Health Care

Obamacare's Surprise Medicare Cut


One of the ways Obamacare aims to curb health costs is by encouraging home care for the elderly instead of expensive nursing homes and hospital stays. So home health providers were surprised to learn in November that they’ll be taking a sizable hit as a result of the law: The rate Medicare pays them is scheduled to drop 14 percent over the next four years, the maximum reduction allowed under the Affordable Care Act. In announcing the cuts, the Centers for Medicare and Medicaid Services said the lower rates “better align Medicare payments with home health agencies’ costs [of] providing care.”

Providers say they expected a reduction—Medicare frequently adjusts payments—but not such a big one. “We were just stunned,” says Eric Berger, chief executive officer of the Partnership for Quality Home Healthcare, a lobbying group representing a dozen large home health-care companies. Berger says the lower rates will force some agencies to close. Medicare’s payment for two months’ worth of home visits is $2,869 in 2014. That’s $81 less than last year, a cut offset somewhat by other adjustments to how Medicare calculates payments.

Advocates for seniors worry less money will mean fewer aides available to help patients. The AARP urged Medicare to reconsider the cuts and make sure seniors “have the access to home health care that they need,” says Rhonda Richards, a lobbyist for the group. She notes that home-care recipients tend to be older, sicker, and poorer than the broader Medicare population.

The Obama administration says the industry will do just fine. In 2012, Medicare spent more than $18 billion to send nurses, therapists, and health aides to the homes of about 3.5 million Americans too sick or frail to leave the house. They provide rehab, help manage medications, and do post-surgical checkups. For most of the past 15 years, home health care has been a booming business. From 2004 to 2012 the number of home health agencies in the U.S. increased by 57 percent, to 12,215, according to data from the Medicare Payment Advisory Commission, which advises Congress. Most are for-profit companies that “have been paid well in excess of their costs,” the Medicare panel concluded in a report last year. The agencies employ skilled professionals such as nurses, who earn an average $65,000 per year, and lower-wage workers such as personal-care aides, who make less than a third of that.

Medicare’s spending on in-home services has leveled off since 2010. Although the home health industry added an average 4,500 jobs a month in 2013, according to data from the Department of Labor, in December it recorded its first decline in more than a year, a drop of 3,000 positions.

The Partnership has hired Billy Tauzin, the onetime Louisiana representative and former chief lobbyist for the drug industry, to press Congress to roll back at least some of the Medicare cuts. To illustrate why lower payments are a bad idea, Tauzin points to the Obama administration’s own calculations: The regulation estimates that by 2017, “40 percent of providers will have negative margins.” The White House says companies that learn to use tax dollars more efficiently will bounce back, as they did after past cuts. Tauzin takes a bleaker view. “When you’re under water,” he says, “if you can’t dramatically reduce your services to your consumer, you’re out of business.”

The bottom line: Home health providers are protesting a 14 percent cut in Medicare payments they say will hurt care for seniors.

John_tozzi
Tozzi is a reporter for Bloomberg Businessweek in New York.

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