For-Profits Make Up 90 Percent of HHA Industry, Serve 71.3 Percent of Beneficiaries

According to a new study released by CMS that analyzed the policy implications of the cost structure of new home health agencies (HHA), the industry is largely made up of for-profit HHAs that serve a majority of the beneficiaries of home health care. Specifically, the report found that in 2010 almost 90 percent of HHAs were for-profits. Yet because the non-profit HHAs are typically larger in size, for-profit HHAs served 71.3 percent of the beneficiaries of home health care in 2010. The study was conducted in order to create a more recent picture of the modern, post- prospective payment system (PPS) HHA industry, which is growing. While the dominance of for-profit HHAs was highlighted, the report also reviewed the differences in the operation of a for-profit HHA as compared to a non-profit HHA and, as a result, found the increased “non-profit like practice style” may result in more efficiencies in the industry. The study also recommended an emphasis on small scale agencies, contract therapy labor, and salaried nursing labor.

Home Health Care

According to the report, the HHA industry declined after the implementation of the interim payment system (IPS) in 1997, which cut Medicare payments to HHA. However, with the adoption of the PPS in 2000, which was “more generous, financially” to the HHA industry, positive trends were identified in regard to home health care expenditures. From 2001 to 2010, the number of certified Medicare HHAs has increased from 7,061 to 11,815. Between 2001 and 2009, home health care expenditures for Medicare increased from eight billion dollars a year to $18.3 billion. The role of home health care both in terms of Medicare coverage and all other payers is expected to growth at increasing rates. While the total expenditures in the field for all payers in 2012 were $70 billion, that amount is expected to increase to $156 billion by 2021. CMS noted that despite the growth, prior to this study no data for the home care industry was available for the post-2000 period.

Findings

The CMS report revealed that of the 90 percent of for-profit HHAs, the median age of those agencies was six years, indicating that a large portion of the HHAs entered the industry after the implementation of the PPS. Conversely, the median age of non-profit HHAs was 25 years. The for-profit and non-profit HHAs also differed in the several other ways highlighted by the CMS data including: 1) the median scale of non-profit operations were three times that of the for-profit agencies in terms of patients served; 2) the average costs per unduplicated non-profit patient was 40 percent lower than the cost per patient at the for-profit agency; and 3) the for-profits served a larger amount of Medicare beneficiaries and had a higher case-mix index.

Implications

Although the report acknowledged the advantages in cost and volume that non-profits seemed to sustain in the HHA industry and suggests that “non-profit like practice style” could lead to increased efficiencies for incoming agencies, CMS also noted a better understanding of the difference between for-profit and non-profit agencies is necessary before endorsing the view that increased amount of non-profit or non-profit like entities could lead to cost savings. CMS did, however, recommend increased reliance on small scale agencies, contract therapy labor, and salaries nursing labor to realize more effective cost structures in the HHA industry.