HMR Predicts Home Health Agencies Are at Risk for Detrimental Health Reform Cuts Due to Over-Inflated Industry Profitability Rates

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Dresher, PA – The home health industry could be the next victim of the health reform scalpel resulting in a $55 billion loss in Medicare reimbursements over the next 10 years, predicts Healthcare Market Resources (HMR), a leading provider of custom data for home health agencies and hospices. According HMR’s analysis of industry data, the current health reform bill puts home health agencies at risk of substantial cuts due to overinflated industry profitability rates.

In the Medicare Payment Advisory Commission’s (MedPAC) January 2009 analysis of Medicare payment levels by sector, the profit calculations of hospital-based home health agencies were excluded. This is primarily because MedPAC considered hospital-based home health agencies as “inefficient producers,” likely based on the overhead allocations they receive from their parent organizations. HMR contends, however, that hospital-based agencies serve a financially less attractive patient population compared to freestanding agencies.

Because of a less chronic patient population, hospital-based facilities tend to have shorter lengths of stay. This results in less reimbursement and fewer visits, while the cost to deliver services comes at a greater price tag. As a result, these agencies have proportionately higher indirect costs resulting in lower profitability levels. “Leaving this sector out of the equation based solely on their hospital-affiliated status is not reason enough as MedPAC would assert,” Healthcare Market Resources’ CEO Richard Chesney stated, “Because their patient population is so different, hospital-based home agencies should be included in the calculations.”

In addition, the MedPAC January 2009 report examined seven categories of service providers and also excluded the profit calculations of hospital-based agencies in both the dialysis and home health sectors. These financials are not calculated into the hospital profitability reports either, making the overall analysis incomplete. By not taking into account these lower profit margins, Congress incorrectly concludes that the home health industry can sustain deep cuts to curb what they view as a healthcare segment with huge levels of profitability.

“If you include hospital-based home health agencies’ figures in the calculations, the industry’s profitability rate drops from 17.5 % to 13.8 %,” explained Chesney. “Therefore, Congress’ current proposed cuts are based on figures that show home health industry profitability at a higher level than it actually is.”

If the proposed cuts do go into effect, states in which hospital-based facilities are the dominant providers will have to grapple with whether they can continue to deliver current levels of services. In Oregon, Montana, North Dakota, South Dakota and Nebraska, for example, more than 50% of home health agencies are hospital-based. Furthermore, states with hospital-based agencies that receive more than 50% of the Medicare reimbursement include Alaska, Oregon, North Dakota, South Dakota and Arkansas.

“As government officials look for ways to reform our nation’s healthcare,” Chesney concluded, “the debate should focus on patient care accessibility versus solely profitability.”

For additional information about the key factors that drive revenue and have the greatest impact on profitability rates of hospital-based facilities, refer to Healthcare Market Resources’ data posted at

Healthcare Market Resources, Inc., is a leading provider of custom data for home health agencies and hospices. Its customized local market reports give healthcare leaders a competitive edge for business development and strategic planning initiatives. The insight gained from these marketing tools enables home health agencies and hospices to benchmark their financial, operational, and market performance against their competition. More information about Healthcare Market Resources and the data and services it provides is available at

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