The hidden drain on HHAs that can reduce profitability by 10% or more for the unlucky!

What is overutilization in home health?

Overutilization in home health (HH) is not as well understood within the industry as is commonly believed.

Definitionally, overutilization in home health is the provision of more resources than the assessment (OASIS) of the patient encounter warrants. Granted, this is a generalization, but it is accurate and occurs more often than most people realize. You’ll need to look for this type of overutilization to identify it specifically. Most do not look for this; in fact, most don’t even know how to look for this. Yet, this is something that everyone should have been doing since the inception of the PPS reimbursement methodology (Oct 2000).

When overutilization occurs, home health agencies (HHAs) incur costs but have no corresponding revenue to offset them. Therefore, every dollar of expenses incurred due to overutilization is a dollar that is being eliminated from the HHA’s profits. And this can add up fast. I have been doing this analysis since the early days of PPS. I have historically performed this analysis concurrently with the analysis I perform for clients to determine how the subsequent year’s Proposed/FINAL Rule will affect their Medicare revenues. These two analyses dovetail nicely together.

A little history

As I noted earlier, the Prospective Payment System (PPS) reimbursement methodology began back in October 2000 (10/01/00). This was when specific codes (HHRG Codes to HIPPS Codes) began to have Case-Mix Weights (CMWs) and Reimbursement (payment | pmt.) rates associated with them. That has not always been the case. But currently, each HIPPS Code has a unique CMW and PPS pmt. rate associated with it (and there are 432 HIPPS Codes).

A way to look at this (my definition) is that ‘the CMW is a numeric representation of a patient’s acuity level’. The larger the CMW, the greater the acuity level and the reimbursement. The lower the CMW, the lower the acuity level and reimbursement (for CY2026, the CMWs range from 0.5364 to 1.9558).

I offer the following for your consideration:

• CMS has established what the reasonable reimbursement is for each of the 432 HIPPS Codes / CMWs (regardless of diagnosis), therefore,
• Wouldn’t it be reasonable to infer that, for any given HIPPS Code / CMW / Pmt rate, an appropriate expense range is warranted?
  • I believe that it is.
• After all, if CMS can reasonably assume what the revenue should be for any CMW, shouldn’t we in the industry be able to infer what the associated expense should be for that same CMW (allowing for a reasonable, but limited range, to account for the varied patient types and diagnoses that can be related to any HIPPS Code / CMW / Pmt rate)?

Based on the premise that my above postulation is reasonable, we can establish a reasonable range of costs for any/every given HIPPS Code. I’ll leave it to you to determine how to do that. But I have already done so. I figured this out early in PPS. I have had to adjust the process to some degree as PPS has changed over the years. But, this works. And, it is quite the eye-opener when an HHA has me perform this analysis for them. I regularly see HHAs losing 10+% of their reimbursement due to overutilization (even profitable HHAs). And I have even seen this loss exceed 20% in the past. This is devastating to an agency’s bottom line. This is a big reason an HHA can be 80% Medicare yet still consistently incur losses under Medicare (arguably the best payor in HH).

Impact

There are many reasons why overutilization can arise. Here are a few:

• Lack of oversight with the OASIS, the Plan of Care (POC), and the Visit Notes (common)
• Field staff growing attached to the beneficiary/patient (not common, but it occurs)
• An underscored OASIS (more common than generally considered)
• Not using available tools to minimize/prevent the overutilization of resources (almost universal, which handicaps an HHA)
• etc…

The financial impact, which I noted is commonly at or above 10% of Medicare reimbursement and has exceeded 20%, can completely wipe out an HHA’s otherwise profitable bottom-line. How common is this throughout the industry? I’d say it’s a lot more common than most people think. In fact, I’d venture to say that if you have never examined this issue in detail at your HHA, it is undoubtedly occurring there. Then, the only question is: To what extent?

Every HHA in the industry SHOULD perform this analysis thoroughly and regularly, or it will occur, regardless of what you do to prevent it. If this issue accounts for 10% or more of your Medicare revenue, then I believe you should do this analysis each year for the next two or three years. If you are below 10%, I think reviewing every other year should suffice.

How do you minimize or prevent this from occurring?

As an old boss of mine used to say, “People pay attention to what you inspect, not what you expect.” So, first off, you make it widely known that you are reviewing for overutilization, such as by:

• Requiring your Clinical Supervisors to review the OASIS, Plan of Care, and Visit Notes and holding them accountable, which can help, but it’s not a surefire fix
• I’ve long recommended that the Nursing Supervisor create the POC (not the Open Nurse/Therapist). This puts a second set of eyes on the OASIS, and the POC is developed based on the objectivity of the Clinical Supervisor, without any bias because of a relationship with the beneficiary/patient
• Most EMRs have some kind of financial projector, but these tend to be cumbersome to use and of questionable usefulness and accuracy
• IFS for Home Health has the Resource Planner (rebranding to the Case-Mix Manager or Planner) that was designed to compare the revenues to be provided with the costs to be incurred and identify the profit/(loss) per the projected POC. This tool predates anything the EMRs have/had by years, is very user-friendly, and can be used in a classroom setting for educational purposes.

Conclusion

Every HHA should periodically review its patient-encounter data to look for overutilization. Whether you handle it yourself or outsource to subject-matter experts (SMEs), this should be a high-priority review that everyone should perform sooner rather than later, especially if you are an agency that struggles to attain industry average Medicare profitability (which, per MedPAC was 21.2% in 2024 and is projected to be 19.0% in 2025). If you are an agency incurring losses on Medicare, you should be doing this immediately.

If you want to conduct this analysis but need assistance, IFS for Home Health is an SME (and industry leader) in this area and can help you identify the extent of the issue and provide insights into how to correct and turn your fortunes around. Give us a call or email us at your convenience to take the next step towards a successful 2026 and beyond.