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Health Care Reform Implications: Home Health Care

I’m a tad behind where I hoped to be in terms of getting these posts out.  Its been a bit  busy over the last ten days or so but headed into the Holiday weekend, a break in the schedule affords me the opportunity to “maybe” get caught up.

Of all of the industry sectors touched by health care reform, the two most dramatically impacted from an operating perspective are DME and home care  (see my earlier post on Medical Devices and DME).  Over the last two years, home care or home health has become the target for payment reform, principally due to MedPac’s reports to Congress and CMS on the rising profitability of the industry, the year-over-year growth in agencies and utilization, and the percentage growth in Medicare spending.  Justifiable or not, the Feds never like to see any sector perform well or grow rapidly whenever Medicare and Medicaid are the dominant payer sources.  To this end, health care reform, those elements focused on home health, focused-in on realigning the trends of growing utilization, Medicare spending, and rising profitability.

  • Beginning in 2011, cap outliers at 2.5% and impose a 10% outlier cap on individual agencies.  The cap per agency is 10% of anticipated current year revenues.
  • Reduce the market basket by 1% for fiscal years 2011, 2012, and 2013.
  • Incorporate a productivity adjustment factor (offset) to the market basket beginning in 2015 (anticipated 1% average reduction).
  • Rebase the PPS starting in 2014, fully phased in by 2017.  Rebasing is meant to take into account the costs of treating more severely ill patients as found typically in efficient, high performing agencies.  In so doing, the Secretary of HHS is charged to look at case mix, the number of visits per episode, the resources used in each visit, the cost of providing care, etc.  The Secretary is also supposed to analyze the differences between agencies such as those that are free-standing, non-profit,  and institution based (hospital typically).  The Bill does provide that the Secretary cannot reduce or adjust (reduction is what is intended) reimbursement by more than 3.5% per year.  MedPac is supposed to monitor this process and issue reports reflecting changes in utilization, changes in the number of agencies, changes in access, etc. NOTE: MedPac is the principal advocate for these changes so anticipate rebasing to mean “cuts” and MedPac to issue only favorable reports on the implications/outcomes of rebasing.
  • Develop a voluntary system that seeks to create a bundled payment for certain post-acute episodes of care (yet unspecified).  Under this system starting in 2013 and continuing for five years, CMS will pay one fee to hospitals, SNFs, physicians and home health agencies (as applicable) per a post-acute discharge, covering the care provided for  a period of up to five days prior to hospital admission through the period ending thirty days post hospital discharge. Participation in the program is “voluntary” and the Secretary is charged with providing an analysis of the program’s impact and effectiveness in creating efficiency and improving care coordination to Congress by January 1, 2016.  At such time, the Secretary shall also determine whether an expansion of the pilot is warranted. NOTE: In this pilot, the goal is to reduce costs nothing more.  Hospitals and physicians are the only potential winners here and for home health agencies, the implications (negative) primarily impact fee-standing, non-hospital affiliated agencies.
  • The Secretary is required to conduct a study and submit a report for possible legislative and administrative action on home health agency costs for providing care to low-income individuals, particularly those in under-served areas with high levels of disease complexity and/or disability.  Medicare may conduct a pilot program worth $500 million to provide incentives to agencies in certain under-served areas, to expand services to care for these “targeted” individuals.
  • 3% add-on for rural visits/episodes occurring during the period beginning April 1, 2010 and ending prior to January 1, 2016.
  • Establish a center for Medicare/Medicaid Innovation in CMS that would provide some funding opportunities to agencies that implement chronic care management programs for targeted individuals.
  • Require face-to-face encounter by the physician (or applicable extender such as NP, advance-practice nurse clinician, physician assistant) within a reasonable time-frame as determined by the Secretary.
  • Physician must keep open records and documentation of Medicare home health referrals.
  • Require that physicians participate in care plan certification.
  • Require background screening and credentialing of provider, suppliers, owners and managers and require compliance plans.  Also gives CMS the authority to place a moratorium on the creation of new agencies.
  • Establishes spousal impoverishment protection for home care eligibility under Medicaid.
  • Removes barriers for access for additional home health care under Home and Community Based waiver programs.
  • Implements the Community First Choice program under Medicaid, expanding access to home care services.

One final note.  The Bill provides for the creation of an Independent Payment Advisory Board tasked with submitting legislative proposals further limiting program growth and spending under Medicare if the per capita growth in Medicare exceeds targeted spending levels.  Beginning in January of 2014, the Board’s proposals become law unless Congress has taken alternative action to curb program growth and spending.  The Board cannot raise taxes, raise Part B premiums, change eligibility standards or increase beneficiary cost-share levels – essentially limiting the Board to relying on spending reductions.  Hospitals and hospices are not subject to any Board proposals through 2019.

April 2, 2010 - Posted by | Home Health, Policy and Politics - Federal | , , , , , , , , , , ,


  1. Thanks a million for the insight. I hhave been waiting for someone to break it down for me and you did just that. I see the home health industry shrinking as we go past 2014. What can we (home health agencies) to remain profitable? Any clues?

    Comment by vince | April 4, 2010 | Reply

    • In a nutshell, follow the curve. There are three “key” things happening in home health that are shifting the direction of the industry fortunes; bending it away from a profit center driven by capturing the biggest book-share of Medicare patients. The first is the most obvious – Medicare payments will be cut. The second is that a higher payment per incident or case is going to be scrutinized, tougher to come by and molded upon industry averages to a lower common denominator. The third is that all of post-acute care is being lumped around certain hospital stays as the Feds are looking very closely at hospital discharge behavior (too soon), readmissions, and utilization of post-acute care (SNFs and home health) with an eye on up-coding. So knowing these trends, it is important for any agency to “go with the flow” and begin to trend the business in the direction that the Feds are moving.

      First, start cleansing your Medicare book and really look at efficiencies and case-mix. Matching costs and resources closer to the value trend of the encounter will still allow for adequate margins under Medicare.

      Second, expand your overall payer-mix base by adding more non-Medicare payers including a recognition that some Medicaid could be advantageous and profitable as the Feds will push more money forward for home-and-community based care initiatives under Medicaid.

      Third, focus on building solid post-acute and acute alliances with hospitals, physicians, SNFs and work proactively on your UR (utilization review) practices and care/case management algorithms. Chronic care and disease management programs are going to be winners under the new systems and the Feds are basically telling the industry this.

      Thanks for the comment!

      Comment by hislop3 | April 5, 2010 | Reply

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