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Home Care Deserves Another Look in Reform Legislation

If healthcare reform survives this week's Senate votes, the Senate-House reconciliation conference to follow should reduce the reimbursement cuts for home care agencies that are proposed in both chambers' bills. Unlike physicians, hospitals, pharmaceutical firms, and insurance companies, home health agencies will not see a big increase in their business as a result of reform. And because they are nearly totally dependent on income from Medicare and Medicaid, they cannot pass the shortfall in their revenues on to private payers.

Home care is likely to become more important over the next decade, notes Keith Myers, president and CEO of LHC Group, a large home care agency in Louisiana. More aging baby boomers will need skilled nursing services at home to keep them out of the ER and the hospital. And if we really want to decrease costs by improving the treatment of chronic diseases, especially among the elderly, it would make sense to spend more rather than less on home care, Myers argues.

Last winter, when President Obama drew up a list of potential Medicare cuts, he proposed reducing home health revenues by $34 billion over the next decade-11 percent of expected payments. The House reform bill would slash the home health budget by $55 billion, and the Senate measure, by $42 billion. The National Association for Home Care & Hospice (NAHC) maintains that the cutbacks in the reform bills would kill much of the industry. Even at the lower Senate level, NAHC estimates, nearly 70 percent of home care agencies would be in the red in 2016.

Although the home health cutback in the Obama plan exceeded the percentage to be taken away from any other healthcare sector, it seemed justified at the time because of the apparently rapid growth in home care agencies' volume and profits. According to the Medicare Payment Advisory Commission (MedPAC), Medicare payments for home care had risen 55 percent from 2000 to 2006. Moreover, during that period, the number of home care agencies had risen from 6800 to 9200.

Myers tells BNET, however, that Medicare payments to home health companies are actually lower today on a per-patient basis than they were in 1996. The reason is that a 1997 law cut Medicare reimbursement of home care so deeply that about half of the existing agencies went out of business. So the 55 percent increase in Medicare payments from 2000 to 2006-which is actually lower than the 65 percent growth in overall health spending-began from a very low base, he points out.

MedPAC also stated that home care agencies had a 15 percent average profit margin in 2006. That's about triple the average margin of hospitals in that year. But Myers maintains that the MedPAC estimate of home care profits was exaggerated, because it used a cost-based methodology that treated sales and marketing costs and capital expenditures as profits rather than expenses. In addition, he says, it excluded hospital-based agencies, most of which had negative profit margins. NAHC estimates that the real profit margin of home care agencies is 5 to 6 percent, says Myers.

There are undoubtedly some crooked home care agencies, as shown by the recent crackdown on California home care companies that allegedly provided little or no care. But there's no evidence of widespread corruption in the industry. And, as Myers points out, if the bulk of home health agencies end up with negative margins, they'll either have to cut back on services or become more efficient, probably by consolidating. This consolidation may be needed in home health care; but let's not do it in a crash course that could hurt Medicare beneficiaries and undercut the overall goals of reform.

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