In my last post, I described MedPAC profit margins included in their 2023 report and I tested the validity of these numbers using other MedPAC numbers included in their research. This simple exercise demonstrated that these numbers were wrong. Here is a recap of the all payer and Medicare only margins included in their report and the revenue and expense ratios that should have supported them.
This math problem demonstrates that both their Medicare only and all payer margins for 2021 can’t be correct if revenue, census and expenses are equal. In fact, it is my belief that neither are correct and that many of the numbers provided by MedPAC regarding home health and the conclusions they reach from them are also wrong.
This leads us to a very important question, why? How could an organization whose primary purpose is to research these issues for congress on an annual basis come up with these very basic errors in math? How can they include all payer margins as the primary metric in their analysis of acute care facilities and then use Medicare only to determine the financial status of HHAs?
The beginning of Chapter 8 (home health) of their report contains their recommendation of a 7% cut to the base rate for HHAs. They conclude the chapter with this recommendation again, claiming that it is actually not enough to align HHA Medicare payments to costs.
If this is true, why 7%. Why not 10% or some other number? This 7% figure is not supported by any data, it is just out there. Say what you want about the CMS proposed and final rules and their warped perspective on budget neutrality, at least they come up with a number supported by other numbers. MedPAC appears to have simply pulled this 7% figure out of some “hole”.
The true numbers that support this 7% are not related to the financial health of HHAs, but the numbers that appear at the end of the report on home health, just after the paragraph above.
If you review this MedPAC report for 2023 and reports from previous years, you find a recurring theme. This theme drives the content of the report, the data selected, the math, and the conclusions. My interpretation of these reports to congress is that they are intended to provide cover for congress to maintain or reduce federal spending on healthcare. The MedPAC data provided is developed to support this goal, not depict the actual status of these healthcare sectors and the participating providers. Data that does not support this goal is omitted, other data is either altered or interpreted to support this point of view, as I have demonstrated in previous posts.
Not only does this MedPAC report provide cover for congress to reduce spending on healthcare, it provides cover for CMS as well.
Each year, MedPAC and CMS go through their annual process. MedPAC analyzes cost report data to support and develop their recommendations to congress. CMS develops their proposed rule using the same cost report data along with Medicare claim data. These documents are published at about the same time, but each takes months to prepare by these organizations.
The CMS proposed rule for home health FY 2024 was published 7/10/23. The current MedPAC report, the July 2023 data book, was published 7/26/23.
Ultimately, it is CMS that determines the actual cuts to HHAs. MedPAC does not discuss CMS decisions regarding their recommendations in their reports, but CMS refers to MedPAC reporting in the proposed rules to defend their proposed and final adjustments to the home health base rate. Here is an example from the 2024 proposed rule (page 43664) using the MedPAC paragraph I just shared with you.
In order for CMS to include these MedPAC references in the proposed rule, MedPAC would have to have shared their report with CMS before it was published or while it was in development. It is unclear if these efforts were coordinated by these entities, but they were at least shared and CMS uses MedPAC data each year to support their proposed and final base payment cuts.
We know that both CMS and MedPAC share a common goal, to use any means necessary to support cuts to Medicare payments to HHAS. If we look at the process at a high level, we can see a strategy implemented by these organizations that may be familiar to most of us, the good cop bad cop strategy.
When we watch this play out in movies or on TV in the setting of law enforcement, we see a criminal suspect being interrogated by two individuals, both representing the same side, but both implementing extremely different strategies for getting information or a confession from the suspect.
The bad cop presents the suspect with an image of the worst possible outcome as the most likely outcome. Many years in jail, a life of danger and hardship, etc. He delivers this message with anger and intimidation before leaving the interrogation to be replaced by the good cop. The good cop presents a better alternative. He speaks calmly offering the suspect a drink of water or a cigarette. He tells the suspect he can “manage” his partner and that he can “help” the suspect get a better deal if he cooperates.
This process continues until the suspect begins to feel that the option presented by the good cop, which was initially unacceptable, may be his best option. The intimidation by the bad cop makes the good cop’s offer more palatable in comparison and the suspect begins to believe that the good cop is acting in his interest. In reality both cops work for the same side and both are seeking the same goal, a conviction.
Another example is when you are buying a car. You work with a salesman to select a new car from a showroom floor. Most people understand that the price on the sticker is not what you need to pay. If you work at it, you can get the dealer to give you a better offer.
The salesman and the dealership have the same goal, to make a sale to the customer at the most profitable price. At some point, the customer goes to an office with the salesman and receives a written offer. In many cases, the customer counters this offer with one of their own and their logic supporting this offer. The salesman then explains that he alone can’t authorize this lower amount, he will need permission from his manager. He leaves the room for a time and returns with another price, normally between the original price and the customer’s counter offer. He provides the argument from his “manager” supporting this offer and often apologizes for their lack of complete cooperation with the customer.
This process continues until an agreement is reached or the customer declines the transaction. You may see variations on this process, but it is a common strategy in business as a way to shield one representative of an organization (the salesman) from the negotiating process to convince the customer that this person is acting in their best interest to reach a settlement between the position held by his manager and the customer. This process not only is more likely to create a sale, but it is more likely to convince the customer that they actually came out ahead or “won” the negotiation even if it was not for the amount they were originally asking for. The salesman is often viewed as a partner by the customer, defending their position, when they actually were partners with the manager in closing the sale for the best possible price for the dealership.
In my opinion, this is what the dynamic feels like in how CMS and MedPAC counter each other in their annual process of determining the home health base rate used for claim payment. Each year that CMS has implemented a permanent adjustment to the base payment rate (2020, 2021, 2023, 2024), they have repeated a pattern that includes the MedPAC data and conclusions. It goes something like this.
CMS publishes the proposed rule, it includes a permanent adjustment to reduce the home health base rate based on behavior changes they have “calculated”. Shortly thereafter, MedPAC releases their annual report recommending even higher reductions to this base rate than those proposed by CMS.
The comment period follows where HHAs and their advocates present their arguments against these cuts. These arguments are largely anecdotal with comments explaining how HHAs depend on this revenue to survive and offset the below cost payments from MA.
CMS counters these arguments selectively with their comment responses in the final rule. They rarely concede ground on any issue, pushing back hard supporting their original estimates and data.
In the end, they reduce the proposed cuts by 50% in the final rule and present themselves as succumbing to the pressures of this HHA pushback and they apply this unpaid 50% to the debt associated with the temporary adjustment.
This has happened four times now, each annual cycle repeating with exactly the same strategy and results by CMS and MedPAC. I expect the same for 2025. Although CMS and MedPAC both complain that these cuts are not as high as they should be, they have reduced reimbursement to HHAs by over $5 billion through these adjustments, a major victory for both organizations and a damaging loss for HHAs.
Not only does this strategy make CMS cuts seem more palatable to HHAs considering the initial proposed cuts and MedPAC recommendations, it provides cover for CMS when the inevitable happens. When the availability of home health services falls to a level where other, more expensive, healthcare sectors need to step in to care for these patients or the home health industry has to be reconstructed through corrective additional funding.
CMS and MedPAC will play out this strategy as long as it continues to produce short term results. HHAs will continue to be played by these organizations until they come to the table prepared with their own data. Going back to the car dealership analogy, you need to show up knowing what car you want to buy and complete data on what others pay for this car in your area and what your trade in is worth.
The next cycle is for 2025 in July, we can expect CMS and MedPAC to repeat their strategy until it fails. This time, we need to respond with data supporting our position and disputing the MedPAC and CMS data. When CMS takes its turn with the final rule adjustments, they need to understand the weakness of their data and their conclusions and the risk these cuts represent to future overall healthcare spending. They need to see the true picture of the financial health of HHAs and the serious threat that these cuts have to their survival. They need to understand the cost of replacing HHA services with acute and skilled nursing services and the additional cost it will take to rebuild the home health industry if current trends continue.
The best way to do this is with cost report data. The same data both organizations have weaponized against HHAs. My blog shows what I consider to be the actual picture that this data represents. If my representations are accurate and supportable, CMS and MedPAC need to see them to break out of this annual cycle. I intend to make this happen.
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