Each year the Medicare Payment Advisory Commission (MedPAC) submits its annual report to Congress which contains information and recommendations related to Medicare fee-for-service (FFS) programs. This year, MedPAC recommended Congress reduce Medicare payments to home health agencies by 5 percent in calendar year (CY) 2019 and implement a two-year rebasing of the payment system beginning in CY 2020. And, further recommended Congress direct the Secretary to revise the prospective payment system to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.

MedPAC recommended the same changes last year and has been recommending the elimination of the use of therapy visits as a factor in payment for the past six years and has been recommending rebasing for several years. Congress does not have to act upon the recommendations, but, as home health agencies know, there has been action on both.

In addition to the payment recommendation, MedPAC provides a summary of analyses of various home health agency data. The analyses cover many topics and are contained in Chapter 9 of the full report. There is another chapter pertinent to home health agencies and that is Chapter 7. Here MedPAC discusses a payment system using a blend of the unified PAC PPS and current HHA PPS relative weights beginning in calendar year 2019 for home health payments. This is on the path of developing the same payment system across all post-acute care providers. This type of payment would eliminate paying for beneficiaries based on what type of entity provided the care/where the patient received the care and start paying for care based on patient characteristics.

Highlights of the Analyses

  • The total number of home health agencies decreased slightly while the number beneficiaries increased slightly.
  • Beneficiaries used 1.9 episodes of home health care in 2016, on average, with the number of episodes qualifying for higher payment due to the volume of therapy visits increasing to 48 percent in 2016 (from 37 percent in 2008).
  • Medicare margins for freestanding agencies averaged 15.5 percent in 2016, largely consistent with the 16.4 percent average for these margins between 2001 and 2015. Also in 2016, freestanding HHAs’ marginal profit—that is, the rate at which Medicare payments exceed providers’ marginal cost—was 17.4 percent, suggesting a significant financial incentive for HHAs to increase their volume of Medicare patients. The projected margin for 2018 is 14.4 percent. Two factors have contributed to payments exceeding costs: Agencies have reduced episode costs by lowering the number of visits provided, and cost growth has been lower than the annual payment updates for home health care. MedPAC stated the historical overpayments Medicare has made for home health need to be addressed.
  • MedPAC is not concerned about a significant change in the home health payment structure as data shows that quality of care was not significantly impacted during the change from a cost-based system to a prospective payment system (PPS). Furthermore, MedPAC believes that under PPS Medicare has overpaid for home health services, setting the base rate too high, as evidenced by high home health agency margins. However, what MedPAC considers an acceptable margin was not identified in the report, but MedPAC did state that Medicare margins for freestanding agencies has never been below 10 percent.
  • Concerns about fraud and abuse in the industry remain and the Commission believes continued efforts are necessary, possibly even expanded efforts.
  • The quality of care as measured by the data that home health agencies self-report to CMS (OASIS) shows that while there is room for improvement there has not been a decrease in quality. However, the Commission cautioned Congress about the quality data stating that closer scrutiny of the functional measures is necessary because these are self-reported, there is a divergent trend between the claims-based measures and the self-reported measures, and these measures are used in the Value-Based Purchasing (VBP) demonstration.

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