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Agencies Are Considerably Higher than Costs' which was released on
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United States General Accounting Office:
GAO:
Report to Congressional Committees:
May 2002:
Medicare Home Health Care:
Payments to Home Health Agencies Are Considerably Higher than Costs:
GAO-02-663:
Contents:
Letter:
Results in Brief:
Background:
Home Health PPS Episode Payments Are Considerably Higher than
Estimated Costs of Care Provided:
Conclusions:
Matters for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Centers for Medicare and Medicaid
Services:
Appendix III: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Average Estimated Cost per Home Health Episode and Average
Home Health Episode Payment, January-June 2001:
Table 2: Payment Amounts Compared to Average Estimated Costs for 10
Most Frequent Home Health Payment Groups, January-June 2001:
Abbreviations:
AAHomecare: American Association for Homecare:
BBA: Balanced Budget Act of 1997:
BIPA: Medicare, Medicaid and SCHIP Benefits Improvement and Protection
Act of 2000:
CMS: Centers for Medicare and Medicaid Services:
HCFA: Health Care Financing Administration:
HHA: home health agency:
HHRGs: home health resource groups:
IPS: interim payment system:
LUPA: low utilization payment amount:
NAHC: National Association for Home Care:
PEP: partial episode payment:
PPS: prospective payment system:
SAF: Standard Analytic File:
SCIC: significant change in condition:
VNAA: Visiting Nurse Associations of America:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
May 6, 2002:
Congressional Committees:
In response to rapidly rising home health spending from the late 1980s
through the mid-1990s, the Congress enacted major changes to
Medicare's home health payments in the Balanced Budget Act of 1997
(BBA).[Footnote 1] These and subsequent changes culminated in the
implementation of a prospective payment system (PPS) on October 1,
2000, which provides incentives to home health agencies (HHAs) to
operate efficiently. Under the PPS, HHAs are paid a fixed amount,
adjusted for a beneficiary's care needs, for providing up to 60 days
of care, termed a home health episode. The BBA also created an interim
payment system (IPS) that imposed new payment limits to moderate
spending until the PPS could be implemented. The PPS was designed to
lower Medicare spending below what it was under the IPS. This spending
reduction was to be achieved by setting the PPS episode payment amount
so that total home health spending under the PPS in fiscal year 2000
would equal what would have been spent had the interim limits been
reduced by 15 percent. Subsequent legislation delayed implementation
of the mandated reduction to the episode payment amount until October
2002.[Footnote 2] The Centers for Medicare and Medicaid Services
(CMS)[Footnote 3] has determined that the fiscal year 2003 episode
payment rate would have to be reduced by about 7 percent to achieve
the mandated level of savings.[Footnote 4]
To help decide whether to implement, modify, or eliminate the reduction
to Medicare home health payments, the Congress directed us to evaluate
payments under the PPS.[Footnote 5] To do this, we estimated average
home health episode costs and calculated average episode payments for
the first 6 months of 2001. We also interviewed industry
representatives and officials from CMS and reviewed regulations and
studies of the home health PPS. We performed our work from November
2001 through April 2002 in accordance with generally accepted
government auditing standards. (For a discussion of our scope and
methodology, see appendix I.)
Results in Brief:
Medicare's payments for full home health care episodes were, on
average, about 35 percent higher than the estimated costs of home
health care provided in the first 6 months of 2001. This disparity
results from an episode payment amount that was initially set assuming
a higher number of visits than was being provided prior to the PPS.
After the PPS was implemented, HHAs further reduced the number of
visits provided per episode, which lowered their costs. At the same
time, a higher proportion of beneficiaries receiving home health care
was categorized into the more intensive payment groups, which
generated higher payments.[Footnote 6] Across the Medicare PPS payment
groups, there was considerable variation in the relationship between
payments and estimated costs. Payments were above estimated costs for
75 of the 80 payment groups. For five of the payment groups, payments
were slightly below or about equal to estimated costs. These payment
and cost disparities indicate that Medicare's PPS, which was designed
to ensure adequate payments for HHAs that operate efficiently,
overpays many HHAs for the services that were actually provided,
although some HHAs that face extraordinary costs not accounted for by
the payment groups may be financially disadvantaged.
Because Medicare payments for home health care far exceed associated
estimated costs, the Congress should consider allowing the mandated
reduction to payments to be implemented. However, as we have stated
before, we believe that the incentives of the episode-based PPS need
to be moderated to protect beneficiaries from underservice, the
Medicare program from overpaying for services, and HHAs from potential
underpayments.[Footnote 7] Therefore, we continue to believe that the
PPS should incorporate risk sharing of financial gains and losses
between the Medicare program and HHAs.
In written comments on a draft of this report, CMS stated that our
findings are consistent with its preliminary analysis of data from the
first year of the PPS, but that HHA costs cannot be known with
certainty until Medicare cost reports are available. CMS expressed
concern about implementing risk sharing as part of the home health
PPS, stating that risk sharing is inconsistent with providing timely
and predictable payments under the PPS, is administratively difficult,
and is not necessary because our concerns about possible overpayments
or underpayments to HHAs can be addressed in other ways. Concerning
CMS' first point, our episode cost estimates are based on the actual
number and mix of visits provided to Medicare beneficiaries during the
first 6 months of 2001 and the per-visit cost estimates used by the
Heath Care Financing Administration (HCFA) to set the initial episode
payments, updated for inflation and adjusted for the change in average
visit time. We note that CMS has experience in administering payment
adjustments similar to risk sharing that rely on actual provider
experience while ensuring that payments are timely and predictable.
Furthermore, monitoring activities to detect overpayments or
underpayments have not yet been implemented. In oral comments on a
draft of this report, representatives from three home health care
associations stated that they disagreed with our conclusions and
believe that a reduction in Medicare's payments will harm the
industry. However, the magnitude of the disparity between payments and
estimated costs demonstrates that the reduction would not harm the
industry. Risk sharing would provide protection to those HHAs that may
incur costs that are higher than these estimates.
Background:
Medicare's home health benefit enables certain beneficiaries with post-
acute-care needs (such as recovery from joint replacement) and chronic
conditions (such as congestive heart failure) to receive care in their
homes. To qualify for home health care, beneficiaries must be confined
to their residence ("homebound");[Footnote 8] require part-time or
intermittent skilled nursing, physical therapy, or speech therapy; be
under the care of a physician; and have the services furnished under a
plan of care prescribed and periodically reviewed by a physician. If
these conditions are met, Medicare will pay for the following types of
visits: skilled nursing; physical, occupational, and speech therapy;
medical social service; and home health aide. As long as beneficiaries
continue to remain eligible for home health services, they may receive
an unlimited number of visits. Beneficiaries are not liable for any
out-of-pocket costs for this benefit.
Pre-BBA Spending and Service Use:
Medicare home health payments grew at an average annual rate of 25
percent between 1990 and 1997, more than three times the rate of
spending growth for the entire Medicare program. The growth in
spending was attributable primarily to increases in the number of
visits provided and not in the payment per visit. The number of
Medicare beneficiaries receiving home health almost doubled during
that period, from 57 to 109 beneficiaries per 1,000. At the same time,
the average number of visits provided per home health user grew from
36 to 73 visits. The rapid growth in home health use was due, in part,
to the cost-based payment method. Under the cost-based system, BTUs
were paid their costs up to a per-visit limit for each visit
provided.[Footnote 9] This method, at a time when there was little
program oversight, offered few incentives to provide visits
efficiently or only when needed.
By 1997, home health utilization—as measured by the number of home
health users per 1,000 Medicare beneficiaries and the number of visits
provided—varied widely across geographic regions. For example, 48
Medicare beneficiaries per 1,000 in Hawaii received home health care
in 1997. In the same year, more than 157 beneficiaries per 1,000
received home health care in Louisiana. Meanwhile, Medicare home
health users in Washington received an average of 32 visits, compared
to an average of 161 visits per user in Louisiana. This wide variation
in use persisted even after controlling for patient diagnosis. This
variability is partly due to the lack of standards for necessary or
appropriate care. Furthermore, even the most basic unit of service—the
visit—was not well defined in terms of either the amount of time spent
with a patient or the type of services provided.
BBA Changes to Home Health Payment Policies:
To constrain Medicare home health spending growth, BBA required HCFA
to replace Medicare's cost-based, per-visit payment method with a PPS
by fiscal year 2000.[Footnote 10] Until PPS could be implemented, BBA
imposed spending controls under the IPS: For 3 years beginning October
1, 1997, the IPS incorporated tighter per-visit cost limits than had
previously been in place and subjected each HHA to an annual Medicare
revenue cap, which was the product of an HHA-specific, per-beneficiary
amount and the number of beneficiaries that the HHA served.[Footnote
11]
Under the PPS, an HHA receives a single payment for all items and
services furnished during each 60-day episode of care.[Footnote 12]
The payment rate is based on the national average cost of providing
care in 1997, not an HHA's actual costs. Because the payment is
divorced from an HHA's cost of delivering care, an HHA that delivers
care for less than the payment amount can profit; conversely, an HHA
will lose financially if its service costs are higher than the
payment. To account for differences in beneficiary care needs, PPS
episode payments are adjusted from a base rate (which was $2,115 in
fiscal year 2001). These adjustments are based on a classification
system that groups home health beneficiaries into 80 payment groups.
The payment for a beneficiary in the most intensive payment group is
approximately five times greater than the payment for a beneficiary in
the least intensive group. In fiscal year 2001, episode payments
ranged from $1,114 to $5,947.
Financial Incentives of Episode-Based Payments:
We have reported the strong financial incentives under the home health
PPS to reduce the costs of providing an episode of care.[Footnote 13]
HHAs can do this by reducing unnecessary or excessive visits,
delivering care more efficiently, or underserving beneficiaries. We
expressed concern that it may be hard to detect when the latter
occurs. The lack of standards for necessary or appropriate care makes
it difficult to review care and take steps to ensure that needed
services are being delivered. We also said that the PPS could lead to
substantial overpayments to some HHAs relative to the level of
services being provided. Further, we noted industry concerns about the
ability of some HHAs to respond to PPS incentives to reduce their
costs and about inadequacies in the method used to adjust payments to
account for differences in beneficiary care needs.[Footnote 14]
As a result of these concerns, we recommended that risk sharing be
incorporated into the PPS design.[Footnote 15] Risk sharing would
limit the total losses and gains an HHA could experience over a period
of time for treating beneficiaries by establishing formulas to share
losses or gains with the Medicare program. This would involve a
settlement process in which an HHA's actual costs of delivering care
over the relevant period would be compared to its actual payments.
Such an approach would simultaneously protect beneficiaries against
underservice, the Medicare program from overpaying for services, and
HHAs serving beneficiaries with greater than average needs when the
costs are not accounted for in the payment adjustments. HCFA did not
agree with our recommendation, stating that the PPS design and payment
adjustments would address our concerns and that risk sharing would be
difficult to implement. We subsequently suggested that the Congress
consider requiring HCFA to implement risk sharing with the PPS.
[Footnote 16]
Home Health PPS Episode Payments Are Considerably Higher than
Estimated Costs of Care Provided:
The average episode payment HHAs received to provide an episode of
care in the first 6 months of 2001 was about 35 percent higher than
the average estimated cost of providing that care.[Footnote 17] The
average episode payment, accounting for the mix of beneficiaries
treated in the first 6 months of 2001, was $2,691. (See table 1.)
During this period, we estimated that the cost of providing an episode
of care was $1,997 after adjusting for the mix of services provided by
agencies and changes in the average time spent for each type of visit
since the introduction of the PPS.
This large difference between the average episode payment and
estimated cost is due to three factors. First, the PPS episode payment
amount was calculated on the assumption that about 32 visits would be
provided during an average episode, although immediately prior to PPS
implementation only about 29 visits per episode were provided. Second,
HHAs have further lowered their costs since PPS by providing, on
average, only about 22 visits per episode during the first half of
2001. Third, HHA payments have increased because a larger proportion
of home health users have been categorized into higher payment groups.
While the PPS adjusts payment rates to account for expected variation
in costs due to patient care needs, the relationship between average
payments and average estimated costs masks wider differences between
payments and estimated costs across the 80 home health payment groups.
The relationship between payments and estimated costs for the 10
payment groups that account for almost half of home health episodes
ranged from 72 percent above the estimated cost to 4 percent below in
the first 6 months of 2001. (See table 2.) For the five payment groups
with the lowest payments relative to estimated costs, which accounted
for 8 percent of all episodes, the payment ranged from about 9 percent
below to about equal the average estimated cost of services provided.
The payment was greater than the average estimated cost for the
remaining groups.
For any HHA, the relationship between Medicare payments and the costs
of providing care will likely vary from the averages we report here.
The
PPS was designed to provide adequate payments to BTUs that operate
efficiently and to provide incentives for BTUs to become more
efficient. But certain BTUs may have costs higher than payments if
they face extraordinary costs not accounted for by the PPS payment
groups.
Table 1: Average Estimated Cost per Home Health Episode and Average
Home Health Episode Payment, January-June 2001:
Type of visit: Medical social services;
Estimated cost per visit: $153.59;
Average visits per episode[A]: 0.20;
Adjusted cost per episode[B]: $31.71.
Type of visit: Speech therapy;
Estimated cost per visit: $113.26;
Average visits per episode[A]: 0.17;
Adjusted cost per episode[B]: $19.49.
Type of visit: Occupational therapy;
Estimated cost per visit: $104.76;
Average visits per episode[A]: 0.75;
Adjusted cost per episode[B]: $78.57.
Type of visit: Physical therapy;
Estimated cost per visit: $104.05;
Average visits per episode[A]: 4.24;
Adjusted cost per episode[B]: $452.63.
Type of visit: Skilled nursing;
Estimated cost per visit: $94.96;
Average visits per episode[A]: 10.63;
Adjusted cost per episode[B]: $1,035.64.
Type of visit: Home health aide;
Estimated cost per visit: $41.75;
Average visits per episode[A]: 5.63;
Adjusted cost per episode[B]: $228.40.
Type of visit: Total;
Average visits per episode[A]: 21.63;
Adjusted cost per episode[B]: $$1,919.70.
Additional costs associated with nonroutine medical supplies, other
therapy services, and changes in reporting requirements: $77.11;
Average estimated cost per episode: $1,996.81;
Average payment per episode[C]: $2,691.28.
[A] Excludes all episodes with four or fewer visits.
[B] Adjusted for any increases or decreases in the time spent on
visits in 2001 compared to 2000.
[C] Average payment across all payment groups, excluding low-
utilization episodes. Payment does not include 10 percent rural add-on
amount for episodes provided to rural beneficiaries beginning
April 1, 2001.
Source: HCFA Final Rule, July 3, 2000, and GAO analysis of 1.48
million episodes from CMS' home health claims (January-June 2001).
[End of table]
Table 2: Payment Amounts Compared to Average Estimated Costs for 10
Most Frequent Home Health Payment Groups, January-June 2001:
Payment group[A]: C2F2S0;
Share of episodes: 8%;
Payment amount[B]: $2,105;
Payments as a percentage of average estimated cost: 105%.
Payment group[A]: C1F2S0
Share of episodes: 8%;
Payment amount[B]: $1,736;
Payments as a percentage of average estimated cost: 117%.
Payment group[A]: C2F2S2
Share of episodes: 5%;
Payment amount[B]: $4,132;
Payments as a percentage of average estimated cost: 168%.
Payment group[A]: C1F2S2
Share of episodes: 5%;
Payment amount[B]: $3,762;
Payments as a percentage of average estimated cost: 172%.
Payment group[A]: C1F1S0
Share of episodes: 5%;
Payment amount[B]: $1,516;
Payments as a percentage of average estimated cost: 111%.
Payment group[A]: COF1S0
Share of episodes: 4%;
Payment amount[B]: $1,314;
Payments as a percentage of average estimated cost: 106%.
Payment group[A]: C2F1S0
Share of episodes: 4%;
Payment amount[B]: $1,886;
Payments as a percentage of average estimated cost: 96%.
Payment group[A]: COF2SO
Share of episodes: 4%;
Payment amount[B]: $1,533;
Payments as a percentage of average estimated cost: 110%.
Payment group[A]: C3F4S0
Share of episodes: 3%;
Payment amount[B]: $3,387;
Payments as a percentage of average estimated cost: 149%.
Payment group[A]: C2F4S0
Share of episodes: 3%;
Payment amount[B]: $2,539;
Payments as a percentage of average estimated cost: 136%.
Total Share[C]:
Share of episodes: 48%.
[A] Payment group classifications represent three dimensions of care:
clinical severity (C), functional severity (F), and service
utilization (S). There are four clinical severity levels (0-3), five
functional severity levels (0-4), and four service utilization levels
(0-3).
[B] Payment does not include 10 percent rural add-on amount for
episodes provided to rural beneficiaries beginning April 1, 2001.
[C] Share of episodes does not total to 48 percent due to rounding.
Source: HCFA Final Rule, July 3, 2000, and GAO analysis of 1.48
million episodes from CMS' home health claims (January-June 2001).
[End of table]
Conclusions:
The Medicare program is paying HHAs on average considerably more than
the estimated cost of care beneficiaries are receiving. Consequently,
implementation of the BBA-mandated 15 percent payment reduction, which
would lower fiscal year 2003 PPS payments by 7 percent, should not
affect HHAs' ability to serve Medicare beneficiaries. This payment
reduction would move the Medicare program closer to becoming a prudent
purchaser of home health care, but the reduction by itself is not
sufficient. A single payment to cover all services provided during a
60-day episode of care, combined with the lack of standards for what
constitutes necessary or appropriate home health care, leaves
beneficiaries vulnerable to underservice, Medicare vulnerable to
future overpayments, and HHAs with a disproportionate number of
beneficiaries with extensive needs vulnerable to underpayments.
Implementing the 15 percent reduction would not lessen these
vulnerabilities. This is why we have previously recommended that the
PPS include risk sharing to simultaneously protect beneficiaries, the
Medicare program, and HHAs.
Matters for Congressional Consideration:
The Congress should consider making no change in the requirement for a
reduction in Medicare home health payments. We continue to urge the
Congress to require CMS to incorporate risk sharing into the PPS
design.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, CMS stated that our
findings are consistent with its preliminary analysis of data for the
first year of the PPS. It noted that cost report data, which are not
yet available for the first year of the PPS, would be required to
determine the costs of home health services under the PPS with
certainty. CMS reiterated its concerns about implementing risk sharing
as a part of the PPS. It believes that risk sharing would undermine
the main benefit of PPS, which is payments that are timely and
predictable. Further, CMS stated its belief that the outlier payment
policy under the home health PPS and planned monitoring activities
should mitigate our concern that some HHAs may be vulnerable to
underpayments. Finally, CMS stated that risk sharing is
administratively difficult.
Although cost report data would more accurately reflect an HHA's
costs, our episode cost estimates build on historic visit costs,
adjusted for inflation and changes in visit time, and reflect actual
service use, a major determinate of episode costs. We believe that the
new evidence we present on the wide disparity between payments and
estimated costs on average and across payment groups demonstrates the
need for and the value of risk sharing in conjunction with the home
health PPS. Risk sharing would not remove the incentives under the PPS
for HHAs to provide care efficiently, because they would continue to
benefit financially when their costs are below their payments and lose
financially when their costs are above their payments. Yet, risk
sharing would mitigate extreme gains and losses under the PPS. While
the monitoring activities and refinements that CMS discusses such as
revisions to the payment groups could mitigate extreme gains or
losses, it could be some time until they are implemented. Furthermore,
outlier payments, which account for less than 3 percent of payments,
are not by themselves sufficient to protect vulnerable HHAs that have
higher than average costs across a number of patients, nor do they
protect the Medicare program from excessive spending.
We believe that CMS could overcome any administrative difficulties in
implementing risk sharing. CMS incorporated a risk-sharing arrangement
in its demonstration project on the home health PPS while ensuring
predictable and timely payments. We note that CMS has considerable
experience in adjusting prospective payments to providers based on
expectations for a provider's costs in the coming year, most recently
in implementing the hospital outpatient PPS, which has a provision to
protect hospitals from losses.
CMS' comments are included as appendix II.
We received oral comments on a draft of this report from
representatives of three home health care associations—American
Association for Homecare (AAHomecare), National Association for Home
Care (NAHC), and Visiting Nurse Associations of America (VNAA). These
organizations disagreed with our conclusions. All three associations
expressed concern about the effect of a potential payment reduction on
the industry's stability and, in particular, its ability to care for
medically complex patients. The associations said it was too early in
the experience of the PPS to accurately measure home health care use,
visit costs, episode costs, or industry profit margins. VNAA stated
that our cost estimates do not reflect current fixed costs under the
PPS. NAHC raised questions about the timeliness of payments if risk
sharing is a part of the home health PPS. The associations said that
more information was needed on how low-utilization episodes, partial
episodes, and outlier payments would affect the relationship between
average episode costs and payments to HHAs.
Our results are consistent with CMS' analysis of a full year of
experience under the PPS. Our analysis of 1.48 million episodes did
not consider the payment reduction for partial episodes, payment
enhancement for outliers, or variable payment adjustments for a
significant change in a beneficiary's condition. When calculating
episode payments and estimated costs we treated these as full
episodes. The impact of these payment adjustments on average episode
payments is likely to be minimal because they are partially offsetting
and apply to less than 8 percent of episodes. Whether the visit costs
for these types of episodes is different from the average visit costs
is not known. We excluded low-utilization episodes from our analysis
because they are not paid an episode rate. HHA visits per user have
been dropping since 1997, allowing ample time for HHAs to bring their
fixed costs in line with current use patterns. The magnitude of the
difference between payments and estimated costs provides compelling
evidence that the legislated reduction would not destabilize the home
health industry. Further, risk sharing if implemented would moderate
any negative effects on the HHAs that may incur costs that are higher
than these estimates including when HHAs treat medically complex
patients.
We are sending copies of this report to the Administrator of CMS. We
will also make copies available to others upon request.
If you or your staff have any questions, please call me at (202) 512-
7114. Other contacts and staff who contributed to this report are
listed in appendix III.
Signed by:
Laura A. Dummit:
Director, Health Care—Medicare Payment Issues:
List of Committees:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable W. J. "Billy" Tauzin:
Chairman:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
We conducted our analyses using Medicare provider, claims, and
beneficiary files for calendar years 2000 and 2001. We included only
those providers that were listed as active in each year. For episodes
ending on January 1, 2001 through June 30, 2001, we used all final
bills from the home health Standard Analytic File (SAF) for 2001 that
were available as of January 24, 2002. Our file of 1.48 million
episodes, which excludes all low-utilization episodes, does not
include any claims for the first 6 months of 2001 submitted after
January 24, 2002. For 2000, we used all final bills ending on January
1, 2000 through June 30, 2000.
To compute our estimate of average episode costs, we used HCFA's per-
visit cost estimates that were used to establish the PPS episode rates
and that were calculated from the sample of fiscal year 1997 audited
costs reports.[Footnote 18] The per-visit costs, which include all
costs of home health services covered and paid for on a reasonable
cost basis, were inflated to 2001 cost levels using the market basket
index for home health services. Then we adjusted the per-visit costs
to account for the change in the time spent for each type of visit in
2001 compared to 2000. We estimated episode costs by multiplying the
adjusted per-visit cost for each type of visit by the average mix of
visits provided in each payment group in a 2001 episode. We also added
an additional amount for the costs of other services not included in
the per-visit costs.[Footnote 19] Our methodology assumes that the
relationship between direct patient care costs and overhead costs has
remained the same over time and therefore that administrative costs
have not increased or decreased since the PPS.
We calculated the average payment as the payment amount for each of
the 80 payment groups weighted by the proportion of all episodes in 2001
provided within each payment group.
We interviewed CMS officials and industry representatives from the
American Association for Homecare, National Association for Home Care,
Gentiva Health Services, Rocky Mountain Health Care, and the Visiting
Nurse Associations of America regarding the changes in provider
practices since the implementation of PPS.
[End of section]
Appendix II: Comments from the Centers for Medicare and Medicaid
Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
7500 Security Boulevard:
Baltimore, MD 21244-1850:
Date: April 29, 2002:
To: Laura A. Dummit:
Director, Health Care—Medicare Payment Issues:
From: [Signed by] Thomas A. Scully:
Center for Medicare & Medicaid Services:
Subject: General Accounting Office (GAO) Draft report, Medicare Home
Health Care: Payments to Home Health Agencies Are Considerably Higher
than Costs (GAO-02-663):
Thank you for the opportunity to review the above-subject report.
The GAO report presents data supporting the conclusion that Congress
should consider retaining the statutorily required reduction to home
health payments in FY 2003. Although, GAO acknowledges their analysis
was based on data from the first six months of 2001, their initial
observations are consistent with our preliminary data analysis for the
first year of PPS.
We note, however, the data are susceptible to other interpretations.
Cost report data for the first year of prospective payment system
(PPS) are not currently available and will not be available for some
time. Without that data, it cannot be known with certainty what it
costs the home health agencies (HHAs) to render the services provided.
In the April, 2000 report entitled "Medicare Home Health Care:
Prospective Payment System Will Need Refinement as Data Become
Available" (GAO-HERS-00-9), GAO suggested that a risk-sharing
arrangement limiting the amount an home health agency (HHA) can lose
or gain under a (PPS) would involve a year-end settlement that
compares an HHA's actual Medicare allowable costs with its total
Medicare payments. Payments above the costs would be constrained to a
specific percentage, as would agency losses. Both phases of the PPS
demonstration included this form of risk-sharing.
The CMS believes that risk-sharing is administratively incompatible
with and is conceptually contrary to the principles of PPS. Risk-
sharing was one of many features of early research on PPS that were
used to entice voluntary participation in the demonstration.
The GAO proposal would potentially require Medicare to provide
additional payments to an HHA at the end of the year if the HHA's
costs were higher than its total PPS payments capped at a certain
percentage. Or, in the alternative, GAO would require Medicare to
recoup payments already made to the HHA if the HHA's costs were lower
than its total PPS payments capped at a certain percentage. These
proposals are at odds with the most beneficial features of prospective
payment systems — ensuring that all payments occur in a predictable
and timely manner A cost-based risk-sharing provision would reinstate
retrospective reimbursement.
In addition, the data needed to implement GAO's suggestion are not
readily available for end-of-the-year adjustments. Agency-specific
cost report data are required to determine cost margins, and the
earliest clean cost reports are settled, without fiscal intermediary
fieldwork or audit work, 18 months after the end of an HHA's cost
reporting period. For a clean cost report, 18 months after the end of
an HHA's cost reporting period is the earliest point Medicare would be
able to compare an HHAs' allowable costs with its total PPS payments.
Further, the industry has raised issues with regulatory burden
associated with cost reporting requirements. One of the
Administration's goals is to the reduce regulatory burden on health
care providers whenever possible. A risk-sharing provision based on
cost report data would perpetuate the use of cost reports in their
current form and hinder attempts to reduce cost reporting burden. It
would also require continued audit and review functions to a greater
degree than a PPS system.
We believe the outlier policy under home health PPS mitigates GAO's
concerns that HHAs with a disproportionate number of beneficiaries
with extensive needs are vulnerable to underpayments. Further, CMS has
the statutory authority to analyze the appropriateness of payments
through case mix refinement. We will also have a greater understanding
of whether HHAs are maximizing profits at the expense of quality of
care versus appropriate efficiencies under a PPS when CMS has complete
outcome based quality improvement data. CMS will continue its ongoing
analysis to ensure appropriate levels of service and determine if
quality of care is compromised, to track changes in agency behavior
and assess the short-term and longer-term effects of PPS.
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
James E. Mathews, (202) 512-9427:
Nancy Edwards, (202) 512-3340:
Staff Acknowledgments:
In addition to those named above, Leslie V. Gordon, Dan Lee, Carolyn
Manuel-Barkin, Lynn Nonnemaker, and Paul M. Thomas made key
contributions to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 105-33, title IV, subtitle G, ch. 1, 111 Stat. 251,
466-475.
[2] Section 501 of the Medicare, Medicaid and SCRIP Benefits
Improvement and Protection Act of 2000 (BIPA) (Pub. L. No. 106-554,
Appendix F., 114 Stat. 2763, 2763A-529), delayed the mandated
reduction until October 1, 2002.
[3] CMS, the agency responsible for administering Medicare, was known
as the Health Care Financing Administration (HCFA) until July 1, 2001.
This report refers to the agency as HCFA when referring to actions
before the name change and as CMS when referring to actions taken
since the name change.
[4] For fiscal year 2003, CMS will also update the payment rate for
inflation by the increase in the home health market basket, which is
projected (in April 2002) to be about 2.1 percent.
[5] Section 501 of BIPA.
[6] These home health payment groups are used to adjust payments to
account for differences in beneficiary care needs. They reflect three
dimensions of care: clinical severity, functional severity, and
service utilization. They are known as home health resource groups
(HEIRGs).
[7] U.S. General Accounting Office, Medicare Home Health Care:
Prospective Payment System Will Need Refinement as Data Become
Available, [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-9],
(Washington, D.C.: Apr. 7, 2000) and Medicare Home Health Care:
Prospective Payment System Could Reverse Recent Declines in Spending,
[hyperlink, http://www.gao.gov/products/GAO/HEHS-00-176], (Washington,
D.C.: Sept. 8, 2000).
[8] Beneficiaries are homebound when they have a condition that
results in a normal inability to leave home except with considerable
and taxing effort, and absences from home are infrequent or of
relatively short duration or are attributable to receiving medical
treatment.
[9] There were separate limits for each type of visit, e.g., skilled
nursing and home health aide.
[10] Section 4603 of BBA, 111 Stat. 467. The Omnibus Consolidated and
Emergency Supplemental Appropriations Act of 1999 (Pub. L. No. 105-
277, division J, title V, Sec. 5101, 112 Stat. 2681, 2681-914) delayed
the PPS implementation by 1 year to October 1, 2000.
[11] The per-beneficiary amount was a blend of each agency's 1994
average annual payments for treating a Medicare beneficiary and a
regional or national average annual amount. For agencies that had not
participated in Medicare for a full year by October 1994, the amount
was based on the 1994 national median payment.
[12] If four or fewer visits are provided during the 60-day episode,
Medicare makes a low-utilization payment adjustment (LUPA) and pays a
per-visit amount. HHAs receive less than a full episode payment, known
as a partial episode payment (PEP), if the episode of care is
interrupted, such as when a beneficiary elects to transfer to another
BHA, or when a beneficiary is discharged because treatment goals are
attained but then returns for additional services to the same BHA.
Payments are also adjusted when the beneficiary experiences a
significant change in condition (SCIC). An BHA may receive an
additional outlier payment for certain extremely high-cost episodes.
[13] [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-9], and
[hyperlink, http://www.gao.gov/products/GAO/HEHS-00-176].
[14] [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-9].
[15] [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-9].
[16] [hyperlink, http://www.gao.gov/products/GAO/HEHS-00-176].
[17] Less than 16 percent of all episodes in the first 6 months of
2001 received a LUPA. These were not included in our analysis because
they are not reflective of episode payments or costs. Episodes that
required a SCIC adjustment (which may have increased or decreased the
payment), a PEP adjustment (which reduced the payment), or an outlier
adjustment (which increased the payment) were included although SCIC,
PEP, and outlier adjustments were not reflected in our reported
payments. Episodes with SCIC or PEP adjustments were less than 5
percent and episodes with outlier adjustments were less than 3 percent
of all episodes in the first 6 months of 2001.
[18] See Medicare Program: Prospective Payment System for Home Health
Agencies, 65 Federal Register 41,128 (2000). HCFA also made several
additional adjustments to the basic cost-per-visit calculations,
including increasing the audited cost report data for nonroutine
medical supplies, and decreasing costs for providers affected by the
per-visit limits (see 65 Federal Register 41,170).
[19] The additional services include certain therapies not in the
visits, additional medical supplies, and costs associated with new
reporting requirements. See Medicare Program: Prospective Payment
System for Home Health Agencies, 65 Federal Register 41,128 (2000).
[End of section]
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