After pushing more medical care out of hospitals and into patients' homes, the federal government wants to pay less for home healthcare.
Impending changes in Medicare's home health payment system would dramatically alter how agencies are reimbursed for services, cutting payments by 8 percent. Lower rates would squeeze profit margins in what has been a reasonably lucrative business. Companies that can't make acceptable returns as profitability shrinks will likely get out, leaving patients with fewer choices. Those that remain will look to get bigger, triggering consolidation and putting more pressure on smaller players.
Some local hospital networks, such as Amita Health, aim to grow under the new system. Others are walking away.
Northwestern Memorial HealthCare exited the market in June. The Chicago-based hospital chain won't explain its decision to sell its home health and hospice programs to JourneyCare, an expanding Glenview-based hospice and palliative care provider that's entering the home health market just in time for sweeping change. Northwestern could have been reacting to looming Medicare payment cuts, risks associated with home health like high employee turnover, or the need to focus on other areas of the business amid pressure to rein in medical spending, sources say.
Hospital chains focused on covering the so-called care continuum, from primary care to end-of-life care, want to "hold on to their home health and hospice agencies," says Kathleen Gunderson, Amita's vice president of ancillary services. "The challenge, though, is if they don't manage them with an eye to costs and how this kind of business is run, it can be a drain on the system financially."
While home health agencies used to manage just fine with about 150 patients, they now need at least 300 to guarantee positive cash flows, Gunderson says.
The new Patient Driven Groupings Model, or PDGM, is expected to apply even more pressure—even as an aging population boosts demand for home healthcare. Scheduled to take effect Jan. 1, PDGM aims to prevent unnecessary therapy visits and medical care by placing patients into payment categories based on diagnoses, chronic conditions and other factors. Healthy reimbursements under the current system, as well as payments for each therapy visit, had made it possible for agencies of various sizes to turn a profit. Other changes, such as cutting the payment period in half to 30 days, could cause cash flow problems for some agencies.