Top officials with the Centers for Medicare and Medicaid Services said this week that the federal government is targeting Houston and Los Angeles because of suspected problems in both cities.

“We want to make sure the good operators are allowed to continue to operate and provide good, quality services,” said acting Medicare administrator Herb Kuhn. “But we want to get those that are committing fraud out of the program.”

Kuhn said Houston has been targeted, in part, because of the staggering growth of home health care agencies. Between October 2002 and May 2007, the number in Harris County increased from 151 to 403.

What do you think about his issue?

You may recall that I began projecting in about 2002 that the home health industry had about seven years of uninterrupted growth and financial prosperity before we see CMS pulling in the reigns again. That’s been the pattern. Well, we’re coming up on seven years since PPS went into effect in October of 2000.

There are two trends that you want to watch. Once is the proposed revision to PPS. The other is the rapidly growing number of home health agencies. Remember that growth in the number of home health agencies in the 1990’s was one of the triggers that led to severe cuts in home helath spending under the balanced budget act of 1997. Over 25% of Medicare Certified Home Health Agencies were closed between October of 1997 and October of 2000.

Some folks suggested that Medicare purposely imposed severe cuts in order to drive agencies out of business. I won’t go that far, but I do see the rapdily growing number of agencies as a trend that we need to watch. Not only does it increase competition in your marketplace, but it opens up the potential for fraud and abuse, and another industry-wide crack down.

Let us know if you see other examples of this trend.