The Medicare statute divides benefits into two parts: (1) “hospital insurance,” or part A, which covers inpatient hospital, skilled nursing facility, hospice, and certain home health care services, and (2) “supplementary medical insurance,” or part B, which covers physician and outpatient hospital services, diagnostic tests, and ambulance and other medical services and supplies. Part B can also cover home health services under certain conditions. In 1996, Medicare paid approximately $18 billion for both part A and part B home health services. By fiscal year 1998, Medicare’s home health spending is estimated to total nearly $22 billion, representing a 700-percent increase from 1989 when spending was $2.7 billion. During this period, coverage requirements changed so that more beneficiaries qualified for home health services. In addition, advances in medical technologies and changes in practice patterns resulted in more beneficiaries needing these services. The number of home health agencies certified to care for Medicare beneficiaries has also grown rapidly since 1989—from 5,700 to more than 10,000 in September 1997. part-time or intermittent basis. Required medical supplies are also covered. Services must be furnished under a plan of care prescribed and periodically reviewed by a physician. As long as the care is reasonable and necessary, there are no limits on the number of visits or length of coverage. Medicare does not require copayments or deductibles for home health care except for durable medical equipment. HCFA, the agency within HHS responsible for administering Medicare, uses six regional claims processing contractors (which are insurance companies) to process and pay home health claims. These contractors—called regional home health intermediaries (RHHI)—process the claims submitted by the 10,000-strong home health agencies, which are paid on the basis of the costs they incur up to predetermined cost limits. RHHIs are responsible for ensuring that Medicare does not pay home health claims when beneficiaries do not meet the Medicare home health criteria, when services claimed are not reasonable or necessary, or when the volume of services exceeds the level called for in an approved plan of treatment. They carry out these responsibilities through medical reviews of claims. HHS’ Office of the Inspector General has emphasized the importance of medical reviews. In the Office’s sampling of claims—which included not just home health but all Medicare services—it found that 99 percent of the improper payments the Office identified appeared to be correct on the surface and were detected only through medical record reviews. their reviews on providers that have unexplained utilization patterns. A similar kind of analysis led our Office of Special Investigations to identify the case being discussed today. Since Medicare’s inception, the home health benefit has undergone several changes in which coverage criteria and their enforcement have alternately tightened and relaxed. The net effect of the changes was that home health care became available to more beneficiaries, for less acute conditions, and for longer periods of time. The benefit was legislatively liberalized in 1980 when limits on the number of services and cost-sharing requirements were eliminated. When prospective payment for hospital services was initiated in 1983, the use of home health services was expected to increase significantly because of incentives for hospitals to discharge patients more quickly. However, HCFA’s relatively stringent interpretation of coverage criteria and emphasis on medical record review kept home health growth in check. Then in 1989, coverage rules relaxed following a court case brought in 1988 that challenged HCFA’s interpretation that individuals had to satisfy both the part-time and intermittent criteria to qualify for the home health benefit (Duggan v. Bowen). HCFA was obliged to revise its coverage guidelines to allow individuals to qualify by satisfying either criterion, which, as we reported in 1996, enabled home health agencies to increase the frequency of home visits. The requirements were also changed so that patients qualified for skilled observation by a nurse or therapist if a reasonable potential for complications or possible need to change treatment existed. The skilled observation, in turn, qualified the beneficiary for home health aide visits. The benefit also allowed maintenance therapy when therapy services were required to simply maintain function; previously, patients had to show improvement from such services to be covered. Medicare Home Health Benefit: Congressional and HCFA Actions Begin to Address Chronic Oversight Weaknesses An individual does not have to be bedridden. . . . the condition of these patients should be such that there exists a normal inability to leave home, and, consequently, leaving their homes would require a considerable and taxing effort. If the patient does in fact leave the home, the patient may nevertheless be considered homebound if the absences from the home are infrequent or for periods of relatively short duration or are attributable to the need to receive medical treatment. In our interviews for the 1996 study, HCFA and intermediary officials said that few denials were made on the basis that the beneficiary was not homebound. In particular, the “infrequent” and “short duration” language qualifying permissible absences from the home would likely result in the reversal of homebound-criterion-based denials at the reconsideration or appeals level. My colleague’s statement on improper activities by Mid-Delta Home Health describes patients whose eligibility on the basis of being homebound was highly questionable. The relationship between the funding levels for payment safeguard activities and the proportion of claims reviewed helps explain the weak oversight of Medicare’s home health benefit in the 1990s. In 1985, legislation more than doubled funding for contractors to conduct claims reviews, enabling intermediaries to review over 60 percent of the home health claims processed in 1986 and 1987. By 1995, however, when payment safeguard funding for medical review of all Medicare-covered part A services had substantially declined (from $61 million in 1989 to $33 million in 1995), RHHIs reviewed about 1 percent of home health claims. As a result of decreased review, agencies were less likely to be caught if they abused the home health benefit. During this period, however, the number of home health agencies participating in Medicare increased by more than a third, and the volume of home health claims processed more than tripled. In January 1998, HCFA announced an increase in the number of claims reviews to about 1.3 percent—still far short of the peak levels of the mid-1980s. efforts, and HCFA has not routinely given guidance on best practices. For example, HCFA has not issued any guidance suggesting that claims for unusually high dollar amounts per beneficiary trigger prepayment reviews. In a recent study of home health claims reviews, we conducted a test of 80 high-dollar claims at one RHHI. The RHHI had initially processed and approved the claims without review but denied them subsequent to our test. The following examples illustrate the importance of careful prepayment review: Of $18,132 in charges for the care of a beneficiary’s decubitus ulcer (open wound) for 30 days, more than a third ($6,483)—including the charges for almost half of the skilled nursing visits (four per day)—were for services not considered medically necessary. Of $4,100 in charges for supplies related to care provided over 4 weeks, 31 percent were denied because they were not adequately documented in the medical records or should have been included as part of the nurse’s visit and not billed separately. About half the amount denied was for supplies never received by the beneficiary. Of $17,953 in charges for medical supplies related to the treatment of a beneficiary’s salivary gland disease, the intermediary denied the entire amount because the medical documentation was not consistent with the itemized list of supplies provided, thus failing to support the claims for supplies the agency billed for. Nine of the 80 claims tested—representing nearly half ($61,250) of the total dollars disapproved—were denied because the home health agency did not submit any of the medical records the intermediary had requested for the review. would have increased before the recent infusion of new payment safeguard funds through HIPAA. Cost-report audits help identify providers’ attempts to shift inappropriate or unnecessary costs to the program. Providers paid under Medicare’s cost-based reimbursement systems—including home health agencies—are reimbursed not on the basis of a fee schedule or the charge for a service but on the basis of the actual cost to provide the service, subject to certain limits. RHHIs reimburse cost providers in several steps, including making periodic interim payments based on the provider’s historical costs and current cost estimates, determining an end of the year tentative settlement based on a report the provider submits that details operating costs and the share related to the provision of Medicare services, and—in relatively few cases—conducting a detailed review (audit) of the cost report to determine the appropriate final settlement amounts. Between 1991 and 1996, the chances, on average, that a provider’s cost report would be subject to an audit fell from about 1 in 6 to about 1 in 13. Much of our statement on Mid-Delta Home Health centers on improperly claimed and reimbursed costs included in cost reports that had not received an in-depth audit until our investigation prompted a closer look. In January 1998, HCFA announced its plans to double the number of comprehensive home health agency audits it performs each year—from about 900 to 1,800. care—required at least every 62 days—are not routinely reviewed by an independent party, such as Medicare’s RHHIs. In our December 1997 report on the home health survey and certification process, we noted that becoming a Medicare-certified home health agency has been too easy, particularly in light of the number of problem agencies identified in various studies in recent years. Until recently, there was little screening of those seeking Medicare certification. We found that the initial survey of an applicant occurred too soon after the agency began operating, offering little assurance that the agency was providing or capable of providing quality care.