In June 2000, representatives of the five national home health associations (the National Association for Home Care, the American Federation of HomeCare Providers, the Home Care Association of America, the American Association for HomeCare, and the Visiting Nurse Associations of America) established a unified agenda for legislative action during 2000. The associations agreed that the future of the Medicare home health benefit depends upon enactment of legislation that both would restore the benefit for individuals who have lost access to care and preserve the program for future beneficiaries.
Following are the key elements proposed by the national associations for restoration and preservation of the Medicare home health benefit, along with frequently-asked questions about the proposals and their answers.
This document was prepared by the National Association for Home Care. For more information, please contact Government Affairs at 202-547-7424.
Why did Congress impose a 15% cut in home health expenditures in addition to other measures to reduce Medicare home health spending in the Balanced Budget Act of 1997 (BBA)?
During 1997, Congress proposed in legislation an interim payment system (IPS) for home health until such time as a prospective payment system (PPS) could be developed and implemented. The Congressional Budget Office (CBO) informed Congress that the proposed legislative changes for home health would not provide sufficient savings to meet the desired five-year $16 billion savings target, and insisted that an additional 15% cut in home health reimbursements would be needed. Consequently, the Congress included the IPS payment changes plus an additional reduction of 15% (scheduled for October 1, 1999, to coincide with implementation of PPS) in the Balanced Budget Act of 1997 (BBA). The CBO's calculations were dramatically off base - in the first two fiscal years alone following passage of the BBA, more than $19 billion was trimmed off projected home health outlays.
What impact have the BBA home health provisions had on Medicare spending?
Based on March 2000 CBO projections, home care spending will be reduced by a total of $69 billion over five years (FY98-02)-or more than four times the anticipated $16 billion reduction. According to CBO, home health funding was cut by 48% in just two years (FY97-99). The latest HCFA data indicates a reduction in outlays of nearly 54% between calendar years 1997 and 1999.
What has been the impact of recent changes on the home care infrastructure?
Given the level of reductions, it is not surprising that home health agencies have been closing at a rate of more than 90 per month since October 1997, leading to a recorded net loss of over 3,000 agencies nationwide as of July 2000. HCFA data, from which these figures are drawn, generally lags behind actual closures. These losses are particularly problematic in states with large portions of their elderly population living in rural areas. Staffing levels have decreased in the last three years by over 133,000 full-time positions. Because of low per beneficiary and per visit limits under the IPS, agencies are increasingly using other sources of funding to finance care to Medicare beneficiaries. An informal survey conducted by NAHC in 1999 revealed that 93% of responding agencies were required to find other funding sources, including bank loans, lines of credit, and financial reserves, in order to maintain home health access for Medicare beneficiaries. Since IPS imposed such low payment limits so quickly, there was little time for agencies or Medicare's intermediaries to adjust. Consequently, the program is recouping from thousands of struggling agencies billions of dollars in overpayments, even though the payments were for needed care that was within the scope of the Medicare benefit and provided at a reasonable cost.
Is the 15% cut needed to meet the Congressional BBA targeted savings?
Clearly no. As mentioned previously, home health spending is projected to be reduced by $69 billion over five years--over four times the intended five-year reduction of $16.1 billion, and home health spending was reduced by a total of $19.7 billion in just two years alone (FY98 and FY99).
Should elimination of the additional 15% cut be characterized as a "give back" to the home health industry?
No. Congressional elimination of the 15% would constitute a correction of CBO's error in estimating the impact of the proposed BBA cuts on the home health program. It would not restore any funding to the home health benefit or restore care to deserving beneficiaries who no longer have access to services. Elimination of the 15% cut would in no way imperil achievement of the savings Congress intended to procure from the BBA. Home health spending for FY97-99 has been reduced by 48%, while spending on Medicare overall has stayed near even. By way of comparison, payments for inpatient hospital and skilled nursing facility care have been reduced by 3.4% and 1.6%, respectively. Spending on managed care has increased by 49.6%. Home health spending as a percent of Medicare dropped precipitously, from 9% of total Medicare outlays in FY97 to just 5% of total Medicare benefits in FY99. HCFA's current projections for FY2000 indicate that home health will drop further, to 4% of total Medicare outlays.
How would elimination of the 15% cut be paid for?
Last year's CBO estimate for elimination of the 15% cut was about $7 billion over five years. With the startling reductions in home health spending recently reported, the CBO "score" for this provision should drop dramatically. Eliminating the 15% cut should be paid for from the $53 billion in unanticipated, excess home health savings resulting from the BBA that have contributed to a larger-than-anticipated budget surplus.
What has been the impact of the BBA on home health patients?
From calendar year 1997 to 1999, the number of beneficiaries served dropped by nearly one million, from 3.5 million to 2.6 million, or by close to 25%. In those two years, home health claims dropped by almost 50%, and the average payment per patient dropped by 38.5 % (source: preliminary 1999 HCFA/HICS data).
What types of patients are likely to be underserved or not served at all under the Medicare home health PPS?
Because the budget for home health under the PPS is based on spending for home care under the current IPS, similar access to care problems should be anticipated. Studies that have examined access to the home health benefit since 1997 agree on one central point: for certain groups of beneficiaries, access to the home health benefit has decreased. For example, a study of the effects of the BBA97 on home health agencies conducted by The George Washington University (GWU) reported that agencies were finding it increasingly difficult to meet the needs of high-cost patients, particularly insulin-dependent diabetics. Among hospital discharge planners surveyed as part of the GWU study, 68% reported it was increasingly difficult to obtain home health services for Medicare beneficiaries. The Medicare Payment Advisory Commission (MedPAC) in its March report to Congress concluded that the new payment system has led agencies to refuse services to Medicare patients who have chronic, long-term conditions, especially diabetics. The General Accounting Office (GAO) in a study released in 1999 found that patients who require costlier services are facing difficulty in finding an agency willing to provide visits. The New York Times in a recent editorial calling for the restoration of the home health benefit summed up the impact of the BBA: "Congress had reason to rein in ballooning Medicare costs in 1997. But the nation's oldest and most fragile citizens should not have to suffer for good intentions gone awry."
Why are additional funds needed for outlier payments?
With the move to PPS for home health, the future of home care hangs in the balance. The concept behind the new system is to encourage efficient provision of home health services by paying an amount based on the average national cost of treating a home health client for 60 days. Final payments to agencies are based on the average base payment, and adjusted to take into account patient characteristics (case mix) and labor market differences (wage index). An outlier payment is provided for cases that exceed the expected.
Because the global budget set for the PPS restricts outlays to what would have been spent if the current system were to continue, the base payment under PPS is substantially below the average national cost of treating a home health client. As a result, the episode payment rates are expected to be inadequate and will perpetuate many of the access problems certain classes of high cost, medically complex patients are experiencing today. Expected to be particularly hard hit are patients who need extensive home health aide services, such as stroke or MS patients; severe wound care patients; and diabetic patients who cannot self administer their insulin. Since funding for outliers under PPS is severely limited, agencies must incur substantial losses even when the patient is eligible for outlier payments. Recent analysis of the final PPS regulations shows significant payment shortfalls. Outlier-related losses in the first year of PPS are projected to be $1,003,606,000. According to this analysis, home health agencies, on average, will lose $133,763 on outlier cases in the first year of PPS.
Congress should allow an additional expenditure of $500 million in each of the next five years to be used as outlier payments for services to the most medically-complex and costly patients. This modest amount would be targeted to payments for patients who are truly high-cost and help to restore care to many beneficiaries who have lost care as the result of stringent payment limits under IPS. The outlier payment adjustment would be easy to implement since it builds on the existing outlier payment structure and merely involves a modification to the calculation of outlier payments. It would also operate under a finite budget for outlier expenditures, thereby eliminating any risk of uncontrolled growth in Medicare home health spending.
What evidence is there that it is more costly to serve rural home health patients than those in other areas? Are there any special factors that rural home health agencies face that are not prevalent in urban areas?
While the dramatic impact of BBA policies has affected every community in the nation, rural areas have been particularly hard-hit. The Walsh Center for Rural Health Analysis at Project HOPE recently conducted several studies related to home health and the impact of certain BBA policies on access to care in rural areas. "Rural and Urban Patterns of Home Health Use: Implications for Access under the Interim Payment System," by Janet P. Sutton, Ph.D., found that, "[H]ome health agencies serving rural populations may experience even more difficulty than urban agencies in adapting to the IPS [interim payment system] because visit costs tend to be higher and episode lengths are longer. In general, rural populations are older and more chronically ill than urban populations. These factors could indicate that rural home health users are more resource intensive, and make them less desirable to treat." The study also found that, while rural and urban beneficiaries received comparable numbers of skilled nursing visits, rural beneficiaries tended to need more home health aide services, and were more likely to be long- term users of home health services. Both of these characteristics create disincentives for agencies to accept patients into care or, alternatively, result in higher costs for treating beneficiaries in rural areas.
In an additional report by the Walsh Center, researchers examined characteristics of the interim payment system (IPS) and analyzed its impact on rural home health agencies and beneficiaries. The study, entitled "Rural Home Health Agencies: The Impact of the Balanced Budget Act," concludes that the reductions in reimbursement associated with IPS resulted in many home health agencies being forced to close and expressed concern that access to home health services in rural areas has been compromised. While not making specific recommendations, the report concludes that policymakers should focus on various issues such as an agency's case-mix and the impact of a PPS on rural areas that are served by urban home health agencies. Finally, the report notes that the impact of PPS on small, hospital-based non-profit agencies will determine how rural agencies - most of which are smaller, hospital-based, and non-profit - and rural beneficiaries will fare under this new reimbursement environment.
Specifically, the report found that, under IPS, home health expenditures declined to 1994 levels and a "significant number of home health agencies have ceased operating." In fact, the report cites the Congressional Budget Office (CBO) with crediting much of the decline in overall Medicare spending in 1999 to the reduction in home health, expenditures for which declined by 15% in 1998. The report points out that 32 rural counties lost their sole Medicare home health provider and an additional 97 rural counties lost at least half of the number of home health agencies that used to serve their area.
The cuts in home health reimbursements resulting from the BBA have also made it increasingly difficult for home health agencies to offer competitive wages and benefits. Increased regulatory burdens on home visiting staff have also discouraged workers from continuing in home care. Recruitment and retention of home care personnel, including nurses and home health aides, is especially difficult in rural and other underserved areas. Providing health care in these areas requires special knowledge, training, and commitment on behalf of health care providers. Continuing education and training are often not readily available. Health care services can be particularly interdependent in rural communities: when a rural hospital closes, many affiliated health care personnel and services leave the area as well.
Why the 10% add-on? Wouldn't a carve-out for rural areas be a more preferable method in dealing with the higher costs that confront rural agencies?
A 10% add-on to the episodic base rate under the PPS is more closely tailored to the 12-15% higher cost of delivering quality home care services in rural areas. A carve-out of rural agencies from PPS would be administratively burdensome for HCFA which will have to manage a two-tier home health reimbursement system. In addition, by having rural agencies revert back to a per-visit reimbursement methodology, there is the potential for concerns regarding overutilization to arise.
What exactly are medical supplies? What is the difference between routine and nonroutine medical supplies?
Medical supplies are items that, due to their therapeutic or diagnostic characteristics, are essential to enabling home health personnel to carry out effectively the care the physician has ordered for the treatment or diagnosis of the patient's illness or injury. A Medicare-certified home health agency must be prepared to provide these medical supplies in its caring for beneficiaries if they are needed. Medical supplies fit into two categories:
How are home health agencies currently reimbursed for medical supplies?
Under current law, routine supplies are included in the per visit cost of home health services. For nonroutine supplies, home health agencies are expected to separately identify the cost of medical and surgical supplies that are not routinely furnished in conjunction with patient care visits and the use of which are directly identifiable to an individual patient. These items are then reimbursed through a separate fee schedule and are not included in the cost per visit.
How will medical supplies be reimbursed under PPS?
Under PPS, average supply costs - for both routine and nonroutine supplies - are bundled in the episodic rate. In addition, all home health agencies will be required to provide all supplies within the scope of the home health benefit.
What are the concerns of the home health community if routine and nonroutine supplies are bundled into the PPS episodic base rate?
The home health community has several concerns with the proposal to bundle nonroutine supplies into the PPS base rate. Each episodic payment will contain an average per-episode payment for supplies of approximately $50. The bundling of nonroutine supplies will fail to adequately target resources to the beneficiaries with the greatest need. As a result, there is a disincentive for home health agencies to admit patients with high supply costs. Conversely, agencies with high numbers of patients with low supply needs may inappropriately benefit. In addition, the requirement that home health agencies provide all supplies to the beneficiary could cause problems for patients who have prior supply needs that are not germane to the current plan of care. Such a provision would expand the scope of the home health benefit beyond the patient plan of care -- increasing costs to the home health agency, and disrupting the relationship between the patient and the prior medical supplier.
How is the proposal to exclude nonroutine medical supplies from the PPS base rate budget neutral?
Under the legislation, the nonroutine medical supply adjustment will be eliminated, lowering the PPS base rate. A fee schedule will then be established for nonroutine supplies that will be a reasonable proxy for the amount for supplies that home health agencies had identified on their cost reports.