The rebasing would account for the number, mix and intensity of services provided and the average cost of providing care; authorize the HHS secretary to account for differences in providers (such as hospital-based versus free-standing, urban versus rural, or not-for-profit versus for-profit providers); and limit the annual adjustments to no more than 3.5% per year, relative to 2010 payment levels.
The reason for the payment rebasing is primarily because the home health product has changed since the original prospective payment rates in 2000 were based on use of services in the late 1990s, says Bill Dombi, vice president of law at the National Association for Home Care & Hospice in Washington. Back then, there were about 34 or 35 visits per 60-day home health episode, while today it's more like 25 visits, he says.
And while skilled-nursing visits have gone up, home health aide visits have gone down. The change has been a good one for patients, Dombi says, because the visits today focus on rehabilitation, whereas the home health aide visits promoted more dependence on the home health visit—which increased utilization.
As Dombi explains, the original House version of the reform legislation included about $57 billion in cuts for home health. So while he says the amount of cuts in the final law was seen as “somewhat of a success” given the alternative, he contends the cuts—spread out over 10 years—are still large in context of overall Medicare spending.
“Of the hundreds of billions cut from Medicare spending, $39.7 billion is home health—or about 9%,” of the total cuts, Dombi says. “It's disproportionate for home health because home health is about 4% of Medicare spending.” According to the Medicare Payment Advisory Commission, Medicare spent about $19 billion on home health in 2009.
There are two primary explanations why the industry took such a hit, Dombi says. First, MedPAC has indicated that Medicare margins for the sector are too high. “In other words, that the service is overpriced,” Dombi says. “When you look at the margins, MedPAC's calculation is they average over 17%,” he says, adding that this is probably the “No. 1 reason” for the cuts. But Dombi's group doesn't agree with the advisory commission's calculation methodology, saying the analysis does not account for all costs of services in the segment, such as telehealth.
Former U.S. Rep. Billy Tauzin (R-La.), who served as chairman of the House Energy and Commerce Committee from 2001 to 2004, currently serves as special counsel to the Partnership for Quality Home Healthcare, a lobbying group established last year that represents more than 1,800 home health agencies nationwide. After retiring from Congress, Tauzin served as head of the Pharmaceutical Research and Manufacturers of America from January 2005 until June of last year. According to Tauzin, MedPAC's calculations for home health margins are overstated.
“MedPAC way overstates margins, which makes them an easy target,” he says, referring to the home health segment. “It's a horrible analysis of margins, and it probably overstates margins by over 100%.”
Meanwhile, Dombi says overutilization of home care in certain regions of the country—namely South Florida and Texas—have left an image of fraud and abuse in the segment, which he asserts is the second primary reason the industry incurred steep cuts. MedPAC this past March recommended that the HHS secretary and HHS' inspector general review areas with “aberrant home health utilization and that the secretary suspend enrollment and payment in areas with widespread fraud” as a way to strengthen the integrity of home health.
But as Dombi explains, cuts from the law will be phased in over time—from 2011 to 2019—so home providers have yet to experience the full effects. But some have kicked in this year, such as a 1 percentage-point reduction in the inflation update, and a change in outlier payments that translates to a 2.5% cut out of the overall spending budget for home health.
A more pressing concern for the NAHC, which represents 75% to 80% of all home health services, is the possibility of Congress imposing a copayment for beneficiaries as a way to save federal dollars while lawmakers seek ways to rein in spending to lower the nation's historic debt.
When Medicare was established in 1965, it included a copayment for home health—only to have Congress overturn the requirement in 1972. According to Dombi, copayments have been a “threat to home health for a very long time,” with talk of re-imposing the measure in 1995, 1997 and 2003.
“The (Congressional Budget Office) for a decade has had an options list that included a copay,” Dombi says, adding that interest grew this year when MedPAC recommended a copayment for certain home health patients. Such a requirement could result in a few things, he says. First, beneficiaries could opt not to seek care, which could lead to other problems, such as more 911 calls. Another consequence is that since home health agencies have significant numbers of low-income beneficiaries, they will be exposed to a rise in bad debt when copayments can't be collected.
“Medicare's home healthcare benefit is unusual in that Medicare does not require beneficiary cost-sharing, and this exception likely has contributed to the significant rise in utilization for services,” MedPAC commissioners wrote in their March report to Congress. “Adding a copayment would sensitize beneficiaries to the cost of the benefit,” they wrote of their recommendation, which would establish a copayment for home health episodes that are not preceded by hospitalization or post-acute care use.
MedPAC is not the only group to suggest beneficiaries pay for some of their home healthcare. According to Dombi, the CBO has long proposed imposing co-insurance, in which beneficiaries would pay 10% per home health episode. And the proposal last year from the president's deficit commission co-chaired by Erskine Bowles, a chief of staff to former President Bill Clinton, and former Sen. Alan Simpson (R-Wyo.) called for a co-insurance payment as high as 20%.