Prospective Payment System:
Rural Add-On Elimination May Decimate HHAs
Published on Mon Jan 24, 2005
It's no joke: Lower payment rates for rural agencies take effect April 1. You can expect to see rural home health agencies reducing service areas and even closing their doors if the 5 percent rural add-on expires March 31 as scheduled.
Rural agencies are "gnashing their teeth" over the elimination of the 5 percent boost to Medicare payments for patients in rural areas, notes Abilene, TX-based reimbursement consultant Bobby Dusek.
The cut "could have a major impact on availability of home health services in rural areas," warns reimbursement consultant Vern Peterschmidt with Peterschmidt & Associates in Albuquerque, NM. And small HHAs in rural areas "could easily have to close their doors," Peterschmidt tells Eli.
The add-on elimination will have "a horrendous impact," predicts Pat West, administrator for Pioneer Home Health in Bishop, CA. The rural agency, which serves two isolated mountain counties, already radically reduced its service area when the prospective payment system began, and it will have to make more painful cuts when the add-on goes away, West fears. Rural Agencies See Lowest Profit Margins Rural HHAs are the worst equipped to handle a pay cut. The National Association for Home Care & Hospice calculates that rural agencies had average Medicare profit margins of only 1.02 percent in 2002 and 2003. The Medicare Payment Advisory Commission, which leaves provider-based agencies out of its calculations, predicts a 6.6 percent Medicare profit margin for rural HHAs in 2005.
Rural agencies tend to have a relatively small number of patients and episodes, Peterschmidt notes. That means they have little volume over which to spread their overhead costs.
West estimates that after the add-on expires, Pioneer's Medicare payment rates for all of 2005 will be only 0.06 percent higher than in 2004. But fixed costs - salaries, rent, insurance, worker's comp, etc. - keep going up. "The rest of the world doesn't care that we're not getting the add-on," she laments.
And the cut will make competing for clinical staff that much harder. Hospitals do get a rural payment increase, West points out. "It's not a level playing field," she protests. "We're competing for the same people."
About 85 percent of agencies' costs are personnel, Dusek notes. HHAs can't trim in that area without risking the loss of essential staff. Unlike many small businesses, home care providers are compelled to offer health insurance and other benefits to compete with hospitals' benefit packages, he says. Don't Count Out Continuation Yet Lawmakers in both the Senate and House have introduced legislation to extend the rural add-on to March 31, 2007. The House bill, H.R. 11, has 34 cosponsors on record while the Senate bill, S. 300, has 13 cosponsors.
But many observers think any chance of continuing or restoring the 5 percent add-on [...]
