MedPAC Calls on Congress to Reform the Medicare Home Health Benefit

medpac-dataThe Medicare Payment Advisory Commission last week submitted recommendations to Congress calling for major changes to the Medicare home health benefit, including accelerated rebasing of Medicare home health reimbursement rates and a per-episode copay. MedPAC is required to annually review Medicare payment policies and make recommendations to Congress.

MedPAC also called for medical review activities in counties with excessive utilization of home health services, including Miami-Dade County, and revision of the case-mix system for therapy and non-therapy services.

MedPAC found that in 2011, about 3.4 million Medicare beneficiaries received home care, and the program spent about $18.4 billion on home health services. That figure has swelled in comparison to the 7,528 agencies in operation in 2000, which totaled $8.5 billion in spending. The number of agencies participating in Medicare reached 12,199 in 2011, including Florida’s 1,001 certified agencies, which account for 8.2% of the nation’s agencies. The number of agencies continues to increase, with over 700 new agencies in 2011, most of which were for-profit agencies concentrated in a few states. Some good news: MedPAC found that quality of care provided was steady or showed a small improvement in measures of beneficiary function.


In terms of access to care, MedPAC found that 99% of Medicare beneficiaries live in a zip code where a Medicare home health agency operates and 98% live in a zip code with two or more agencies. The report shows the highest utilization of home health services is concentrated in a few areas of the country. The top five states (Florida, Louisiana, Mississippi, Oklahoma, and Texas) account for about 35% of all home health care episodes despite accounting for only 17% of beneficiaries. The utilization in these five states is 34.7 episodes per 100 FFS beneficiaries, compared with 13.7 episodes per 100 FFS beneficiaries for all other states.


The report’s assessment of reimbursement found that while the volume of services was level in 2011, total payments declined by about 5%, or $1 billion. MedPAC attributes this decline to a reduction in the Medicare base rate. The lower spending comes after several years of increases, as total spending between 2002 and 2011 increased by 92%. For over a decade, payments have consistently and substantially exceeded costs, with Medicare margins for freestanding agencies equaling 14.8% in 2011 and averaging 17.7% in 2001 through 2010. Two factors contributing to payments exceeding costs: Fewer visits are delivered in an episode than is assumed in Medicare’s rates, and cost growth has been lower than the annual payment updates for home health care. For 2013, Medicare margins are estimated to equal 11.8%.

Between 2002 and 2010, the average number of 60-day episodes per home health user increased from 1.6 to 2.0, indicating that beneficiaries who use home health care stayed on service for longer periods of time. Of the top 25 counties in the nation with aberrant utilization for home health services, Miami-Dade County ranked sixth with an average of 2.8 episodes per beneficiary using home health services. In Duval County, Texas, the average was 4.5 episodes per beneficiary, the highest in the nation.


The Patient Protection and Affordable Care Act includes reductions in payment for home health care, but according to MedPAC, these policies will leave home health agencies with margins well in excess of cost. “Overpaying for home health services has negative financial consequences for the federal government and raises the Medicare premiums beneficiaries pay.” Implementing MedPAC’s recommendation for rebasing would reduce payments quickly and better align Medicare’s payments with the actual costs of agencies.

MedPAC believes that accelerated rebasing would reduce Medicare spending by $750 million to $2 billion in 2014 and by $5 billion to $10 billion over five years. The Commission admits that some reduction in provider supply is likely, particularly in areas that have experienced rapid growth in the number of providers, but access to appropriate care is likely to remain adequate, even if the supply of agencies declines.

Therapy Case-Mix Changes

A 2012 review by the Department of Health and Human Services OIG suggests that a significant number of HHAs had questionable patterns of payment. The review found that about a quarter of Medicare agencies had unusual utilization or payment trends in 2010. For example, over 400 agencies had an unusually high rate of beneficiaries who received five or more episodes in a consecutive set of home health episodes. OIG cited 257 agencies for providing an unusually high number of therapy visits, which increases the episode payment under the home health PPS. About 80% of the agencies considered to have questionable billing practices were in four states: California, Florida, Michigan, and Texas. Some of these states have experienced rapid growth in the number of HHAs participating in Medicare.

Responding to concerns about an increase in the average number of episodes per beneficiary, CMS implemented changes in 2008 that lowered payments for episodes with 10 to 13 therapy visits and increased payments for episodes in the 6 to 9 and 14 or more therapy visit ranges. The subsequent changes in therapy utilization reflected the new incentives: Episodes with 10 to 13 therapy visits decreased 27%, while those with 6 to 9 therapy visits and 14 or more visits increased by 43 and 27 percent. This was the largest one-year shift in therapy volume since the PPS was implemented. Since 2008, the growth in episodes has followed this pattern, with episodes with 14 or more visits growing significantly.

In 2011, CMS implemented a requirement for agencies to review the need for additional therapy care at two points in a home health episode: before the 14th therapy visit and again before the 20th therapy visit. That year, CMS also implemented a new requirement for tighter supervision of therapy services provided under the home health care benefit. In these assessments, the therapist must review the patient’s progress and determine whether the patient will benefit from additional therapy visits. Medicare targeted these visit intervals because under the current PPS, the payments increase substantially for episodes at the 14th and 20th therapy visits. The additional review is intended to serve as a safeguard against manipulation of therapy visits to garner increased payment.


The Medicare home health benefit has not had a copay since Congress removed it in 1972. Since 2011, MedPAC has recommended that Congress impose a copay of $150 per episode (excluding low-use and post-hospital episodes), which would reduce Medicare spending by $250 million to $750 million in 2014 and by $1 billion to $5 billion over five years. According to the Commission’s report, 66% of home health episodes in 2010 were not preceded by hospitalization or post-acute care stay, and would have been subject to the copay.

As it relates to beneficiaries, MedPAC expects that a copay would decrease expenditures for services because some beneficiaries who would otherwise use home health services might decline them. Since many of these services are funded by Part B, decreases in spending growth would reduce Part B premiums. MedPAC suggests that some beneficiaries might seek services through outpatient or ambulatory care, for which Medicare already has cost-sharing requirements. Some beneficiaries who need relatively few services would have lower cost sharing if they substituted ambulatory care for home health care.

2013 Recommendations to Congress

  • The Secretary, with the Office of the Inspector General, should conduct medical review activities in counties that have aberrant home health utilization. The Secretary should implement the new authorities to suspend payment and the enrollment of new providers if they indicate significant fraud. (First recommended in March 2011).
  • The Congress should direct the Secretary to begin a two-year rebasing of home health rates in 2013 and eliminate the market basket update for 2012. (First recommended in March 2011).
  • The Secretary should revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services and should no longer use the number of therapy visits as a payment factor. (First recommended in March 2011).
  • The Congress should direct the Secretary to establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use. (First recommended in March 2011).

Click here to review the complete report.

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