Medicare

After relatively modest cost growth during the 1980s, Medicare expenditures for home health care have soared in recent years. Home health care costs grew from $2.4 billion in 1989 to $17.7 billion in 1996--an average annual increase of 33 percent. Medicare's home health care costs have grown because a larger portion of beneficiaries use this benefit than in the past and the number of service used by each beneficiary has more than doubled. Several factors have increased use of the benefit. Legislation and coverage policy changes in response to court decisions liberalized coverage criteria for the benefit. These changes, in turn, transformed the nature of home health care from primarily posthospital care to more long-term care for chronic conditions. Finally, weaker administrative controls over the benefit, resulting from resource constraints, make the detection of inappropriate claims more unlikely. The administration's major proposals for home health care are designed to give providers greater incentives to operate efficiently by immediately tightening the limits on the cost per visit that will be paid and imposing a new cap on per-beneficiary costs. After these changes go into effect in 1999, home health payments would switch from a cost reimbursement to a prospective payment system. These two proposals are estimated to save $12.4 billion during the next five years.

GAO noted that: (1) Medicare's home health care costs have grown because a larger portion of beneficiaries use this benefit than in the past and the number of services used by each beneficiary has more than doubled; (2) a combination of factors led to the increased use of the benefit: (a) legislation and coverage policy changes in response to court decisions liberalized coverage criteria for the benefit, enabling more beneficiaries to qualify for care; (b) these changes also transformed the nature of home health care from primarily posthospital care to more long-term care for chronic conditions; and (c) a diminution of administrative controls over the benefit, resulting at least in part from fewer resources being available for such controls, reduced the likelihood that inappropriate claims would be detected; (3) the major proposals by the administration for home health care are designed to give providers increased incentives to operate efficiently by immediately tightening the limits on the amount of cost per visit that will be paid and imposing a new cap on per-beneficiary costs; (4) after these changes, in 1999, the proposal would move home health payments from cost reimbursement to a prospective payment system (PPS); (5) estimated savings from these two proposals are $12.4 billion over the next 5 fiscal years; (6) what remains unclear about the reasonableness of the PPS proposal is whether an appropriate unit of service for calculating prospective payments can be defined and whether the Health Care Financing Administration's databases are adequate for it to set reasonable rates.