Home Health & Hospice Week

Profit margins will dog industry's legislative efforts in coming months.

The Medicare Payment Advisory Commission's latest recommendation to limit Medicare payment rates for home health agencies couldn't come at a worse time.

In its Jan. 10 meeting, MedPAC voted unanimously to recommend to Congress an HHA rate freeze in 2009. The vote seemed heavily influenced by the 11.4 percent profit margin on Medicare that MedPAC projects for agencies for this year.

The move would cut HHA spending by $250 million to $750 million in 2009 and up to $5 billion over five years, MedPAC says. Despite that, MedPAC staffer Evan Christman insisted the move would have "no major implications" for providers.

The recommendation, which will appear in a March report to Congress, was "expected," notes Bob Wardwell with the Visiting Nurse Associations of America. After all, MedPAC has made the same recommendation for the last five years, adds the National Association for Home Care & Hospice.

But Congress has fully frozen HHA rates only one of those years, NAHC says. It has partially reduced inflation rates a few times, though.

At stake: MedPAC's recommendation may be especially challenging this year because the Medicare package will come sooner than usual. December's legislative fix for the physician payment cut lasts only through the end of June (see Eli's HCW, Vol. XVI, No. 44-45). That means lawmakers will have to put together Medicare legislation averting the cut before then.

"Congress will be accelerating its evaluation of Medicare changes this year," NAHC predicts. "The MedPAC recommendations will carry great weight in deliberations on how to finance a comprehensive repair of the physician payment method."

HHAs will have to work hard to counteract the influence of MedPAC's recommendation. "We have been pretty successful up til now letting Congress know 'the other side of the story,'" Wardwell tells Eli. "We will be redoubling our efforts ...to be sure the Congress knows that we can't take a double hit on top of the case mix creep cut."

HHA margin drops: One of the industry's major bones of contention is how MedPAC calculates the profit margin. The Commission expects the margin for 2007 to be 15.4 percent, and that will drop to 11.4 percent this year, Christman revealed in the meeting.

But that figure is misleading, NAHC protests. It doesn't include hospital-based agencies' cost report data and it is weighted to count large providers more heavily, the trade group argues. In fact, according to NAHC's data, the average profit margin is more like 3 percent. And nearly 40 percent of HHAs have negative Medicare margins, the trade group contends.

"Reality may be a missing component in the MedPAC foundation of information," NAHC maintains. "For every agency with a margin in excess of 25 percent there is one operating in [...]