One of my recurring frustrations in working with home health agencies is what happens when I ask about their cost per visit (CPV) by discipline and someone reaches for their Medicare cost report (MCR).

The MCR is useful. But for a home health agency, the CPVs in a MCR due that is five months after year-end identifies visits and costs from the prior year. This is not current information. By the time the MCR is due, even its most recent figures are five months old (and they could be upwards of 17-months old before the next MCR is due). The agency’s staffing, wages, productivity, visit volume, and mix of services are changing constantly throughout the year. Maybe those changes are small from one month to the next; but sometimes they are not, and your MCR cannot identify current activity. If you never analyze your CPVs, how would you know what is happening with those changes, and you will never be as cost-effective as you could be? The MCR can help you understand what your prior results were; it cannot tell you what a visit costs your agency today.

Your agency’s CPVs by discipline are foundational to a great many other home health analyses. From an operational perspective, the agency’s CPVs are one of the most basic metrics that they need to know and know with a high degree of accuracy and timeliness. They affect how you assess the cost of patient care, evaluate productivity, prepare a budget, project margins, review utilization, and negotiate per-visit payment rates, etc. If the CPVs behind those analyses are stale or unknown, the resulting numbers may look reasonable while the decisions based on them are poorly informed (where is the understanding?). Your negotiated rates may also be significantly undervalued if you do not calculate and trend your CPVs monthly; which could cost you 10s, if not 100s of $1,000s in reimbursement.

If you are unsure why this matters, look at your last couple of MCRs and compare your agency’s profitability from Medicare with its profitability from non-Medicare payers. Before you do, what do you expect that comparison to reveal? What is your profit margin % for each?

Cost per Visit

An agency should know both its direct CPV and its total CPV for each discipline—and understand what is included in each. They are different perspectives of the cost of providing a visit for your agency, and both matter when evaluating performance, productivity, and negotiating with per-visit payers. Before accepting a reimbursement rate (for any given discipline) from any per-visit payer, do you know what that rate needs to be? Do you know why both CPV measures (direct and total) matter to the negotiation? Agencies that negotiate successfully generally understand those answers. If you do not, this is an opportunity to strengthen your understanding of your agency’s operations.

Additionally, your agency’s LUPA per-visit rates offer another useful point of comparison. Look at the current rate applicable to your agency for each discipline alongside its total CPV. How large is the gap? Is it growing or narrowing? What was it six months ago? … 12 months (24 months) ago? Your agency may not be able to bring every CPV down to its corresponding LUPA rate, and the rate is not a stand-alone definition of an efficient cost. But a wide or widening gap deserves attention. When appropriate productivity and visit volume can bring the CPVs closer to the LUPA rates, the agency will likely be in a stronger financial position for the long-term.

The greater risk is what happens between annual cost reports when you rely on the cost report for your CPVs. Again, you are relying on CPVs that are at likely at least five-months old and could be approaching 17 months old. The old CPVs will not reflect any changes that have occurred since that last MCR. An increase in any discipline’s CPV may reflect changes in compensation, productivity, visit volume, staffing mix, or the way costs are recorded. It could point to an inefficiency and an opportunity to improve—or have an entirely different explanation. Without monthly calculations and trends, you may never identify any potential issues or know what to investigate. Eventually, an anomaly can become the number everyone regards as normal, and inefficiency becomes the new norm.

Keep in mind that the most effective approach to cutting costs is NOT unilateral reductions of x%. The most effective and long-lasting approach to reducing costs is learning how to become more operationally effective and financially efficient.

You can deliver excellent patient care without knowing your current CPVs. But you cannot fully understand the financial cost of that care or confidently assess whether the resources supporting it are being used efficiently. Agencies providing good care can still struggle financially. Many an agency providing good quality care was forced to sell or close because of poor financial management. However, a low CPV alone does not establish that an agency is effective or cost-efficient. Is your agency cost-effective? How do you know?

For context, MedPAC projected an approximately 19% fee-for-service Medicare margin (profit) for freestanding home health agencies in both 2025 and 2026. That industry average should be the minimum baseline Medicare profit an HHA initially targets. If your agency’s margin falls below it, why did it? Where (and why) is your agency underperforming? CPVs by discipline are one of the first places I would look, together with visit utilization, reimbursement, and overhead. The comparison raises the questions; your own financial and operational information holds the answers—provided you analyze that information regularly and understand what it identifies.

The same applies to budgeting. Patient-care labor is a major expense for HHAs. A budget built on old or assumed CPVs is a poor budget and gives you a weak basis for estimating expenses or explaining why actual results differ from budget. Too often, agencies respond to the financial symptoms of underperformance without determining what changed in their operations (i.e., what was the cause). Repeatedly treating symptoms while leaving the cause in place is a recipe for stagnation, making the problem harder to fix as time goes by, and could lead to failure.

If you do not currently calculate CPVs monthly, there is no better time to start than now.

For an agency here in September, calculate the direct and total CPV by discipline for each completed month of current year and year-to-date through August. Compare the monthly results (i.e., month-to-month {and budget-to-actual if you have a budget}), investigate unusual changes, and add September’s financial and operational results when the month is closed. Continue the process for October, November, and December, then carry it into next year. Now you have a trend analysis coming into being. I believe that you will be surprised at the value derived from such a simplistic presentation. Once you have 24-36 months’ worth of trends, the information presented can be eye-popping, and even a 9-12+ month trend can be enlightening.

Define your direct costs, total costs, and visit counts consistently. Otherwise, a change (what is included where) in the calculation can masquerade as a change in performance. Then put the CPV trends alongside the other measures that explain them, including visit volume, productivity, utilization, and reimbursement and you have taken the initial steps towards becoming cost-effective and financially efficient.

That monthly review can become part of a broader financial and operational analysis. The information necessary to solve any underperformance issues or volatile CPVs has been in your agency’s records all along. Analyzing it regularly—and asking why the numbers changed—is how information becomes understanding, and understanding is key for long-term success.

FYI, I have always liked starting new monthly financial-operational analyses (FOA Reviews) later in the year, as each FOA Review is adjusted specific for each client. Therefore, I could have 6+ months of information to work with to revise and refine the presentation for the client, as the information presented in the analyses may be summarized a number of ways, but visually it should resonate and make sense to the end-user. This client-specific presentation enhances understanding, and I’d argue that anything that increases understanding is ‘golden’ (of high value) to agency ownership/management. You can have all the information in the world, but if it does not provide understanding, what value is it?

By the time you prepare your next Medicare cost report, it should help confirm what you already know about your agency’s costs at that time. It should not be the first time you identify them (i.e., your CPVs). And the business decisions you make between now and then, based on these analyses, should ensure that your financial and operational results are moving in the right direction. Any organization can do this and either turn their fortunes around or maintain stability with good financial outcomes, but no agency can do this over the long term without performing at least some basic analysis of their financial and operational results. And that begins by always knowing what your current CPVs are.

If your agency would like some assistance in calculating its CPVs (and ensuring they are properly identifying costs as direct or indirect), IFS4hh can help. The more you understand your business, the more you are likely to achieve long term success. If your CPVs are much higher than your market’s CPVs (and LUPA Rates), if your Medicare Margins are below industry average (as reported by MedPAC), contact IFS4hh to help identify the cause(s) of this underperformance and take the first steps to a more promising future.