Home Health Outlook: 2013
In spite of best intentions, wicked winter weather across the middle U.S. has kept me off-track a bit and thus, I haven’t quite met my goal of having these all published by Valentine’s Day. Below is my and my firm’s consensus Outlook on the Home Health industry for calendar year 2013 (part FY 2014).
Summary Comments: While we are bullish on organic patient volume growth, we are tepid on earnings growth for most providers. The primary reason? A continued federal onslaught to reduce and rebase, Medicare payments to providers. Where we are bullish for the future is the prospect for industry growth in “new” payment models; namely ACOs and Bundled payments. The trick with these new payment models is for the industry to fine-tune its role, its operations, and its ability to manage a more risky patient profile than found in the traditional, downstream fee-for-service environment of current. The very nature of the new payment models is to shift or transfer certain risks to lower cost providers. In this role, the post-acute industry and Home Health specifically, will find that managing a more complex patient is required while doing so efficiently and economically is the overarching requirement for success.
In the interim period as the industry is finding new footing in the ACO/bundled payment environment, revenue crunch will continue. Medpac is recommending continuing rate reductions principally via rebasing the Home Health PPS and eliminating the market basket adjustment. Muddying this approach a bit is the loom of Sequestration cuts. Additionally, states continue to struggle with Medicaid. In October and in briefs of support on behalf of California to reduce provider payments, CMS and the Obama Administration argued in favor of a state’s rights to reduce provider payments. While California is an outlier in terms of state fiscal health, the resulting support from CMS implies wide latitude will be given to states in terms of structuring payments if in fact, the states can provide supporting evidence that access will not be compromised. Our quick assumption is that most provider segments demonstrate enough overall capacity that states will win the argument that rate reductions won’t adversely impact patient access.
Medicare : Thanks to prior decade payment machinations set-up by Congress to address a perceived access issue to patients requiring more therapy, the industry has since felt a backlash of negative activism with regard to Medicare and perceived (and in some cases real) overpayments for care. As convoluted as this sounds, the crux is that Congress incented certain behaviors, providers took advantage of the incentives and all of sudden, Congress rises again and screams “fraud”. Coincidentally, the FRAUD cry came when margins for providers crept near 20% on their Medicare book of business. Suffice to say, we didn’t see anywhere near the fraud alleged moreover, providers properly taking advantage of an imbalanced payment system. The whole story here reminds us a favorite children’s book: “If you give a Moose a Muffin….”.
Medicare spending on Home Health approximates $19 billion. Per Medpac, margins in 2013 on average, should be 11.8%, down from 14.8% in 2011. The change is entirely due to rate cuts and market basket adjustments. Effectively, CMS has been imputing rate reductions for what it believes are agency inappropriate case-mix reporting and utilization. The ultimate challenge facing the industry is rebasing: A rebalancing of sorts, adjusting payments across the 153 HHRGs to more accurately reflect (CMS language) provider costs of providing care and desired outcomes of care as measured by OASIS – the industry clinical and functional assessment tool.
If we follow the Medpac/ACA pathway and assume CMS and Congress stays the course similarly, what we see is as follows.
- Rebasing in 2014 -2016: The ACA directs the Secretary to accomplish this task with no more than a 3.5% reduction in payments in any one year equalling a cumulative impact (reduction) of 14% by 2016.
- In 2015 and all following years, market-basket adjustments are offset by a productivity factor.
- Net one and two above for the actual rate impact – a positive market-basket minus the productivity factor still positive, reduces the rate cut impact, etc.
Medicaid: Coverage under Medicaid for Home Health varies widely state to state. States that have adopted and aggressively expanded Home and Community Based Services programs offer more expansive coverage than states that have not. The trend we are seeing literally state to state is a global re-think of HCBS coverage and payments. HCBS has grown in popularity and states are finding that while attractive, the programs are fraught with adverse selection risk (way more beneficiaries in queue than the states believed or desired and spending levels higher than forecasted).
Under Medicaid, each state is only required to offer coverage for Home Health to individuals receiving federal income assistance (Social Security and AFDC) as well as individuals who meet specific need categories such as the blind, disabled, etc. States may expand upon the eligibility criteria but are not “required” to under federal law.
We have seen most states widely expand eligibility, principally as a means of forestalling institutionalization. Most of this expansion occurred pre 2008 or pre financial collapse. Today, states are re-considering the impact of expansion and many, like California are seeking injunctive relief from CMS. What we don’t know as of yet is how Home Health, Medicaid and Medicaid expansion all fit together. We think most states will approve Medicaid expansion hoping that the influx of federal dollars will abate the need to cut programs and payments, some no doubt negatively impacting the Home Health industry. From our view, it is entirely a per state guessing game as each state has different fiscal challenges and different levels of Medicaid enrollment. Thus, we also believe each state will de facto ration any new dollars from the federal government into Medicaid programs that the state believes are a priority. In short, our consensus outlook on Medicaid for Home Health is flat as we are taking a wait and see approach. We are confident however, that HCBS programs will not significantly grow and in most states, will continue to contract in terms of payment and enrollment (states capping program enrollment).
A final Medicaid comment concerns the number of states aggressively moving toward “managed” Medicaid. While early in this transition, this movement may prove fruitful for Home Health agencies if they can plow the dual eligible ground and show high quality and lower overall spending. Managed Medicaid exists, in theory, to help states constrain program growth via redirecting utilization and redirecting payments. High quality, lower cost services are favored and thus, Home Health agencies properly aligned may do well in this environment. Careful negotiation and skilled care management of patients between provider segments is required to profit and achieve tangible volume.
Other/Miscellaneous: In 2012, the OIG/CMS released a report regarding inappropriate billing activities among certain Home Health agencies. The report indicated that within certain geographies and among certain agencies, across 6 measures of questionable billing practices, the OIG noted that one in four agencies exceeded the threshold in at least one of the 6 measures used, thus indicating possible billing abnormalities. The states with the most suspect agencies with billing anomalies are Texas, Florida, California and Michigan.
In the 2013 OIG workplan, focus is provided for the HHA face-to-face requirement. In a 2012 report, OIG found that only 30% of beneficiaries received an actual face-to-face encounter with the physician that ordered their care. Additional focus is provided on agency screening tasks required to eliminate employment of individuals with precluded criminal history. Finally of note, the OIG will focus on OASIS submissions from providers. Specially, the OIG is looking to make sure providers are submitting their required assessments plus including proper billing codes matching the assessment data.
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