Home care industry reacts to dollar pinch Transformation: A new Medicare reimbursement system is creating large changes in the home nursing industry.

August 09, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

Decreased Medicare reimbursements are squeezing the agencies that provide home nursing, putting pressure on smaller agencies and accelerating a trend toward consolidation.

"I believe the only survivors will be large organizations that are part of a system and can be subsidized if necessary," said Eve Kolodner, president of Helix Home Care, an agency affiliated with the five-hospital Helix Health network.

A new Medicare reimbursement system has imposed per-visit and per-patient ceilings and, as of July 1, cut payments to many home care providers.

In addition, the growth of managed care has been pushing consolidation as health maintenance organizations seek contracts with agencies that can offer broad regional coverage and discounted prices.

"When you're new, it's hard to get the [managed care] business," said Matthew H. Bailey, chief financial officer of P-B Health Home Care Agency Inc., a small, 4-year-old agency in Baltimore. "Then, when you get it, you ask yourself if you want it."

HMOs typically pay 10 percent to 20 percent less than Medicare, and some want to pay 50 percent less, he said.

Nationally, more than 700 agencies [of about 10,000) have closed this year or stopped taking Medicare patients, according to the National Association for Home Care. Most of those closings have come in states, such as Texas, where payments under the old system were unusually high.

In Maryland, only one agency has closed. But there has been a clear trend toward home health operations joining together into larger groups:

In December, the second-largest agency in the state, Bay Area Health Care, merged into the largest, Visiting Nurse Association of Maryland (VNA). Bay Area had been owned by University of Maryland Medical System, which became a part owner of VNA, and by the physician group of the Maryland Shock Trauma Center.

In May, Sinai Hospital's agency, Sinai at Home, merged into VNA.

The same month, North Arundel Health System and Mercy Medical Center announced a merger of their home health operations. Mercy also runs Stella Maris, a hospice and long-term care facility, and plans to bring its home-care program into the merged organization.

In July, Helix completed the merger of its member hospitals' home health operations as Harbor Hospital Center was folded into Helix Home Health. Kolodner, who runs the merged operation, had her own agency until 1996, when Helix bought it.

By combining, agencies hope to eliminate duplicated administrative costs and to spread overhead costs over a larger number of patient visits.

It's also a business where concentrations of patients can hold down costs. With more patients in a neighborhood, a nurse spends less time traveling and can make more visits in a day.

The new rates "have encouraged acquisitions," said Ted Ochs, chief financial officer of VNA. "Scale is definitely a benefit under this regulatory environment."

"I think we would have done it even without the new rates, but the rates just sealed it," Robert A. Chrencik, senior vice president for finance and systems of University of Maryland Medical System, said of the decision to merge its home health agency into VNA.

"You ask yourself whether the outlook for profits was improving or deteriorating, and it was deteriorating."

The new Medicare rates were an effort to control expenditures resulting from the rapid growth in home health care, which has mushroomed as the length of hospital stays has decreased.

"The government has decided, for whatever reason, to really clamp down on home health," said Bernie Lorenz, president of Lorenz and Associates, a Towson consulting firm that advises 500 home health agencies nationally. "Home health is a victim of its own success."

Home health payments jumped from less than 3 percent of Medicare expenses in 1990 to nearly 9 percent last year. The number of elderly people receiving home health services doubled over that time, from 2 million to 4 million, while the average number of visits per patient soared from 36 to 80.

A result of policy

In part, the growth of home health care was encouraged by policy-makers looking to provide care in a setting less expensive than a hospital or nursing home.

Further fueling the growth in the 1990s was a court case brought by the national trade association, which established that Medicare covered home care of patients with chronic conditions such as diabetes, in addition to patients recovering from surgery or injuries. (Medicare will pay for home care services such as nursing and physical therapy for a patient certified by a doctor to be "home-bound.")

In testimony before Congress, the Health Care Financing Administration (HCFA), which administers Medicare, called the rate of growth "unsustainable."

Michael Hash, deputy administrator of HCFA, said that, while some of the increase in home care saved money on hospitalization, "you can't explain the increase solely on the basis of changes to a more appropriate care setting."

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