Balanced Budget Act:

Any Proposed Fee-for-Service Payment Modifications Need Thorough Evaluation

T-HEHS-99-139: Published: Jun 10, 1999. Publicly Released: Jun 10, 1999.

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William J. Scanlon
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Pursuant to a congressional request, GAO discussed the effect of the Balanced Budget Act of 1997 (BBA) on the Medicare Fee-for-Service Program, focusing on the: (1) payment reforms for providers under the fee-for-service portion of the program; and (2) changes made to skilled nursing facility (SNF) and home health agency (HHA) payment policies.

GAO noted that: (1) both SNFs and HHAs have felt the effect of the BBA provisions, and both industries will need time to adapt, but the calls to amend or repeal the new payment systems are premature; (2) the SNF prospective payment system (PPS) was implemented with a 3-year transition to the fully prospective rates, and facilities are phased into this transition schedule according to their fiscal year; thus, the adjustment time has been built into the PPS schedule; (3) concerns that the PPS is causing extreme financial pressures for some SNFs need to be systematically evaluated on the basis of additional evidence; (4) several factors suggest that the problem may be less severe than is being claimed by providers; (5) nevertheless, certain other modifications to the PPS may be appropriate because there is evidence that payments are not being appropriately targeted to patients who require costly care; (6) the potential access problems that may result from underpaying for high-cost cases will likely result in beneficiaries' staying in acute care hospitals longer, rather than forgoing care; (7) this is a safety net for beneficiaries while modifications are made; (8) the Health Care Financing Administration (HCFA), which has responsibility for managing the Medicare program, is aware that payments may not be adequately targeted to high-cost beneficiaries and is working to address this problem; (9) as a result of the swift implementation of the home health interim payment system (IPS) and the lack of a transition period, the BBA's impact on home health agencies has been more noticeable; (10) the number of participating agencies declined by 14 percent between October 1997 and January 1999, and utilization has dropped to 1994 levels, the base year for the IPS; (11) however, since the number of HHAs and utilization had both grown considerably throughout most of the decade, beneficiaries are still served by over 9,000 HHAs--approximately the same number that were available just prior to the recent declines; (12) GAO's interviews with HHAs, advocacy groups, and others in rural areas that lost a significant number of agencies indicated that the decline in HHAs has not impaired beneficiary access; (13) while the drop in utilization does not appear to be related to HHA closures, it is consistent with IPS incentives to control the volume of services provided to beneficiaries; and (14) in designing the PPS, it will be essential that HCFA adequately adjust payments to account for the wide differences in patient needs.

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