MedPAC: Home Health Continues to Shift Away from Post-Hospital Care

Home health providers continue to see a rise in patients coming from the community instead of hospitals and other institutional settings, recently released Medicare data shows.

From 2001 to 2017, the number of home health episodes not preceded by a hospitalization or other post-acute care (PAC) stay increased by nearly 124%, according to updated figures released by the Medicare Payment Advisory Commission (MedPAC) on Friday. That trend goes against the Patient-Driven Groupings Model (PDGM) and its new patient-classification system, which sets higher reimbursement rates for patients entering home health care from hospitals and skilled nursing facilities (SNFs) — not the community at large.

“[PDGM] disincentivizes the industry from taking patients from the community,” LHC Group Inc. (Nasdaq: LHCG) CEO Keith Myers previously told Home Health Care News. “We think of home health now as a post-acute service, and we’re stuck under that label. But there’s a huge pre-acute opportunity for home health.”

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While the number of home health episodes not preceded by a hospitalization or PAC stay has skyrocketed since 2001, it has also shown signs of cooling off. Since 2011, the number of non-hospital, non-PAC home health episodes has actually decreased by about 11%. 

Home health episodes that followed a hospitalization or PAC stay increased by 14.8% from 2001 to 2011, according to MedPAC. Total episodes during that time increased by 73.3%.

In general, beneficiaries for whom the majority of home health episodes were preceded by a hospitalization or PAC stay had different characteristics from community-admitted beneficiaries. Community-admitted home health users, for example, were more likely to be dually eligible for Medicare and Medicaid, to have more home health episodes, and to have more episodes with a high share of home health aide services compared with those coming from a hospitalization or other PAC stay.

Additionally, community-admitted users generally had fewer chronic conditions, tended to be older and were more likely to have dementia or Alzheimer’s disease.

MedPAC was established by the Balanced Budget Act of 1997 with the purpose of advising Congress on Medicare issues. Lawmakers, however, are not required to act on MedPAC’s recommendations.

Overall, the number of home health agencies has been declining since 2013 after years of substantial growth, according to MedPAC. There were 12,461 home health agencies in 2014, with 11,783 in 2018.

The decline in agencies has been mostly concentrated in Texas and Florida.

In terms of profit margins, freestanding home health agencies had an aggregate margin of 15.2% in 2017. Proft margins for for-profit agencies checked in at 16.4%, while nonprofit agencies saw margins of 10.9%.

“The 2017 margin is consistent with the historically high margins the home health industry has experienced since the Prospective Payment System (PPS) was implemented in 2000,” MedPAC officials wrote. “The margin from 2001 to 2016 averaged 16.5%, indicating that most agencies have been paid well in excess of their costs under the PPS.”

Home health leaders have repeatedly criticized MedPAC’s margin reporting. Actual profit margins tend to be much lower, providers argue, and MedPAC doesn’t consider all costs incurred.

Aggregate fee-for-service Medicare spending on PAC settings has remained stable since 2012, in part because of expanded enrollment in managed care under Medicare Advantage (MA). Total PAC spending reached about $58.9 billion in 2017, with home health accounting for roughly $18 million of that. 

In 2017, less than 5% of beneficiaries enrolled in Medicare fee-for-service used SNF services, down slightly from 2011, according to MedPAC. Part of that decline is likely attributed to home health providers’ SNF-diversion, though some believe those efforts have peaked. 

“To anyone [who] would want [to] or has toured a skilled nursing asset, I would challenge you to look at the patients in our building and find patients that could be cared for in a home-based or community-based setting,” Genesis HealthCare (NYSE: GEN) CEO George Hager said in March during the 2019 Barclays Global Healthcare Conference in Miami. “The acuity levels of an average patient in a skilled nursing center have increased dramatically.”

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