As Medicare Advantage (MA) penetration continues, home health agencies are coming to grips with the additional — and sometimes hidden — costs that are associated with transitioning to a payer mix more dominated by MA.

Whether those costs come from operational changes or otherwise, the financial impact of MA’s market penetration can’t be ignored.

“To get Medicare Advantage right, you have to be prepared for a sea change in your cost structure and the way that you operate your business,” Frontpoint Health CEO Brent Korte told Home Health Care News. “There’s only so much change any provider can make from a clinician expense perspective. A lot of larger providers, in particular, would say that kind of restructuring is impossible. It’s impossible to get the cost structure right unless they’re completely prepared to restructure their organization.”

The Dallas-based Frontpoint Health is a home health and hospice provider comprised of three locations. Korte and his staff have specifically tailored the company’s strategy to be successful taking on mostly MA business.

Because of that, the company has had to structure its operations differently.

“The difference between us and many of these other providers is that we aren’t restructuring our organization,” Korte said. “We were already structured that way. We’re structured in a way which is incredibly lean, and incredibly focused on process.”

That process includes a lot of back-office focus on securing MA plan contracts and investing in those behind-the-scenes resources.

Those resources, Korte admits, can be quite expensive.

“One of the major challenges we see is the additional administrative burden from a back office standpoint,” Nick Seabrook, managing principal and SVP of consulting at SimiTree, told HHCN. “With your Medicare Advantage payers, a lot of them — and this is all contract dependent — are going to require authorizations. The more your revenue grows in that non-traditional Medicare world, the more resources you need to add to that authorizations department. That whole process requires some additional administrative support.”

For example, a traditional Medicare provider should be able to handle anywhere between $25 million and $30 million in revenue to manage, Seabrook said.

For MA, that number is closer to $5 million because of the back-office burdens that come with working in MA.

“You’re talking about additional resources needed just in your billing department,” Seabrook said. “That doesn’t even include the authorization. So if you’re starting to see a shift in your payer mix, you need to really do the analysis to determine what the impact is on your back office staffing to account for that. A mistake we often see agencies make is they aren’t quick enough to adapt to that. They’re not adapting to the additional demands on the back-office functions until it’s too late and that creates an accounts receivable problem.”

For large providers, making adaptive operational changes is easier said than done.

What made them thrive in their markets in the first place is not going to be what sustains them in the long-term, Korte said.

“Many organizations are stuck,” he said. “They’re so large and their processes have worked so well for traditional Medicare. Then you introduce a plan where they’ll make 30% or 40% as much on each patient, it’s probably inconceivable that they would be able to restructure in a way that will allow them to take MA patients. Providers are having to deal with that because they’re having to change mid-flight. Our win is in the way we execute.”

These added costs also eat into providers’ flexibility in terms of how they compensate their employees.

“Salary and wage line items on our finances are all becoming heavier and more burdened,” Korte said. “So what can we really change without hurting patient care and without compromising compensation for clinicians? It’s back office. We are not only prepared but very actively seeking the leanest cost structure, support structure and back office structure that we can have. For many providers, it’s a mindset change.”

Another major roadblock for providers is the delay in payments from MA plans.

A majority of the time, Medicare payments will be given to providers within 14 days. MA, on the other hand, can take an average of 30 to 45 days. That’s on top of reimbursement rates generally being lower.

A delay in payments and the complicated transition to MA were reasons why the Hawaii-based Oahu Home Healthcare shuttered at the beginning of the year.

“To get all the systems up and running in terms of reimbursement, there were delays in payments and it was a much bigger effort than they anticipated,” Hilton Raethel, president and CEO of the Hawaii Association of Healthcare (HAH), told HHCN. “You have to document things differently, which takes time, effort and resources.”

Most home health providers in the U.S. are still not structured to accept large amounts of MA patients. But some are slowly but surely making slight adjustments in the way they do business.

“In the view of needing to grow and being open to a diverse amount of referral sources, it gets challenging,” Cleamon Moorer, president and CEO of American Advantage Home Care, recently said. “If there is some progress that we know we could make within a certain period for a patient — and even if that acuity is high — we try to offset taking in that patient for a patient with lower acuity.”

American Advantage Home Care provides skilled nursing, specialty care and rehab services in seven counties in the Southeast Michigan area. It is a relatively small shop, so it can be more nimble in the way it accepts certain payers, but negotiating MA contracts can be tougher given the smaller census.

Larger providers can’t always be as nimble.

“When we think about accepting Med Advantage patients, it’s quite simple: one could say, economically, there is a near infinite amount of patients out there,” Korte said. “Most providers simply aren’t structured in a way where they can accept MA patients. The way they run their business, MA patients are simply just too expensive.”

Seabrook agrees. It’s a simple math and margin equation of MA not paying as much as providers are accustomed to.

That economic equation is leading to one model paying for the other.

“Some payers are set up to reimburse like PDGM, but I would say the majority of them are reimbursing fee-for-service and the fee-for-service rates aren’t even coming close to what agencies would get for LUPA rates if they were traditional Medicare,” Seabrook said. “The challenge that we’re having as an industry right now is that we need those Medicare rates — really — to subsidize some of the other non-traditional Medicare rates.”