Home Health Agencies Facing Financial Distress
10/20/24 The financial health of home health agencies (HHAs) is rapidly deteriorating, despite the rosy picture painted by the Medicare Payment Advisory Commission (MedPAC). While MedPAC claims that HHAs operate with healthy profit margins, a more comprehensive analysis, factoring in both traditional Medicare and Medicare Advantage (MA) payments, reveals a much more precarious situation.
Kalon Mitchell, founder of “Project Sword,” which examines cost reporting data for the home health industry, has highlighted alarming discrepancies between the official narrative and the reality faced by home health providers. According to Mitchell’s analysis, agencies are struggling to stay afloat due to a combination of reduced Medicare payments and under-reimbursement by MA plans.
The Financial Reality of Home Health Agencies
Home health providers have been subjected to three consecutive years of proposed payment cuts from the Centers for Medicare & Medicaid Services (CMS). Even though final rules were less harsh than initial proposals, they still included permanent reductions that have significantly impacted agency finances. These cuts come at a time when the cost of providing services—especially labor costs—has skyrocketed.
One of the most concerning trends is the growing dominance of MA plans. Over half of Medicare beneficiaries are now enrolled in MA, but MA plans often pay home health agencies far less than traditional Medicare, exacerbating financial challenges. Providers have repeatedly shared that MA reimbursements frequently do not cover the cost of care. However, due to their commitment to patient care and the need to maintain referral relationships with hospitals, many agencies continue to accept MA patients, which severely erodes their profit margins.
Project Sword’s Revelations
Mitchell’s Project Sword uncovered that while MedPAC reports show traditional Medicare margins hovering around 20%, these figures don’t account for the impact of MA. When both Medicare and MA payments are considered, Mitchell found that many agencies have negative all-payer margins, meaning they are operating at a loss. In fact, nearly 40% of home health agencies reported negative net income in 2022, a figure that continues to grow.
MedPAC, however, has chosen not to include all-payer data in its assessments of home health agencies, even though it does so for hospitals. This selective reporting provides a skewed perspective of the industry’s financial health. For hospitals, all-payer margins show a more accurate picture of their financial stability. Home health agencies, however, are left to navigate a system where traditional Medicare is shrinking, and MA is taking over without adequate payment adjustments.
A Deteriorating Industry
The data from Project Sword paints a bleak picture of the home health industry. Smaller agencies are particularly vulnerable, as they lack the bargaining power to negotiate better rates with MA plans. Larger agencies like Bayada Home Health Care may have the scale to weather these financial pressures and potentially negotiate better deals, but many smaller providers do not have such options. As a result, fewer home health providers are in operation today compared to just a few years ago.
The ongoing financial strain has already caused closures, with one of the oldest home-based care providers in the country, VNA of Greater Philadelphia, shutting down due to unsustainable financial losses.
Looking Ahead
Mitchell and other industry leaders are calling for immediate action to address the home health crisis. They argue that CMS must halt further cuts and adjust base payment rates to reflect the true costs of care, particularly in light of MA’s growing dominance. Without these changes, the home health industry risks further contraction, leaving vulnerable patients without access to critical in-home care services.
As the final payment rule for 2025 looms, the future of home health agencies—and the essential services they provide—hangs in the balance