Medicare Home Health Payment:

Nonroutine Medical Supply Data Needed to Assess Payment Adjustments

GAO-03-878: Published: Aug 15, 2003. Publicly Released: Aug 15, 2003.

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Under Medicare's prospective payment system (PPS), home health agencies receive a single payment, adjusted to reflect the care needs of different types of patients, for providing up to 60 days of home health care. Some home health industry representatives have suggested that certain nonroutine medical supplies (such as wound-care dressings) should be excluded from this payment and reimbursed separately because of their high cost. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 required GAO to examine home health agency payments for nonroutine medical supplies and recommend whether payment for any such supplies should be excluded from the PPS.

Although Medicare's home health payment includes the average costs of nonroutine medical supplies, adjusted payments may not reflect variation in supply costs across types of patients. Further, home health agencies can be paid the same amount for treating patients with quite different supply costs. This means that under the PPS, patients who require costly supplies may have problems accessing home health care and the agencies that treat them may be financially disadvantaged. This is of particular concern for patients who have nonroutine medical supply needs that are easily identified prior to admission or who require supplies for which there are no lower-cost alternatives. Excluding certain nonroutine medical supplies from the home health payment and reimbursing them separately would help ensure that patients have access to these supplies and that agencies are protected financially for providing them. At the same time, this would weaken the cost-control incentives of the PPS as well as increase patient out-of-pocket costs. Such a policy might be warranted, however, for nonroutine medical supplies that are high-cost, relative to the total payment, and infrequently used because the payment adjustment to account for differences in patient needs may not be adequate to compensate a home health agency for providing these supplies. Patient care representatives suggest that an additional category of supplies should be excluded from the payment and reimbursed separately, namely those that a patient had been using prior to home health care to treat an ongoing condition. Clinical experts indicated that care has been disrupted for some patients who require these kinds of supplies because some home health agencies have required patients to switch supplies or limited the supplies provided to them. Although the Centers for Medicare & Medicaid Services (CMS) has asked home health agencies to report information on nonroutine medical supply use and cost, they have not done so. Without this patient-specific supply data, CMS does not have the ability to determine whether the PPS needs to be adjusted to account for nonroutine medical supply costs or whether certain supplies should be excluded from the payment.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The Home Health Prospective Payment System (PPS) final rule, published August 29, 2007 (72 FR 49762) established new payment rates for non-routine medical supplies (NRS) and required home health agencies to report NRS data on claims. The new payment rates were developed by a CMS contractor through analysis of existing data on the cost and utilization of NRS. (For a description of the methodology, see the proposed final rule published on May 4, 2007, 72 FR 25427.) In the final rule, CMS announced that it would implement a 6 severity group methodology for payment of NRS within the PPS system, with payment rates for NRS ranging from about $14 for the lowest severity group to $551 for the highest severity group. The agency also announced that claims that lacked information about NRS costs, unless explicitly noting that there were no such costs, would be returned to the home health agency to furnish this information. Finally, CMS stated that it would monitor the accuracy of its methodology and explore alternative methods for accounting for NRS costs in the future. Both the revised payment rates and the new reporting requirements became effective January 1, 2008. According to a CMS official, GAO's analysis was part of the information that led the agency to analyze and modify its payment arrangements for NRS.

    Recommendation: In evaluating refinements to the PPS, the Administrator of CMS should collect and analyze patient-specific data on the cost and utilization of individual nonroutine medical supplies to determine whether the payment groups and adjustments appropriately reflect the differences in supply costs. The Administrator should also gather and evaluate evidence on whether there have been systematic disruptions in the care for some patients under the PPS. If these analyses indicate problems with the current PPS, the Administrator of CMS should modify the payment groups and adjustments to better account for these supply costs or minimize care disruptions. If such refinements cannot resolve identified problems, the Administrator should seek the necessary legislative changes to exclude selected nonroutine medical supplies from the episode payment.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services


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