Five Ways to Maintain Agency Margins

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Karen Utterback By Karen Utterback 
Former Vice President, Product Marketing and Strategy, McKesson (Retired)

Home Health Agencies Maintain MarginsIn order to survive further projected cuts in Medicare reimbursement, home health agencies must become more efficient, according to Mark Sharp, CPA, partner at BKD, LLP. Sharp notes that Medicare margins for home health dropped nearly 20% between 2008 and 2011, while overall margins have dropped by nearly one-third during the same time to just 2.8%.

“Case mix creep is not going away. Sequestration reductions will continue unless changes are made,” Sharp says. “The market basket reduction goes away after 2013, but the productivity adjustment goes into effect in 2015.” Rate rebasing begins in 2014. Early indicators and projections by BKD show an overall impact of lower reimbursements for Medicare patients.

Agencies that do not become more efficient in their operations are in danger of going out of business, says Sharp, noting that 2011 saw a significant increase in agency closures. In 2011, about 250 agencies ceased operations versus the 100 or so in a typical year since PPS was implemented in 2000, Sharp says.

Sharp has five suggestions on how you can sustain your operating margins:

  1. Understand the impact that Medicare reimbursement changes will have on your agency.
  2. Ensure documentation accuracy, including OASIS accuracy and episode mix.
  3. Manage expenses.
  4. Diversify program offerings.
  5. Position your agency strategically, looking for opportunities to participate in care transitions, accountable care organizations, bundling programs and other home and community-based services.

“Most agencies have opportunities on the cost side,” Sharp says. “You do it through managing care expenses, including fewer visits per episode and higher visit-to-visit productivity of clinicians.”

He notes that best-in-class home health agencies can prove the quality outcomes that are essential to participate in hospital care transition programs, have high patient satisfaction scores and good financial outcomes and limit the average number of visits per episode to 13 or fewer.

Related post: Agencies Must Show Value to ACOs

Home health software is great tool for agency management to streamline processes while improving documentation and shortening revenue cycle. Learn more by subscribing to McKesson Homecare Talk.


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