The Rising Cost of Care
CMS pressures and caregiver shortages drive up cost
by HomeCare Editors

Editor's Note: This article is one of several featured in HomeCare Magazine's 2019 State of the Industry report.

The Medicare program once represented a steady source of reliable income for home medical equipment providers. That changed with the launch of the competitive bidding program, which created unhealthy competition among providers of durable medical equipment, prosthetics, orthotics and supplies.

The Centers for Medicare & Medicaid Services (CMS) says the CBP lowers out-of-pocket costs for people with Medicare; saves the program money while making sure beneficiaries can get quality items and services; and works with other fraud, waste and abuse initiatives. CMS credits the CBP for saving over $2 billion per year without hurting health outcomes.

The obstacle courses of major payers Medicare and Medicaid have either kept providers on their toes or helped put them out of business. The industry is 40-plus percent down in the number of businesses that once served the population at large, with consolidation a major factor in the industry.

While stakeholders debate whether there is an access issue for beneficiaries, the Office of the Actuary of CMS projects continued growth in national health expenditures through 2026, when national health spending is expected to represent nearly 20 percent of the U.S. economy.

To start 2019, the CBP is on hiatus (expected to last about two years), new payment rates and policies are coming out for both HME and home health providers, and industry advocates are keeping watch on swirling subregulatory currents.

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For Medicare, spending per beneficiary has accelerated. This, according to the CMS forecast released in February 2018, reflects the effect of incentive payments made to physicians under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), as well as projected growth in the volume and intensity of goods and services provided to beneficiaries.

Wise providers will be analyzing their cost to serve. Data ultimately influences payment rates and the cost of care. Genworth Financial’s 15th Annual Cost of Care Survey released in fall 2018 points to several factors that are driving up the cost of care across all care options, including homecare, which has increased significantly over the past two to three years after remaining flat for some time:

  • The shortage of skilled workers: Demand outpaces supply. Also, fewer caregivers leads to more overtime, which means consumers pay more for care.
  • Higher minimum wages and changes in overtime pay rules.
  • Difficulty attracting and retaining qualified workers.
  • Business constraints facing homecare agencies, such as differing laws on certification of caregivers, compliance obligations, razor-thin margins, and balancing care quality and costs.
  • Increasing incidence of Alzheimer’s disease and dementia, which is increasing the need for specialized care and higher hourly wages.
  • Aging Americans needing more expensive and intensive specialized care, the result of waiting too long to receive professional care.

Genworth reports that the blended annual median cost of long-term care support services has increased an average of 3 percent from 2017 to 2018, with some care categories exceeding two to three times the 2.1 percent U.S. inflation rate. Find the full 2019 State of the Industry series here.