Medicare Cuts Threaten To Destabilize Home Health Workforce

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Medicare-reimbursement cuts to home health agencies in 2023 threaten to destabilize the workforce, namely through handcuffing operators by limiting their ability to offer competitive compensation.

The 2023 home health proposed payment rule from the U.S. Centers for Medicare & Medicaid Services (CMS) seeks to cut agency payments by an aggregate 4.2%, or $810 million, next year. In addition to immediate cuts, the proposal would pave the way for CMS clawbacks and future downward payment adjustments.

If CMS moves forward with such reductions, providers will be affected in several ways, from their capacity to invest in new service lines and technology, to their ability to engage in M&A activity. More than anything, though, I believe agencies will be forced to take a hard look at their operational expenses and reconsider how much they can pay their clinical teams.


In this week’s exclusive, members-only HHCN+ Update, I examine recent compensation trends among providers and explore the proposed payment rule’s potential impact on the home health workforce.

The home health job market has long been a competitive one, with clinical staffing shortages existing prior to the onset of the COVID-19 pandemic in early 2020. But as a result of the public health emergency, thousands of RNs, LPNs, therapists and other professionals suddenly left the field – exacerbating an already dire situation.

To bring these individuals back into the workforce, many providers have increased their wages while offering substantial sign-on bonuses and hazard pay. In 2021, the average hourly rate for registered nurses working for home health agencies, for example, increased 2.98%, according to the Hospital & Healthcare Compensation Service. The hourly rate for PTs increased 2.52%.


Some operators have increased their wages far above industry averages as well, especially as inflation has worsened in 2022.

For context, LHC Group Inc.’s (Nasdaq: LHCG) home health salaries and wages cost per visit, inclusive of sign-on and retention bonuses, increased 8.1% from the second quarter of 2021 to Q2 2022. At Amedisys Inc. (Nasdaq: AMED), year-over-year total cost per visit increased 6.8% in Q2, “primarily due to planned wage increases, wage inflation, sign-on bonuses, higher new-hire pay” and other workforce factors, according to the company.

The Baton Rouge, Louisiana-based Amedisys, which has about 21,000 employees across its nearly 530 home health and hospice care centers, cited this information in its public comment on the 2023 proposed payment rule.

“ … [Home] health providers are experiencing a significant surge in labor costs,” its comment explains. “Salaries and other incentives necessary to recruit and retain a full workforce of home health providers have continued to escalate the costs facing home health agencies.”

Home Health Care News and technology company AlayaCare recently polled 107 home-based care providers, including home health agencies, on recruitment and retention practices. The results of that poll offer further insight into compensation trends.

When it comes to caregiver wages, 58% of respondents said their organizations had initiated increases over the previous 90 days. Similarly, over half of respondents said their organizations offered new-hire sign-on bonuses, with 49% also offering last-minute shift bonuses for current workers.

On top of that, about one-third of respondents said their organizations offered hazard pay, or enhanced compensation for workers with riskier job assignments.

Of the 107 home-based care stakeholders polled, 91% said “pay and benefits” are among the most important things prospective employees look for from a potential employer.

“Salaries and other incentives necessary to recruit and retain a full workforce of home health providers have continued to escalate the costs facing home health agencies.”

– Amedisys to CMS via public comment

A recovering labor market

Ultimately, data suggests the higher compensation has brought workers back into the field. The home health workforce, in fact, has arguably recovered from the previously mentioned pandemic exodus.

In July 2022, national home health employment increased 2.6% over the previous month, according to health care research firm Altarum. On a 12-month basis, July’s employment levels were up 3.9%.

In terms of raw numbers, July 2022 had 1.57 million home health workers in the labor pool. In February 2020, just before COVID-19 began to rapidly spread in the U.S., there were about 1.55 million home health workers in the labor pool, according to Altarum.

Several home health executives have anecdotally confirmed to HHCN that they’ve felt the labor market’s recovery.

“I have 20 nurses in orientation right now,” Dorothy Davis, CEO of the Atlanta-based Visiting Nurse Health System (VNHS), previously told HHCN. “We’re a small- to mid-sized home health and hospice business, so that’s a lot of capacity we have in motion in our business right now. I’ve never had 20 nurses in orientation before.”

If there are severe Medicare cuts next year, I believe this recovery will be completely undone. With tighter margins around the lifeblood of most home health providers – fee-for-service Medicare – higher compensation to keep workers in the field will no longer be feasible.

And it’s not just about keeping today’s home health workers from leaving. It’s also about providers’ ability to financially compete with higher-paying health care settings, such as hospitals.

“Home health payments should reflect the cost of inflation, gas prices and increased cost for recruitment and retention,” one home health operator wrote in a public comment to CMS. “Home health agencies are struggling to hire staff and compete with huge increases in pay by hospitals who have received huge amounts of COVID money.”

Why should CMS care about providers’ being able to offer market-competitive compensation to clinicians? The answer to that question has everything to do with access to care.

Even as the labor market has recovered, home health agencies have struggled to keep up with service demand.

Before the public health emergency was declared in 2020, the percentage of referral conversions, or patients referred to home health that were successfully admitted, declined from 79% in 2012 to 69% in 2019, according to Homecare Homebase (HCHB), which documented the issue in another public comment to CMS.

In the last few years since the emergency was declared, HCHB data show an additional 11% decrease in referral conversions. In 2021, there were 2.1 million patients non-admitted in HCHB’s data alone, which extrapolates out to 6 million patients nationwide.

CMS will likely release the 2023 final home health payment rule at the end of October.

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