Geographic Volatility in Home Health Spend Remains Largely Unexplained

There is financial inefficiency and waste in home health care, which is highlighted by the variation in spend across the country, according to a new study.

The study — published this month in ​​the American Journal of Managed Care — examined U.S. counties where at least one home health agency served 11 or more beneficiaries in 2016.

In order to see if there were cost inefficiencies, Robert Schuldt, one of the authors of the study from the University of Arkansas, along with his co-authors, looked at county-level Medicare home health costs per home health patient.


“We were really trying to get a better understanding of what were the primary drivers driving this variation that we’re seeing,” Schuldt said. “Was what we’re seeing explained by the patient populations themselves? By state policy? We were just trying to do an updated version of that considering the extreme growth in the [space] that has occurred over the past decade or so.”

In theory, home health providers should spend close to the same amount of money on a patient no matter where that provider is located.

However, the study found that there is a 2.5-fold spending difference per patient between providers in the counties in the 90th percentile of spending, compared to those in counties in the 10th percentile of spending.


“We typically shouldn’t see a two and a half, three times difference between those two,” Schuldt said.

Home health utilization, in Schuldt’s view, is a function of the patient, the home health agency and community characteristics. Who the patient is, and whether an agency is a nonprofit or a private business, can also affect an organization’s behavior.

The community aspect was something the authors believe hasn’t been explored enough and was a critical component to dig into. The study looked at hospital beds on a per capita basis, the number of skilled nursing facilities in a county as well as the number of home health agencies to see if the variation was driven by Medicare and Medicaid expansion.

“What was fascinating was that once we added in all of these variables, added in these controls, we still saw that 40% of the variation remained unexplained,” Schuldt said. “In our mind, that was kind of the end. Our conclusion is that we do observe a large amount of variation — and when we observe a large amount of variation that’s unexplained — that’s where we get this indication of waste and inefficiency.”

Patient characteristics explained only 16% of the variation in home health expenditures, the authors wrote. Meanwhile, more than 40% of spending variation remained unexplained.

Even when researchers removed the three states with the highest rates of variation – Texas, Oklahoma and Louisiana – that only dropped the 90th-to-10th-percentile ratio from 2.5 to 2.0.

Home health demand will continue to grow in the coming years. Because of that, the authors argue that substantial strategies and solutions to reduce unwarranted geographic variation are needed.

“What we encouraged in this paper to do is for there to be more collaboration between CMS and states themselves,” Schuldt said.

Another policy suggestion from the authors was for the industry to implement a more impactful physician visit system.

“We did find, for the most part, once a physician approves an episode of care and looks at a patient once, they keep reapproving it,” Schuldt said. “Which may be contributing to what we observed here.”

Another variation that Schuldt found to be interesting is that the higher spending counties have a much higher proportion of for-profit home health agencies than those that were lower spending.

“The message that this paper drives is that there is very high variation in expenditures in home health,” Schuldt said. “We know that this is a program people want. You ask anyone where they would like to age and they will say they want to age in place in their home. But what we do need to do is work with Medicare and states on reducing this unwarranted variation because, right now, we don’t really have a good explanation for it.”

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