Medicare Home Health Care

The 48-percent reduction in Medicare home health care spending in the wake of passage of the Balanced Budget Act of 1997 was due to sharp declines in both the numbers of users and services used. Declines were the greatest for the agencies and patients who used the most services. States that had the highest levels of service use in 1996 saw larger declines than did other states, and declines in rural areas were larger than in cities. Changes in home health utilization occurred in part because of Medicare payment policies mandated by the act. The new prospective payment system (PPS) rates--based on the historically high 1998 utilization--will likely be generous compared with current use patterns. Some agencies may respond by increasing services to beneficiaries, while others may maintain their reduced service levels, resulting in overpayments relative to services delivered. This could cause total Medicare home health spending to rise. GAO recommends that HCFA adopt a risk-sharing arrangement with PPS, which would limit aggregate home health agency Medicare gains or losses.

GAO noted that: (1) the 48-percent reduction in Medicare home health care spending following the Balanced Budget Act (BBA) of 1997 was due to sharp declines in both the numbers of users and services used; (2) the number of Medicare beneficiaries receiving home health services fell by 22 percent; (3) during the same period, the average number of home health visits received by each user went down 44 percent; (4) changes in home health care varied across agencies and types of users as well; (5) in nearly all instances, declines were greatest for the types of agencies that had provided and the patients who had used the most services in 1996; (6) there was a similar pattern in the drop in usage across states; (7) states that had the highest levels of service use in 1996 had larger declines than states where beneficiaries received fewer service; (8) declines in rural areas were larger than in urban areas ewer; (9) the recent changes in home health utilization occurred at least in part in response to changes in Medicare's payment policies mandated by the BBA; (10) because the new PPS payment rates are based on the historically high utilization in 1998, even after adjusting for projected declines in utilization, they likely will be generous compared with current use patterns; (11) for this reason, home health agency responses to the PPS could result in overpayments relative to services provided while simultaneously raising Medicare spending; (12) under the PPS, Medicare will make a single payment for each 60-day episode of home health care; (13) the PPS will give agencies an incentive to increase the episodes of care they provide; and (14) this, in turn, could cause total Medicare home health spending to rise.

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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