Avalere Finds Home Health Profit Margins Falling Fast

Profit margins for large, for-profit home health care providers are falling fast, according to a report Avalere Health provided to the Partnership for Quality Home Healthcare, which says if large, well-funded companies are operating on thin margins, many small home health providers must be on the verge of shutting their doors. Small providers typically serve beneficiaries in rural areas, and Rep. Greg Walden (R-OR), whose district is sparsely populated, hopes to reintroduce this year a bill to replace Medicare upcoming pay cuts with a system that cuts pay for high hospital readmissions, according to Walden’s spokesperson.

Avalere reports that between 2010 and 2014, profit margins dropped from 7.1 percent to 2.4 percent among the largest providers. Avalere’s analysis includes only the first year of annual 3.5 percent pay cuts, required by the Affordable Care Act, that hit the industry from 2014 through 2017. In the regulation that implements those pay cuts, CMS estimated that the cuts would cause “approximately 40 percent” of home health organizations to operate at a net loss by 2017.

Avalere examined financial statements of publicly traded companies, but smaller private companies likely have even lower profit margins. The Medicare Payment Advisory Commission reported in 2010 that small home health providers typically have smaller profit margins.

MedPAC projects much larger margins for home health — 12.6 percent in 2014 — but Partnership for Quality Home Healthcare CEO Eric Berger said MedPAC researchers aren’t including all the expenses that home health providers face, such as state and local taxes, telehealth and other services that are routinely provided but not paid for.

The Avalere report offers a similar perspective.

“The MedPAC Medicare margin estimate is not intended to serve as a measure of home health agencies’ profit/loss, but is often interpreted as such,” the report states. “The overall margin, on the other hand, is a standard measure of a home health company’s bottom line/profit (or loss, as applicable). For this reason, policy makers may want to consider providers’ overall margins, as well as the MedPAC Medicare margin, when contemplating changes to home health reimbursement.”

MedPAC turned down industry’s suggestion that it factor these expenditures in profit margin projections. It applies the same rules to other health care sectors. However, the Affordable Care Act directed the commission to review and report on Medicaid funding when making recommendations about Medicare payments. Medicaid accounts for a large share of nursing home reimbursement, and Medicaid does not pay as well as Medicare, so nursing homes complained that it is misleading to calculate profit margins based solely on Medicare profit margins. For the first time this year, MedPAC included Medicaid reimbursement in its calculation of nursing home margins.

Likewise, Berger said the commission should change its system for calculating home health profit margins.

Walden introduced the Securing Access Via Excellence Act in the past legislative session, and the Partnership for Quality Home Healthcare hopes it will be reintroduced soon. A spokesperson for Walden said it’s not clear when he might reintroduce the bill because Walden would like to get Democrats to cosponsor the measure first.

The bill would replace the 3.5 percent annual rebasing cut with a value-based purchasing program, which is designed to avoid increasing Medicare spending. The bill would penalize home health providers with high rehospitalization rates and reward those that perform well on hospital readmissions.