Medicare Home Health Benefit

Until 1996, Medicare spending for home health care had been rising dramatically, consuming about $1 in every $11 of Medicare outlays in 1996, compared with $1 in every $40 in 1989. To control this rapid cost growth, the Health Care Financing Administration was required to implement a prospective payment system that sets fixed, predetermined payments for home health services. Until that system is developed, home health agencies will be under an interim payment system that imposes limits on the cost-based payments they receive. The limits provide incentives to control per-visit costs and the number and mix of visits for each user. Industry representatives claim that the system's new cost limits have caused some home health agencies to close or some beneficiaries, particularly those with high-cost needs, to have difficulty obtaining care. This report (1) identifies the potential impact of the interim payment system on home health agencies; (2) determines the number, distribution, and effect of recent home health agency closures; and (3) assesses whether the interim payment system could be affecting beneficiaries' access to services, particularly beneficiaries who are expensive to serve.

GAO noted that: (1) its work suggests that neither agency closures nor the interim payment system, with less than a year's implementation experience, has significantly affected the capacity of the home health industry to provide services or beneficiary access to care; (2) however, GAO's interviews with professionals who arrange for home health services for Medicare beneficiaries indicate that access to services may be more difficult for beneficiaries with particular needs that make them likelier to be expensive to serve; (3) specifically, GAO noted that pressures to lower costs arising from the design of the interim payment system's aggregate per-beneficiary cost limit will differ across home health agencies; (4) the effect on an individual agency will depend on several factors, including an agency's base-year costs, changes in the provision of services since the base year, how recently it entered the market, and its regional location; (5) agencies responding to pressure may avoid accepting beneficiaries that are more expensive to serve or may reduce the quantity of services beneficiaries receive; (6) the latter may have less impact on patients in those areas where the number of services provided has been very high; (7) GAO also found that, despite the 554 voluntary agency closures and 206 involuntary closures nationwide from October 1997 through June 30, 1998, growth in the industry has been such that there were still more agencies to treat Medicare beneficiaries in August 1998 than in October 1996; (8) half of the voluntary closures nationwide were concentrated in four states; (9) three of these states had experienced growth in the number of agencies well above the national average of 33 percent, and the fourth had experienced a 20-percent net increase in agencies before the recent spate of closures; (10) most of the hospital discharge planners and local aging organization representatives GAO interviewed had not noticed a change over the past year in the willingness or ability of home health agencies in their areas to serve Medicare beneficiaries; and (11) they did report, however, that beneficiaries who were likely to be expensive in terms of the type and amount of visits needed were more difficult to place than other patients.