For-Profit Home Care Agencies Cost Medicare Billions Extra, Yet Provide Worse Care: Health Affairs Study

For-profit home health agencies are far costlier for Medicare than nonprofit agencies, according to a nationwide study published today in the August issue of the journal Health Affairs. Overall cost per patient was $1,215 higher at for-profits, with operating costs accounting for $752 of the difference and excess profits for $463. Yet the quality of care was actually worse at for-profit agencies, and more of their patients required repeat hospitalizations.

Researchers at the City University of New York School of Public Health analyzed detailed Cost Reports filed with Medicare by 7,165 home health agencies in 2010-2011, as well as data for 22 quality measures from Medicare's Home Health Compare database covering 9,128 agencies.

Compared to nonprofits, operating costs at for-profit agencies were 18 percent higher, with excess administration (at $476 per patient) accounting for nearly two-thirds of the $752 difference in operating costs. For-profits also did many more speech, physical and occupational therapy visits, which are often highly profitable under the complex Medicare payment formula. In addition, profits at for-profit agencies added 15 percent on top of operating costs vs. a 6.4 percent surplus at nonprofit agencies.

Despite their higher costs, for-profit agencies delivered slightly lower-quality care. On average, for-profits met each quality standard only 77.2 percent of the time, vs. 78.7 percent for nonprofits. Rehospitalizations, widely viewed as an important quality measure, were more frequent among for-profit agencies' patients: 28.4 percent vs. 26.5 percent at nonprofit agencies.

Quality of care was worst in the South, where for-profit firms provide the overwhelming majority of care, the authors said.

Medicare spent $18 billion on home care in 2012, the most recent year for which figures are available. Until 1980 Medicare barred for-profit agencies from its home care program, which covers homebound seniors who need skilled nursing care, or occupational, physical or speech therapy. At present, 88 percent of agencies are for-profit and they care for 81 percent of Medicare home care patients.

"For-profit home care agencies are bleeding Medicare; they raise costs by $3.3 billion each year and lower the quality of care for frail seniors," said Dr. Steffie Woolhandler, professor of public health at CUNY's Hunter College, lecturer at Harvard Medical School and senior author of the study. "Letting for-profit companies into Medicare was a huge mistake that Congress needs to correct."

Lead author William Cabin, assistant professor of social work at Temple University, said: "While our study is the first to show that profit-making has trumped patient care in Medicare's home health program, that's no surprise. A large body of research on hospitals, nursing homes, dialysis facilities, and HMOs has shown that for-profits deliver inferior care at inflated prices."

Cabin continued: "Our findings show once again that the free-market, private-sector managed care model has failed."

Professor Cabin, who has decades of experience in the home care industry, undertook the research as part of his doctoral studies at the CUNY School of Public Health.