GAO

United States General Accounting Office

Report to the Chairman, Subcommittee

on Health, Committee on Ways and

Means, House of Representatives

September 2000 MEDICARE HOME

HEALTH CARE

Prospective Payment

System Could Reverse

Recent Declines in

Spending

GAO/HEHS-00-176

Page 1 GAO/HEHS-00-176 Recent Changes in Home Health Care

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 32

Appendix II: Medicare Home Health Users, by State of Residence,

Calendar Years 1994, 1996, and 1999 34

Appendix III: Average Visits per Medicare Home Health User, by

State of Residence, Calendar Years 1994, 1996,

and 1999 36

Appendix IV: Comments From the Health Care Financing

Administration 38

Tables Table 1: Average Number of Home Health Visits per User by Visit

Type, 1994, 1996, and 1999 14

Table 2: Medicare Home Health Users, by Utilization Level, 1994,

1996, and 1999 17

Table 3: Average Visits per User, by Level of Agency Service

Provision, 1994, 1996, and 1999 19

Table 4: Home Health Service Utilization Changes in Rural and

Urban Areas, 1994, 1996, and 1999 23

Table 5: History of Medicare Home Health Care Spending Growth,

1985-99 24

Figures Figure 1: Home Health Users per 1,000 FFS Beneficiaries, 1994,

1996, and 1999 13

Figure 2: Proportion of Home Health Visits by Visit Type, 1996

and 1999 15

Figure 3: Proportion of Home Health Beneficiaries, by Utilization

Level, 1994, 1996, and 1999 18

Figure 4: Average Visits per User, by HHA Ownership, 1994, 1996,

and 1999 20

Figure 5: Average Visits per User, Highest- and Lowest-Utilization

States, 1999 22
Contents

Page 2 GAO/HEHS-00-176 Recent Changes in Home Health Care

Abbreviations

BBA Balanced Budget Act of 1997

FFS fee-for-service

HCFA Health Care Financing Administration

HHA home health agency

HHS Department of Health and Human Services

HIPAA Health Insurance Portability and Accountability Act of 1996

IPS interim payment system

MedPAC Medicare Payment Advisory Commission

MSA metropolitan statistical area

PPS prospective payment system

SAF Standard Analytical File
Page 3 GAO/HEHS-00-176 Recent Changes in Home Health Care

United States General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-286001 Letr

September 8, 2000

The Honorable William M. Thomas

Chairman, Subcommittee on Health

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

Until 1997, home health care was one of Medicare’s fastest growing

benefits, with expenditures rising at an average annual rate of 30 percent

between 1988 and 1997. Both the number of beneficiaries and the amount

of services they received increased, changing what had been a short-term,

posthospitalization benefit to one that encompassed long-term care and

vastly different service patterns across beneficiaries, agencies, and

geographic areas. In addition to concerns about Medicare expenditures,

this wide variation in use raised issues about the appropriateness of

services being provided and the lack of standards for care. To control home

health spending, in 1997 the Congress mandated that the Health Care

Financing Administration (HCFA), the agency responsible for

administering the Medicare program, implement several payment and other

policy changes to the home health benefit.1 These changes were to

culminate in the implementation of a prospective payment system (PPS)

for home health services in October 1999.

Delayed until October 2000, the PPS will incorporate payment rates based

on 1998 home health spending and utilization data—the latest available

information—adjusted downward to reflect projected utilization in 2001.2

However, home health spending and use have changed substantially in

recent years. Medicare home health spending dropped from a peak in 1997

of $18.3 billion to $9.5 billion in 1999. Concerned about the decline in

service use and its implications for Medicare payment policy, you asked us

to (1) examine the declines in service use underlying the changes in

spending; (2) determine the extent of the changes in use across

1

The Balanced Budget Act of 1997 (BBA) (P.L. 105-33, title IV, chapter I, 111 Stat. 251, 466)

mandated these changes.

2

The Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (P.L.

105-277) delayed the PPS implementation by 1 year to October 1, 2000.
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Page 4 GAO/HEHS-00-176 Recent Changes in Home Health Care

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 PPS. To do this work, we analyzed HCFA home health claims and

provider data from 1994, 1996, and 1999. We did our work in accordance

with generally accepted government auditing standards between April and

July 2000. (For a detailed discussion of our scope and methodology, see

app. I.)

Results in Brief The 48-percent reduction in Medicare home health care spending following

the BBA was due to sharp declines in both the numbers of users and

services used. The number of Medicare beneficiaries receiving home health

services fell by 22 percent, from more than 100 users per 1,000 fee-forservice (FFS) beneficiaries in 1996 to 80 users per 1,000 beneficiaries in

1999.3 During the same period, the average number of home health visits

received by each user went down 44 percent, to 41 visits in 1999. The

decline was not uniform across service types. Unskilled home health aide

visits (including help with personal care and simple dressing changes)

dropped more than skilled service visits (which include skilled nursing,

therapies, and medical social services). While changes in payment policies

undoubtedly played a big role in curtailing service use, other factors may

have also contributed to the decline, such as increased efforts to combat

Medicare fraud and abuse.

Changes in home health use varied across agencies and types of users as

well. 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.

For example, the number of patients receiving more than 150 visits fell 67

percent between 1996 and 1999, compared with a 22-percent drop across

all users. Similarly, proprietary agencies, which provided the highest

number of visits per user in 1996, reduced their service provision by 47

percent between 1996 and 1999, compared with a 37-percent reduction for

not-for-profit and government agencies. There was a similar pattern in the

drop in usage across states. States that had the highest levels of service use

in 1996 had larger declines than states where beneficiaries historically

received fewer services. While the more than threefold difference in

utilization continued between the highest- and lowest-use states in 1999,

3

Medicare payment policies discussed in this report do not apply to HHAs providing services

to beneficiaries enrolled in managed care plans. These beneficiaries and their service use

have not been included in this report’s analyses.
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Page 5 GAO/HEHS-00-176 Recent Changes in Home Health Care

there were fewer states at the extremes. Declines in rural areas were larger

than in urban areas. Although variation in use across states and agencies

narrowed over this time, states with high use in 1996 continued to have

rates nearly double the average visits per user of the rest of the country in

1999, and high-visit agencies still provided half again as many visits as the

national average.

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.

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. For this

reason, home health agency responses to the PPS could result in

overpayments relative to services provided while simultaneously raising

Medicare spending. Under the PPS, Medicare will make a single payment

for each 60-day episode of home health care. Some agencies may respond

to the high payments by increasing services provided to beneficiaries.

Others may maintain their reduced service levels, resulting in

overpayments relative to the services delivered within the episode. At the

same time, the PPS will give agencies an incentive to increase the episodes

of care they provide. This, in turn, could cause total Medicare home health

spending to rise.

In an earlier report, we outlined actions that HCFA should take to protect

beneficiaries, HHAs, and the Medicare program from possible negative

effects of the PPS.4 We recommended, and HCFA agreed, that the PPS will

need to be evaluated and refined periodically and that utilization

monitoring and medical review of claims will be critical to ensuring that

HHAs do not stint on care or provide unnecessary services. We also

recommended that the PPS should be modified to incorporate a risksharing arrangement, which would limit aggregate HHA Medicare gains or

losses, but HCFA believed that such modification was not necessary.

However, we believe that the substantial changes in home health utilization

that have occurred since the BBA lend additional support for a risk-sharing

approach. Therefore, in this report we suggest that the Congress consider

instructing HCFA to adopt risk sharing under the home health care PPS.

HCFA agreed that risk sharing is one option to address concerns raised

4

Medicare Home Health Care: Prospective Payment System Will Need Refinement as Data

Become Available (GAO-HEHS-00-9, Apr. 7, 2000).
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Page 6 GAO/HEHS-00-176 Recent Changes in Home Health Care

about the PPS but said it prefers other methods. We continue to support

implementing a risk-sharing arrangement along with the PPS.

Background Medicare’s home health care 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 rather than in other settings. To qualify for home health care, a

beneficiary must be confined to his or her residence (“homebound”);5

require 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 part-time or intermittent6 skilled

nursing; physical, occupational, and speech therapy; medical social

services; and home health aide visits.7 The benefit allows for an unlimited

number of visits, provided the coverage criteria are met. Beneficiaries are

not liable for any coinsurance or deductible.

Changes in the Benefit Have

Led to Growth in Home

Health Utilization

Between 1990 and 1997, Medicare home health payments grew annually at

a rate of more than three times that of spending growth for the entire

Medicare program. This increase was due primarily to a steady rise in the

proportion of beneficiaries receiving home health care and in the number

of visits per person served. The number of home health users per 1,000

beneficiaries increased from 57 to 109, and the average number of visits per

user doubled from 36 to 73 during this period. An increase in payments per

visit accounted for only a small share of the overall growth.

5

A beneficiary is considered homebound when he or she has 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 (section 204.1, HCFA’s Home Health Agency Manual, June 12, 2000).

6

“Part-time or intermittent” means skilled nursing and home health aide services furnished

any number of days per week as long as they are furnished fewer than 8 hours each day and

for 28 or fewer hours each week. Subject to review on a case-by-case basis, a beneficiary

may receive up to 35 hours of home care per week, or up to and including 8 hours per day

(full-time), 7 days per week, for temporary periods up to 21 days or longer in exceptional

circumstances (section 206.7, Home Health Agency Manual).

7

Home health aide services include (1) personal care services, such as assistance with

eating, bathing, and toileting; (2) simple surgical dressing changes; (3) assistance with

certain medications; (4) activities to support skilled therapy services; and (5) routine care of

prosthetic and orthotic devices (section 206.2, Home Health Agency Manual).
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Page 7 GAO/HEHS-00-176 Recent Changes in Home Health Care

Originally, Medicare imposed annual limits on the number of home health

care visits covered for each beneficiary. The limitation on visits was

removed by the Omnibus Reconciliation Act of 1980,8 but utilization did not

increase appreciably because of HCFA’s stringent interpretation of the

coverage and eligibility criteria. A court case challenged HCFA’s

interpretation, and the decision resulted in broadened coverage guidelines

for home health care, allowing more beneficiaries to qualify for more

visits.9 The benefit then was transformed from one focused on patients

needing short-term care after a hospitalization to one that also serves

patients with chronic conditions needing longer-term care.

At the same time that much of this growth occurred, program controls

were essentially nonexistent. Few claims were subject to medical review,

and virtually all were paid. In 1986 and 1987, over 60 percent of home

health claims were reviewed, but by 1995, claims reviewed had declined to

about 1 percent. As a result, utilization after 1987 is increasingly likely to

reflect a degree of inappropriate service use. Our prior investigations found

a pattern of payments for “questionable or improper” services.10 More

recently, the Department of Health and Human Services (HHS) Inspector

General also documented that some of the care provided lacked supporting

documentation required to determine medical necessity.11

8

P.L. 96-499, sec. 930, 94 Stat. 2599, 2631.

9

Duggan v. Bowen, 691 F. Supp. 1487 (D.D.C. 1988).

10Medicare: Home Health Utilization Expands While Program Controls Deteriorate

(GAO/HEHS-96-16, Mar. 27, 1996). More recent work has continued to find billing abuses

and improper claims: Medicare: Need to Hold Home Health Agencies More Accountable for

Inappropriate Billings (GAO-HEHS-97-108, June 13, 1997) and Medicare: Improper Activities

by Mid-Delta Home Health, (GAO/OSI-98-6, Mar. 12, 1998).

11HHS Office of Inspector General, Review of Medicare Home Health Services in California,

Illinois, New York and Texas, A-04-99-01194 (Washington, D.C.: HHS, Nov. 1999).
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Page 8 GAO/HEHS-00-176 Recent Changes in Home Health Care

Growth Encompassed a

Wide Range in Service Use

Historically, most home health users received few visits, and a small

proportion of longer-term users received the majority of Medicare-funded

visits. According to the Medicare Payment Advisory Commission

(MedPAC), 51 percent of home health care recipients received fewer than

30 visits and accounted for 9 percent of all home health visits in 1996. By

contrast, 15 percent of users had 150 visits or more, accounting for 59

percent of all Medicare home health visits that year. Approximately onethird of the beneficiaries in this latter group received over 300 visits.12 In

addition, short-term patients appeared to use a different mix of visits than

did longer-term patients. MedPAC reported that in 1996 only 6 percent of all

visits provided to short-term users—those who received nine or fewer

visits—were for aide services; skilled nursing care comprised over 75

percent of their total visits. By contrast, about 56 percent of the visits for

beneficiaries who had 100 visits or more were for home health aide

services.

There also was marked variation in home health use across geographic

areas. For example, Medicare home health users in Maryland received an

average of 37 visits in 1997, with an average payment per user of $3,088. In

that same year, users in Louisiana received an average of 161 visits each,

with an average Medicare payment per user of $9,278. This wide variation

in use persisted even after controlling for patient diagnosis. Patterns of

care also differed across agency ownership and type.13 For-profit HHAs

tended to deliver more visits per beneficiary than other types of HHAs and

to provide more aide visits. For example, in 1993, for-profit HHAs provided

an average of 69 home health aide visits per beneficiary, compared with 43

and 48 visits from voluntary and government HHAs, respectively.14 Such

variation could be due to a variety of factors, including provider responses

to financial incentives, differences in patient needs, regional practice

patterns, and states’ varying Medicaid coverage and eligibility policies.

Assessing whether the variation in service provision has been appropriate

is difficult. Because no agreed-upon standards exist for what constitutes

necessary or appropriate home health care, it is not clear when home

12MedPAC, Report to the Congress: Context for a Changing Medicare Program (Washington,

D.C.: MedPAC, June 1998).

13Agencies may be not-for-profit, for-profit (or proprietary), or government-owned.

14GAO/HEHS-96-16, Mar. 27, 1996.
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Page 9 GAO/HEHS-00-176 Recent Changes in Home Health Care

health care is warranted, how many services should be provided, or when

services should be discontinued. Many home health users have chronic and

multiple needs, so the care for a particular condition may overlap with care

for another. Furthermore, even the most basic unit of service—the visit—is

not specifically defined.

Home Health Anti-Fraud

Measures Implemented

Beginning in 1995, several regulatory policies were initiated to reduce fraud

and abuse within the home health industry, which could have affected

home health use and spending. Operation Restore Trust, launched in 1995,

employed a number of approaches to uncovering fraud, including the use

of interdisciplinary teams to review individual HHAs that billed Medicare

for unusually large numbers of services. The Health Insurance Portability

and Accountability Act of 1996 (HIPAA) also contained measures to control

fraud and abuse by HHAs. For example, it stipulated that any physician

who falsely certifies a patient as eligible for home health services is liable

for a civil monetary penalty. HIPAA also provided more funding for claims

review and other safeguard activities by Medicare’s claims processing

contractors. However, the proportion of claims reviewed did not increase

substantially. In January 1998, HCFA announced plans to increase the

number of claims reviewed to about 1.3 percent, far short of the peak levels

in the mid-1980s. As part of the changes included in the BBA, coverage was

eliminated for persons whose only skilled service need was venipuncture

(the drawing of blood).

The BBA Changed the

Medicare Payment Method

to Control Spending

Before the BBA, HHAs were paid on the basis of their costs, up to

preestablished per-visit limits. In 1996, these limits ranged from $46 for

home health aide visits to $91 for skilled nursing visits, to a high of $130 for

medical social services.15 While payments varied by the type of visit, there

was no definition of what actually constituted a home health visit, such as

the time spent with the patient or the services provided. There were no

incentives to control the volume of services delivered, and as a result,

HHAs could enhance their revenues by providing more beneficiaries with

more visits.

The BBA mandated substantial changes to Medicare’s method of paying for

home health services. Beginning October 1, 1997, HHAs were paid under an

15The per-visit limits are for urban, freestanding HHAs. The per-visit cost limits for rural

agencies are higher than the urban limits.
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Page 10 GAO/HEHS-00-176 Recent Changes in Home Health Care

interim payment system (IPS), which incorporated tighter per-visit cost

limits than previously in place and subjected each agency to an annual

Medicare revenue cap, which is the product of a per-beneficiary amount

and the number of patients it served. The per-beneficiary amount is a blend

of each agency’s historical average payments for treating a Medicare

beneficiary and a regional or national average amount.16 To ensure that

Medicare payments under the IPS cover its costs, an HHA needs to keep

the average cost of its visits below the per-visit limits and keep its average

cost per Medicare beneficiary below its per-beneficiary amount. For

agencies with previously higher per-visit costs or that provided more visits

per user, adjustments to the IPS may involve delivering visits more

efficiently, changing the mix or reducing the number of visits provided to

each user, increasing the proportion of lower-cost patients it treats, or

some combination of these strategies.

16The IPS per-beneficiary payment limits were based on data for cost reporting periods

ending in fiscal year 1994, reflecting 1993 costs and utilization, and are updated annually by

the home health market basket index.
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Beginning in October 2000, HHAs will be paid under the PPS. An agency

will receive a single payment for each 60-day episode of care for a Medicare

beneficiary, regardless of the services actually delivered during the

period.17 There is no limit on the number of episodes a beneficiary may

receive. A base payment will be adjusted to reflect patient characteristics

that have been shown to affect service use. Payments for patients expected

to use the most services in an episode will be over 5 times the payment for

patients expected to use the fewest services. Each episode payment also

will be adjusted for differences in labor costs across geographic areas.

HCFA will make outlier payments for certain extremely high cost episodes.

The BBA required HCFA to set payment levels so that Medicare home

health expenditures would be equivalent to what would have been spent

under the IPS, with those limits reduced by 15 percent. This 15-percent

reduction has been delayed until October 1, 2001, and the Secretary of

Health and Human Services must report to the Congress within 6 months of

implementation of the PPS on the need for the 15-percent or other

reduction.18

In previous work on the home health PPS, we noted several concerns about

HCFA’s proposed, and now final, design.19 Given the wide variation in

service use, the 60-day unit of payment may not be suitable for all patients.

Furthermore, the adjustments to the episode payment may not adequately

account for differences in patient needs and, because the adjustments rely

heavily on what services are provided to patients, they may be open to

manipulation by agencies. Because of uncertainties about the effects of the

PPS on beneficiaries, agencies, and the program, we recommended that a

17Payments would be adjusted if the episode of care is interrupted, such as when a

beneficiary elects to transfer to another HHA, when a beneficiary is discharged because

treatment goals are attained but then returns to the same HHA, or when the beneficiary

experiences a significant change in condition. Episodes with extremely low service use

(four or fewer visits) will receive a low-utilization payment adjustment based on per-visit

costs.

18The Medicare, Medicaid and SCHIP Refinement Act of 1999 (P.L. 106-113, app. F, title I)

delayed the 15-percent reduction in the payments required under the PPS until 12 months

after implementation of the PPS. As a result, the rates for fiscal year 2001 will be set so that

spending would be the same as spending under the IPS. The 15-percent reduction would be

applied in fiscal year 2002.

19GAO-HEHS-00-9, Apr. 7, 2000.
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risk-sharing arrangement, which limits the losses and gains a provider can

experience over a period of time, be added to the PPS.20 HCFA did not

agree with this recommendation, indicating that risk sharing was not

needed, given the adjustments included in the PPS, and that risk sharing

would make the PPS difficult to implement. While we are sympathetic to

HCFA’s concerns and do not believe that the PPS should be delayed in

order to implement risk sharing, we nevertheless remain convinced that

the magnitude of potential excessive payments to some HHAs and large

losses for others warrants this added complexity. We also recommended,

and HCFA concurred, that the PPS be modified as appropriate as

experience is gained under the PPS. To address concerns about the

appropriateness of potential service reductions within episodes and

whether each episode of care a beneficiary receives is medically necessary,

we recommended that adequate resources be devoted to utilization

monitoring and medical review. In agreeing with this recommendation,

HCFA outlined the various activities it has planned to ensure that the data

agencies submit are accurate, that its payments to agencies are

appropriate, and that timely utilization data is readily available for possible

PPS refinements.

Declines in Users and

Visits May Reflect

Overreaction to IPS

Since peaking in 1997, Medicare home health expenditures have declined

rapidly so that by 1999 spending was about the same as it was in 1993. The

drop in spending reflected a decrease in home health service use, both in

the number of beneficiaries using home health care and the number of

visits provided to each user. The patterns of decline have resulted in a

benefit that involves a larger proportion of skilled services (skilled nursing

and therapies) and considerably fewer home health aide services. The fall

in visits per user is consistent with the objectives of the IPS but exceeds the

reduction necessary for some agencies to stay within the limits of the IPS.

The reduction in the number of home health users may be due in part to

initiatives to combat fraud and abuse and to some agencies’ overreaction to

the IPS, which may have led them to avoid certain types of high-cost

patients.

20For a more complete discussion of risk sharing, see our previous report, GAO-HEHS-00-9,

Apr. 7, 2000.
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Page 13 GAO/HEHS-00-176 Recent Changes in Home Health Care

Fewer Home Health Users

Received Fewer and a

Different Mix of Services in

1999

After having been a major driver in home health spending growth from the

early 1980s through 1997, the number of FFS beneficiaries receiving home

health visits has decreased. The percentage of FFS beneficiaries getting

home health care fell 22 percent between 1996 and 1999. In 1996, more than

100 of every 1,000 FFS beneficiaries received home health care, compared

with 80 in 1999 (see fig. 1). This decline, which followed a 15-percent

increase in home health users between 1994 and 1996, brought the number

of users in 1999 to below 1994 levels.

Figure 1: Home Health Users per 1,000 FFS Beneficiaries, 1994, 1996, and 1999

Source: GAO analysis of HCFA home health claims data.

The number of visits per home health user also dropped substantially over

this period. In 1999, the average home health user received 41 visits,

compared with 73 visits in 1996 (see table 1). The average number of visits

0

20

40

60

80

100

120

89

102

80

Users per 1,000 FFS Beneficiaries

1994 1996 1999
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Page 14 GAO/HEHS-00-176 Recent Changes in Home Health Care

per user decreased for all visit types, although the amount of the decline

varied significantly. The most notable drop was in home health aide use. In

1999, home health aide users received, on average, about half the number

of home health aide visits that they received in 1996, 37 compared with 73

visits. Users of skilled nursing services in 1999 received almost one-third

fewer skilled nursing visits than they did in 1996. Reductions in therapy

visits were more modest than home health aide or overall average declines.

Table 1: Average Number of Home Health Visits per User by Visit Type, 1994, 1996,

and 1999

a

Numbers in these columns reflect the number of visits of a particular type received by beneficiaries

who used any of that visit type. Thus, the averages by visit type do not sum to the average of all visits.

Source: GAO analysis of HCFA’s home health claims data for 1994, 1996, and 1999.

Because of the disproportionate reduction in aide visits and overall drop in

use, post-acute-care services are becoming a more important component of

the Medicare home health benefit. Compared with previous years, the

average user in 1999 is more likely to receive therapy services, and less

likely to receive home health aide services. Nearly one-half of all home

health users received physical therapy visits in 1999, up more than 20

percent over 1996. By contrast, 38 percent of users received home health

aide services in 1999, which is 22 percent below 1996 levels. Furthermore,

aide visits in 1999 comprised a smaller share of all visits (34 percent),

which is similar to the share of aide visits in 1987 (see fig. 2). Skilled

nursing visits have become a larger share of all visits, comprising nearly

half of total visits in 1999, and therapy services have increased their

proportion of total visits as well. Combined, skilled services made up twothirds of all visits in 1999, compared with half of all visits in prior years.

Average visits per visit-type

usera Percentage change

1994 1996 1999 1994-96 1996-99

All visits 65 73 41 12% -44%

Skilled nursing 29 32 22 10% -31%

Home health aide 64 73 37 14% -49%

Physical therapy 13 14 11 8% -21%

Speech therapy 12 11 8 -8% -27%

Occupational therapy 8 8 7 0 -13%

Medical social services 3 3 2 0 -33%
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Page 15 GAO/HEHS-00-176 Recent Changes in Home Health Care

These shifts are consistent with care that reflects more short-term, postacute use rather than care for longer-term chronic conditions.

Figure 2: Proportion of Home Health Visits by Visit Type, 1996 and 1999

Source: GAO analysis of HCFA’s home health claims data for 1996 and 1999.

Decline in Utilization

Reflects Payment Policy as

Well as Other Changes

The reduction in the visits per user is consistent with agency incentives

under the IPS to keep average per-user costs below the per-beneficiary

amount, yet it appears that some HHAs may have overreacted to the IPS.

Some agencies reduced the number of visits provided to beneficiaries. In

addition, some agencies modified their admitting practices to lower the

number of beneficiaries likely to need longer-term and more costly

services. Our previous work found that HHAs said they had increased their

efforts to identify the anticipated service needs of prospective patients;

were more reluctant to accept longer-term, expensive patients; and stepped

up their monitoring of patients’ needs for timely discharge.21 These results

are consistent with a MedPAC-sponsored survey in which some HHAs

reported that because of the IPS, they were no longer taking Medicare

1996 1999

48%

34%

42% 49%

16%

9%

1%

1%

Skilled Nursing

All Therapies

Medical Social Services

Home Health Aide

21Medicare Home Health Agencies: Closures Continue, With Little Evidence Beneficiary

Access Is Impaired (GAO/HEHS-99-120, May 26, 1999).
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Page 16 GAO/HEHS-00-176 Recent Changes in Home Health Care

patients they previously would have admitted.22 The types of patients HHAs

were most likely to report they no longer admitted or discharged sooner

included longer-term, chronic, and diabetic patients, all of whom are

generally associated with longer-term utilization and heavy use of aide

services.

Some agencies responded to the IPS by reducing per-beneficiary costs

more than would have been necessary to remain under the per-beneficiary

amounts. The per-beneficiary amounts, which were based on 1994 cost data

and updated annually, essentially used service levels in that year as the

standard. However, home health service use in 1999 dipped below 1994

levels. The average home health user received 41 visits in 1999, compared

with 65 visits in 1994. Moreover, the IPS had no limitations on the number

of beneficiaries that an agency could serve and be paid by Medicare. Yet,

the proportion of FFS beneficiaries receiving home health services in 1999

was 10 percent lower than in 1994. Other policy initiatives, such as

Operation Restore Trust, which increased scrutiny of claims, and stronger

physician certification requirements, may have prompted HHAs to be more

vigilant in their admissions and discharge processes. In our previous work

on agency closures, we found that the caseload of agencies that had

stopped serving Medicare beneficiaries included patients who were

ineligible for Medicare home health care.23 In a study of four states, HHS’

Office of Inspector General found that improper or highly questionable

home health services dropped from 40 percent of the total in 1995 to 19

percent of services in 1998.24 In the MedPAC survey, 77 percent of agencies

reported an increased reluctance on the part of physicians to refer

Medicare patients for services. HHAs told us that a drop in physician

referrals and the elimination of venipuncture as a qualifying service for

home health care reduced agency caseloads.

22Abt Associates, Survey of Home Health Agencies (Cambridge, Mass.: Sept. 1999).

23Since the IPS went into effect, almost 3,000 HHAs have stopped participating in the

Medicare program.

24Improper services included services not documented, services to beneficiaries not

homebound, services without a valid physician order, and services not reasonable or

necessary. HHS Office of Inspector General, Review of Medicare Home Health Services in

California, Illinois, New York and Texas, A-04-99-01194 (Washington, D.C.: HHS, Nov. 1999).
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Page 17 GAO/HEHS-00-176 Recent Changes in Home Health Care

Beneficiaries,

Providers, and Areas

With Highest Service

Use Experienced

Largest Declines

The historically wide variation in home health service use across

beneficiaries, types of providers, and geographic areas has narrowed

substantially because of disproportionate declines in utilization among the

highest users in these categories. The number of longer-term beneficiaries

receiving 150 or more home health visits per year dropped by two-thirds,

compared with a 22-percent reduction in all users. High-visit HHAs

accounted for a disproportionate share of the overall utilization decline

after 1996, as well as a greater share of the increase before 1996. Among

HHAs that historically delivered the most services, the average number of

visits per user decreased more than for all agencies. And the states with the

highest utilization experienced greater declines after 1996 compared with

the rest of the country, although wide variation in use persists. While rural

areas experienced greater reductions compared to urban areas in the

proportion of beneficiaries using services, rural users continue to receive

more visits.

Larger Declines Among

High-Use Patients Shift

Benefit Toward Short-Term

Use

Long-term home health users, those receiving 150 or more home health

visits per year, declined dramatically between 1996 and 1999, both in

absolute numbers and as a proportion of all home health users. After

substantial increases, the number of high-use beneficiaries per 1,000 FFS

enrollees dropped 67 percent from 1996 to 1999, three times the decline

among all users (see table 2). As a result, high-use beneficiaries as a

proportion of total users fell by half over this period (see fig. 3). Conversely,

the number of beneficiaries receiving fewer than 10 visits increased, and

their share of all home health users rose from 22 to 31 percent.

Table 2: Medicare Home Health Users, by Utilization Level, 1994, 1996, and 1999

Source: GAO analysis of HCFA home health claims data.

Utilization level

(visits/year)

Home health users per 1,000

FFS enrollees Percentage change

1994 1996 1999 1994-96 1996-99

Low (1-9) 20 23 24 15% 4%

Medium (10-149) 58 65 51 12% -22%

High (150+) 11 15 5 36% -67%

Total 89 102 80 15% -22%
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Page 18 GAO/HEHS-00-176 Recent Changes in Home Health Care

Figure 3: Proportion of Home Health Beneficiaries, by Utilization Level, 1994, 1996, and 1999

Source: GAO analysis of HCFA home health claims data.

High-Visit HHAs

Experienced Steeper

Declines in Utilization

The difference in utilization across HHAs has declined since 1996, but

substantial variation continues. High-visit HHAs, the 20 percent of HHAs

with the highest average number of visits per user in 1996, experienced

greater early increases, followed by larger declines than other agencies. In

1996, these HHAs provided an average of 151 visits per user, a 30-percent

increase over 1994 levels, but this fell by over half to 67 visits in 1999 (see

table 3). By contrast, historically low-visit HHAs continued to reduce

service provision between 1996 and 1999 by 15 percent. Given their steeper

rate of decline, high-visit HHAs accounted for a disproportionate share of

the total drop in visits, even after controlling for the mix of HHAs

participating in the Medicare program.25 Among HHAs serving Medicare

beneficiaries in 1994, 1996, and 1999, over one-third of the recent reduction

in visits was attributable to high-visit HHAs.

1994 1996

13%

65% 63% 64%

23% 22%

14%

31%

Low Use (1-9)

Medium Use (10-149)

High Use (150+)

6%

1999

25Between 1996 and 1999, there was considerable fluctuation in the number of HHAs serving

Medicare beneficiaries. Almost 1,400 HHAs began serving beneficiaries and almost 1,900

stopped, for a net reduction of over 500 HHAs. In addition, previous GAO analysis found

that the number of HHAs under for-profit ownership, as opposed to not-for-profit or

government ownership, changed from 1996 to 1999 (see GAO/HEHS-99-120, May 26, 1999).

To control for the changing mix of agencies, for this analysis we examined only HHAs that

were open in 1994, 1996, and 1999.
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Page 19 GAO/HEHS-00-176 Recent Changes in Home Health Care

Table 3: Average Visits per User, by Level of Agency Service Provision, 1994, 1996,

and 1999

Note: Only HHAs open all 3 years (1994, 1996, and 1999) were included in this analysis. The 20

percent of HHAs with the highest visits per user in 1996 were categorized in the high group, with the

lowest 20 percent defined as low, and the middle 60 percent defined as medium.

Source: GAO analysis of HCFA home health claims data.

We found similar patterns of changes in utilization across agency

ownership categories (see fig. 4). Between 1994 and 1996, for-profit HHAs

increased their service provision more than other agencies, and then

reduced visits by almost half between 1996 and 1999.

HHA utilization level

in 1996

Average visits per patient Percentage change

1994 1996 1999 1994-96 1996-99

Low 28 27 23 -4% -15%

Medium 54 60 35 11% -42%

High 116 151 67 30% -56%
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Page 20 GAO/HEHS-00-176 Recent Changes in Home Health Care

Figure 4: Average Visits per User, by HHA Ownership, 1994, 1996, and 1999

Source: GAO analysis of HCFA home health claims data.

83

93

47

Average Visits per User

32

49

51

0

20

40

60

80

100

1994 1996 1999

For-Profit

Not-for-Profit/Government
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Page 21 GAO/HEHS-00-176 Recent Changes in Home Health Care

Despite Larger Declines in

High-Use States, Wide

Variation Among States

Persists

The wide range of utilization among HHAs is likewise seen across states, as

are the substantial changes in use over time. The difference in visits per

user between the highest- and lowest-utilization states has increased since

1994 (see app. II). In 1999, there was over a fourfold difference in average

visits per user between the lowest-utilization state (Oregon) and the

highest (Louisiana) (see fig. 5), and over a threefold difference among

states in the number of home health users per 1,000 FFS Medicare

beneficiaries (see app. III). Although the range in utilization remains large

across states, there were fewer states with extremely high use levels in

1999 than there were in 1996. From 1994 to 1996, utilization in the eight

states with the highest usage rates in 1996 grew at double the rate of other

states.26 By 1999, visits per user in these states had fallen by 47 percent

from 1996 levels, compared with a 39-percent decrease for the rest of the

country. These same eight states also had a greater reduction in the number

of users per 1,000 FFS Medicare beneficiaries (33 percent, compared with a

19-percent reduction for the rest of the United States).

26The eight states are Louisiana, Oklahoma, Texas, Mississippi, Alabama, Tennessee, Utah,

and Georgia.
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Page 22 GAO/HEHS-00-176 Recent Changes in Home Health Care

Figure 5: Average Visits per User, Highest- and Lowest-Utilization States, 1999

Source: GAO analysis of HCFA home health claims data.

Fewer Rural Home Health

Users, but Visits per Patient

Remained Higher Than for

Urban Users

In 1999, 75 out of 1,000 Medicare beneficiaries in rural areas received home

health services, compared with 82 beneficiaries per 1,000 who lived in

urban areas.27 The number of home health users in rural areas declined

more than in urban areas between 1996 and 1999, although the number of

visits rural users received remained higher (see table 4). Rural beneficiaries

on average received 15 percent more visits than their urban counterparts,

primarily because of more home health aide visits.

64

95

Average Visits per User

31

23 22

0

20

40

60

80

100

Texas Oklahoma New Jersey

72

Louisiana Oregon Washington

27Urban and rural counts reflect beneficiary residence. Urban areas are defined as those

within a metropolitan statistical area (MSA), and rural areas are those outside an MSA.
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Page 23 GAO/HEHS-00-176 Recent Changes in Home Health Care

Table 4: Home Health Service Utilization Changes in Rural and Urban Areas, 1994,

1996, and 1999

Source: GAO analysis of HCFA home health claims data.

HHA Response to PPS

May Cause Some

Providers to be

Overpaid and Increase

Program Spending

In the past, home health service provision has fluctuated in response to

changes in Medicare’s payment and coverage policies. The PPS

incorporates new incentives, and agencies are likely to respond by

modifying how they care for Medicare beneficiaries in both the services

provided within an episode of care and the number of episodes provided to

each patient. HHA behavior could result in substantial overpayments

relative to the level of services actually delivered and huge increases in

Medicare home health spending. Adequate controls are necessary to

mitigate these risks.

Previous Spending Patterns

Suggest HHAs Are Likely to

Respond to PPS Incentives

HHAs appear to have responded to previous Medicare payment incentives

by changing their patterns of service delivery (see table 5).28 In 1985,

legislation more than doubled HCFA’s funding for home health claims

review after which Medicare outlays grew only 1 percent annually through

1988. Restrictions on coverage were relaxed as a result of the Duggan v.

Bowen lawsuit decision in 1989, followed by spending growth at an annual

rate of 30 percent. Utilization peaked in 1997 when BBA changes were

implemented. Under the IPS, agencies have faced strong financial

incentives to control the average number of visits and the average cost of

care delivered to their patients. Once again, Medicare policies appear to

have affected the delivery of services, as spending decreased 32 percent

between 1998 and 1999.

Beneficiary

residence

Users per 1,000 Medicare FFS

enrollees Average visits per user

1994 1996 1999 1994 1996 1999

Urban 88 101 82 62 70 40

Rural 92 105 75 74 83 46

28Because per-visit payments under prior law were relatively constant over time, growth in

payment rates composed only a small share of Medicare spending growth for home health

services. The changes in spending over time are, therefore, mostly attributable to changes in

utilization.
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Page 24 GAO/HEHS-00-176 Recent Changes in Home Health Care

Table 5: History of Medicare Home Health Care Spending Growth, 1985-99

Sources: HCFA, A Profile of Medicare Home Health Chart Book (Baltimore, Md.: Nov. 1999), and GAO

analysis of Medicare home health spending data from HCFA’s Office of the Actuary.

The PPS, to be implemented October 1, 2000, will incorporate further major

policy changes for Medicare that could have a profound effect on home

health service use. Instead of per-visit limits and controls on the average

costs of treating Medicare patients, HHAs will receive one payment for

each 60-day episode of care, regardless of the actual services provided.

Agencies will be rewarded financially for keeping their per-episode costs

below the payment rate and thus will have a strong incentive to reduce the

number of visits provided during an episode and to shift to a less costly mix

of visits. Historical responses to policy changes suggest that agencies are

likely to respond to the incentive to reduce services provided within an

episode and to increase the number of episodes they deliver.

PPS Payment Rates May

Allow Some Agencies to

Increase Visits and May Be

Excessive for Others

The PPS will use payment rates based on 1998 home health spending and

utilization data. Although by 1998 home health care utilization had already

started falling from its peak in 1997, the PPS rates will still be based on an

average experience that is higher than current usage. Thus, the episode

payments could present an ample cushion for many agencies. Not only

could the episode amounts allow for more visits during a 60-day period

than the average agency is now providing, but because there is no limit on

the number of episodes an HHA may provide to a patient, agencies may

revert to treating beneficiaries for longer periods.

The adjustments HHAs may make to adapt to the episode-based PPS will

depend on their current service patterns. Agencies that have continued to

incur expenses above the national average will be pressured to lower their

Period

Annual

spending rate Significant change shaping service use

1985−88 1% Tightened interpretation of coverage criteria;

increased emphasis on medical review of home

health claims.

1989−97 30% Loosening of coverage criteria allowed more

beneficiaries to receive more services.

1998−99 -32% IPS limited per visit payments and limited

aggregate agency payments; heightened

scrutiny of claims; changed qualifying criteria for

“skilled” services.
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Page 25 GAO/HEHS-00-176 Recent Changes in Home Health Care

episode costs, which is likely to require decreasing the number of visits

provided or shortening their duration. Agencies with below-average costs,

probably reflecting fewer average visits for a given episode, will be

rewarded financially under the PPS. Some of these agencies may increase

service provision. Others, however, may choose to maintain their relatively

low expenses (and probably low visit levels) or reduce services even

further, thereby increasing profits. In such cases, the PPS likely will pay too

much relative to the services delivered in each episode.

We noted in our April 2000 report that the adjusters to the basic payment

rate to reflect patients’ needs are more sensitive to differences in the

amount of therapy services provided than to differences in patients’ clinical

indicators.29 We remain concerned that the financial benefit of providing

more therapy services to receive higher payments may interfere with the

goal of the PPS to provide payments that support efficiently delivered care

that meets patients’ needs.

Incentive to Provide More

Episodes May Result in

Increased Program

Spending

Agencies can enhance their revenues by serving more longer-term users

and extending the length of time they serve patients in order to be paid for

additional episodes. For some patients, the scheduling of visits could

determine whether an agency is paid for one episode or two. In addition,

the design of the PPS allows agencies to receive a full episode payment for

a small number of visits. While the episode payment is based on an average

of 27 visits, agencies can receive an episode payment if they provide as few

as 5 visits.30 As 16 percent of episodes in 1998 consisted of one to four

visits, adding only a few visits would allow the agency to receive the full

episode payment.

The budgetary implications of growth in the number of episodes are

considerable. HCFA has projected 5.3 million full episodes for 2001, almost

13 percent fewer than in 1998. Because the industry has historically

responded to changes in payment policy in ways that enhanced agency

revenues, this projection may not adequately anticipate potential service

growth in response to the PPS’ strong incentives. If the number of episodes

29GAO/HEHS-00-9, Apr. 7, 2000.

30Under the PPS, HHAs can receive a full episode payment for a patient receiving 5 or more

visits within a 60-day period.
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Page 26 GAO/HEHS-00-176 Recent Changes in Home Health Care

in 2001 exceeds HCFA’s projection by as little as 5 percent, program

expenditures could be roughly half a billion dollars more than projected.

Program Controls May Be

Inadequate to Counter PPS

Incentives

HCFA has included three mechanisms under the PPS to counter the

incentives to stint on services and generate additional episodes. First,

HCFA will curtail gross overpayments for very low-service episodes by

paying on a per-visit basis (through the low-utilization payment

adjustment) when fewer than five services are provided in a 60-day period.

Second, adjustments to the payment for an episode can be made if a

significant change in patient condition occurs. The episode payment can be

raised on a prorated basis if a patient’s condition deteriorates or if therapy

service provision increases after the beginning of an episode; the payment

can be decreased on a prorated basis if the home health agency reports

significant improvement in a patient’s condition during the course of care

that changed the required services. The third mechanism is a requirement

for medical review of a portion of claims to detect underservice and

unnecessary episodes. For fiscal year 2001, HCFA has targeted just over 2

percent of home health claims for review, even though provider incentives

will be different than under previous payment methods. HCFA has

characterized its planned utilization monitoring and medical review

activities as similar to reviews conducted before the implementation of the

PPS, when the payment incentives were different.

It is unclear whether these controls, in combination with HCFA’s planned

activities and continued anti-fraud-and-abuse activities, will be sufficient to

counter incentives to provide fewer services within an episode and to

generate additional episodes, especially given agencies’ historical ability to

quickly respond to such incentives. Furthermore, the lack of standard

definitions of appropriate home health care will confound efforts to

identify instances of excessive use or inadequate care.

Conclusions The fluctuations in Medicare home health use suggest that agencies will

continue to respond to their payment and policy environments by changing

the volume and mix of the services they provide to Medicare beneficiaries.

Indeed, the PPS is based on the premise that appropriate financial

incentives cause HHAs to deliver services more efficiently. Previously, we

expressed concern that the wide, unexplained variation in service use and

inadequate patient-level payment adjusters could result in substantial

underpayments to some agencies and for some types of patients and

overpayments for others under a PPS based on national average costs.
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Page 27 GAO/HEHS-00-176 Recent Changes in Home Health Care

After examining HHA responses to the IPS and the basis for Medicare’s

PPS, we continue to believe that additional protections for beneficiaries,

agencies, and the program need to be incorporated into the payment

mechanism through a risk-sharing arrangement that limits the aggregate

losses or gains for each agency. Risk sharing would insulate agencies from

extreme financial losses, protect beneficiaries from impaired access or

inadequate care, and shield Medicare from burgeoning expenditures. HCFA

disagreed with our recommendation that it implement a risk-sharing

mechanism in conjunction with the PPS. HCFA argued that doing so would

complicate the administration of the payment system and that the

mechanism was not needed because certain features of the PPS, such as

the case mix adjustment mechanism and the potential for unlimited

episodes, would adequately protect beneficiaries and the program. We

acknowledge HCFA’s concerns that a risk-sharing arrangement adds

administrative complexity to the PPS, but believe that the uncertainties

about appropriate payment levels, as well as the lack of consensus

regarding what constitutes adequate treatment, require this payment

system modification. Further, we continue to have reservations about the

adequacy of some of the features of the PPS that HCFA believes will offer

protections from any unintended consequences of the new payment

system. A risk-sharing arrangement would minimize excessive payments to

some agencies and extreme losses for others, and it would moderate

incentives to underserve beneficiaries and inappropriately change

treatment patterns. Given the number of agencies and beneficiaries

affected, and the potential effect on Medicare expenditures, we believe the

added complexity engendered by risk sharing is warranted.

As service use changes in response to the PPS, we and HCFA agree that it

will be important to refine the payment system. The rates will need to be

evaluated to ensure that HHAs are not overpaid relative to the services

provided. The Secretary of Health and Human Services’ report, due by April

1, 2001, that will evaluate the need for a 15-percent payment reduction will

be an important first step in assessing the adequacy of current payment

rates. Ongoing refinements of the payment systemincluding

reconsideration of the episode length, the average payment rate, and the

patient-level payment adjusterswill continue to be needed, to account for

changes in HHA service delivery and beneficiary needs.

Even as the system is improved, however, payment mechanisms alone may

not be adequate to ensure appropriate service use. As we previously

recommended and as was agreed to by HCFA, sufficient resources must be

devoted to ensuring that any service reduction within episodes is
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Page 28 GAO/HEHS-00-176 Recent Changes in Home Health Care

appropriate and that each episode of care a beneficiary receives is

medically necessary.

Matter for

Congressional

Consideration

Given the uncertainties for beneficiaries, HHAs, and the Medicare program

associated with the home health agency PPS, we believe that the Congress

should consider requiring HCFA to implement a risk-sharing arrangement

under the PPS to moderate excessive HHA gains or losses as soon as

practicable. We believe 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.

Agency Comments In commenting on a draft of this report, HCFA found our analysis useful in

understanding trends in home health utilization and payment trends under

the IPS. HCFA concurred that many home health agencies may have overreacted to the IPS by curtailing service provision after 1997 more than was

necessary. HCFA also agreed that refinements to the PPS will be an ongoing

activity based on HHA behavior and reiterated its commitment to monitor

provider responses under the new system to ensure beneficiary access to

needed services. While HCFA agrees with us that risk sharing in

conjunction with the PPS is one option to moderate inappropriate

behavior, it continues to have reservations about implementing such a

provision. HCFA also provided technical comments, which we

incorporated in the final report as appropriate.

HCFA raised concerns about a risk-sharing provision. First, it believes that

a risk-sharing arrangement that limits HHA profits or losses through a

comparison of Medicare payments with Medicare costs undermines the

incentives of the PPS. HCFA said that this would encourage HHAs to

increase their costs—potentially in ways unrelated to patient care—thus

rewarding provider inefficiency. HCFA also said that costs are not the best

measure of whether patients’ service needs are being met. Further, it is

concerned that relying on costs in the payment system perpetuates the

need for an elaborate cost settlement reconciliation system. Because of

these concerns, HCFA prefers a visit-based measure of utilization to

correct inappropriate behavior. HCFA is also concerned that HHAs need

time to adapt to the new payment system and therefore that it would be

premature to immediately implement risk sharing before HHA responses to

the PPS can be evaluated and before PPS adjustments, if any, are made on
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Page 29 GAO/HEHS-00-176 Recent Changes in Home Health Care

the basis of observed behavior. Further, HCFA believes that HHAs compete

for patients on the basis of service delivery and that competition among

HHAs will be a primary driver of agency behavior and performance under

the PPS.

We agree with HCFA that a visit-based approach to moderating

inappropriate behavior would improve the current PPS, but we continue to

believe that a risk-sharing arrangement based on a comparison of Medicare

payments and costs is preferable. First, it offers HHAs more flexibility than

a visit-based approach with respect to the services they provide under the

PPS, because HHAs could balance visit costs, mix, and volume in meeting

beneficiary care needs and keeping their costs in line with Medicare

payments. Second, because cost-based risk sharing depends on HHA cost

data, using this information in conjunction with the PPS could improve

cost reporting data, which will be critical to evaluating the PPS. We

acknowledge that a risk-sharing arrangement based on agency costs

lessens the incentive for an HHA to cut its costs, but we believe that it

could be designed in a way that would offset any incentive to maintain high

costs. For example, if risk sharing always required HHAs to incur some

portion of their losses, agencies would continue to have an incentive to

lower their costs. Further, HCFA does not acknowledge the protection

afforded by a risk-sharing approach against Medicare overpayments for

episodes or Medicare expenditure growth due to increased numbers of

episodes, which we believe are important justifications for this payment

modification. Finally, we believe that risk sharing is an important tool in

moderating the incentive HHAs can have under the PPS to stint on services

and to protect Medicare patients from underservice.

We believe that risk sharing should be implemented as soon as practicable

because our analyses of recent and historical utilization and spending data

indicate that agencies respond dramatically and quickly, but not necessarily

appropriately, to changes in Medicare payment policies. In its comments,

HCFA noted the rapid growth in utilization between 1990 and 1997, and

agencies’ overreaction to the IPS between 1997 and 1999. Similarly, we

believe that agencies may immediately respond to the incentives of the PPS

in ways that may jeopardize beneficiary access to services or quality of care

and increase program expenditures.

We agree with HCFA that agency competition for patients and medical

review and monitoring efforts may deter HHAs from underserving

beneficiaries. However, we remain concerned that these features may be

insufficient to counter the financial incentives to stint on services within an
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Page 30 GAO/HEHS-00-176 Recent Changes in Home Health Care

episode and to provide unnecessary episodes. Further, relying on

competition to enforce appropriate agency behavior may place unrealistic

expectations on a vulnerable population to have information about

agencies’ provision of services and assumes that beneficiaries have choices

in selecting a provider, which is not necessarily true for all beneficiaries,

particularly those located in rural areas. Given the potential limitations of

competition and medical review in guarding against potential underservice,

risk sharing could provide HCFA with an additional tool to protect

Medicare’s beneficiaries.

HCFA’s comments are included as appendix IV.

We are sending copies of this report to the Honorable Nancy-Ann Min

DeParle, Administrator of HCFA, and interested congressional committees.

We will also make copies available to others upon request.

If you have any questions about this report, please call me or Laura

Dummit, Associate Director, at (202) 512-7119. Major contributors included

Carol Carter, Jean Chung, James E. Mathews, Kara Sokol, and Wayne

Turowski.

Sincerely yours,

William J. Scanlon

Director, Health Financing and

Public Health Issues
Page 31 GAO/HEHS-00-176 Recent Changes in Home Health Care
Page 32 GAO/HEHS-00-176 Recent Changes in Home Health Care

Appendix I

Scope and Methodology ApApenednxidexiIs

We conducted our analyses using Medicare provider, claims, and

beneficiary files for calendar years 1994, 1996, and 1999. We chose 1994 as

our starting point because its patterns of utilization and spending were

used to set the interim payment system (IPS) payment limits. We analyzed

1996 data because the 1997 home health claims data include both pre-IPS

and IPS claims. We did not analyze 1998 data, since HCFA had welldocumented problems constructing this claims file. We thus selected 1999

claims data to reflect utilization patterns under the IPS.

Agency ownership and location were extracted from HCFA’s end-of-year

Provider of Services files for 1994, 1996, and 1999. We included in our

analysis only those providers that were listed as active in each year.

We used 100 percent of Medicare claims from HCFA’s home health

Standard Analytical Files (SAF), final action claims, for 1994, 1996, and

1999 to analyze patterns and trends in home health utilization. These files

were edited in three ways. First, the claims file for each year was

compared with the Medicare corresponding Denominator File to exclude

claims for beneficiaries who had enrolled in a Medicare managed care plan

at any point in the year. Second, the HHAs included in the claims data were

compared with the Provider of Service files for each year, and only claims

from agencies participating in Medicare were included in our analyses.

Last, we excluded aberrant values for service counts.

We used a 1999 claims file that was generated in May 2000, although HCFA’s

SAFs are usually not complete until June of the year following the claims

year. After analyzing the distribution of claims by month, we concluded

that the file was roughly 95 percent complete. Subsequent comparisons

with HCFA’s projections indicated that our estimate of the number of

beneficiaries receiving home health services in 1999 was 4 percent lower

than HCFA’s final total. As a result, numbers presented in this report are

likely to slightly understate actual utilization in 1999 and may slightly

overstate the declines reported between 1996 and 1999.

In 1999, HCFA implemented a policy change that affected how home health

agencies reported the units of service when submitting claims for payment

to Medicare. Until July 1, 1999, units represented the number of visits;

starting October 1, units represented the number of 15-minute increments

making up the visit; and between July 1 and September 30, both counting

methods were used on the claims. We incorporated these policy changes in

our calculation of units from the claims files and verified our calculations

by analyzing the monthly distribution of visits during 1999.
Appendix I

Scope and Methodology

Page 33 GAO/HEHS-00-176 Recent Changes in Home Health Care

For our analysis of changes in the number of Medicare beneficiaries using

home health services, we controlled for changes in Medicare enrollment by

using home health users per 1,000 Medicare fee-for-service (FFS)

beneficiaries. Our analysis only reflects Medicare FFS enrollees because

HCFA data on service use exclude those enrolled in managed care plans

and because the payment methods of interest in our analysis only apply to

those receiving home health care under FFS. In analyzing geographic

characteristics, we used the beneficiary’s residence, reflecting HCFA’s

decision to pay agencies on the basis of where the patient resides, not

where the agency is located. Because beneficiaries may receive care from

multiple agencies, which could be of different types, we counted each

unique beneficiary/agency combination as a separate home health user

when analyzing service use by agency characteristics. As a result, the user

counts included in our analyses of HHA characteristics are roughly 10

percent higher than those included in the beneficiary-level data.

To examine the response of users, agencies, and areas of high utilization to

policy changes, we categorized beneficiaries, HHAs, and states as low-use,

medium-use, and high-use according to the average number of visits per

user in 1996. The low- and high-use cutoff points for beneficiaries and

agencies were set such that roughly 20 percent of the observations in 1996

fell into each category, with the remaining group defined as medium-use.

High-use states were defined as those with utilization 20 percent or more

above the national mean.

To control for agencies opening and closing between 1994 and 1999, we

created a cohort of agencies open in all 3 years and examined them

separately. Their utilization trends were similar to those included in this

report.

Our analysis of HCFA’s proposed PPS was based on the Federal Register

final rule1 and briefings with HCFA officials.

1

“Medicare Program: Prospective Payment System for Home Health Agencies,” final rule,

Federal Register, Vol. 65, No. 128 (July 3, 2000).
Page 34 GAO/HEHS-00-176 Recent Changes in Home Health Care

Appendix II

Medicare Home Health Users, by State of

Residence, Calendar Years 1994, 1996, and

1999 ApendxiI

State

Medicare home health

users per 1,000 FFS

enrollees Percentage change

1994 1996 1999 1994-96 1996-99 1994-99

Alabama 113 123 77 9.1 -37.9 -32.2

Alaska 50 67 48 34.6 -29.0 -4.4

Arizona 64 75 54 17.1 -28.3 -16.0

Arkansas 93 103 70 10.8 -32.6 -25.3

California 93 107 86 15.0 -20.2 -8.3

Colorado 86 95 75 11.4 -21.4 -12.5

Connecticut 102 119 106 16.4 -10.9 3.6

Delaware 82 90 70 10.7 -22.3 -14.0

District of Columbia 71 86 72 20.1 -15.6 1.4

Florida 112 121 92 7.7 -24.1 -18.2

Georgia 104 108 72 4.2 -33.1 -30.2

Hawaii 38 42 34 10.9 -18.7 -9.9

Idaho 78 95 64 22.3 -32.7 -17.7

Illinois 87 100 78 15.8 -22.2 -9.9

Indiana 73 85 60 16.8 -29.6 -17.7

Iowa 63 76 56 19.4 -26.3 -11.9

Kansas 66 83 54 25.5 -34.1 -17.2

Kentucky 87 105 81 20.5 -22.8 -7.0

Louisiana 131 151 109 15.2 -28.1 -17.1

Maine 94 111 94 18.4 -15.3 0.3

Maryland 75 85 75 13.2 -11.9 -0.3

Massachusetts 121 142 115 17.0 -18.5 -4.7

Michigan 84 96 86 13.7 -10.0 2.4

Minnesota 45 55 41 22.3 -25.5 -8.8

Mississippi 135 152 103 12.3 -32.2 -23.9

Missouri 100 113 84 12.7 -25.8 -16.4

Montana 68 81 63 20.6 -22.9 -7.0

Nebraska 61 74 60 21.0 -19.5 -2.6

Nevada 71 81 63 15.6 -22.3 -10.2

New Hampshire 98 111 89 13.2 -19.9 -9.3

New Jersey 74 89 84 20.9 -5.3 14.5

New Mexico 78 93 71 18.5 -23.1 -8.9

New York 72 85 81 18.8 -4.7 13.2
Appendix II

Medicare Home Health Users, by State of

Residence, Calendar Years 1994, 1996, and

1999

Page 35 GAO/HEHS-00-176 Recent Changes in Home Health Care

Source: GAO analysis of HCFA’s home health claims data and beneficiary enrollment data for 1994,

1996, and 1999.

North Carolina 82 96 78 17.4 -19.0 -4.9

North Dakota 66 76 63 15.9 -17.5 -4.3

Ohio 76 90 71 19.1 -20.7 -5.6

Oklahoma 104 129 88 23.9 -31.3 -14.9

Oregon 75 79 65 5.4 -17.5 -13.0

Pennsylvania 98 113 101 16.0 -11.2 3.1

Rhode Island 104 125 109 20.7 -12.9 5.2

South Carolina 82 97 75 17.9 -22.7 -8.8

South Dakota 55 71 54 30.1 -24.6 -1.9

Tennessee 127 131 86 2.9 -34.4 -32.5

Texas 102 125 84 23.4 -32.7 -17.0

Utah 88 96 71 9.7 -25.8 -18.6

Vermont 130 138 114 6.2 -17.6 -12.5

Virginia 76 90 76 18.2 -16.0 -0.7

Washington 70 77 63 10.1 -17.7 -9.4

West Virginia 72 88 64 20.8 -27.4 -12.2

Wisconsin 55 61 51 10.7 -17.0 -8.1

Wyoming 75 86 58 15.2 -33.4 -23.2

Nationwide 89 102 80 15.0 -22.0 -10.3

(Continued From Previous Page)

State

Medicare home health

users per 1,000 FFS

enrollees Percentage change

1994 1996 1999 1994-96 1996-99 1994-99
Page 36 GAO/HEHS-00-176 Recent Changes in Home Health Care

Appendix III

Average Visits per Medicare Home Health

User, by State of Residence, Calendar Years

1994, 1996, and 1999 ApendxiI

State

Visits per person served Percentage change

1994 1996 1999 1994-96 1996-99 1994-99

Alabama 112 121 63 8.0 -48.5 -44.4

Alaska 43 48 23 11.3 -51.5 -46.0

Arizona 55 60 29 8.0 -51.7 -47.8

Arkansas 75 79 45 5.6 -43.5 -40.4

California 47 53 31 11.5 -41.1 -34.4

Colorado 60 70 39 16.4 -44.9 -35.9

Connecticut 46 55 40 19.3 -27.7 -13.8

Delaware 46 50 31 9.2 -38.7 -33.0

District of Columbia 42 51 42 20.7 -16.3 1.0

Florida 75 79 43 4.8 -45.7 -43.1

Georgia 103 105 52 2.5 -50.6 -49.4

Hawaii 44 47 25 6.0 -45.9 -42.6

Idaho 55 64 30 17.6 -54.1 -46.0

Illinois 51 54 32 5.0 -40.2 -37.2

Indiana 72 77 37 6.6 -52.5 -49.4

Iowa 45 49 27 7.0 -44.8 -40.9

Kansas 56 63 32 12.5 -49.5 -43.2

Kentucky 65 71 48 9.3 -32.7 -26.4

Louisiana 126 162 95 28.6 -41.0 -24.1

Maine 59 65 39 10.3 -39.2 -32.9

Maryland 37 38 29 2.9 -24.2 -22.0

Massachusetts 75 85 46 13.4 -45.1 -37.8

Michigan 45 51 34 13.5 -34.3 -25.5

Minnesota 40 47 27 19.4 -43.0 -31.9

Mississippi 113 127 80 13.1 -37.6 -29.4

Missouri 50 55 32 10.1 -40.8 -34.8

Montana 50 53 31 5.8 -42.1 -38.7

Nebraska 42 45 28 7.5 -38.6 -34.0

Nevada 68 66 39 -2.6 -40.9 -42.4

New Hampshire 51 59 38 16.2 -34.9 -24.4

New Jersey 40 44 31 10.9 -29.8 -22.1

New Mexico 57 75 36 30.0 -51.3 -36.7

New York 44 51 36 15.6 -30.2 -19.4

North Carolina 57 56 37 -3.3 -34.3 -36.5

North Dakota 44 44 27 1.4 -39.0 -38.1
Appendix III

Average Visits per Medicare Home Health

User, by State of Residence, Calendar Years

1994, 1996, and 1999

Page 37 GAO/HEHS-00-176 Recent Changes in Home Health Care

Source: GAO analysis of HCFA’s home health claims data and beneficiary enrollment data for 1994,

1996, and 1999.

Ohio 51 53 32 4.4 -38.7 -36.0

Oklahoma 105 144 72 36.9 -50.0 -31.5

Oregon 39 37 22 -5.7 -41.1 -44.5

Pennsylvania 43 47 32 10.0 -32.2 -25.3

Rhode Island 43 52 34 20.2 -34.5 -21.3

South Carolina 67 66 41 -1.5 -38.6 -39.6

South Dakota 39 45 26 15.9 -43.0 -33.9

Tennessee 115 114 67 -1.4 -41.1 -41.9

Texas 98 132 64 35.2 -51.8 -34.8

Utah 96 113 55 17.8 -51.0 -42.3

Vermont 56 67 44 20.3 -34.7 -21.5

Virginia 49 56 39 15.2 -30.5 -20.0

Washington 39 35 23 -9.5 -34.4 -40.7

West Virginia 50 58 34 15.7 -40.9 -31.6

Wisconsin 41 44 29 7.2 -33.0 -28.2

Wyoming 73 75 37 2.3 -50.5 -49.4

Nationwide 65 73 41 12.7 -43.6 -36.5

(Continued From Previous Page)

State

Visits per person served Percentage change

1994 1996 1999 1994-96 1996-99 1994-99
Page 38 GAO/HEHS-00-176 Recent Changes in Home Health Care

Appendix IV

Comments From the Health Care Financing

Administration ApendxiIV
Appendix IV

Comments From the Health Care Financing

Administration

Page 39 GAO/HEHS-00-176 Recent Changes in Home Health Care
Appendix IV

Comments From the Health Care Financing

Administration

Page 40 GAO/HEHS-00-176 Recent Changes in Home Health Care

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