MedPac: Home Health Margins Too High!

Does MedPac really understand home health? From their latest report to Congress it is safe to assume that their understanding stops at the basics. Their financial understanding of how well agencies do is based on publicly traded agencies and from cost report data.

Cost reports are great and have a place to report costs and to show how an agency spends public tax money treating patients. However, the methodology used by the cost reports is outdated. CMS developed the cost report accounting methods in the 1970s and things have certainly changed almost 50 years later.

Marketing expenses, state income tax, and many other business expenses that are allowable deductions for income tax purposes are banned when completing a cost report. These ‘un-allowable’ expenses create an illusion of higher profit margins. This isn’t the first time we’ve reported on this issue or topic. MedPac has been railing against providers having higher than adequate profit margins since the 1990s.

According to the recent MedPac report, the group uses cost report data from 2016 and groups agencies into categories. Their main focus is for-profit, free standing agencies. As of 2016, MedPac has reported that agencies like yours has a net profit on Medicare based patients of 17.4%. I don’t think there is any agency, big, small, publicly traded, or locally owned that sees this profit margin. The report goes on to further state that the projected net margin for agencies in 2018 is 14.4%, a 3% decrease from 2016.

The commission has continually railed against any type of payment or reimbursement increases to home health since 2001. Luckily, Congress doesn’t listen to MedPac…and the only reason MedPac exists is because its mandated by law to provide an annual report.

However, Congress has taken some notice and by 2020, agencies should expect to see that therapy utilization will no longer be part of the PPS calculation for reimbursement. Agencies by 2020 will be reimbursed based on the overall need and severity of the patient’s condition, not by the type and volume of services provided. We do not know yet how this will translate from current HHRGs to future HHRGs as even this term will be sunset and replaced with a new term to coincide with the new methodology.

What does the future hold for home health? We know that agencies will continue to exist and continue to play an integral role in the continuum of care. Agencies are going to need to stay up to date with changes in regulations, coding, and general developments. Continuing education is going to be very important for your staff as well, not just the administrative team. To continue to succeed and be a success, the new method of operating will need to be all in, doing things well or to not doing them at all. Medicare likely won’t be making life easier for anyone, but this has happened before, and agencies have learned how to come out ahead and do well…and we will be there help guide you along the path to profit!

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