Healthcare Reform Cuts Disproportionately Target the Home Care Industry
If the health reform bill currently before Congress gets passed, the home health industry is at risk for detrimental cuts in Medicare reimbursements amounting to as much as $55 billion over the next 10 years. Yet, according to industry data analysis conducted by Healthcare Market Resources, these proposed cuts are based on home heath industry profitability rates that are overinflated.
MedPAC Profit Calculations Exclude Hospital-Based Home Health Agencies
The Medicare Payment Advisory Commission’s (MedPAC) January 2009 analysis of Medicare payment levels excluded hospital-based home health agencies from their profit calculations. MedPAC considered this sector as “inefficient producers,” due to overhead allocations these agencies receive from their parent organizations. According to Healthcare Market Resources data, however, hospital-based agencies serve a financially less attractive population compared to freestanding providers. This data is listed in Table 1 and summarized below:
Hospital-Based Home Health Agencies Versus Freestanding Providers
- Freestanding agencies receive 18.3% more reimbursement per episode than hospital-based agencies.
- Freestanding agencies have 27.0% less episodes with Low Utilization Payment Adjustments (LUPAs), which pay roughly 10% of the full episode rate. That means that hospital-based agencies are serving more patients with short-term needs for whom the reimbursement is considerably lower, but the per-patient indirect costs remain the same.
- Freestanding agencies have a higher full episode average case weight. This case weight is 7.7% higher than hospital-based agencies, which results in higher reimbursement—and generally more profitability—for the freestanding agencies. The difference in case weight is due to freestanding patients being assessed with higher clinical needs and more functional limitations. In both areas, freestanding agencies have a higher percentage of patients in more demanding categories—53% more with higher clinical needs and 9% more with lower functional status.
- Freestanding agencies are more likely to care for patients with primary chronic diseases or conditions that are rehabilitation intensive; hence, they end up with a more profitable patient population compared to hospital-based agencies. The most common chronic diseases of freestanding agency patients include diabetes, endocrine and nutritional disorders, and skin and musculoskeletal disorders, while predominant rehabilitative conditions for this sector include stroke and nervous system disorders. Thus, it is not surprising that freestanding agencies’ clients usually stay on service longer with episodes per discharge being 22.3% higher compared to hospital-based agencies. In addition, freestanding agencies’ patients tend to enter the system earlier in the recovery process. This explains why freestanding agencies provide meaningful therapy services to 18.1% more of its patients. Plus, freestanding agencies are 8.5% less likely to receive patients from a rehab setting compared to hospital-based agencies.
- The fully loaded cost to deliver care is less for freestanding agencies compared to hospital-based agencies. The differences in per-visit costs between the two sectors vary greatly—between 1.3% and 33.6%. If the sole reason for the differences in cost was the overhead allocation that hospital-based agencies receive from their parent organizations, these differences would be more uniform. Since they are not, MedPAC’s conclusion that hospital-based agencies are “inefficient producers” seems suspect.
- Freestanding agencies perform 14.9% more visits per full episode, which is primarily due to 32.1% more nursing visits. This is not surprising since these agencies tend to take care of patients with the types of chronic conditions that are typically more profitable for home care providers. Although hospital-based agencies provide more physical therapy visits, their patients often need less intensive treatment plans. This is consistent with admitting patients more frequently from rehabilitation settings where their therapy regimens likely have already begun.
- Freestanding agencies serve a more non-white patient population, which generally means a lower socioeconomic status and caregivers are less likely to be present in the homes. As a result, freestanding agencies must provide more nursing and home health aide visits to compensate for the deficits. Since nursing and home health aide visits are more profitable, freestanding agencies would understandably experience higher profitability than hospitals.
- Freestanding agencies provide more home care visits (+7.3%). This allows them to spread indirect agency costs over a larger revenue stream, resulting in a higher profitability than a hospital-based agency.
Home Care Industry Profitability Is Significantly Overinflated by MedPAC
As this data indicates, hospital-based affiliation doesn’t justify MedPAC excluding hospital-based home health agencies from Medicare profit calculations. If the hospital-based agencies’ figures are included in the calculations, the home health industry’s profitability decreases from the current rate of 17.5% to 13.8%, according to Healthcare Market Resources analysis. Thus, Congress has an overinflated view of the home care industry’s profitability—one that leads them to conclude that this healthcare sector can withstand deep budget cuts.
Which States Will Be Hurt Most?
If the proposed budget 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 their 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.
Patient Care Accessibility Also Needs to Be Considered
Although some states will be more affected than others, the proposed budget cuts will have a detrimental impact on the overall home health industry. That’s why it’s vital we ensure the nation’s healthcare reform debate includes patient care accessibility and not just profitability as it moves forward. If you are concerned about the potential loss of patient access to Medicare home health services, be sure to call or write your representatives in Congress and let them know.
For More Information
Give us a call at 215-657-7373 or email us at info@healthmr.com for more information about healthcare industry trends, as well as ways Healthcare Market Resources data and services can be used to help your home health agency or hospice thrive in today’s challenging healthcare environment.