FutureFocus January 24, 2018 Policy Insights

Lisa Remington

In this week’s FutureFocus, we discuss recommendations for future Medicare payments for home health, hospice and SNF. It is recommended that therapy payments be eliminated in home health. In another article, we provide key findings related to ACOs and the importance of discharge planning. In a related article, improper discharges from SNFs may start receiving civil penalties. Don’t miss the most common reasons for discharges from SNFs.

Lisa Remington, President, Remington Health Strategy Group

Post-acute providers could take a Medicare payment hit if Congress adopts Medicare Payment Advisory Commission (MedPAC) recommendations approved at its January 11-12 public meeting in Washington. The advisory agency’s recommendations will be included in the annual March report to Congress on Medicare Payment Policy.

For home health, MedPAC adopted: Congress should reduce Medicare payments to home health agencies by 5 percent in calendar year 2019 and implement a two-year rebasing of the payment system beginning in 2020. Congress should direct the HHS Secretary to revise the prospective payment system to eliminate the use of therapy visits as a factor in payment determinations, concurrent with rebasing.

"Eliminating the use of therapy visits as a factor would be “budget-neutral, but redistributive,” Christman noted. “The policy would shift funds to hospital-based agencies that generally do less therapy and away from freestanding for-profit agencies, which typically do more therapy.” 

“The impact of this change would be to lower spending by 5- to $10 billion over five years and $750 million to $2 billion in 2019,” according to Evan Christman, MedPAC senior analyst, the staffer briefing the MedPAC commissioners on this issue. The impact to the Medicare beneficiary “should be limited,” Christman added. “It should not affect provider willingness to serve beneficiaries.” Also, “access is adequate; share of beneficiaries using the service and volume of episodes declined slightly in 2016, and supply remains high.”

Eliminating the use of therapy visits as a factor would be “budget-neutral, but redistributive,” Christman noted. “The policy would shift funds to hospital-based agencies that generally do less therapy and away from freestanding for-profit agencies, which typically do more therapy.” With the end of therapy visits as a payment factor, the system would become “fully prospective by basing payment solely on patient characteristics.”

When Congress Doesn’t Act, Recommendation Often Repeated

The commissioners approved the draft recommendation unanimously. (Just about all votes are unanimous, as a consensus is the customary mode of operation.) Another typical theme is that when Congress does not act on a recommendation in one March report, it’s repeated in the next one, with adjustments appropriate for the new year. Such will be the case with the 2018 home health recommendation.

“Overall, our indicators are positive indicating that payments are more than adequate,” generating “consistently high margins” for the industry, as Christman provided the rationale before the vote. “The Medicare marginal profit for freestanding home health agencies is 17.4 percent” in 2016. And the projected Medicare margin for 2018 is 14.4 percent.


“On the basis of these positive payment adequacy indicators,” Congress “should eliminate the fiscal year 2019 update to the Medicare payment rates for hospice services,” Kim Neuman, MedPAC principal policy analyst, presented the draft recommendation adopted by MedPAC for the March report. “The implications of this recommendation are a decrease in spending relative to the statutory update of between $250 million and $750 million over one year and between $1 billion and $5 billion over five years. In terms of beneficiaries and providers, we do not expect an adverse impact on beneficiaries, nor do we expect any effect on providers' willingness or ability to care for these beneficiaries.”

“For 2015, we estimate an aggregate Medicare margin of 10 percent and a rate of marginal profit of 13 percent. For 2018, we project an aggregate Medicare margin of 8.7 percent,” said Neuman. “In terms of access to capital, the continued growth in the number of providers suggests capital is accessible.” The supply of hospice providers “continues to grow, increasing more than 4 percent in 2016. For-profit providers account almost entirely for the net growth in the number of providers.”

“Also, quality data recently became available for individual hospice providers for seven process measures. Even at this early stage of having these new quality measures, performance on the measures is quite high, and the measures generally seem topped out.”


For skilled nursing facilities, MedPAC adopted and will recommend in its March report: Congress should eliminate the market basket update for fiscal years 2019 and 2020; direct the Secretary to implement a redesigned prospective payment system in fiscal year 2019; and direct the Secretary to report to Congress on the impacts of a revised PPS and make any additional adjustments to payments needed to more closely align payments with the cost of care in fiscal year 2021.

One can only wonder if any (or which) MedPAC recommendations will become law. The wildcard this year is House Speaker Paul Ryan’s (R-WS) vow to address “entitlements,” such as Social Security and Medicare. Ryan’s pledge, however, is not shared by Senate Majority Leader Mitch McConnell (R-KY), or President Trump, unless he changes his position from pledging during his campaign in 2016 not to touch the two programs. However, the new tax cut/reform law likely will force the issue of how to pay for it.