Rationale for Higher Payment for Hospital-Based Home Health Agencies

HRD-92-24: Published: Jan 31, 1992. Publicly Released: Mar 4, 1992.

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Pursuant to a congressional request, GAO reviewed Medicare's policy of paying hospital-based home health agencies (HHA) more than it pays freestanding HHA.

GAO found that: (1) Medicare's HHA policy, which allows hospitals additional reimbursement for home health services, is consistent with Medicare payment principles and federal legislation; and (2) although Medicare designed the add-on to pay hospitals for legitimate costs allocated to HHA if those costs cause total HHA costs to exceed predetermined Medicare cost limits, Medicare pays some hospitals more than freestanding HHA for the same services because the Medicare cost-allocation system requires that a portion of hospital overhead be allocated to hospital-based HHA. GAO also found that the add-on may not be necessary to ensure beneficiary access to home health care, since: (1) the number of freestanding HHA has doubled over the last decade; (2) about one-third of hospital-based HHA would be unaffected if the add-on were eliminated, since their costs were lower than the freestanding HHA limits; and (3) authority exists for payment of additional reimbursement to hospital-based HHA with costs above the freestanding limits if they are the only home health care source in a community.

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