On Thursday, the U.S. Centers for Medicare & Medicaid Services (CMS) proposed a new rule that would make major changes to the way that home care workers are compensated under Medicaid.

While home-based care stakeholders recognize that the proposal could lead to some improvements, many are critical of what they view as a one-size-fits-all approach to strengthening home- and community-based services (HCBS).

Perhaps the biggest provision that CMS floated in its proposal is the requirement that at least 80% of Medicaid payments for personal care, homemaker and home health aide services be directed toward wages for caregivers, instead of other expenses. The move, officials say, is an effort to address workforce challenges.

“The more than 400 pages of proposed rules, certainly, contain a whole lot of regulation and, frankly, improvements to the Medicaid program that do have the potential to assure greater access to Medicaid services for beneficiaries,” Darby Anderson, chief strategy officer for Addus Homecare Corporation (Nasdaq: ADUS), told Home Health Care News. “I do want to acknowledge the efforts by the administration.”

The Frisco, Texas-based Addus currently provides home-based care services to approximately 46,500 consumers through 202 locations across 22 states. The bulk of its business is in Medicaid.

That said, Anderson quickly pointed out that the proposal fails to take into consideration how providers working in different states aren’t all in the same boat.

“On its surface, though, it just doesn’t make a lot of sense to us that you could even consider having a uniform one-size-fits-all percentage, when the administrative requirements on providers across states are vastly different,” he said, referring to that 80% figure.

Anderson also noted that home care agencies working under Medicaid often vary in size.

This is significant because smaller agencies that may not have the volume needed to survive economically will find it difficult to meet the proposed threshold of direct service worker compensation. Small agencies operating in rural communities, which already face access to care issues when it comes to home health, may be hit the hardest.

Similarly, Tim Hanold, CEO of Care Advantage, sees the merits of the proposal.

“It’s a step towards additional transparency and accountability, including state, payer and provider,” he told HHCN. “I see this as a real interest in understanding how well we as a health care system provide access to care to our most needy and underserved populations. That means being able to provide a living wage to our care team and a reasonable profit margin as a home care provider, which would require additional investment and funding into HCBS and overall care delivery in the home.”

However, he gently pushed back against the provision that would require 80% of Medicaid payments to go to compensation.

“We would need to learn more, but, in general, I don’t believe adding bill and wage rigidity to an already tight business model would be beneficial,” he said.

The Richmond, Virginia-based Care Advantage is a home-based care company that has 38 locations throughout Virginia, Maryland, Delaware, Washington, D.C., and North Carolina.

Aside from the 80% provision, the proposal also establishes a new strategy for oversight, monitoring, quality assurance and quality improvement for HCBS programs. It also makes it a requirement that states publish the average hourly rate paid to home-based caregivers.

Washington, D.C.-based senior care provider advocacy group LeadingAge emphasized the need for greater transparency, but it, too, questioned the administrative burden the proposed rule places on providers.

“Increasing transparency on payment rates and managed care contracting practices, while at the same time elevating input from stakeholders, including our mission-driven, nonprofit provider members, should help to ensure that older adults are better able to access needed care,” Mollie Gurian, vice president of home-based and HCBS Policy at LeadingAge, told HHCN in an email. “However – and we cannot emphasize this enough – priority number one is addressing the aging services sectors’ workforce needs. We look forward to working with CMS to achieve transparency without placing unfunded administrative burden on our members.”

Despite being critical of the proposal in certain areas, Anderson emphasized it has some positives for HCBS.

Many states have had stagnant investment into HCBS, forcing some providers to exit those markets entirely. That COVID-19 pandemic and related financial lifelines, such as the American Rescue Plan Act (ARPA), have helped change that.

Yet some of ARPA’s provisions aren’t exactly permanent.

“The rules do require states to take a harder look at the methodology with which they use to set rates, and to evaluate if their rates are sufficient to attract and maintain a provider network that can serve their beneficiary population,” Anderson said.

He also believes that the mandates requiring states to produce additional reporting will prove to be beneficial for future improvements, such as uniform standards across states.

Overall, Anderson said the CMS proposal signals a greater importance being placed on home-based care services.

“It’s definitely a significant set of rules and proposals related to HCBS, but I do draw some positives from this,” he said. “There’s a lot of focus on HCBS, and therefore, the value and commitment by the administration to continue to fund and give people choice and access to home- and community-based care – that’s a positive.”

Ultimately, the CMS proposal’s 80% provision could spell trouble for provider business.

“CMS’s proposal to require that 80% of reimbursements for HCBS should be spent on wages directly paid to employees would put a margin cap on providers,” Brian Tanquilut, equity analyst at Jefferies, wrote in a note. “For reference, ADUS had segment-level gross margin of 26.4% in 4Q22 while MODV’s was 21.3%, so the margin cap is a potential incremental negative for these companies. Rolling out this proposal could strain already stressed P&Ls for most providers in the space and could translate to reduced capacity/access-to-care.”

Modivcare Inc. (Nasdaq: MODV) is a company that bet big on Medicaid HCBS through the acquisitions of Simplura Health Group and CareFinders – for $575 million and $340 million, respectively.

As a company, Denver-based Modivcare offers technology-enabled health care services and provides non-emergency medical transportation (NEMT). The company’s Modivcare Home division includes its personal care, remote patient monitoring and nutritional meal delivery services.

It finds the administration’s focus on tackling workforce challenges to be a necessary one.

“It is encouraging that the administration intends to collaborate on addressing workforce shortages in critical home health care services,” Anne Bailey, president of Modivcare’s home division, said in an email. “With health care increasingly being provided in the home, the need for compassionate and dependable caregivers is on the rise, and many seniors prefer to age in place.”

The proposed rule will have a 60-day comment period, with plenty of feedback likely to hit CMS’ inbox.

“Given how significant the proposed changes are and the adverse effects it could have on a mom-and-pop-heavy industry that generates savings for state Medicaid plans, and one that isn’t over-earning, we expect strong efforts to push back on this proposal over the next few months,” the Jefferies note continued.

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