MedPAC: Is it Paranoia if They Really ARE Out to Get You?

The Medicare Payment Advisory Commission (MedPAC) – the independent federal body charged with advising Congress on Medicare payment policy – recently issued its 2007 “Databook on Health Care Spending and the Medicare Program.” The 208-page report is jam packed with charts and tables that analyze Medicare spending in more ways than any rational person could care about.

MedPAC submits a “Medicare Payment Policy” report to Congress every March. As just about anyone involved in Medicare home health knows, MedPAC has a more-or-less standing recommendation every year that Medicare payments to home health agencies should be frozen. The MedPAC “freeze home health” recommendation is one of those reliable signs of spring -- like the daffodils on Nantucket.

Given MedPAC’s position on home health rates, I thought it might be interesting to browse through the Databook and look at how home health compares to some of the other slices of the Medicare pie. I found some interesting tidbits to chew on:

Medicare pays for 38% of all home health services, more than any other type of health care. By comparison, Medicare pays for only 29% of hospital care, and just 16% of nursing home care.

Interpretation: home health agencies are far more susceptible to changes in Medicare payment policy than are other types of providers (Witness the fact that roughly 40% of all Medicare home health agencies went out of business when CMS implemented the disastrous “Interim Payment System” in 1997.) The major changes that CMS has proposed for the PPS case mix system for 2008 could conceivably have a similarly disruptive impact on the industry.

But the percentage of Medicare funds spent on home care has dropped dramatically in recent years: In 1996, home health accounted for 9% of the Medicare pie. By 2006, that percentage had plunged to just 3%.

Interpretation: Again, the impact of the IPS, from which the home health industry has yet to fully recover.

Overall Medicare spending on all post-acute care services (including home health, skilled nursing facilities, inpatient rehabilitation, and long-term care hospitals) grew by 68% between 1999 and 2005. But Medicare spending on home health grew by only 46% during that period; SNF and inpatient rehab spending grew by 70% and 67% respectively, while LTCH spending grew by a whopping 170%.

Interpretation: The transition from IPS to PPS did NOT result in runaway expansion of home health services. On the contrary, the Medicare program is increasingly relying on inpatient services for post-acute care. Given that home health services are far more cost-effective than inpatient care, CMS should be exploring incentive to expand Medicare home health utilization rather than try to restrict it.

Between 2002 and 2005, the percentage of SNF patients who were categorized into the “ultra-high” case-mix category nearly doubled, from just over 7% to 14%. Similarly, SNF patients in the “very high” category increased from 20% to 27%.