The Number of Medicare-Certified Home Health Agencies Is Dwindling

The number of Medicare-certified home health agencies in the United States is dwindling — and it’s a trend that started long before the Patient-Driven Groupings Model (PDGM) kicked in.

From 2018 to 2019, the number of home health agencies dropped by about 3.6%, a decrease of 427 individual providers, according the Medicare Payment Advisory Commission (MedPAC) 2020 data book. Since 2015, the home health subsector has contracted by more than 8%, with nearly 1,000 agencies exiting the market.

“The decline in agencies was concentrated in Texas and Florida, two states that saw considerable growth after the implementation of the home health Prospective Payment System (PPS) in October 2000,” MedPAC officials wrote.

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Released Friday, the MedPAC data book provides wide-ranging information on national health care and Medicare spending, in addition to beneficiary demographics and quality of care. Besides post-acute care, the data book also looks at acute in-patient services, ambulatory care, prescription drugs and more.

Established by the Balanced Budget Act of 1997, MedPAC is an independent agency formed to advise the Congress on issues affecting the Medicare program.

The fact that home health care is shrinking in terms of number of agencies isn’t surprising, as some believe the U.S. Centers for Medicare & Medicaid Services (CMS) has intentionally tried to consolidate the subsector to make oversight easier.

And while a 3.6% decrease in agencies from 2018 to 2019 is substantial, it’s likely a far cry from the “historic” consolidation coming in 2020 and into next year because of PDGM and CMS’s phaseout of Requests for Anticipated Payment (RAPs). 

“We fully expect home health market consolidation, both organic and inorganic, to continue throughout 2020 and for the next several years,” LHC Group Inc. CEO and Chairman Keith Myers said during a Q1 earnings call.

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So far, consolidation has been slower than anticipated in 2020, largely due to the coronavirus and the related financial relief measures — including the Paycheck Protection Program (PPP) — the government has implemented to prop up health care providers.

“There’s a number of agencies out there that have received checks from the CARES program, or from unique programs like PPP, and those kinds of programs have provided substantial liquidity for them,” Mark Kulik, managing director of M&A advisory firm The Braff Group, previously told Home Health Care News. “And that’s during a time that PDGM was projected to remove that liquidity and require them to be much more efficient in terms of how they run their businesses. So COVID-19 has kind of camouflaged the initial impact of PDGM.”

The only health care subsector that saw a bigger decrease in terms of number of providers from 2018 to 2019 was the long-term care hospital (LTCH) setting, according to MedPAC. The number of LTCHs dropped by 3.9% during that period.

Meanwhile, the number of skilled nursing facilities (SNFs) dropped by just 0.8% from 2018 to 2019.

Home health financial margins

In 2018, freestanding home health agencies — about 85% of all agencies — had an aggregate margin of 15.3%, MedPAC’s data book shows. The data book did not include data on margins in 2019.

Home health agencies that served mostly urban patients in 2018 had an aggregate margin of 15.6%, while agencies that served mostly rural patients had an aggregate margin of 13.8%. For-profit agencies had an aggregate margin of 16.8%, while nonprofits had an aggregate margin of 9.9%.

“The 2018 margin is consistent with the historically high margins the home health industry has experienced since [PPS] was implemented in 2000,” MedPAC officials wrote. “The margins from 2001 to 2017 averaged [16.5%], indicating that most agencies have been paid well in excess of their costs under the PPS.”

Between 2011 and 2018, episode volume declined by 8.2% and the number of users dropped 1.9%.

Similarly, the number of visits per patient decreased between 2011 and 2018.

“This decline was a consequence of two other utilization declines in this period: a decline in average number of episodes per home health patient and a decline in the average number of visits per episode,” MedPAC officials stated.

The average payment per full home health episode was $3,089 in 2018, an increase of 5.9% relative to 2011.

Health care spending

Medicare was the largest single purchaser of personal health care in 2018, accounting for nearly one-quarter of all expenditures — or roughly $3.1 trillion. Private health insurance accounted for 35% of all expenditures, with Medicaid accounting for 17% of all expenditures.

While MedPAC has been critical of Medicare home health care reimbursement levels in the past, the data book shows spending on the subsector has actually decreased over the years, comparatively.

In 2010, home health care accounted for 3% of the $517 billion the federal government spent on Medicare. In 2019, home health care accounted for just 2% of Medicare’s $787 billion price tag.

Source: MedPAC 2020 data book

The biggest Medicare spending shift from 2010 to 2019 was driven by growth in managed care, according to MedPAC. In 2019, managed care made up more than one-third of all Medicare spending, a sharp increase compared to only 22% in 2010.

Overall, Medicare spending has more than doubled since 2005’s total of $337 billion. Moving forward, the Medicare Trustees and Congressional Budget Office (CBO) both project that spending for Medicare between 2019 and 2029 will grow at an average annual rate of 6.8%, reaching the $1 trillion mark by 2022.

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