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Health Tracking

TRENDS

Trends In Medicare Home Health Care Use: 1997–2001

Abstract

 
The Balanced Budget Act of 1997 mandated a major overhaul in Medicare payment for home health care with an interim payment system (IPS) preceding a prospective payment system (PPS). This study extends an earlier analysis of the impact of the IPS to determine whether home health use and spending trends changed after the introduction of the PPS. The rapid decline in the incidence of use and visits per user under the IPS slowed in its final year and then picked up again in the first year of the PPS. In addition, average payment per visit increased sharply under the PPS. Little is known about the impact of continued large reductions in home health services since 1999.

Although large annual increases in Medicare spending focused attention on the home health benefit, other factors contributed to policymakers’ decision to overhaul the payment system. More than half of the growth in services provided between 1991 and 1994 was attributable to people who received 200 or more visits per year, with longer episodes containing a higher proportion of home health aide visits. In addition, the number of home health users per 1,000 beneficiaries and average number of visits provided varied enormously from state to state.² Analysts questioned whether all of the services provided were consistent with what was intended to be a skilled-care benefit.

Payment changes occurred in two stages following the passage of the BBA. An interim payment system (IPS) was phased in beginning in October 1997, while the prospective payment system (PPS) mandated by the BBA was under development. Although retrospective cost-based payment remained in place, the IPS gave home health agencies a strong incentive to reduce Medicare beneficiaries’ number of visits. It did so primarily by setting an aggregate cap on how much an agency would be reimbursed. The cap was calculated by multiplying the number of beneficiaries served by the average cost per beneficiary from a time period several years earlier, when the average number of visits provided to each home health beneficiary was considerably lower.

Impact of the IPS

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
A steep decline in use and Medicare spending followed the adoption of the IPS and other policy changes implemented about the same time. A study comparing federal fiscal year (FFY) 1997 (the year before the IPS was phased in) with FFY 1999 (the first full year of the IPS) found a 21 percent decline in the rate of use per 1,000 beneficiaries, a 41 percent decline in the average number of visits per home health user, and a 52 percent decline in program payments, which were a little over $16 billion in 1997 and a little under $8 billion in 1999.³ Several early studies of the IPS suggested that a large proportion of home health agencies had changed their admission and treatment practices, which raised concern about possible reductions in care for patients with severe chronic conditions.⁴

The most comprehensive IPS analysis to date examined whether the IPS (1) had differential impacts depending on beneficiary characteristics, (2) changed home health beneficiaries’ outcomes and satisfaction with care, and (3) changed postacute care utilization patterns and the outcomes of patients who were discharged from hospitals.⁵ The investigators found that reductions in the incidence of home health use were larger for beneficiaries age eighty-five or older, those living in states with high historical Medicare home health use, and those who were eligible for both Medicare and Medicaid (dual eligibles). They also found that groups with higher-than-average home health use before the IPS experienced greater decreases in the number of services provided after the IPS was introduced.⁶

When the investigators compared home health outcomes in FFY 1997 with those in FFY 1999, they found no consistent impact of the IPS on the incidence of adverse events such as hospitalization, emergency department use, and mortality; nor was there a differential impact on groups with greater reductions in home health services after the IPS.⁷ Home health outcomes such as improvement in activities of daily living (ADLs) and in clinical symptoms, as well as beneficiaries’ satisfaction with care, also did not appear to be harmed.⁸ Finally, there was little evidence that post-acute care had shifted to other settings or that the IPS had increased adverse outcomes for beneficiaries receiving no or different types of postacute care.⁹ In sum, despite the large reduction in services provided by home health agencies, this comprehensive study of the impact of the IPS found little evidence that beneficiary outcomes had changed.

Implementation of the PPS

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
The home health PPS was implemented 1 October 2000, with a fixed-price payment system replacing fee-for-service reimbursement. Under such payment systems, providers have financial incentives to operate more efficiently as well as to stint on services, shift some services to other settings, upcode diagnoses, and engage in risk selection.¹⁰ Only limited information is available on the home health benefit following the implementation of the PPS.¹¹

This paper describes recent changes in beneficiaries’ use of and Medicare’s spending on home health care. It builds on an earlier study that analyzed changes in access to and use of the benefit as well as federal spending on Medicare home health care during 1997, 1998, and 1999.¹² We extend the analysis to include 2000 and 2001, to determine the extent to which the PPS altered patterns of use and spending.

Eligibility And Coverage

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
Home health eligibility and coverage requirements generally have remained the same for the past decade, although they have been clarified over time. To be eligible for home health services, beneficiaries must be "home-bound," need "intermittent" skilled nursing or therapy services, and be under the care of a physician who prescribes their plan of care. People needing only personal care do not qualify for the benefit. For those who do qualify, Medicare pays for care from any of six home health service disciplines: skilled nursing, physical therapy, occupational therapy, speech therapy, medical social work, and home health aide. There is no copayment or deductible.

The home health PPS began 1 October 2000. For each sixty-day "episode" of care provided to a Medicare beneficiary, agencies are paid a fixed amount regardless of the number of services delivered. (Patients receiving fewer than five visits during an episode are an exception; they are reimbursed per visit. There also is an outlier payment mechanism for very high cost episodes.) There is no cap on the number of episodes of care a beneficiary may receive. The payment amount for each sixty-day episode is determined in large part by the beneficiary’s clinical and functional severity at the time of home health admission as well as the receipt of physical therapy. This information is used to classify beneficiaries into one of eighty home health resource groups (HHRGs), with the highest HHRG payment amount more than five times the lowest.

Study Methods

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
This study uses the same methods as the earlier study did, to directly compare the findings for 2000 and 2001 with those of the previous three years. Specifically, we combined Centers for Medicare and Medicaid Services (CMS) claims data from the 1 percent sample of Medicare home health beneficiaries with information from eligibility files. The study population is all Medicare Part A fee-for-service beneficiaries. All home health users from the 1 percent file and a random sample of nonusers are included in the analysis. A home health user is defined as any person with a home health claim during the applicable time period. The number of visits provided to a beneficiary during a year is the sum of the number recorded on the beneficiary’s home health claims for each of the six home health disciplines. Home health payments are the claims payment amounts. We made minor adjustments in the FFY 2001 file to account for billing changes associated with the PPS.¹³

The sample sizes we analyzed were generally very large. The magnitude of differences should be the main consideration when comparing the yearly estimates for all Medicare beneficiaries and all home health users, because even trivial differences are significant at conventional levels. While the sample sizes for most of the subgroups (for example, diagnosis groups) analyzed also are large, estimates that are close in magnitude might not be statistically significant. We did test the significance of all differences in home health user estimates reported in the text, and all were statistically significant at the p < .05 level (two-tail test).

Study Results

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
Use of the Medicare home health benefit declined during the years of the IPS and continued to decline after the introduction of the PPS (Exhibit 1). FFY 1997 was the last year before the payment changes mandated by the BBA kicked in. The IPS was phased in during FFY 1998 and remained in place through FFY 2000. The PPS was introduced 1 October 2000, the beginning of FFY 2001.

The annual number of visits provided to home health users declined even more precipitously. Between 1997 and 2000 it dropped by almost half (Exhibit 1). Average visits per user dropped 24 percent from 2000 to 2001. For the entire time period, there was a decline of 60 percent in average annual visits per home health beneficiary.¹⁴

These declines resulted in a large reduction in Medicare payments during the period prior to the PPS, when payment was tied to the number of services provided. In 2001, following the introduction of fixed payment rates for each sixty-day episode of care, Medicare spending increased for the first time since 1997. While total spending in 2001 was less than half of what it was in 1997, payment per home health visit in nominal dollars increased 51 percent from 2000 to 2001 (Exhibit 1).

Visits by discipline There were large changes over the five-year time period in the mix of visits provided to home health users (Exhibit 2). Overall, the average number of visits provided by skilled workers declined by 42 percent, while home health aide visits dropped by 79 percent. Physical therapy visits were an exception to this trend; the average number remained relatively stable over the five years.

Payment per visit In Exhibit 3 we adjust Medicare payment data for inflation and the change in the mix of disciplines during 1997–2001.¹⁵ The adjustment for mix of disciplines has a slightly larger effect on the average Medicare payment per home health visit than the adjustment for inflation has. When both factors are taken into account, the increase in payment per visit during 1997–2001 drops from 79 percent (unadjusted) to 30 percent (after adjustment). There is a marked difference between the pre- and post-PPS periods after the adjustment for both factors. Specifically, payment per visit declined from $63.02 in 1997 to $59.37 in 2000 (a 6 percent decline) and then jumped to $82.18 in 2001 (a 38 percent increase).

Exhibit 4 presents mean visit and payment data for each of the four PPS diagnosis groups along with the share of home health users with these diagnoses.¹⁶ Overall, the average number of visits provided annually to people with the PPS diagnoses during 1997–2001 declined at about the same rate as for all home health users. However, there are very different patterns in mean payment following the introduction of the PPS. Between 2000 and 2001 annual payments for beneficiaries with orthopedic diagnoses jumped 41 percent and rose 21 percent for those with the selected neurological diagnoses. Mean payments for beneficiaries with diabetes and those with a burn or trauma diagnosis, on the other hand, declined 18 percent and 7 percent, respectively.

Selected primary diagnoses The analysis of the impact of payment changes on diagnosis groups is extended in Exhibit 5 to primary diagnoses that tend to be the most common in the home health population. Although cardiovascular problems are quite prevalent, no single disease predominates, and the percentage of people with any one of the selected diagnoses is relatively low (less than 10 percent).

Population subgroups The extent to which payment changes are differentially affecting population subgroups is examined in Exhibit 6. The numbers reported in the exhibit are ratios (for example, the percentage of women receiving home health care was divided by the percentage of men receiving services to yield the ratio of 1.41 in 1997). A value of 1 indicates that the two comparison groups are identical. Trends toward 1 suggest that differences are narrowing over time.

There is a general trend toward a narrowing of relative differences in mean visits and payments among users during 1997–2001. The narrowing of differences in mean payment per user is in several cases particularly pronounced following the introduction of the PPS. For example, the ratio of mean annual payment per home health user for Medicaid eligibles over that for all other beneficiaries declined from 1.37 to 1.25 during 1997–2000 and then to 1.16 after the introduction of the PPS. This could reflect greater long-term supportive-care needs among Medicaid eligibles and the receipt of a higher share of home health aide visits.

Although not presented in Exhibit 6, differences were also examined by census region.¹⁸ The East South Central and West South Central regions (two regions with historically high home health use) narrowed their disparity with other regions, greatly reducing both their incidence of use and the amount of home health use among users.

Discussion And Policy Implications

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
The BBA of 1997 has transformed the Medicare home health benefit. Approximately 10 percent of all beneficiaries received home health services in the last year before BBA changes began (FFY 1997), while only 7 percent did so in FFY 2001. Average visits fell 60 percent among those receiving services during the same period. The decline in home health aide visits was almost twice that of skilled visits. As a result of this differential decline, nursing and other skilled providers now deliver a much greater share of total visits. The BBA clearly has been successful at reining in the use of the benefit as well as shifting it toward skilled services.

The introduction of the PPS in October 2000 did affect some trends in the Medicare home health benefit. While the decline in the incidence of use and visits provided to users slowed between 1999 and 2000, the downward trend picked up again with the introduction of the PPS. Payment per visit, on the other hand, increased sharply after several years in which there was little change.

Cautious use of the benefit The decline in the incidence of home health use is surprising. The payment levels for the HHRGs are thought to be generous relative to agency costs, since they were determined based on data from several years prior to the introduction of the PPS, when service volume was higher.¹⁹ Agencies could be responding to PPS financial incentives by admitting people with well-defined care needs, who they anticipate will cost less than the PPS payment amount, and avoiding patients with greater uncertainty in expected costs. This could reduce access for groups such as the oldest old (people age eighty-five or older) who are likely to be more clinically unstable and to have more chronic care needs than other people. As agencies gain experience with the payment system, admission rates could stabilize or rise again. In any event, studies examining the composition of the home health user population and indicators of unmet need will be important to help policymakers understand whether the benefit is being used appropriately under prospective payment.

Remedies for potential access problems The rise in the percentage of beneficiaries with diagnoses used to determine the HHRG payment rate (to the extent that the increase in HHRG-sensitive diagnoses is attributable to a change in the types of patients admitted as opposed to coding practices) suggests that policymakers can address possible access problems by modifying the payment groups. For example, if people who are clinically unstable are found to have an access problem, comorbidities associated with a need for intensive services could be incorporated into the payment system. If measures of clinical instability cannot be reliably measured and used in the payment groups, outlier policy and other aspects of the payment system could be adjusted to respond to restricted access.

Need for home health standards The sharp drop in the average number of annual visits provided to each home health user following the introduction of the PPS is striking. Unfortunately, generally accepted standards for appropriate home health care and rigorous research on how it affects patient outcomes are lacking. This makes it difficult to assess the adequacy of agency care. The U.S. General Accounting Office (GAO) has been arguing that the financial incentives of the PPS should be moderated through risk sharing to protect beneficiaries from underservice and the Medicare program from overpayment. The CMS, however, believes that risk sharing would undermine the benefits of the PPS and that it would be administratively difficult; the appropriateness of service levels can be monitored, the CMS believes, using home health quality improvement data.²⁰

Chronic care needs of beneficiaries The almost 80 percent reduction in home health aide visits between 1997 and 2001 raises questions about the need for Medicare home health aide services, who still has access to these services, and how to pay for long-term supportive care. State aging and disability policymakers have been struggling with the last question for years. Chronic conditions are the norm among home health beneficiaries, and many are dually eligible. With the return of the benefit to a more skilled service, better coordination of public and private programs funding post-acute and long-term care services is more critical than ever.

Shortages of workers As with the introduction of the IPS, the introduction of the PPS did not occur in isolation. Perhaps most important for our analysis is the growing shortage of both skilled and paraprofessional home health workers. This national problem might have contributed to the continued decline in home health beneficiaries and visits. Nevertheless, there is overwhelming evidence that home health agencies responded strongly to the payment system changes mandated by Congress in the BBA.

Analyses of the ips found no clear evidence that it harmed beneficiaries or caused a major shift in care to other formal providers. Little is known, however, about the impact of the additional reductions since 1999. How the continued decline in the Medicare home health services is affecting Medicare beneficiaries and other providers, including informal caregivers, is an important and unanswered question.

Editor's Notes

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 
Christopher Murtaugh is associate director of the Center for Home Care Policy and Research at the Visiting Nurse Service of New York. Nelda McCall is president of Laguna Research Associates in San Francisco. Stanley Moore is an independent systems analyst/programmer, based in Bonny Doon, California. Ann Meadow is a social science research analyst at the Centers for Medicare and Medicaid Services in Baltimore, Maryland.

This paper is based on research funded by the Robert Wood Johnson Foundation and the Centers for Medicare and Medicaid Services under Contract no. CMS-00-0108. The analysis and conclusions are solely those of the authors and do not express any official opinion of or endorsement by the funders or the Visiting Nurse Service of New York. The authors thank Doreen Wang for programming and analytic support, and Carol Raphael and Penny Feldman for commenting on an earlier version of the paper.

NOTES

Top Impact of the IPS Implementation of the PPS Eligibility And Coverage Study Methods Study Results Discussion And Policy... Editor's Notes NOTES

 

1. N.McCall et al., "Medicare Home Health before and after the BBA," Health Affairs (May/June 2001): 189–198; and H.Komisar, "Rolling Back Medicare Home Health," Health Care Financing Review (Winter 2002): 33–56.
2. H.Komisar and J. Feder, The Balanced Budget Act of 1997: Effects on Medicare’s Home Health Benefit and Beneficiaries Who Need Long-Term Care (Washington: Georgetown University Institute for Health Care Research and Policy, 1998); Prospective Payment Assessment Commission, Report and Recommendations to the Congress (Washington: ProPAC, 1996); and U.S. General Accounting Office, Medicare Home Health Care: Payments to Home Health Agencies Are Considerably Higher than Costs, Pub. no. GAO-02-663 (Washington: U.S. GAO, 2002).
3. McCall et al., "Medicare Home Health before and after the BBA."
4. Abt Associates Inc., Medicare Payment Advisory Commission (MedPAC) Home Health Agency Survey, 1999, Final Report (Cambridge, Mass.: Abt Associates Inc., July 1999); B.M.Smith, K.A. Malloy, and D.J. Hawkins, An Examination of Medicare Home Health Services: A Descriptive Study of the Effects of the Balanced Budget Act Interim Payment System on Access to and Quality of Care (Washington: George Washington University, September 1999); and Office of Inspector General, U.S. Department of Health and Human Services, Medicare Beneficiary Access to Home Health Agencies (Washington: OIG, October 1999).
5. The study was conducted by Laguna Research Associates and its subcontractors Georgetown University, Mathematica Policy Research, and Roper ASW.
6. N.McCall et al., "Utilization of Home Health Services before and after the Balanced Budget Act of 1997: What Were the Initial Effects?" Health Services Research (February 2003): 85–106.
7. N.McCall et al., "Constraining Medicare Home Health Reimbursement: What Are the Outcomes?" Health Care Financing Review (Winter 2002): 57–76.
8. V.Cheh and W. Black, Did the Balanced Budget Act of 1997 Affect the Quality of Medicare Home Health Services? (Princeton, N.J.: Mathematica Policy Research, May 2002); and N.McCall et al., "Decreased Home Health Use: Does It Decrease Satisfaction?" Medical Care Research and Review (forthcoming).
9. N.McCall et al., "Reforming Medicare Payment: Early Effects of the 1997 Balanced Budget Act on Postacute Care" Milbank Quarterly 81, no. 2 (2003): 277–303.
10. Medicare Payment Advisory Commission, Report to Congress: Medicare Payment Policy (Washington: MedPAC, March 2001).
11. The HHS OIG found few problems with access to care and patient satisfaction in three relatively narrow studies that rely primarily on mail and phone interviews to assess the impact of the PPS. OIG, Access to Home Health Care after Hospital Discharge, 2001 (Washington: OIG, July 2001); OIG, Medicare Beneficiary Experience with Home Health Care (Washington: OIG, July 2001); and OIG, Medicare Home Health Care Community Beneficiaries, 2001 (Washington: OIG, October 2001). The GAO analyzed home health claims from the first six months of 2001 to advise Congress on payment policy; according to the GAO, agencies reduced the number of visits provided per home health episode following the implementation of the PPS, although no pre- and post-PPS visit data are included in GAO, Medicare Home Health Care.
12. McCall et al., "Medicare Home Health before and after the BBA."
13. Information about the adjustments made in the FFY 2001 file is available from the authors on request. E-mail your request to chris.murtaugh{at}vnsny.org.
14. Our utilization statistics will differ to some extent from the CMS statistics because of the three-month difference between our federal fiscal year and the CMS’s calendar-year data. Other factors that will lower our estimates relative to the CMS estimates include our exclusion from the sample of (1) Medicare Part B–only beneficiaries, (2) people with less than a full month of Part A eligibility in the fiscal year, (3) people enrolled in a health maintenance organization (HMO) at any point during the fiscal year, and (4) people with addresses outside the fifty states and the District of Columbia. Our incidence rates, in addition, represent users per person-year of enrollment and not users per enrollee, to adjust for possible differences over time in part-year Medicare eligibility.
15. Home health market basket data, obtained from the CMS Office of the Actuary, were used to adjust for inflation. To adjust for changes in skill mix, we used relative values developed by Nelda McCall and colleagues from FFY 2000 per visit reimbursement limits for each home health discipline. Details are available from the authors on request.
16. The diagnosis groups are not mutually exclusive. The International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes for the diagnoses included in the orthopedic, neurological, diabetes, and burn or trauma categories are listed in Table 8A of the final rules and regulations for the home health PPS. See Federal Register 65, no. 128 (3 July 2000): 41195–41201.
17. Urban and rural residence was derived from the ten-level metropolitan/nonmetropolitan county code on the Area Resource File. People living in metropolitan areas (codes 00–03) were classified as urban, while all others were classified as rural.
18. Space limitations precluded presenting information about the specific relative differences in use for the census regions during 1997–2001; data are available from the authors on request.
19. The GAO estimated that PPS payments for home health care were, on average, 35 percent higher than costs. GAO, Medicare Home Health Care. However, the GAO relied on 1997 agency cost reports since those for the first year of the PPS will not be available for some time. MedPAC estimated payments of a little more than 20 percent over costs.
20. GAO, Medicare Home Health Care.

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