Higher costs and lower quality in for-profit Medicare home health agencies

For-Profit Medicare Home Health Agencies’ Costs Appear Higher And Quality Appears Lower Compared To Nonprofit Agencies

By William Cabin, David U. Himmelstein, Michael L. Siman and Steffie Woolhandler
Health Affairs, August 2014


For-profit, or proprietary, home health agencies were banned from Medicare until 1980 but now account for a majority of the agencies that provide such services. Medicare home health costs have grown rapidly since the implementation of a risk-based prospective payment system in 2000. We analyzed recent national cost and case-mix-adjusted quality outcomes to assess the performance of for-profit and nonprofit home health agencies. For-profit agencies scored slightly but significantly worse on overall quality indicators compared to nonprofits (77.18 percent and 78.71 percent, respectively). Notably, for-profit agencies scored lower than nonprofits on the clinically important outcome “avoidance of hospitalization” (71.64 percent versus 73.53 percent). Scores on quality measures were lowest in the South, where for-profits predominate. Compared to nonprofits, proprietary agencies also had higher costs per patient ($4,827 versus $4,075), were more profitable, and had higher administrative costs. Our findings raise concerns about whether for-profit agencies should continue to be eligible for Medicare payments and about the efficiency of Medicare’s market-oriented, risk-based home care payment system.


Medicare’s home health payment system aims to harness market-oriented incentives for efficiency. CMS seeks to upgrade care through a quality monitoring program that imposes substantial documentation burdens on clinicians. Our findings suggest that this program may not fully insulate patients from profit-incentivized quality compromises.

Meanwhile, the payment incentives have nourished the growth of proprietary agencies whose costs (and profits) are far higher than those of their nonprofit counterparts. Overall, it appears that proprietary home care agencies deliver slightly lower-quality care at a substantially higher cost, belying claims that for-profit incentives increase efficiency.

Further analysis of the impact of proprietary ownership (and other factors associated with poor home health agency performance) is sorely needed. If our findings are confirmed, Medicare should consider returning to the pre-1980 prohibition on investor ownership of home health agencies and simplifying the current complex payment system, which has neither contained costs nor maximized quality.


H.R. 676, Expanded & Improved Medicare For All Act

Sponsored by Rep. John Conyers, Jr and 60 cosponsors

Sec. 103.

(a) Requirement To Be Public or Non-Profit.--

  1. In general.--No institution may be a participating provider unless it is a public or not-for-profit institution. Private physicians, private clinics, and private health care providers shall continue to operate as private entities, but are prohibited from being investor owned.
  2. Conversion of investor-owned providers.--For-profit providers of care opting to participate shall be required to convert to not-for-profit status.



By Don McCanne, MD

Markets, competition, investor ownership, and profits are touted incessantly as being key to higher quality and lower costs in health care, even though Noble laureate Kenneth Arrow showed us decades ago why markets do not work in health care. Previously studies of hospitals, HMOs, nursing homes, hospices, and dialysis centers have show us that investor ownership is associated with lower quality and higher costs. We can now add Medicare home health agencies to that list wherein proprietary, for-profit investor ownership is detrimental.

H.R. 676, the Expanded & Improved Medicare For All Act, sponsored by Rep. John Conyers, Jr, is a single payer bill that includes provisions that would eliminate investor-owned, for-profit providers. Today’s article adds to the evidence as to why the leadership of Physicians for a National Health Program supports the elimination of passive investors and profit diversion from our health care system. Health systems must be designed to benefit patients, not market exploiters that sacrifice quality while draining resources from health care. The primary missions are different. One is to take care of patients and the other is to make money.