MedPAC’s Proposal: A Deep Dive into the Numbers

The Medicare Payment Advisory Commission (MedPAC) has formally recommended a 7% cut to the Medicare fee-for-service home health payment rate. This reduction, if enacted by Congress, is projected to decrease Medicare spending on home health by approximately $750 million in the first year alone, with cumulative effects potentially spanning five years. The National Alliance for Care at Home (the Alliance) has voiced strong opposition, expressing “deep concern” over the potential ramifications.

Jennifer Sheets, CEO of the Alliance, stated that the proposed cut is “dangerous and misguided,” arguing it will worsen an already existing crisis in access to in-home care. She emphasized that repeated payment reductions have already forced agencies to limit services, reduce their geographic reach, and, in some cases, close their doors entirely.

The Rationale Behind the Recommendation

MedPAC’s report asserts that current Medicare fee-for-service home health payments are “substantially in excess of costs.” The Commission believes that while home health care can be a valuable service when delivered efficiently, payment levels need to be adjusted to better align with actual costs. “Home health care can be a high-value benefit when it is appropriately and efficiently delivered, but payments need to be reduced to align aggregate payments more closely with aggregate costs,” the report stated. The recommendation specifically calls for a 7% reduction in the 2026 Medicare base payment rate for Home Health Agencies (HHAs) for calendar year 2027.

MedPAC also contends that the fee-for-service model incentivizes unnecessary care, particularly when coupled with higher profit margins. The report suggests that value-based care models, while promising, currently lack sufficient incentives to drive meaningful quality improvements.

Medicare Advantage as a Potential Solution?

The Commission identifies Medicare Advantage plans as a potential countermeasure to the volume-driven incentives inherent in fee-for-service. Because these plans operate on a per-member monthly payment, they have a financial incentive to control costs by minimizing unnecessary service utilization. MedPAC plans to further investigate the financial impact of Medicare Advantage plans on post-acute care providers.

Did You Know?:

Access to Care: A Point of Contention

MedPAC’s report indicates that approximately 2.7 million Medicare fee-for-service beneficiaries received home health care in 2024, with total spending reaching $16 billion. The Commission claims beneficiaries generally have good access to home health services, noting that 97% reside in ZIP codes served by at least two agencies. However, this methodology has been challenged by Hillary Loeffler, Vice President of Policy and Regulatory Affairs at the Alliance.

Loeffler argues that simply having multiple agencies in a ZIP code doesn’t guarantee access, as it fails to account for whether those agencies are accepting new patients or the potential for delays in care initiation. The Alliance maintains that years of payment cuts have demonstrably reduced access, leading to agency closures, service area reductions, and fewer patient visits.

“We can see that there are fewer home health agencies,” Loeffler explained. “There are service area reductions, and there are [fewer] visits to our seniors. At the end of the day, there just seems to be this focus on margins, but not about patient access to care. So they need to do a better job with that.”

While MedPAC reported a 1.5% increase in participating home health agencies in 2024, this growth was largely attributed to a surge in agencies in Los Angeles County, California – an area flagged for potential fraud. Excluding California, the number of participating agencies actually decreased by 1% in 2024.

Pro Tip:

What impact will these proposed cuts have on the ability of home health agencies to serve rural communities? And how can policymakers balance cost containment with ensuring access to essential care for seniors?

Frequently Asked Questions About Medicare Home Health Cuts

1. What is the primary concern regarding the proposed Medicare home health cuts? The main concern is that the cuts will exacerbate existing access issues, potentially leading to reduced services and agency closures, ultimately impacting seniors’ ability to receive care in their homes.
2. How much money could be saved with the 7% reduction in Medicare home health payments? MedPAC estimates the 7% cut would reduce Medicare spending on home health by approximately $750 million in the first year, with cumulative impacts over five years.
3. What is MedPAC’s justification for recommending these cuts to home health? MedPAC argues that current fee-for-service payments are “substantially in excess of costs” and incentivize unnecessary care, advocating for alignment with actual service costs.
4. Are Medicare Advantage plans presented as a solution to the issues with fee-for-service? Yes, MedPAC suggests that Medicare Advantage plans, with their per-member monthly payment structure, incentivize cost control and may offer a more sustainable model.
5. How does the Alliance respond to MedPAC’s claim of good access to home health services? The Alliance disputes this claim, arguing that simply having multiple agencies in a ZIP code doesn’t guarantee access, as agencies may not be accepting patients or have significant wait times.
6. What role did Los Angeles County play in MedPAC’s agency count? A significant increase in agencies in Los Angeles County, attributed to potential fraud, skewed the overall agency count, masking a decline in participating agencies elsewhere.