Reimbursement Cuts Threaten Home Health Companies, As Profit Margins Shrink

Deep reimbursement cuts have many home healthcare providers, already operating on low margins, on the verge of closing, according to a new study by healthcare advisor Avalere Health.

Overall profit margins for publicly traded home health companies averaged just 2.4 percent in 2014, according to the Avalere Health analysis released Thursday by the Partnership for Quality Home Healthcare.

Margins have fallen by two-thirds over the past five years, from 7.1 percent in 2010 to 2.4 percent in 2014, according to the analysis. The overall margins for small and rural home health agencies are often even lower than 2.4 percent, it stated.
Margins have been squeezed by a “rebasing” provision of the Affordable Care Act, according to the Partnership for Quality Home Healthcare. The Centers for Medicare and Medicaid Services has cut and will continue to reduce home health reimbursement by 3.5 percent a year, for a total 14 percent reduction between 2014 and 2017.

The further reimbursement cuts are expected push margins of an estimated 40 percent of all home health providers into loss territory.
“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,” said Eric Berger, CEO of the Partnership for Quality Home Healthcare.

The study’s findings are well below the 12.6 percent margin projections by the Medicare Payment Advisory Commission, according to the analysis. MedPAC margin analysis does not take into account 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, according to Berger.

“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,” he said.

More than 631,000 Medicare beneficiaries in nearly 2,000 rural counties rely on home healthcare services, according to 2013 figures. Twenty-six rural counties rely on a single home health agency; an additional 27 counties are served by just two providers.