Changes in Regional Variation of Medicare Home Health Care Utilization and Service Mix for Patients Undergoing Major Orthopedic Procedures in Response to Changes in Reimbursement Policy

Between 1986 and 1996, there was dramatic growth in Medicare home health (HH) utilization, increasing from $2.6 billion per year (3 percent of Medicare Part A expenditures) to $17.5 billion per year (13 percent of Part A expenditures). This resulted from growth in both the annual number of beneficiaries served (increasing from 1.6 to 3.6 million) and the average number of annual visits per beneficiary (increasing from 23 to 79 visits per beneficiary) (105th Congress United States of America 1998). At the same time it was noted that there was significant regional variation in utilization of HH services (Kenney and Dubay 1992; Welch, Wennberg, and Welch 1996; McCall et al. 2001;). Welch, Wennberg, and Welch (1996) reported greater variation in utilization of HH services than either skilled nursing days, hospital days, physician services, or hospital admissions, leading the authors to conclude that there was no “national consensus on whether and, if so, how often to use HH care.” The significant regional variation raised concern within Congress and at the Office of Inspector General (OIG) that much of this regional variation could be attributable to either inefficient or fraudulent practices. Beginning July 1995, the OIG working with other agencies initiated Operation Restore Trust, a five-state (California, Florida, Illinois, New York, and Texas) audit that documented examples of fraud and abuse (Health Care Financing Administration 1995). The program was expanded nationwide in 1997. In addition to these regulatory efforts, Congress passed the Balanced Budget Act of 1997, and the Centers for Medicare and Medicaid Services (CMS) implemented the HH Interim Payment System (IPS) on October 1, 1997 (with refinements starting October 1, 1998), and the HH Prospective Payment System (PPS) on October 1, 2000 (105th Congress United States of America 1997). The IPS reduced the aggregate per-visit limit on payments from 112 percent of national mean historical costs to 105 percent of the national median costs. As per-visit limits do little to control the growth in number of visits per beneficiary, per-beneficiary limits were also implemented. These per-beneficiary limits were partly designed to also reduce regional variation (105th Congress United States of America 1998). This was accomplished by blending agencies' historical mean per-beneficiary cost with standardized regional per-beneficiary costs, thereby driving limits toward regional means. (See Table S1 in the appendix for details.) These policies were phased-in based on each agency's fiscal year end. Under the PPS, implemented on October 1, 2000, HH care was organized into 60-day episodes of care for HH resource groups (HHRGs) (Health Care Financing Administration 2000). The Congressional Medicare Payment Advisory Commission (MEDPAC) and several independent groups have described reductions in HH care after implementation of the IPS and PPS policies (MEDPAC 1999; McCall et al. 2001, 2003a, 2003b; Komisar 2002; Schwartz et al. 2002; Liu, Long, and Dowling 2003; Murkofsky et al. 2003; Murtaugh et al. 2003; Spector, Cohen, and Pesis-Katz 2004). In our prior analyses focusing on postacute care HH patients, we reported the reduction in HH utilization for patients undergoing major orthopedic surgery (FitzGerald et al. 2006). We expand upon these prior analyses to examine how these changes in reimbursement policy affected regional variation over time, as well as how the reimbursement changes affected the mix of skilled HH services delivered.