Medicare decides a cost-saving strategy costs too much

After pushing more medical care out of hospitals and into patients’ homes, the federal government wants to pay less for home health care.

Impending changes in Medicare’s home health payment system would dramatically alter how agencies are reimbursed for services, cutting payments by 8 percent. Lower rates would squeeze profit margins in what has been a reasonably lucrative business. Companies that can’t make acceptable returns as profitability shrinks will likely get out, leaving patients with fewer choices. Those that remain will look to get bigger, triggering consolidation and putting more pressure on smaller players.
Some local hospital networks, such as Amita Health, aim to grow under the new system. Others are walking away.

Northwestern Memorial HealthCare exited the market in June. The Chicago-based hospital chain won’t explain its decision to sell its home health and hospice programs to JourneyCare, an expanding Glenview-based hospice and palliative care provider that’s entering the home health market just in time for sweeping change. Northwestern could have been reacting to looming Medicare payment cuts, risks associated with home health like high employee turnover, or the need to focus on other areas of the business amid pressure to rein in medical spending, sources say.

Hospital chains focused on covering the so-called care continuum, from primary care to end-of-life care, want to “hold on to their home health and hospice agencies,” says Kathleen Gunderson, Amita’s vice president of ancillary services. “The challenge, though, is if they don’t manage them with an eye to costs and how this kind of business is run, it can be a drain on the system financially.”

While home health agencies used to manage just fine with about 150 patients, they now need at least 300 to guarantee positive cash flows, Gunderson says.

The new Patient Driven Groupings Model, or PDGM, is expected to apply even more pressure—even as an aging population boosts demand for home health care. Scheduled to take effect Jan. 1, PDGM aims to prevent unnecessary therapy visits and medical care by placing patients into payment categories based on diagnoses, chronic conditions and other factors. Healthy reimbursements under the current system, as well as payments for each therapy visit, had made it possible for agencies of various sizes to turn a profit. Other changes, such as cutting the payment period in half to 30 days, could cause cash flow problems for some agencies.
The industry has been particularly vocal about CMS’ proposed 8.01 percent cut to 30-day payments, which reflects assumptions about how providers might try to game the system by using certain medical codes to maximize payments. Lawmakers have introduced legislation to scrap the front-loaded cut and instead use “valid data” to make a determination once the program takes effect.
Home health agencies will be affected differently by the new system, based on patient acuity and other factors. Amita, for example, expects a 5 percent payment decline based on an analysis of its electronic medical record data.
CMS predicts total home health payouts will rise 1.3 percent—a total of $250 million—but agencies don’t expect the amount to make much of a difference.
Home health agencies nationwide are concerned about the effects PDGM might have on the industry’s financial stability, says Joanne Cunningham, executive director of the Partnership for Quality Home Healthcare, which represents home health care agencies nationwide, including 30 locations in Illinois. The industry is bracing for closures and mergers as rate cuts and new requirements increase fiscal pressure, she adds.
More closely aligning payments with patient characteristics is a good thing in theory, Cunningham says, but there could be unintended consequences, such as fewer therapy visits for patients in need.
Though not all providers agree, the independent agency that advises Congress on Medicare maintains that payments to home health agencies have “substantially exceeded costs” since the current payment system launched 20 years ago. It’s worth noting that before the current system, an interim payment system forced many home health agencies—sources say up to 20 percent—out of business.
Agencies need financial stability to improve their programs by investing in new technology, like remote patient monitoring, and staffing, given the industry’s more than 20 percent turnover rate, according to one estimate.
At a time when fewer procedures require long hospital stays and the federal government is cracking down on high hospital readmission rates, the investments are worth it for Amita and other hospitals that view home health as a way to gain more control over patient care.
Many patients in need of post-acute care and help managing chronic conditions also prefer to remain at home.

For four years, Gail Newman says she’s been treated by Amita in her Medinah home for as many as 15 “complicated issues,” partly due to an old smoking habit. The Medicare beneficiary, who has also spent time at skilled nursing facilities, says the arrangement is “priceless,” enabling her to remain in her own bed and use her own kitchen.