Medicare Post-Acute Care:

Better Information Needed Before Modifying BBA Reforms

T-HEHS-99-192: Published: Sep 15, 1999. Publicly Released: Sep 15, 1999.

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Pursuant to a congressional request, GAO discussed the effects of the Balanced Budget Act of 1997 (BBA) on the Medicare fee-for-service program.

GAO noted that: (1) providers of such post-acute care services as home health care, skilled nursing facility (SNF) care, and rehabilitation therapy may have to change their service delivery practices as a result of the BBA payment reforms, which seek to make Medicare a more efficient and prudent purchaser; (2) calls to amend or repeal these BBA changes may be premature until information is available to identify and distinguish between desirable and undesirable consequences; (3) at the same time, imperfections in the design of BBA-mandated payment systems require attention; (4) the design details of these systems are key to ensuring that payments are not only adequate in the aggregate but are also fairly targeted to protect individual beneficiaries and providers; (5) GAO's prior work indicated that: (a) the reductions in the number of home health agencies and changes in utilization were consistent with the objectives of the interim payment system to control the rapid growth that had preceded the BBA; and (b) appropriate access to Medicare's home health benefit has not been impaired; (6) the prospective payment system (PPS) is a more appropriate tool for the long term, however, because it is intended to adjust payments for differences in beneficiary needs; (7) as GAO examines the challenges of designing a PPS, GAO is finding that the PPS will likely require further adjustments after it is implemented as more information on home health costs, utilization, and users becomes available; (8) PPS was implemented beginning in July 1998 with a 3-year transition to fully prospective rates, giving providers time to adjust to the new system; (9) GAO's ongoing work suggests that factors in addition to the PPS have contributed to fiscal difficulties for some SNFs; (10) nevertheless, certain modifications to the PPS may be appropriate to ensure that payments are targeted to patients who require costly care; (11) the potential access problems that may result if Medicare underpays for high-cost cases could lead to beneficiaries' staying in acute care hospitals longer, rather than foregoing care altogether; (12) the Health Care Financing Administration is aware of this potential targeting problem and is working to develop a solution; (13) in 1999, BBA imposed an annual $1,500 per-beneficiary cap on payments for outpatient physical and speech therapy combined and a separate $1,500 cap on outpatient occupational therapy; (14) the caps reflect a legitimate need to constrain service use; and (15) for the vast majority of outpatient therapy users, the caps are unlikely to curtail access to services.

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