Do HH PPS Payment Rates Impact Your non-Medicare Profitability?

Home Health (HH) PPS payment rates to the industry are updated every year by the Centers for Medicare and Medicaid Services (CMS).  How often are your non-Medicare payment rates updated?  If your Home Health Agency (HHA) is anything like most I have worked with, they are not updated anywhere nearly as often!  What I will be discussing in this post is the correlation between the payment rates of these two payor groups and an HHA’s profitability.

Medicare Payment Trends for the Home Health Industry

As previously noted, Medicare updates the HH PPS Payment Rates every single year.  CY 2017, is the tenth year in a row that CMS has cut Medicare payments to the HH industry!

Did you know this?

HH PPS Payment Rates Downward Trend

Current Trend of HH Reimbursement

This means that total industry reimbursement for:

  • 2017 will be less than what it was for 2016!
  • 2016 was less than what it was for 2015!
  • 2015 was less than what it was for 2014!
  • …  and on and on until  …
  • 2008 was less than 2007!
  • Ten straight years!

Therefore, the 2017 HH PPS Payment Rates (i.e., industry-wide reimbursement) will be less than what they were in 2007!  How comfortable are you with your financial outcomes (i.e., profitability)?  Continued cuts to PPS payments are just going to exacerbate this problem.  In fact, I believe it was in 2014, that the National Association of Home Care and Hospice (NAHC) reported that they believed that 40% of all HHAs would be operating at a loss for CY 2014.  NAHC also projected that rate growing to 60% for CY 2016!  That’s a significant a portion of the HH industry operating at a loss.  How is your agency doing?

In fact, the number of Certified HHAs operating in the industry has been decreasing each year since 2013. A fact that would appear to support (at least to some degree) NAHC’s assertions about HHAs’ profitability.  Consider this decline in the # of HHAs in regards to:

  • 2014 (the 1st year of this decline) was the 1st year of Rebasing,
  • The decline has occurred every year of Rebasing, and
  • Previously, the # of HHAs had been increasing every year since 2002

Medicare Payment Trends and Profitability of HHAs

The financial outcomes of this industry (and as such, individual HHAs) have declined in a similar fashion.  Mirroring what has been occurring with the industry’s Medicare PPS payment rates.  This should come as no surprise.  However, CMS and the Medicare Payment Advisory Commission (MedPac) have long ignored the overall financial outcomes (profitability) of HHAs. Instead, their focus has been in favor of a much more inaccurate and manipulated metric called: Medicare Margins.

Note:  We will publish a new post on our blog about Medicare Margins shortly after MedPac releases their Medicare Payment Policy report to Congress: expected to be released in March 2017.

Medicare Margins are a ‘theoretical’ profit margin via Medicare as Calculated per the HH Medicare Cost Report.  There are a lot of issues with this manipulated metric (a topic for another day).  Primarily, it is used to grossly inflate the Medicare profits generated by the HHAs participating in the program (this helps to justify the cuts that Congress continues to pass).  Suffice it to say, even MedPac, in their reports to Congress have been identifying a downward trend in Medicare Margins for HHAs over the last 10 or so years.  So even they are reflecting that industry profitability has been on the decline.

Medicare vs non-Medicare Profitability

Coincident with this decline in Medicare profits, HHAs across the country have been generating overall profit margins that have also been on the decline; many HHAs even realizing losses.  These are the first business losses for many.  Hence, there is a perception by many, that they are actually experiencing losses for their Medicare business.  They have seen their Medicare reimbursement rates reduced and attribute these loses to Medicare, as non-Medicare rates have remained fairly constant.  An understandable correlation, but not an entirely correct one.

I attribute this misperception to the lack of financial fundamentals in the home health industry today.  If HHAs had good, sound financial fundamentals in place, they would be able to identify their profit/loss by payor source.  There have been very few HHAs that I have worked with over the years that had an analysis and/or financial statements that identified what their profitability was by payor source.  This should be identified every month, by every HHA.  This is a systemic shortcoming of the HH industry.  The HHAs that survive, will be the ones that learned to correct this shortcoming.

In Summary

Since the inception of PPS, Medicare has unequivocally been the best payor in HH (and still is).  Coincident with that, Medicare has also been subsidizing an HHA’s non-Medicare line of business for the vast majority of the HH industry.  As Medicare reimbursements have been reduced, there has been less and less Medicare profits to continue this trend; and Medicare profits have been on the decline (for the most part) for the last decade.  The reduced profitability (and losses) that HHAs have been realizing in increasing #s over the last handful of years has generally not been because an agency was losing money in Medicare; it was because there were fewer and fewer Medicare profits left-over to subsidize their non-Medicare business.  Hence, a larger portion of the non-Medicare losses that most HHAs had had for years, were no-longer being offset by Medicare profits.  Therefore, more and more HHAs struggling financially.