Comments on H.R. 4229:

A Proposal for a Home Health Prospective Payment System

HEHS-97-144R: Published: May 28, 1997. Publicly Released: Jun 4, 1997.

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William J. Scanlon
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Pursuant to a congressional request, GAO reviewed H.R. 4229, introduced in the 104th Congress, which would require the Health Care Financing Administration (HCFA) to establish, after congressional approval, a prospective payment system (PPS) for Medicare home health care 4 years after enactment that would pay fixed rates for episodes of care.

GAO noted that: (1) home health agencies (HHA) would be paid on a per visit basis with rates for each type of visit equal to the national average Medicare payment in 1994, adjusted for geographic wage differences and updated for inflation using the Medicare home health market basket index; (2) the transitional payment methods would give HHA incentives to reduce costs per visit, but would provide little if any incentive for many agencies to control the number of visits furnished; (3) Medicare's increased costs for home health have been driven much more by increased numbers of visits per beneficiary and more beneficiaries being served than by growth in cost per visit; (4) basing the limits on episodes in phase II would at best provide weak incentives to control the number of visits; (5) as GAO reported in 1996, the average number of visits is skewed by a substantial portion of patients who receive extraordinarily high numbers of visits and by the significant variation in the average number of visits supplied by different HHAs; (6) thus, while over time such a payment method might provide incentives to hold down the growth in visits per episode, the short-term effects are not likely to be significantly; (7) a potential problem with an episode payment system with stronger cost control incentives is that HHAs might respond by reducing the number of visits during the episode, potentially lowering the quality of care; (8) another problem with the phase II proposal is that it uses the 18 case mix categories for HCFA's PPS demonstration project, which HCFA has stated are not sufficiently developed for general use and explain less than 10 percent of the variation in cost across patients; (9) efforts to identify fraud and abuse indicate that substantial amounts of noncovered care are likely to be reflected in HCFA's home health care utilization data; (10) similar concerns exist regarding the home health cost data base; (11) the percentage of HHAs subjected to field audits has generally decreased over the years, as has the extent of auditing done at the facilities that are audited; (12) for these reasons, there is little assurance that HCFA's cost data reflect only reasonable costs that are related to patient care, and using these data to set payment rates and determine extra payments to HHAs could result in windfall profits for them; (13) GAO believes that it is questionable whether savings would be realized by Medicare if H.R. 4229 was adopted; and (14) moreover, mechanisms do not exist to protect beneficiaries from potential quality of care problems that could arise from the incentives to shorten visit times and decrease the number of visits in an episode of care.

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