Medicare Home Health Care

The Balanced Budget Act of 1997 requires the development of a prospective payment system (PPS) to replace cost-based payments for home health agencies (HHA). The act outlines general terms for the HHA PPS, specifying that it pay a fixed, predetermined amount for a unit of service, adjusted for patient characteristics that affect the costs of providing care. GAO assessed the Health Care Financing Administration's (HCFA) research and demonstration projects related to the design of the PPS. The research did little to explain the variation in service costs and patterns of care that is not tied to therapy service use, which is useful in evaluating the effects of the PPS on beneficiaries' access and quality of care. The proposed HHA PPS would create strong financial incentives that could cause providers to compromise quality of care and could result in unintended increases in Medicare home health spending. Extensive monitoring of home health service delivery would be likely to be required, but such monitoring is complicated by the lack of accepted standards for home health care. Uncertainties about the appropriate specification of key design features and providers' responses to the PPS suggest moderating the effect of a largely untested PPS. Until data are available to refine the PPS to ensure appropriate access and payment levels, a risk-sharing approach could moderate unintended changes and would be appropriate to protect beneficiaries, HHAs, and the Medicare program. Key PPS features may need to be modified as experience is gained and more data become available, analyzed, and assessed.

GAO noted that: (1) HCFA has sponsored a number of research and demonstration projects on payment design and home health care users and service delivery since 1987 at a cost of almost $27 million; (2) despite these important efforts, key features of a PPS were not evaluated in these projects, which limits the ability to evaluate the effects of certain payment policies on home health care service delivery and spending; (3) HCFA's major home health agencies (HHA) payment demonstration project provided evidence that HHAs would reduce their costs of providing home health visits when paid under a PPS model that tightly limited both their profits and their losses; (4) furthermore, the demonstration did not develop a case-mix adjustment method to alter payments for expected differences in resource use across groups of patients; (5) however, an ongoing research project has constructed an initial case-mix adjustment method for the PPS and will continue to refine this method as more data become available; (6) other HCFA-sponsored research projects have documented the variation in home health care service delivery; (7) these projects have demonstrated that methods for quality measurement and monitoring are not well developed, which will impair the ability to evaluate the effect of payment changes; (8) although HCFA's research and demonstration projects have proven useful in designing the PPS, information gaps remain; (9) these gaps mean that the PPS could cause unintended consequences for some beneficiaries, some HHAs, or the level of Medicare spending; (10) concerns remain about whether the case-mix adjustment method will adequately group patients with like resource needs and then appropriately adjust payments for beneficiaries in each group; (11) furthermore, how a patient is classified and how much the agency is paid are very dependent on whether, and how much, therapy services are provided; (12) without adequate design features, Medicare could overpay for unneeded services or underpay for required care, resulting in beneficiaries facing access problems or receiving poor quality of care; (13) although the change from cost-based payments to prospective payments is intended to help Medicare control its spending, how costs and service provision will change under the new system is unknown; and (14) therefore, HCFA will need to have sufficient resources to monitor service delivery across types of beneficiaries and across HHAs so that inadequate or medically inappropriate care can be identified.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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