New Study Finds Low Overall Home Healthcare Margins

Reflecting the impact of deep reimbursement cuts that have been implemented in recent years, a new study by Avalere Health finds that even the largest home healthcare providers are facing very low overall margins. The Partnership for Quality Home Healthcare today released the Avalere Health analysis, which finds that overall margins for publicly traded home health companies averaged just 2.4 percent in 2014. The analysis further finds that these providers’ overall margins have fallen by two-thirds since 2010, from 7.1 percent in that year to 2.4 percent in 2014.

Industry experts warn that the plight facing small and rural home health agencies may be even more severe. According to MedPAC’s March 2010 report, small home health agencies typically experience lower margins than those experienced by large providers . Since the publicly-traded home health companies studied by Avalere Health are among the largest in the home health sector, small providers – including many which today serve rural communities – may be facing overall margins even lower than 2.4 percent.

Impact of Medicare Payment Changes

Exacerbating this risk is the impact of deep funding cuts that have gone into effect in recent years. For example, the Centers for Medicare and Medicaid Services (CMS) has implemented a ‘rebasing’ provision of the Affordable Care Act in a manner that is cutting Medicare home health reimbursement by 3.5 percent per year between 2014-2017, for a total reduction of 14 percent. This cut is considered to be so severe that CMS disclosed its projection that “approximately 40 percent” of all home health providers will suffer negative margins as a result of this cut .

A recent example is the threat facing Asher Home Health Services of Fossil, Oregon. The only home healthcare provider serving rural Wheeler County, Asher Home Health has long delivered high-quality, cost-effective clinical services to homebound Wheeler residents. However, the net losses it is now incurring due to the Medicare ‘rebasing’ cut have compelled Asher Home Health to take extraordinary steps to keep its doors open and help seniors avoid institutionalization in distant facilities.

“Asher Home Health is like so many small and rural providers across Oregon and the country,” said Sarah Myers, Executive Director of the Oregon Association for Home Care. “Due to the net losses they are experiencing as a result of recent cuts, their staff is working around the clock, without the benefit of sufficient backup, and often at substandard wages, all to help seniors receive the clinical treatment they need in the setting they most prefer – their home. What is just as striking is that home health providers are not even halfway through the unprecedented four-year, -3.5 percent per year rebasing cut that is being implemented by CMS. Without relief – soon – even the heroic efforts of providers like Asher will be unable to prevent the large-scale closures that CMS itself has projected.”

Impact on Medicare Beneficiaries in Rural Communities

The loss now being experienced by Wheeler County, Oregon is faced by rural counties nationwide. According to Avalere Health, 26 rural counties relied on a single home health agency in 2013, and an additional 27 counties were served by just two providers. All told, more than 631,000 Medicare beneficiaries in nearly 2,000 rural counties relied on home healthcare services in 2013.

“The plight faced by Asher Home Health exemplifies the financial stress that home healthcare providers everywhere are experiencing as a result of recent Medicare cuts,” stated Eric Berger, CEO of the Partnership for Quality Home Healthcare. “As Avalere Health has documented, even the largest home health providers are experiencing low single-digit overall margins. If additional cuts occur, further closures and patient dislocation will result, jeopardizing the health and well-being of America’s most vulnerable elderly and disabled Medicare beneficiaries.”

Avalere Health Analysis

The Avalere Health margins analysis examined the financial statements which publicly-traded home health providers are required by law to submit to the U.S. Securities and Exchange Commission (SEC). These financial reports must be independently audited, the company’s CEO and CFO must personally attest to their accuracy, and penalties for inaccurate or false data may include up to 5 years imprisonment and disbarment from serving as a CEO or CFO of another publicly-traded company.

According to Avalere’s analysis of the SEC-compiled financial reports, the home healthcare sector’s four publicly-traded home health providers included in the Avalere analysis had an average overall margin in 2014 of just 2.4 percent. By contrast, MedPAC’s projection for that year was 12.6 percent. The reason for the distinction is that MedPAC’s margins analysis does not take into account all types of revenue and expenses associated with the delivery of home healthcare services, including the full burden of federal, state and local taxes, telehealth and related technologies, and supportive care and other services which are routinely provided to Medicare beneficiaries.

“MedPAC analyses are appropriately given great deference because of the Commission’s intense focus and the expertise of its Commissioners and staff,” added Berger. “However, it is important to recognize that MedPAC’s margin projections reflect only one part and not the full picture of home health agencies’ actual economics. Put another way, home health agencies would not be shutting down as a result of the rebasing cut if their overall economics in any way reflected the limits of MedPAC’s margin analysis methodology.”

Avalere Health offered a similar perspective in its report: “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 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.”

Impact on Medicare Beneficiaries

Research shows that when cuts lead to closures, Medicare’s most vulnerable patient population is put at risk. Data compiled by Avalere Health reveal that Medicare’s 3.5 million home health beneficiaries are older, sicker, poorer and are more likely to be female, a minority, and disabled than all other beneficiaries in the Medicare program combined.

Avalere Home Health Beneficiary Study: Key Findings	Medicare Home Health Beneficiaries	All Other Medicare Beneficiaries
Women	60.07%	53.9%
Beneficiaries aged 85+	24.4%	12.1%
Beneficiaries with 4+ chronic conditions	74.7%	48.5%
Beneficiaries needing assistance with 2+ Activities of Daily Living (ADLs)	23.5%	7.6%
Beneficiaries at or below 200% of Federal Poverty Level (FPL)	66.2%	47.9%
Beneficiaries from ethnic or racial minority population	19.3%	14.9%
Dual-eligible Medicare-Medicaid beneficiaries	26.7%	17.7%

“In light of the vulnerable nature of the homebound Medicare beneficiaries who depend on home healthcare services as well as the rural communities in which hundreds of thousands of them live, we urge policymakers to take into account overall margins and the true economics of home health delivery when considering changes to the Medicare home health benefit,” concluded Berger. “We are hopeful that the release of this report will encourage a deeper and more comprehensive assessment of overall home health economics so that policymakers can fully understand the potential implications of further cuts on the vulnerable seniors and communities they represent.”

Methodology

Avalere’s analysis was completed by reviewing the financial statements filed with the U.S. Securities and Exchange Commission by the following publicly traded companies: Almost Family, Amedisys, Gentiva (acquired by Kindred Healthcare in February 2015) and LHC Group. To calculate the overall margin for each quarter and the full year, Avalere summed the net income from the four companies, summed the revenue for the four companies, and divided the total net income by the total revenue.

To download the Avalere Health analysis on home health margins, click here.

Avalere’s analysis on rural beneficiary data use the 2013 100 percent Standard Analytic File (SAF) and the 2012 and 2013 home health agency Medicare costs reports. Rural counties are identified as those that meet the definition of “rural” for the purposes of the Medicare rural safeguard as defined in Section 1886(d)(2)(D) of the Social Security Act.

To download the Avalere Health analysis on rural beneficiary data, click here.