David Gruber is managing director, Alvarez & Marsal. A&M is a global professional services firm that delivers business performance improvement, turnaround management and advisory services to organizations seeking to transform operations, catapult growth and accelerate results through decisive action. Visit www.alvarezandmarsal.com
According to CMS, national health expenditures will increase from $3.5 trillion in 2016 to $5.5 trillion in 2025—$2 trillion dollars in only eight years—and account for 19.9 percent of the GDP. Medicare and Medicaid, the primary payers of home health care services, forecast an increase in expenditures at a compound annual growth rate of 7.4 percent and 5.9 percent, respectively in 2016 to 2025.
Homecare represents a cost-effective alternative to facility-based care. Despite recent efforts by CMS to reduce fee for service operating margins by the Affordable Care Act (ACA) rebasing policies and changes in coding practices, operating margins remain in the mid-teens primarily driven by a change in the case mix index without a commensurate increase in costs. However, partially offsetting the high level of Medicare FFS profitability has been the growth of Medicare Advantage from 8.4 million to 19.0 million beneficiaries—33 percent of the total—in the past decade, thereby pressuring the duration, intensity and cost of homecare services. Medicaid, though less profitable, has been the beneficiary of state initiatives to shift Long-term Services and Supports (LTSS) funding from facility to homecare based services (HCBS).
The homecare industry remains highly fragmented with more than 12,300 active agencies. Medicare FFS operating margins are 17.6 percent for the largest quintile of agencies and 7.4 percent for the smallest, highlighting the importance of scale in a consolidating health care ecosystem. CMS has defined relatively efficient agencies, as having more episodes, lower hospitalization rates, lower costs per visit, lower payments per episode and fewer visits per episode.4
Change Is Inevitable
Congressional approval of H.R. 4994, the “Improving Medicare Post-Acute Care Transformation Act (IMPACT) of 2014” mandates the development and implementation of a standardized post-acute care assessment tool, and requires MedPAC to 1) evaluate and recommend to Congress features of PAC payment systems that establish, or a unified PAC payment system that establishes payment rates according to characteristics of individuals instead of according to the PAC setting where the Medicare beneficiary involved is treated; and 2) recommend to Congress a technical prototype for a PAC prospective payment system.
More specifically, the IMPACT Act requires homecare agencies to begin reporting: 1) standardized patient assessment data at admission by January 1, 2019; 2) new quality measures, including functional status, skin integrity, medication reconciliation, incidence of major falls, and patient preference regarding treatment and discharge; and 3) resource use measures, including Medicare spending per beneficiary, discharge to community, and hospitalization rates of potentially preventable readmissions by October 1, 2017.
The Home Health Value-Based Purchasing (HHVBP) Model, effective January 2016, links payment to quality performance in nine states including Florida, North Carolina and Massachusetts. A maximum payment adjustment of eight percent is planned for 2022, though that may change under the Trump administration.
Evolving Care Delivery
Home health agencies also need to consider the broader context of the evolving health care delivery system (i.e., beyond CMS mandates). In a report published by Alvarez and Marsal in November 2017, “Provider Survival Strategies in an At-risk Environment,” six critical strategic imperatives were highlighted for providers:
• Patient care (delivery) transformation, which requires an increased focus on patients’ comorbidities, social determinants, the total cost of care and the entire care continuum, rather than just acute intervention.
• Population health management, specifically the 5 to 10 percent of patients accounting for 43 to 68 percent of costs, as focusing on the entire population results in a diffusion of effort.
• Payment reform risk management, with an emphasis on the centrality of payment reform to enterprise risk. For example, the report introduces the concept of a provider hybrid, designed as a provider with risk management understanding similar to payers, but without the depth of investment, capabilities and regulatory approvals necessary to actually create a joint venture or sponsor a health plan.
• Actionable insights (big data), which require more than improved data management, reporting and dashboards, but data extraction and ultimately the generation of insights that enable improved decision-making and leads to measurable progress.
• Sustainable physician behavior change (alignment) that reflects feelings of disengagement, loss of autonomy and productivity—and reduced income—especially among older, primary care physicians. This strategy also reflects gaps in perception between physicians and administrators regarding involvement, role and trust.
• Sustainable patient behavior change (engagement) that fundamentally shifts provider approaches to patient interactions from push to pull. This includes bidirectional, frequent contacts focused on developing self-management and caregiver support skills.
Home health care agencies need to consider the projected demand for services, their role and competitive position (cost, quality) within the local addressable market; possible inclusion in at-risk payment models (such as Comprehensive Joint Replacement); changing referral patterns; importance of a data infrastructure and fact-based decision-making; and the consumer and caregiver experience.
Payment reform, combined with the application of population health principles, EMR-driven analytics (e.g., predictive, prescriptive) and emerging technologies, will alter the criteria for patient admission, intensity of services and duration episode. Patients previously discharged to SNFs may be eligible to receive intensive homecare services. In an at-risk environment, ambulatory care sensitive conditions and “aging at home” represent opportunities for skilled and unskilled homecare services.
Demographics, combined with a bias against higher-cost institutional care, will increase demand for homecare services. The U.S. population age 65 or older is forecast to increase from 46.8 million in 2015 to 63.9 million in 2025, +36.5 percent. The growth rate is highest for the 75 to 84 cohort (49.6 percent), followed by those 65 to 74 (34.8 percent) and older than 85 (15.0 percent). Medicare spending per beneficiary increases from $7,859 for the 65- to 74-age cohort to $12,805 for the 75- to 84-age cohort due to an increase in the number, severity and interaction of co-morbid conditions, and the high cost of end-of-life care.
In closing, provider survival strategies in an at-risk environment also apply to homecare agencies who must increase the efficiency and effectiveness of their operations. Strategic leadership, combined with tactical execution are required in a period of evolutionary change.
The full report, “Provider Survival Strategies in an At-risk Environment” is available here.