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by Tim Rowan, Editor

Right on schedule, on the Ides of March, the Medicare Payment Advisory Commission released its 2021 report to Congress. Chapter 8 presents Home Health 2022 payment recommendations and Chapter 11 covers Hospice. The succinct summary introducing Chapter 8's 20 pages says, "RECOMMENDATION: For calendar year 2022, the Congress should reduce the 2021 Medicare base payment rate for home health agencies by 5 percent." Hospice meets a similar fate in the 44 pages of Chapter 11. "RECOMMENDATION: For fiscal year 2022, the Congress should eliminate the update to the 2021 Medicare base payment rates for hospice and wage adjust and reduce the hospice aggregate cap by 20 percent."

 

"WE DO NOT UNDERSTAND"

Reaction from industry leadership has been rapid and detailed. "MedPAC's methodology does not make sense." The consensus of the experts we heard from are not expressing mere disappointment that Home Health and Hospice may receive fewer dollars next year. They report taking a deep dive into the specific ways in which MedPAC arrived at its conclusions and found them to lack consistency, logic, and credibility. The words "I don't understand how they..." turned up in nearly every expert's analysis, as did a concern for beneficiaries losing access to care.

 

Bill Dombi, NAHC President

"Once again, MedPAC's recommendations on payment rates for home health agencies rely upon antiquated analytics and incomplete data. A core responsibility of MedPAC is to evaluate whether rates are sufficient to secure access to care. While the MedPAC analysis posits that the existing payment rates incentivize increases in patient volume, the past 10 years has shown a loss of over 1000 home health agencies, reduced patient admissions, shorter lengths of stay, and fewer visits per episode. This has occurred at a time when home health care is recognized as an essential service with significant capabilities along with a growing Medicare population.

"The only explanation as to why MedPAC's assessments do not sync with reality is that its analysis is not well-formulated. Where the outcome that occurs is the opposite of the one forecast, something is fatally flawed in the forecast analysis. Adding to that flaw is the continuing failure to consider data from the entire home health provider community, by excluding hospital-based providers, and a refusal to consider the full economic effect of the multiple payers of home health care. It is no surprise that Congress has not followed MedPAC's recommendations in most years.

"MedPAC is now on a similar path for hospice care with its recommendations that there be no recognition of cost inflation in 2022 rate setting, and the dangerous proposal to reduce the annual aggregate cap by 20%.

• First, MedPAC relies on Medicare cost reports that intentionally do not include all hospice costs, such as bereavement support.
• Second, it is readily apparent that the cap reduction proposed would disadvantage any hospice that serves patients with a non-cancer diagnosis, such as dementia, as these patients tend to increase risk of exceeding the cap.

"We must condemn any proposal that would diminish the breadth of the hospice benefit, particularly one that could trigger the loss of care access for certain patient populations."

 

Tom Boyd, CEO, Aftercare Nursing Services

MedPAC did not use 2020 data in either its Home Health or Hospice analysis. Given the pandemic effect, that is actually no surprise. They did use 2019 data for their Home Health calculations but declared, "because of standard data lags, the most recent complete data we have is from 2019 for hospice utilization and 2018 for provider costs and margins." They are mixing apples with oranges here.

MedPAC states in their introduction to chapter 8 that the Home Health profit margin is 18 percent (page 232), an amount not reflected in their own Table 8-7, "Medicare Margins for Free Standing Agencies," where it displays a 15.8 percent national average. Here, MedPAC repeats the recommendation for 5 percent cut in Home Health payment rates.

MedPAC states in their intro to chapter 11 that the Hospice profit margin is "roughly 16 percent" (page 310). Yet, a few pages later, Table 11-14 claims a 12.4 percent national average. Their recommendation for fiscal year 2022 is that Congress should eliminate the planned update to the 2021 Medicare base payment rates. They also recommend there be hospice no wage adjustment and to reduce the hospice aggregate cap by 20 percent.

 

 

Mark Sharp, CPA, Partner, BKD

Home Health

 

I do not understand how MedPAC can justify a recommendation to cut Medicare payment rates by 5 percent. That kind of cut could be catastrophic for a large number of home health providers. Our analysis of the 2019 Medicare home health cost reports supports MedPAC's claim that the Medicare aggregate margin was 15.8 percent. However, we also show the median freestanding home health provider saw a Medicare margin of 15.2 percent. Plus, a full quarter of those freestanding agencies only saw Medicare margins of 2.0 percent. Consider the impact of a 5 percent cut on those roughly 2,500 providers. Consider the impact on their patients.

Their factors do not include hospital-based home health providers, whose operating costs are generally higher than freestanding agencies. Their reported margins are also calculated after the removal of non-allowable costs for Medicare cost reporting purposes. Non-allowable costs are not insignificant. Therefore, the margins do not reflect true business margins.

We believe focusing only on the margins for traditional, fee for service Medicare is short sighted. The typical home health provider sees Medicare replacement and other payers accounting for 30 percent or more of their patient volume. The same 2019 Medicare cost report data shows the median overall net profit margin for freestanding home health agencies is 3.6 percent, a far cry from the 15+ percent MedPAC claims.

Their report does not mention that one-fourth of freestanding home health providers incurred overall net losses in 2019 of 3.0 percent or more. This means that traditional Medicare is clearly carrying the other payers, including a significant amount of Medicare replacement payers. Access to care will be in jeopardy in many regions if traditional Medicare rates were cut by 5 percent, as proposed.

Lastly, it would be irresponsible to make such cuts within a couple years of creating a whole new payment model (PDGM), where there continue to be threats of further behavior adjustments.

Hospice

The recommendation to eliminate the 2021 market basket update is not as concerning as the home health recommendation, but still concerning. At BKD, we are not sure why MedPAC only reviewed 2018 cost report data for margin info. 2019 Medicare hospice cost reports are available; we have already reviewed them. The freestanding hospice Medicare profit margins for 2019 are in line with the 15.1 percent reported by MedPAC for 2018. However, just as with home health, the overall net profit margin drops to 8.7 percent for the median hospice provider in 2019, again with one-fourth of hospice providers losing 1 percent or more in 2019.

Even MedPAC identified the wide ranging margins in hospice in their narrative (which is also the case in home health). There will be hospices genuinely struggling without a market basket update in 2022.

With regard to proposed cap changes, we definitely can see the need for wage index application on the Medicare hospice annual payment cap. It seems fair to match the payment cap with the wage-index-adjusted payment cap. Still a 20 percent reduction in the annual payment cap could be catastrophic for a large number of agencies, or will at least require a shift in the timing of bringing patients into hospice.

BKD looks at this this way. MedPAC reported that 16.3 percent of hospices exceeded the cap in 2018. Based on the work we do and on discussions with my peers, I would guesstimate 20 percent or more hospices exceeded the cap again in 2020. Average Length of Stay among decedents was 92.6 days in 2019 according to MedPAC, reflecting a 2.5 percent increase in ALOS compared over 2018. That number will have to start coming down in order for hospice agencies to survive a 20 percent decrease in the annual payment cap, resulting in less hospice care for beneficiaries.

 

John Reisinger, CPA, CEO, IFS for Home Health

"True to its history, the MedPAC has shown its dislike for home health once again by presenting Congress with inaccurate figures. By basing its calculations on the Medicare Cost Report, which classifies many standard business costs as "unallowable," and by excluding hospital-based HHAs from its analysis, the Commissioners again overstate HHA profit margins:

• The MCR has always done a poor job of allocating costs between Medicare and non-Medicare payers.
• Non-Medicare payers get a disproportionate share of costs allocated because of the overly-simplified cost identification and cost allocation processes inherent to the MCR.
• Far too many normal, reasonable business costs have been considered non-allowable costs since before the early '90s.
• Therefore, the MCR has always understated the true costs applicable to Medicare, which in turn causes Medicare profit margins to be overstated.
• Thus, the MCR always identifies Medicare profits higher than what they would be when using any other business operating approach.
  
  

"Exacerbating this distortion, the report will confuse Congressional staffers who read it by posting one profit margin, 18 percent, in the body of the text and another, 15.8 percent, in table 8-7.

"When analyzing hospitalization rates of home health patients, MedPAC demonstrates unfamiliarity with our industry by failing to account for differences between agencies that have high populations of chronic care patients, which drive down outcomes, and agencies that have few chronic care patients. MedPAC has never known how to adjust for HHAs that handle more complex cases against those HHAs that do not.

"MedPAC expresses alarm that the number of HHAs 'increased by 80 percent from 2002 to 2013,' while failing to mention that the number dropped by almost 40 percent from late 1997 through early 2003 due to the Interim Payment System. A precipitous increase in the number of HHAs was inevitable once PPS replaced IPS and HHAs were able to actually keep profits. Though they make that 80 percent increase seem egregious, it still did not get the industry back to pre-1998 numbers.

"The best example of MedPAC's disdain for, or misunderstanding of, home health is its failure to recognize that Medicare is rarely the only payer in an agency's portfolio. The report complains, 'FFS payments are higher than rates paid by Medicare Advantage plans.'

"Of course MA payments are lower. Most of them choose to set their reimbursement rates lower than Medicare FFS rates. Often, HHAs can only afford to accept MA beneficiaries because the higher FFS rates from other patients cover the losses. If 2022 rates decrease by 5 percent, how many HHAs will be unable to afford to care for MA beneficiaries? Consider the box HHAs are in:

• MA plans set their rates lower than Medicare FFS rates, sometimes below HHA costs.
• HCFA, then CMS, have been promising since the mid-80's a new home health reimbursement methodology that would enable cost-effective HHAs to make and keep a profit.
• Previously, under cost-based reimbursement, profits had to be paid back.

Therefore, what is MedPAC proposing? Will they help home health convince MA plans to increase their rates (not likely)? Or will they strip HHAs of their long-promised right to generate and keep profits?

 

 

SUMMARY: Recommendations do not match findings

Each of our four experts has captured the same glaring inconsistencies in the 2021 MedPAC report. Though it opens with an admission that home health lowers overall Medicare costs, the report does not recommend that home health should share in any of those savings.

"Home health care can be a high-value benefit when it is appropriately and efficiently delivered. Medicare beneficiaries often prefer to receive care at home instead of in institutional settings, and home health care can be provided at lower costs than institutional care.

"However, Medicare's payments for home health services are too high, and these overpayments diminish the service's value as a substitute for more costly services."

Though it declares that beneficiary access is "more than adequate in most areas," it does not hesitate to recommend a payment reduction that will force roughly one-fourth of HHAs into a negative margin, likely resulting in closures that would eliminate access in many areas.

From the report:

"On the basis of these findings, the Commission recommends that for calendar year 2022, the Congress reduce the 2021 Medicare base payment rate for home health agencies by 5 percent."

Though MedPAC bemoans that fact that HHAs provide fewer visits per episode in 2018 and 2019 to to keep costs in line with reimbursement, it also points out that hospitalization rates of patients during home health episodes increased slightly.

In 2019, our outcome measures were mixed. The rate of home health patients who were hospitalized during their spell of home health services increased slightly, but the share that was successfully discharged to the community (did not experience an unplanned hospitalization within 30 days of the end of their spell of home health care) increased slightly.

Hello, Boomers

Lastly, it is always worth mentioning demographics. MedPAC sees the wisdom in reducing total HHA payments, not payments per beneficiary, in spite of the fact that the demand will increase.

"In 2019, about 3.3 million Medicare fee-for-service beneficiaries received care, and the program spent $17.8 billion on home health care services. In that year, over 11,300 HHAs participated in Medicare."

"This recommendation would decrease federal program spending relative to the expected payment update by $750 million to $2 billion in 2022 and by more than $10 billion over five years."

"Beneficiaries' access to care should not be affected. Lowering payments should not affect providers' willingness to deliver appropriate home health care."

This graph by Kaiser Family Foundation shows the growth of Medicare beneficiaries from 2010 to 2020. Extending the graph through MedPAC's 5-year cost-savings plan, using the lower estimate of 10,000 persons becoming eligible per day, total beneficiaries by 2027 will be nearing 80 million.

 

Here are the links to the Home Health and Hospice chapters of MedPAC's 2021 report to Congress.

HOSPICE:
http://medpac.gov/docs/default-source/reports/mar21_medpac_report_ch11_sec.pdf?sfvrsn=0

HHA:
http://medpac.gov/docs/default-source/reports/mar21_medpac_report_ch8_sec.pdf?sfvrsn=0

 

©2021 by Rowan Consulting Associates, Inc., Colorado Springs, CO. All rights reserved. This article originally appeared in Home Care Technology: The Rowan Report. homecaretechreport.com One copy may be printed for personal use; further reproduction by permission only. editor@homecaretechreport.com