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New federal rule to spice up pay for residence well being employees

Under a new federal rule, home health care providers in North Carolina will be required to put most of the money they receive from Medicaid toward workers’ wages.

The policy, issued by the Centers for Medicare and Medicaid Services on April 22 as part of the Biden administration’s Expanding Access to Medicaid Services initiative, comes amid a national shortage of direct care workers. As in other states, North Carolina has struggled in recent years to find enough people willing to provide at-home services to seniors and disabled residents on Medicaid.

Currently, the companies that employ direct care workers have broad flexibility when it comes to Medicaid dollars. They are generally free to divvy up the funds as they see fit, choosing how much to spend on their overhead, administrative costs, payroll and profit.

The federal rule will change that, forcing the companies to spend at least 80 percent of Medicaid payments on their workers.

White House officials hope the change, which states have six years to fully implement, will help reduce the high rates of turnover among direct care workers.

“The macroeconomics of wages — what wages are in the direct care space compared to the broader economy — really can drive people in and out of the direct care workforce,” said Emma Sandoe, deputy director of Medicaid policy for the N.C. Department of Health and Human Services. “The macroeconomic concern is really, I think, what this rule is trying to address.”

Workforce woes

Adam Levinson, chief financial officer for the state’s Medicaid program, said people in the direct care sector are “often the lowest paid workers of all the workers across the landscape of Medicaid providers.”

In 2022, the median wage for direct care workers in North Carolina was just $13.62 an hour, or slightly more than $28,000 a year. A 2021 analysis by the nonprofit PHI found that nearly half of the state’s direct care workers lived in poverty.

“The wages of many of these workers are equivalent to working at Starbucks or Target,” said Sandoe, adding that employees of those chains “don’t necessarily have as difficult of a job of dealing with somebody who may require additional assistance with bathing or the other very, very difficult aspects of direct care work.”

Low pay has led to “disproportionate levels of attrition and turnover” among direct care workers, according to a report released earlier this year by DHHS. At the same time, the department expects to see a “significant increase in the number of individuals who will require direct care services” over the next few years.

The anticipated spike in demand stems from the state’s aging population. The NC state demographer predicts that residents ages 65 and older — the home health care industry’s main clientele — will outnumber those younger than 18 by 2031.

“North Carolina, in particular, is facing an aging population where we’re going to need more and more direct care workers in the coming years,” Sandoe said. “If we don’t increase the supply of direct care workers, we’ll not have enough workers to meet the demands and the needs of our beneficiaries.”

The federal action follows the state General Assembly’s approval last year of a budget provision that raised Medicaid reimbursement rates for certain direct care services. Similar to the new national policy, the state provision required providers to verify that the funds set aside for the rate increases were actually being used to improve employees’ wages.

But there are a few key differences, Levinson claimed. For one, the state’s increased pay rate only applies to a subset of home health providers that participate in the state’s Innovations waivers program. Moreover, he said the state measure “was related only to the increment coming from the rate increase,” not the provider’s total Medicaid funding.

“We’re watching closely to make sure we understand all of the potential impacts so that we can respond,” Levinson said of the federal rule. “There will be financial pressure, and we understand that. We don’t understand all the details about it yet because it’s a huge provider community and it’s very varied, but we’ll want to understand that so that we know what is reasonable in order to implement this and maintain the access to care for our beneficiaries.”

Industry backlash

Trade organizations like the Association for Home and Hospice Care of North Carolina have voiced opposition to the policy, believing it will put providers out of business or force them to stop accepting Medicaid patients.

“We recognize the value of paying direct care workers more, but this policy will ultimately be counterproductive and [does] not contribute to expanded access to care,” Tim Rogers, the association’s president and CEO, said in a statement to NC Health News. “A one-size-fits-all solution from Washington, D.C., is wrong for the State of North Carolina. Dictating how providers spend revenue will devastate the marketplace.”

Rogers added that his organization, whose members represent 98 percent of the state’s home health and hospice providers, “will be proactively meeting with legislators and state officials to push for increased provider rates” before the rule is implemented.

The Home Care Association of America also criticized the rule, with CEO Jason R. Lee warning it will have “swift and severe negative impacts on patient access nationally.”

“The final rule prescribes how an agency may use current Medicaid funding rather than addressing the underlying workforce problem: the inadequacy of the rates themselves,” Lee wrote in a letter to federal lawmakers. “The rates are far too low and leave providers no leeway to continually invest and innovate.”

State Rep. Donny Lambeth (R-Winston-Salem) said he shares the organizations’ concerns. He co-chairs the Joint Legislative Oversight Committee on Medicaid in the General Assembly.

“Generally, Medicaid is a federal program primarily funded by the feds and operated by the states,” Lambeth wrote in an email to NC Health News. “It is not uncommon for the federal folks to mandate the operations of the Medicaid program. Sometimes those directives are good and improve care, yet at other times they are more of an administrative hindrance and could cost more.”

Lambeth believes the new policy falls under the latter category. He worries it will lead to “providers losing money, and ultimately closing.”

“The 80 percent rule on the surface seems like a positive step, but it may actually result in some providers unable to comply and either go out of business or not take care of government patients,” he said. “I would have preferred a pilot program to determine if this accomplishes the intended goal and evaluate the pilot before it expands to all patients.”

His position mirrors that of congressional Republicans on Capitol Hill, who slammed the policy during a legislative hearing on Tuesday.

“With the shortage of personnel the goal seems OK, but it could easily have a negative impact on patients and providers,” Lambeth said.

Advocates react

One group that praised the policy is the National Domestic Workers Alliance, which advocates for the rights of low-income laborers.

“This measure not only improves the livelihoods of care workers but also enhances the quality of care for over seven million aging adults and people with disabilities, ensuring they receive the support they need in their communities,” Chanelle “C.C.” Croxton, director of state strategies and organizing for the alliance, said in a statement to NC Health News. “Furthermore, the rule introduces robust mechanisms for transparency and adequacy of payment rates, including data collection and the formation of an advisory group comprising direct care workers. These strategic steps are designed to bolster the home care services sector, stabilize the workforce, and secure continuous, high-quality care for those in need.”

Erin Carson, director of the alliance’s North Carolina chapter, rejected the notion that the rule would cause providers to shutter or drop out of the Medicaid program. If a business can’t afford to pay its workers, she said, it “can’t afford to be in business.”

“If there’s not enough money in the system, in total, to where people cannot allegedly afford this 80/20 split so that workers are making what they’re supposed to, that’s a larger issue of needed investment in the industry overall and care overall,” Carson said in a phone interview. “That’s something we should all be on the same side of, not fighting over a percentage split. If there’s really not enough money in care, let’s work together to make sure there is.”

Carson acknowledged that some home health companies recognize the importance of paying their employees a livable wage. The issue, she said, is many do not.

“There are people, coalition partners, that really want to address workforce issues, that want to support workers, that are good employers and do their best to make sure that employees are paid well and have what they need,” she said. “But that is not the industry standard. We know that from worker surveys and from data that the state health department has gathered.”

She added: “You don’t make laws for the people that are doing the best. You make laws for people that are doing the bare minimum to make sure that everyone is at least meeting some standards.”

Anna Pardo, co-director of the Workers’ Rights Project at the North Carolina Justice Center, also believes the potential negative effects of the rule have been exaggerated.

She recalled advocating years ago for an increase to the state’s Medicaid reimbursement rate for home health services. Industry leaders supported the action, she said, with many claiming it was necessary to properly compensate workers and reduce turnover.

The rate hike was approved, but the low wages and high turnover persisted. If anything, Pardo said, the “home health crisis is probably worse now than it was before.”

“I find it deeply ironic that the same providers who have been saying, ‘We’re going to close if we don’t get an increased Medicaid reimbursement rate, we’re not going to be able to continue to afford providing care,’ or ‘we’re going to have to start saying no to Medicaid patients,’ are now saying, ‘We’re going to close if you make us prove that we are providing benefits and wages to our employees so that we can keep providing care for Medicaid patients,’” she said. “It just doesn’t add up.”

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