National Association for Home Care & Hospice and the Partnership for Quality Home Healthcare have explicitly urged Congress to stop cuts to home health Medicare payments, arguing that the industry is already operating under a series of payment reductions, which they say rebasing will exasperate even further.


The rebasing rule will reduce Medicare payments to home health care agencies by a total of 14% over the next three years—3.5% in cuts annually until 2017.

The Centers for Medicare & Medicaid Services (CMS) also acknowledge that rebasing will leave 40% of all home health providers with negative margins by 2017. 

“By Medicare’s own admission, the 14 percent cut in the HHPPS Final Rule will drive 40 percent of providers to net losses, therefore jeopardizing Medicare’s most vulnerable patients, devoted clinicians and thousands of small businesses,” stated Eric Berger, CEO of the Partnership for Quality Home Healthcare.

For 2014, MedPAC projects the aggregate Medicare margin for home health agencies will be 12.6%.

While the issue of additional home health cuts brought about as a result of rebasing might not be much news to those already in the industry, MedPAC also makes a new recommendation in its March 2014 report that Medicare establish a program to incentivize home health agencies to reduce hospital readmissions.

About 29% of post-hospital home health stays result in readmission, MedPAC states, with “tremendous” variation among providers.

Implementing such an incentive policy, the Commission suggests, could improve care for beneficiaries, lower Medicare spending, and prepare agencies to participate in coordinated care models such as Accountable Care Organizations.

This readmission reduction policy would include a penalty for agencies that have high rates of hospital readmissions. 

MedPAC says a target rate could be established based on the performance in an index year, with agency performance in future years compared with the target rate from the index year. 

“Agencies with rates above the target would be subject to a reduction to their base rate, while agencies below it would not,” MedPAC writes.

Additionally, MedPAC recommends that Medicare should establish a “stop-loss provision” to give agencies with high readmission rates the time and incentives to put the necessary mitigation process in place.

“Due to the vital role that MedPAC plays in the development of Medicare policy, patients, advocates and providers across the home health community are hopeful that future recommendations will benefit from a complete analysis of key factors,” stated Berger.

View the MedPAC March 2014 report

Written by Jason Oliva

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