Survival in Today’s Home Health Arena

Survival in Today’s Home Health Arena

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Most cite the Balanced Budget Act of 1997 as the singular event that changed the face of home health care. Under this Congressional act, many home health agencies saw the federal government cut their reimbursement fees for certain services. However, according to the Nov. 1, 1999, issue of Modern Healthcare, the Balanced Budget Act actually shifted payments away from some home health agencies to reimburse others.

According to the article, the shifting of monies throughout the home health industry will accomplish the following: monies reimbursed to “for-profit” home health agencies will drop by 18 percent; monies will rise by 19 percent for “not-for-profit” agencies; reimbursements will remain unchanged for home health agencies connected to hospitals; and reimbursements will rise by almost 50 percent for government-owned home health agencies.

In addition to shifting reimbursements from one agency type to another, the Balanced Budget Act also made certain line item cuts that hurt the respiratory home health market in particular. Home oxygen, one of the biggest home health items, has seen a 30 percent cut over the past few years, with no sign of increase for cost of living in the immediate future.

This comes at a time when the respiratory home care patient population stands on the brink of exploding. To date, respiratory home care products make up the third largest health care market in the United States, standing only behind home nursing care and home infusion therapy. Revenues have risen more than 13 percent between 1996 and 2000, with sales this year expected to climb to more than $6 billion.

Changes Key to Survival
With such a great need for respiratory home health, how can for-profit home health agencies survive in the wake of the Balanced Budget Act? Joe Lewarski, RRT, is the current chair for the AARC’s Home Health Section. He also works for Hytech Home Care based in Mentor, Ohio. Lewarski recognizes the unfairness inherent in the Balanced Budget Act respiratory home health reimbursement cuts.

“A lot of smaller companies have had to fold up their tents,” he acknowledges. “Many have also been forced to consolidate with larger companies. But larger companies have not been immune to the cuts either. If you check out home care companies in the stock market, you can see there’s been a real loss of confidence.”

However, Lewarski also believes that part of the blame for the failure of some home care companies may lie within the companies themselves. Citing a lack of business acumen, Lewarski says better business practices could have averted a complete catastrophe in some cases.

“Instead of looking at line items, most of the companies bundled products together,” he explains. “There are some services that are profitable, such as home oxygen, and some that aren’t so profitable, such as wound care or ostomy supplies. So, the profitable items were serving as a buffer for the other products. But when the bottom dropped out–and oxygen profitability disappeared–there wasn’t a buffer any longer to offset the unprofitable items.”

For most home care companies, the less profitable lines of products have had to be dropped. Lewarski says other changes must take place for the remaining home health agencies to continue surviving. Specifically, agencies must increase their operational efficiency and boost their purchasing power.

“Operating efficiently means being aware of the prices you pay, and exactly how much you are going to be reimbursed, for every product,” Lewarski says. “For every patient you take on, you must ask yourself, ‘Am I making a profit, taking a loss or just breaking even?’ For small companies, purchasing power can be maximized by joining a group purchasing organization–it can give you access to group discounts you couldn’t ordinarily get.”

While the Balanced Budget Act will force home care companies to change their operational practices, Lewarski feels the necessary changes may eventually make the industry more responsible–and focused on better business principles.

“It’s ironic that this is the lowest cost center in health care, and it’s still taking the most cuts,” he laments. “To survive, you have to gain control over the elements you can control–such as how to run a business. It is not the same industry that it was 10 years ago, and the next 10 years will be very difficult. Still, I predict home health care will survive and find new ways to be profitable.”

Katherine Lesperance is an ADVANCE assistant editor.