Home health industry goes from boom to bust
By Valerie O'Berry
Hospital News Editor

"Gone out of business."

That's the sign of the times for the ailing home health industry. Since the beginning of the year, 63 agencies have gone out of business, with 39 of those shutting their doors in May. The culprit, say home health agencies, is the Balanced Budget Act of 1997, which has meant less revenue.

"HCFA (Health Care Financing Administration, the agency that manages the Medicare program) is hitting us over the head with the Balanced Budget Act to slow the growth. They are very mad at us as an industry, "says Gene Tischer, executive director of the Associated Home Health Industry of Florida.
Growth in the home health industry has been steady. In 1988, Florida had 150 agencies; in 1991 there were 650; by 1997, 1,448 home health agencies were in business.

A lot of the growth in the industry can be attributed to a lawsuit filed in Pennsylvania in 1988 by home health agencies against HCFA. In the suit, home health agencies argued that the definitions of "reasonably medically necessary" and "homebound" were too tight and that HCFA was arbitrarily denying payment. The home health industry won the lawsuit and the industry boomed.

Boomed, indeed. In 1990 Medicare spent only 2.9 percent of its funds on home health care. By 1996 that number had skyrocketed to almost 9 percent, or $16.7 billion, with the average number of home visits more than doubling. These numbers caught the attention of The General Accounting Office and HHS Inspector General, which conducted studies and found that most of the growth could be attributed to waste, fraud, and abuse.

Good apples hurt
Although no one in the home health industry denies that they have had their share of bad apples, home health agency administrators say that the new rules and regulations imposed by the Balanced Budget Act of 1997 are actually hurting the agencies that have tried hard to contain costs.

One of those new rules is the Interim Payment system (IPS), which changed the reimbursement system from a per visit reimbursement to a per patient cap system. Under the BBA the cap is based on what the agency's costs were in 1994, creating a system in which each agency has a different reimbursement level and actually rewards a history of high costs. For example, if the agency's costs were high in 1994, its cap is also high.

"If you were watching your utilization and keeping your costs down, you're getting the shaft. Those that were working at high cost and utilization are not going to be hurt," Tischer says. "It sends the entirely wrong message. This was their (HCFA) way of punishing us."

Jim Parmer, CEO of Choctaw Valley Home Health, has suffered the ultimate punishment. Due to the interim payment system, in June he was forced to close his agency, which has been in business since 1974. Parmer, who was working under a cap of $5,600 per patient, says the IPS rewards those who haven't tried to contain costs. He says he knows of an agency in Louisiana that is operating under a $13,000 cap. The average cap in Florida is $3,800.

"It's really an inequitable situation," Parmer says. "I think our downfall was providing (only) what the patient needed."

Another problem with the BBA, agencies content, is the fact that the per patient limit applies no matter where the patient gets service. For example, a car accident victim may be seen 55 times by an agency, using up the entire amount of "allotted" funds. Then, they may travel north and have another accident and get service from an agency in another town, which sees them 75 times. Typically, neither agency will know until the end of the year that they have provided services to the same patient. Under the new rules, however, each agency is not entitled to its cap amount. Instead, the agencies will have to split whatever Medicare reimburses for the services and could even end up owing money to Medicare.

"It doesn't take long before you go in the hole on that. It's an unworkable situation," Parmer says.

Other hardships cited by home health agencies under the BBA include the requirement that agencies secure a $50,000 surety bond (a rule recently suspended by HCFA) and changes in venipuncture rules, which make venipuncture alone a non-reimbursable service.

"It's always been a game of 'gotcha," Parmer says. "They (the government) tried to make it look like the agency was a fault, but they could have turned down the claims before they were paid. They are trying to get a hold of a running bull." 
Parmer added that he knows of several other agencies that are thinking about bailing out. "It's up in the air, a real bowl of Jello floating around out there. Large hospital agencies will survive, I think, because they have better access to patients. The small mom and pop size agencies will not stay in business. In two or three months they will be in a situation where they have to close. I didn't want to be in that situation. I wanted to leave the business without debt."

Trend is scary
The trend of home health agency closures has the Florida Agency for Health Care Administration (AHCA) a little concerned.
"We're seeing it happening all over the state because of the new rules. We don't think that $3,800 is enough. It's terrible," says Anne Menard, manager of the home care unit for AHCA.
Menard says that right now the situation isn't desperate. "We still have Medicare agencies operating in every county. There are still a lot of home health agencies in Florida. But, if it doesn't level off we will see more of a problem, especially in rural areas," according to Menard.

Providers and government officials are also concerned that patient care will suffer, especially among long-term care patients, whose care costs much more than short-term patients.

"We're dealing with a number of patient dumping complaints here," says Menard.
Health care giant Columbia/ HCA recently added fuel to the fire when it closed six home health branches in central Florida and laid off 100 workers. On July 14 the company announced that it plans to sell the rest of its Florida operations to Olsten for $34 million. Jeff Prescott, Columbia spokesman, says the company announced its intention to get out of the home health business in November 1997 as part of its restructuring plan. "It's a changing industry, no doubt about it," Prescott says. Columbia plans to divest all of its home health operations by the end of the third quarter of this year.
But, while some have decided to jump ship, others have decided to set sail in the choppy waters of the home health care industry. Recently, Orlando Regional Health Systems (ORHS) purchased the local Visiting Nurses Association, expanding their home health care operations.

Surviving in new climate 
ORHS spokesman Joe Brown says that home health is a good market because it is an essential service and helps reduce long-term stays in the hospital, which can drive up health care costs even more.

"The bottom line is that people need home health care; you can't stop it," says Brown. "We're probably more blessed because we're a fairly large system."
ORHS has decided it wants to make home health care work for its health care system and its patients. Instead of retreating from the problems of the industry, ORHS has met them head-on with restructuring and better management of resources.

"This isn't the first time home health has had a reduction in Medicare reimbursement. We've had to re-think how to administer home health care," he says.

ORHS has been quite successful in its efforts, with its VNA grossing more than $26 million in 1997.

"It hasn't been without pain and suffering along the way. Are we victimized in a sense? Yes. Will it go away simply because of BBA? No. The bottom line is to lower the cost of health care. It is more of a smart move (for a hospital) to reduce patient days," Brown says.

Danica Luehm, director of community care services for the Florida Hospital Association (FHA) says that hospitals still have a lot of reasons to be concerned - 26 of the agencies that closed in 1998 were hospital based.
Leuhm says that the Interim Payment System provides no incentive to treat sicker patients. As a result, those patients will likely end up in more expensive emergency care or in hospital beds.

"Hospitals won't turn them away (from the emergency room) because one, they are a public hospital, or two, it is not their policy to turn away patients," Leuhm says.

Hospital agencies have also experienced massive cuts in reimbursement, according to Leuhm. One agency that was expecting a $1 million cut actually got a $6 million cut. Some agencies are expecting a 15 percent across-the-board cut. 
"If that happens, we will see massive amounts of agencies closing. It's scary," says Leuhm.

Relief in 1999
Although there is no relief in sight this year, in October 1999 HCFA is planning to change to a new Prospective Payment System (PPS). The new PPS system will set in advance how much HCFA will pay for a unit of service, how many visits will be included in that unit and what mix of services can be provided.
Home health agency heads are looking forward to PPS, saying it should provide some financial relief or them. HCFA says that the IPS system was necessary to curb fraud and abuse by agencies taking advantage of Medicare, and was always just a temporary solution.

Rumors are already flying that HCFA will not meet its Oct. 1, 1999 deadline for implementation of PPS because of year 2000 (Y2K) computer problems. Not only would a delay in the implementation of PPS hurt the home health industry, which is waiting for relief, but it could also prompt some lawsuits against HCFA. HCFA spokesman Craig Palosky says that the rumors are just rumors, and that HCFA intends to implement PPS on time.

"We're preparing ourselves for PPS, but the challenge for us it to get through IPS," says Anthony Clarizio, administrator of Shands Gainesville and Polatka area home care agencies. "Shands Home Care has experienced its share of staff and overhead cuts and they have become a more efficient home care agency." 
"I hope we're viable and strong enough to survive this. The fiscal year for us is just starting under IPS," Clarizio says.

Tischer says that he doubts any home health agency that is too dependent on Medicare will survive.

But, he adds, "People will get care. We'll walk through the dark shadows together until we come out into the sunshine. We will survive."