MedPAC Pushes for 7% Medicare Payment Cut for Home Health Agencies

Despite reimbursement pressure tied to the Patient-Driven Groupings Model (PDGM), the overall home health care outlook remains relatively rosy for 2020, the Medicare Payment Advisory Commission (MedPAC) believes.

But that rosy outlook may signal a payment cut come 2021.

MedPAC officials discussed the U.S. post-acute care sector’s outlook earlier this month during one of its monthly public meetings. The commission — established by the Balanced Budget Act of 1997 — regularly meets as part of its mission to inform Congress on Medicare spending and policy.


In their most recent meeting, MedPAC officials discussed updated home health care margin data, debating whether agencies are still too profitable, a question the commission has weighed for years. Along those lines, the commission also touched on the ongoing shift toward Medicare Advantage (MA) and away from fee-for-service Medicare. 

Historically, home health Medicare margins averaged better than 16% from 2001 to 2017, according to MedPAC.

“Medicare has overpaid for home health since the [Prospective Payment System] was established. The fact that home health can be a high-value service does not justify these excessive overpayments,” one official argued. “These overpayments do not benefit the beneficiary or the taxpayer.”


In 2018, the average home health fee-for-service Medicare margin checked in at 18%. MedPAC estimates that margins for 2020 will hover around 21%.

“This is a result of several payment and cost changes,” the official said.

In turn, MedPAC is urging Congress to reduce the calendar year 2020 Medicare base payment rate for home health agencies by 7%.

Broadly, MedPAC has long pushed back against high home health margins, though the industry itself says the commission’s analyses are deeply flawed and unfairly inflated. Indeed, many cash-strapped home health agencies operate with margins in the low single-digits.

While Medicare margins remain robust, all-payer margins — which include MA — are about 4.3%. 

Currently, the average home health agency gets about 55% of its funding from Medicare. MA usually accounts for roughly 15% of the average agency’s reimbursement stream, according to MedPAC.

“We’ve heard anecdotally that some … agencies have been successful in getting better rates,” the same MedPAC official noted. “I don’t think they would characterize them as favorable relative to fee-for-service, but I think today, in general, the complaint is they’re paid less on a per-visit basis than the fee-for-service business, but probably in many cases they’re paid a little better than they were ten years ago.”

Access to care

Medicare spent $17.9 billion on home health services in 2018. Reimbursements were spread out across more than 11,500 agencies. In total, home health providers delivered about 6.3 million episodes to 3.4 million beneficiaries.

As in previous years, the supply of providers and access to home health appears “to be very good,” according to MedPAC. More than 80% of beneficiaries currently live in a zip code served by five or more home health providers, while 98% live in a zip code served by at least one provider.

Some industry leaders, however, believe access to care may suffer because of PDGM and other headwinds coming in 2020, including federal policymakers’ plan to start phasing out Requests for Anticipated Payment (RAPs).

“If [PDGM] hits full force, there will be carnage, unfortunately,” Amedisys Inc. (Nasdaq: AMED) CEO and President Paul Kusserow said in September during the 2019 Home Health Care News Summit in Chicago. “And then there will be a lack of available home health care services.”

Based on current patterns, the Centers for Medicare & Medicaid Services (CMS) expects that payments for nonprofit, facility-based and rural agencies will increase under PDGM. CMS anticipates payments decreasing for for-profit, freestanding and urban agencies.

Finally, in terms of quality of care, MedPAC officials highlighted an ongoing discrepancy between an improvement in functional scores and stagnating re-hospitalization rates.

Specifically, “patient improvement in walking or transferring” has steadily improved from year to year. In contrast, hospitalization and ER use rates have had a mixed annual trend, but have not changed significantly in most years and do not show the same substantial improvement as the functional measures.

“The contrast in these two groups of measures is striking,” the MedPAC official said.

MedPAC’s next public meeting will be held Jan. 16-17 in Washington, D.C. The full transcript from MedPAC’s most recent meeting is available here.

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