Medicare Home Health Care:

Prospective Payment System Could Reverse Recent Declines in Spending

HEHS-00-176: Published: Sep 8, 2000. Publicly Released: Sep 8, 2000.

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Alan Bruce Steinwald
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Pursuant to a congressional request, GAO provided information on Medicare home health care's recent declines in spending, focusing on: (1) the declines in service use underlying the changes in spending; (2) the extent of the changes in use across beneficiaries, home health agencies (HHA), and locations; and (3) identify any implications these new patterns of home health use have for the impact of the prospective payment system (PPS).

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.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has not required the Centers for Medicare and Medicaid Services to implement a risk-sharing arrangement, and the agency has not pursued the issue. No action is expected.

    Matter: Given the uncertainties for beneficiaries, HHAs, and the Medicare program associated with the home health agency PPS, Congress may wish to consider requiring the Health Care Financing Administration (HCFA) to implement a risk-sharing arrangement under the PPS to moderate excessive HHA gains or losses as soon as practicable. GAO believes that a risk-sharing arrangement would offer protection to Medicare beneficiaries, home health agencies, and the Medicare program from any unintended consequences of the home health PPS.


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