oversight

Medicare Home Health Payment: Nonroutine Medical Supply Data Needed to Assess Payment Adjustments

Published by the Government Accountability Office on 2003-08-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

              United States General Accounting Office

GAO           Report to Congressional Committees




August 2003
              MEDICARE HOME
              HEALTH PAYMENT
              Nonroutine Medical
              Supply Data Needed to
              Assess Payment
              Adjustments




GAO-03-878
              a
                                                August 2003


                                                MEDICARE HOME HEALTH PAYMENT

                                                Nonroutine Medical Supply Data Needed
Highlights of GAO-03-878, a report to           to Assess Payment Adjustments
congressional committees




Under Medicare’s prospective                    Although Medicare’s home health payment includes the average costs of
payment system (PPS), home                      nonroutine medical supplies, adjusted payments may not reflect variation in
health agencies receive a single                supply costs across types of patients. Further, home health agencies can be
payment, adjusted to reflect the                paid the same amount for treating patients with quite different supply costs.
care needs of different types of                This means that under the PPS, patients who require costly supplies may
patients, for providing up to 60
days of home health care. Some
                                                have problems accessing home health care and the agencies that treat them
home health industry                            may be financially disadvantaged. This is of particular concern for patients
representatives have suggested that             who have nonroutine medical supply needs that are easily identified prior to
certain nonroutine medical                      admission or who require supplies for which there are no lower-cost
supplies (such as wound-care                    alternatives.
dressings) should be excluded from
this payment and reimbursed                     Excluding certain nonroutine medical supplies from the home health
separately because of their high                payment and reimbursing them separately would help ensure that patients
cost. The Medicare, Medicaid, and               have access to these supplies and that agencies are protected financially for
SCHIP Benefits Improvement and                  providing them. At the same time, this would weaken the cost-control
Protection Act of 2000 required                 incentives of the PPS as well as increase patient out-of-pocket costs. Such a
GAO to examine home health
agency payments for nonroutine
                                                policy might be warranted, however, for nonroutine medical supplies that
medical supplies and recommend                  are high-cost, relative to the total payment, and infrequently used because
whether payment for any such                    the payment adjustment to account for differences in patient needs may not
supplies should be excluded from                be adequate to compensate a home health agency for providing these
the PPS.                                        supplies.

                                                Patient care representatives suggest that an additional category of supplies
                                                should be excluded from the payment and reimbursed separately, namely
                                                those that a patient had been using prior to home health care to treat an on-
GAO recommends that CMS collect
and analyze the data necessary to               going condition. Clinical experts indicated that care has been disrupted for
determine whether Medicare’s                    some patients who require these kinds of supplies because some home
home health payments                            health agencies have required patients to switch supplies or limited the
appropriately reflect the                       supplies provided to them. Although the Centers for Medicare & Medicaid
differences in nonroutine medical               Services (CMS) has asked home health agencies to report information on
supply costs across types of                    nonroutine medical supply use and cost, they have not done so. Without this
patients. If any problems are                   patient-specific supply data, CMS does not have the ability to determine
identified, CMS should modify the               whether the PPS needs to be adjusted to account for nonroutine medical
PPS and, if necessary, seek                     supply costs or whether certain supplies should be excluded from the
statutory authority to exclude                  payment.
certain nonroutine medical
supplies from the home health
payment. CMS agreed with GAO’s
first finding and stated that it was
collecting the necessary data to
evaluate Medicare payments.


www.gao.gov/cgi-bin/getrpt?GAO-03-878.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Laura A.
Dummit (202) 512-7119.
Contents


Letter                                                                                                  1
             Results in Brief                                                                           3
             Background                                                                                 5
             Episode Payments May Not Reflect Variation in Nonroutine
               Medical Supply Costs across Patients                                                    9
             Certain Nonroutine Medical Supplies May Warrant Exclusion from
               Episode Payment                                                                         11
             Conclusions                                                                               13
             Recommendations for Executive Action                                                      14
             Agency Comments                                                                           14

Appendix I   Comments from the Centers for Medicare &
             Medicaid Services                                                                         17




             Abbreviations

             BBA               Balanced Budget Act of 1997
             BIPA              Medicare, Medicaid, and SCHIP Benefits Improvement and
                               Protection Act of 2000
             CMS               Centers for Medicare & Medicaid Services
             DME               durable medical equipment
             HCFA              Health Care Financing Administration
             HHA               home health agency
             HHRG              home health resource group
             PPS               prospective payment system




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             Page i                       GAO-03-878 Home Health Care Nonroutine Medical Supplies
United States General Accounting Office
Washington, DC 20548




                                   August 15, 2003

                                   Congressional Committees

                                   The Balanced Budget Act of 1997 (BBA) mandated implementation of a
                                   prospective payment system (PPS) for home health agencies (HHA) that
                                   would provide a predetermined payment to cover the costs of all
                                   Medicare-covered home health visits and medical supplies delivered
                                   during home health care.1 Under the PPS, HHAs receive a single payment,
                                   adjusted to reflect the care needs of the patient, for delivering up to 60
                                   days of care, called a home health “episode.” This episode payment is
                                   based on the historical national average cost of providing care, not on an
                                   HHA’s actual costs of treating any given patient. The episode payment is
                                   intended to cover the average costs of all home health visits and medical
                                   supplies provided during the episode—including routine and nonroutine
                                   medical supplies.2 The all-inclusive payment provides HHAs with strong
                                   incentives to control their costs of care. Strategies that HHAs can use to
                                   control episode costs include reducing the number of visits, substituting
                                   lower paid or less skilled personnel, providing fewer or less costly
                                   supplies, purchasing supplies more efficiently, or treating a less expensive
                                   mix of patients.

                                   Under the PPS, each Medicare home health patient is assigned to a
                                   payment group based on certain clinical and service-use characteristics,
                                   and the episode payment is adjusted to account for differences in the
                                   average resource needs of the patients in each payment group. Even with
                                   these payment adjustments, the Centers for Medicare & Medicaid Services
                                   (CMS) and home health industry representatives have raised concerns
                                   about compensating for nonroutine medical supplies under the home
                                   health PPS.3 Industry representatives have questioned whether the episode


                                   1
                                    Pub. L. No. 105-33, § 4603(a), 111 Stat. 251, 467-470 (codified at 42 U.S.C §1395fff (2000)).
                                   2
                                    Routine medical supplies—such as swabs, cotton balls, and adhesive tape—are those used
                                   during the usual course of a large share of home health visits. Nonroutine medical supplies
                                   are used to treat a specific patient’s illness or injury and include items such as wound care
                                   dressings, catheters, intravenous supplies, and the supplies used to care for an ostomy (a
                                   surgically created opening in the body for the discharge of body wastes), such as drainage
                                   bags, pouches, and skin barriers.
                                   3
                                    CMS, the agency responsible for administering the Medicare program, was known as the
                                   Health Care Financing Administration (HCFA) until July 1, 2001. This report refers to the
                                   agency as HCFA when referring to actions before the name change and as CMS when
                                   referring to actions taken since the name change.



                                   Page 1                         GAO-03-878 Home Health Care Nonroutine Medical Supplies
payments include all the costs of nonroutine medical supplies and whether
episode payments for different types of patients are adjusted appropriately
to reflect their nonroutine medical supply costs. CMS officials have
acknowledged that payments may be too low for certain types of patients
who require nonroutine medical supplies, such as those requiring wound-
care supplies.

Some home health industry representatives have suggested that certain
nonroutine medical supplies, such as wound-care supplies’ be excluded
from the episode payment and paid for separately by Medicare. This is
because with the all-inclusive payment under the PPS, patients requiring
costly nonroutine medical supplies or HHAs serving a disproportionate
number of such patients could be disadvantaged. Paying for expensive
supplies separately could diminish concerns about access to care for
patients requiring these nonroutine medical supplies and protect HHAs
that treat them. This may be particularly appropriate for high-cost,
infrequently provided nonroutine medical supplies because Medicare’s
payment is based on the average cost of treating all patients within a
group. On the other hand, paying for specified supplies separately would
dampen the incentives for HHAs to deliver services efficiently since HHAs
would receive additional payments if they selected supplies that were
excluded from the episode payment, even if lower-cost, clinically
appropriate alternatives were available.4 And, under Medicare payment
rules, affected patients would pay more for supplies that were excluded
from the episode payment.5 CMS is currently assessing whether the home
health PPS requires revisions. However, the agency has concluded it does
not have the authority to exclude any supply costs from the episode
payments.

In this context, the Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000 (BIPA) required GAO to examine the provision
of nonroutine medical supplies by home health agencies and recommend
whether payment for such supplies should be excluded from the episode
payment and paid for separately.6 In consultation with the committees of
jurisdiction, we have examined whether (1) total HHA episode payments


4
 Furthermore, Medicare spending would increase unless the average episode payment was
reduced by the cost of these supplies.
5
Beneficiary spending would increase especially for those patients who require nonroutine
medical supplies that are not otherwise covered under Medicare.
6
Pub. L. No. 106-554, App. F § 505; 114 Stat. 2763, 2763A-531.




Page 2                        GAO-03-878 Home Health Care Nonroutine Medical Supplies
                   adequately account for nonroutine medical supply costs and (2) any
                   nonroutine medical supplies should be excluded from the episode
                   payment and paid for separately by Medicare.

                   To conduct this work, we reviewed the provisions of BBA and the Health
                   Care Financing Administration’s (HCFA) interim and final rules on the
                   home health PPS to evaluate the design of the payment groups and
                   adjustments. We conducted structured interviews with nine clinical
                   experts about the use of nonroutine medical supplies by home health
                   patients. The experts included home health nurses (including specialists in
                   wound, ostomy, and continence care), physical therapists, university-
                   based researchers, and home health agency managers. We also conducted
                   structured interviews with representatives from the National Association
                   for Homecare, the Visiting Nurse Association of America, the American
                   Home Care Association, the American Association for Homecare, the
                   United Ostomy Association, and representatives from the Wound, Ostomy,
                   and Continence Nurses Society. We did not directly determine if episode
                   payments adequately accounted for the costs of these supplies because
                   data were not available. We conducted our work from December 2000
                   through August 2003 in accordance with generally accepted government
                   auditing standards. During this period, CMS expected to receive patient-
                   specific data on the cost and utilization of specific nonroutine medical
                   supplies, but did not.


                   Although the costs of all nonroutine medical supplies were used in
Results in Brief   establishing the average home health episode payment, adjusted payments
                   may not reflect all the variation in the costs of nonroutine medical
                   supplies for different types of patients. HCFA did not have data on the cost
                   or use of specific nonroutine medical supplies to develop the payment
                   groups or the payment adjustments. HCFA accounted for differences in
                   supply costs across types of patients based on the average cost of staff
                   time of the visits associated with the patient group. As a result, the episode
                   payments appropriately reflect supply costs only when they vary with the
                   cost of staff time. In addition, the payment groups may not adequately
                   distinguish among types of patients based on their need for, and the costs
                   of, nonroutine medical supplies. Because each payment group can include
                   patients with widely varying clinical conditions, there may be some types
                   of patients within a payment group who have above-average costs due to
                   their needs for these supplies.




                   Page 3                   GAO-03-878 Home Health Care Nonroutine Medical Supplies
There are certain nonroutine medical supplies that should be considered
for exclusion from the episode payment because of their high cost and
infrequent use and others that should be considered because of continuity
of care concerns. Payments based on average costs may not adequately
account for high-cost, infrequently provided medical supplies. As a result,
some HHAs may be unwilling to provide these supplies or will be
financially disadvantaged if they treat patients with these needs. The
clinical experts we consulted suggested that continuity of care would be
another reason for excluding certain nonroutine medical supplies from the
PPS episode payment. They noted that care had been disrupted for some
patients who had been managing a chronic condition with supplies prior to
receiving home health care. Industry representatives and wound-care
nurses we interviewed stated that this disruption has occurred because
some HHAs have required patients to switch supplies while receiving
home health care or have limited the supplies provided to patients.
However, CMS lacks data on the cost and frequency of use of individual
supply items to modify the payment groups and adjustments and to
determine whether certain nonroutine medical supply exclusions merit
consideration.

We are recommending that in evaluating refinements to the PPS, the
Administrator of CMS should collect and analyze patient-specific data on
the cost and utilization of individual nonroutine medical supplies to
determine whether the payment groups and adjustments appropriately
reflect the differences in supply costs. The Administrator should also
gather and evaluate evidence on whether there have been systematic
disruptions in the care for some patients under the PPS. If these analyses
indicate problems with the current PPS, the Administrator of CMS should
modify the payment groups and adjustments to better account for these
supply costs or minimize care disruptions. If such refinements cannot
resolve identified problems, the Administrator should seek the necessary
legislative changes to exclude selected nonroutine medical supplies from
the episode payment.

CMS provided written comments on a draft of this report and concurred
with the first finding. CMS stated that it was collecting the data needed to
determine whether the home health payments reflect nonroutine medical
supply cost differences across types of patients. The agency did not
address our recommendation to evaluate whether there have been
disruptions in care.




Page 4                   GAO-03-878 Home Health Care Nonroutine Medical Supplies
                       Medicare’s home health care benefit enables certain beneficiaries with
Background             post-acute-care needs (such as recovery from joint replacement) and
                       chronic conditions (such as congestive heart failure) to receive care in
                       their homes. To qualify for home health care, beneficiaries must be
                       homebound;7 require intermittent skilled nursing, or physical or speech
                       therapy or occupational therapy on a continuing basis; be under the care
                       of a physician; and have their home health care services furnished under a
                       plan of care prescribed and periodically reviewed by a physician. If these
                       conditions continue to be met, Medicare will pay for an unlimited number
                       of episodes of care that can include skilled nursing care; physical,
                       occupational, and speech therapy; medical social service; and home health
                       aide visits.8


Medicare Coverage of   When a beneficiary begins receiving Medicare-covered home health care,
Medical Supplies       all medical supplies except for durable medical equipment (DME) used by
                       the patient are covered as part of the home health care.9 Beneficiaries
                       using home health care are not required to pay any deductibles or
                       copayments for these services and supplies.

                       For beneficiaries who are not receiving Medicare-covered home health
                       care, Medicare part B (supplementary medical insurance) covers certain
                       medical supplies for those not hospitalized or not in another inpatient
                       setting.10 Beneficiaries are responsible for a 20-percent copayment for all
                       supplies and services. Medical supplies covered under part B are limited to
                       the devices used to replace bladder and bowel function (such as catheters,
                       ostomy bags, and irrigation and flushing equipment); supplies required for




                       7
                        Beneficiaries are homebound when they have a condition that results in a normal inability
                       to leave home except with considerable and taxing effort; absences from home must be
                       infrequent or of relatively short duration or attributable to receiving medical treatment.
                       8
                        Home health aide visits include personal care services, such as assistance with eating,
                       bathing, and toileting; simple surgical dressing changes; assistance with certain
                       medications; activities to support skilled therapy services; and routine care of prosthetic
                       and orthotic devices.
                       9
                        DME is equipment that can withstand repeated use, is generally used to serve a medical
                       purpose, is not useful to a person without illness or injury, and can be used in the home
                       (such as respirators, crutches, oxygen, and inhalators).
                       10
                        Participation in part B is voluntary (about 95 percent of beneficiaries participate) and part
                       B is partly financed by monthly premiums paid by enrollees.




                       Page 5                         GAO-03-878 Home Health Care Nonroutine Medical Supplies
                          parenteral and enteral nutrition feeding11 (such as catheters, filters, and
                          nutrient solutions) and tracheostomy12 care; and surgical wound dressings,
                          if they are required for treatment of a wound caused by a surgical
                          procedure or after the debridement13 of a wound. Such supplies must be
                          ordered by a physician and be medically necessary. Medicare has coverage
                          guidelines regarding the maximum number of each supply that is normally
                          medically necessary per month (for example, the number of catheters or
                          ostomy bags).14


Prospective Payment for   On October 1, 2000, HCFA implemented the PPS for home health care.
HHAs                      BBA stipulated that PPS payments cover all home health care services and
                          supplies used to treat a beneficiary, including medical supplies, that were
                          paid for on a reasonable cost basis at the time of enactment.15 Because
                          DME was paid for on the basis of a fee schedule, it was not required to be
                          included in the PPS and is paid for separately. The law also required HHAs
                          to “consolidate” the billing and be paid for all Medicare-covered home
                          health services and supplies provided to patients receiving home health
                          care, even when they are furnished by an outside supplier under contract
                          to the HHA.16 This all-inclusive payment gives HHAs an incentive to control
                          the total costs of care provided during the episode, including the use of
                          supplies. Under the home health PPS, HHAs that deliver care for less than
                          the payment can profit. Conversely, HHAs will lose financially when their
                          service costs are higher than the payment.

                          Because patients who receive Medicare-covered home health care require
                          differing amounts of care, a basic episode payment is adjusted based on
                          the classification of each patient into one of 80 payment groups, called



                          11
                           Parenteral nutrition is a method of delivering nutrition and other substances directly into
                          a vein. Enteral nutrition includes oral feeding, sip feeding, and tube feeding.
                          12
                           A tracheostomy is a surgically created opening in the neck into the windpipe to provide
                          an airway and to allow removal of secretions from the lungs.
                          13
                           Debridement is the removal of dead, infected, or foreign material from a wound.
                          14
                           The medical necessity for using more than the number of supplies indicated in the
                          coverage policies has to be documented in the patient’s medical record.
                          15
                           BBA § 4603(a), 111 Stat. 467.
                          16
                           BBA § 4603(c)(2)(B), 111 Stat. 470-471. DME was excluded from the consolidated billing
                          requirement by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
                          1999, Pub. L. No. 106-113, App. F, § 305; 113 Stat. 1501, 1501A-361, 62.




                          Page 6                           GAO-03-878 Home Health Care Nonroutine Medical Supplies
home health resource groups (HHRG).17 The classification is based on
three dimensions of the patient—clinical condition, functional status, and
expected use of services—that affect the total cost of the episode.18
Patients with similar total episode costs are grouped together: the use of
nonroutine medical supplies contributes to, but does not determine, the
payment group for any type of patient. The payment for each payment
group is adjusted to reflect the average cost of providing services to
patients in that group (as determined by the average time of the skilled
nursing, home health aide, therapy, and other visits for the patients in the
group) relative to the average cost of patients across all 80 payment
groups.19 In fiscal year 2002, after adjusting for inflation, the basic episode
payment was $2,274, with the payment adjusters resulting in payments for
patients in the different HHRGs ranging from $1,197 to $6,393 per episode.

The accuracy of the adjusted payments in reflecting the cost variation
across patients depends on how well the payment groups distinguish
among types of patients (and their episode costs) and how well the
payment adjusters account for differences in total episode costs across the
different payment groups. Shortcomings in either will result in some
patients or payment groups being more financially attractive than others
for HHAs to treat. We have reported that in the first 6 months of 2001 there
was considerable variation in the relationship between payments and



17
  There are four clinical severity categories (ranging from minimal to high severity), five
functional classifications (ranging from requiring little assistance with daily activities to
requiring a high level of assistance) and four levels of service use (ranging from low to high
expected resource use), for a total of 80 possible combinations.
18
  The clinical condition is generally based on a primary orthopedic, neurologic, or diabetic
diagnosis; the need for intravenous, parenteral, or enteral therapies; and the presence of
vision impairment, pain, wounds or lesions (including pressure ulcers, stasis ulcers, and
surgical wounds), dyspnea, urinary incontinence, bowel incontinence, bowel ostomy; and
behavioral problems (such as significant memory loss, impaired decision making, physical
aggression, disruptive or socially inappropriate behavior, and delusional or paranoid
behavior). The use of nonroutine medical supplies will be reflected in the clinical
dimension of a patient’s assessment. The functional status is based on the patient’s need
for assistance with activities of daily living, including dressing, bathing, toileting,
transferring (for example, moving from bed to chair), and locomotion. The expected use of
services is based on the patient’s use of home health therapy services during the episode
and the use of other health services (such as nursing home or rehabilitation hospital
services) prior to receiving home health care.
19
  For each visit, the minutes spent by each type of clinician (such as home health aides,
nurses, and therapists) is multiplied by the average wage rate for the discipline of the
clinician. These per-visit costs are totaled for all visits within an episode to obtain the cost
for the episode.




Page 7                          GAO-03-878 Home Health Care Nonroutine Medical Supplies
                         costs across payment groups.20 For example, the episode payments for 10
                         payment groups averaged about 1 percent above the average estimated
                         episode cost, while for 10 other payment groups payments averaged
                         almost twice the average episode cost. On average, episode payments
                         were about 35 percent higher than the average estimated episode cost.

                         Home health episode payments based on average costs may not be
                         adequate for HHAs serving a disproportionate number of patients with
                         high-cost nonroutine medical supply needs when a payment group
                         includes few such patients. This is because if there are few high-cost
                         patients in a payment group, their costs do not substantially increase the
                         average cost for the group. In contrast, frequently provided high-cost
                         services and supplies would boost average episode costs and, therefore,
                         the payments based on them.


Refinements to the PPS   HCFA’s efforts to refine the PPS, including a better accounting for
                         nonroutine medical supply costs, began even before the PPS was
                         implemented. For example, the agency considered excluding the costs of
                         nonroutine medical supplies from the episode amount and paying for
                         supplies covered under part B separately.21 HCFA concluded that it did not
                         have the authority to exclude nonroutine medical supplies given the BBA
                         requirement that all medical supplies be included in the episode payment.
                         The agency also modified the HHRG patient classification system to better
                         reflect the costs of high-cost patients with severe wounds, such as burns,
                         after concerns were raised during the comment period on the proposed
                         rule about the payments for these patients. Even with the revisions, HCFA
                         officials acknowledged that the HHRGs may not adequately differentiate
                         among home health patients, particularly those who need wound-care
                         supplies, and that additional modifications might be needed. The agency
                         plans to examine the payment groups and the payment adjusters using
                         information on total episode costs, the visits provided during each
                         episode, and patient diagnoses. CMS will use these analyses in


                         20
                          U. S. General Accounting Office, Medicare Home Health Care: Payments to Home Health
                         Agencies Are Considerably Higher Than Costs, GAO-02-663 (Washington, D.C.: May 6,
                         2002).
                         21
                           This same reasoning was used to exclude from the PPS daily payment for skilled nursing
                         facilities certain high-cost and infrequently provided services that could not be easily
                         overprovided. See U. S. General Accounting Office, Skilled Nursing Facilities: Services
                         Excluded From Medicare’s Daily Rate Need to be Reevaluated, GAO-01-816 (Washington,
                         D.C.: Aug. 22, 2001).




                         Page 8                       GAO-03-878 Home Health Care Nonroutine Medical Supplies
                      determining if there are inadequacies in the payment groups or
                      adjustments that require modifications to the PPS.


                      HCFA used the total costs associated with furnishing home health care,
Episode Payments      including the costs of nonroutine medical supplies, to establish the
May Not Reflect       average episode payment. HCFA estimated average total episode costs
                      based on 1997 audited costs of a representative sample of HHAs and
Variation in          updated these costs for inflation each year through 2000—the beginning of
Nonroutine Medical    the home health PPS. HCFA added an amount (based on 1998 data) to the
                      episode payment rate to account for the separate payments that had been
Supply Costs across   made to external suppliers for nonroutine medical supplies furnished
Patients              directly to patients receiving home health care. HCFA estimated that the
                      costs of all nonroutine medical supplies averaged about 2 percent of
                      episode costs (or about $50 per episode).

                      The adjusted payment associated with each payment group may not reflect
                      the variation in the cost of the supplies used across the payment groups.
                      When HCFA determined the payment adjustments for the payment groups,
                      it did not have data on the cost or use of specific nonroutine medical
                      supplies for different types of home health patients. Instead of considering
                      the costs of nonroutine medical supplies in varying the payments across
                      each of the payment groups, the agency used the average cost of staff time
                      associated with the average number of visits.22 For some types of patients,
                      such as those needing wound-care supplies and dressing changes,
                      increasing payments in proportion to the cost of staff time is likely to
                      result in an appropriate adjustment to total payments if wound-care supply
                      costs are proportionately higher for patients receiving more costly staff
                      time. However, some types of patients who have above-average
                      nonroutine medical supply costs may not require more costly staff time.
                      For example, staff may not need to spend extra time with patients who,
                      prior to receiving home health care, managed their own ostomy care and
                      will continue to do so. As a result, payments could be too low for these
                      types of patients.

                      In addition, the payment groups may not adequately distinguish among
                      types of patients and their need for, and costs of, nonroutine medical
                      supplies. Each payment group can include patients with widely varying



                      22
                       The time therapists, nurses, and aides spent with patients were used to calculate the
                      payment adjustment.




                      Page 9                        GAO-03-878 Home Health Care Nonroutine Medical Supplies
clinical characteristics and nonroutine medical supply use. For example,
the moderate clinical severity groups can include patients with diabetes
and bowel ostomies, patients with stasis ulcers that are not healing, and
patients with Parkinson’s disease—all of whom would be assigned to the
same group even though their nonroutine medical supply costs could be
quite different. These patients could be assigned to the same payment
group, depending on their functional and service use characteristics.
Although patients within a payment group have similar total episode costs,
there could be subgroups of patients within a group who have above-
average episode costs because of their nonroutine medical supply needs.
Thus, patients requiring costly nonroutine medical supplies could have
more difficulty gaining access to care, particularly since these patients are
easy to identify prior to admission.

As part of CMS’s review of the current PPS, the agency says it will try to
evaluate whether the payment groups and adjustments appropriately
account for variation in nonroutine medical supply costs across types of
patients. CMS has noted that if supply costs vary significantly for different
types of patients, the agency may modify the payment groups to account
for supply cost differences as well as staffing.

However, CMS continues to lack patient-specific data on the use and cost
of specific nonroutine medical supplies needed to assess the variation in
nonroutine medical supply costs across patients. Although the agency
asked HHAs to provide patient-specific information on the use of and
charges for wound-care supplies, HHAs have not done so, which will
hamper CMS’s ability to better account for these costs in the episode
payments.23 Unless CMS renews its pursuit of these data and successfully
obtains them, its refinements will continue to rely on aggregate nonroutine
medical supply cost information to refine the payment groups even though
these data are unlikely to be adequate to reflect the variation in supply
costs across patients.




23
  When implementing the PPS, HCFA asked HHAs to include the number of wound-care
supplies used and the associated charges on their claims so that future refinements could
be made. HHA industry representatives said the HHA computer systems could not gather
these data.




Page 10                       GAO-03-878 Home Health Care Nonroutine Medical Supplies
                       Patients requiring nonroutine medical supplies are classified into many
Certain Nonroutine     different payment groups, so the payment for any given group, which is
Medical Supplies May   based on the group’s average cost, may not account for unusually high
                       nonroutine medical supply costs. For example, patients with multiple
Warrant Exclusion      pressure ulcers, who may need extensive supplies, could be grouped into
from Episode           any one of 40 payment groups, depending on the severity of the ulcers and
                       the patients’ other clinical, functional, and service use characteristics.
Payment                Similarly, the Wound, Ostomy, and Incontinence Nurses Society found that
                       the few patients with ostomies were grouped into a wide range of payment
                       groups.24 Due to this wide dispersion, there may not be enough patients
                       requiring nonroutine medical supplies assigned to any given payment
                       group to sufficiently increase the group’s average cost to reflect these
                       patients’ above-average costs.

                       Even patients with similar clinical characteristics who are classified into
                       the same payment group may have widely varying nonroutine medical
                       supply costs. The United Ostomy Association estimated that the supply
                       costs for patients with ostomies vary fivefold.25 Likewise, using the 2002
                       Medicare fee schedule as a proxy for supply costs, there is even more
                       variation across the different types of surgical dressings.26 The costs of
                       nonroutine medical supplies provided during an episode for wound-care
                       patients could be considerably higher than the average, depending on the
                       types of dressings provided, the price the HHA has to pay for them, and
                       the number of dressing changes made during an episode. For example, an
                       HHA providing 24 dressing changes during a patient’s episode, with each
                       dressing costing $7, would incur $168 of nonroutine medical supply costs,




                       24
                        Patients with bowel ostomies represented about 2 percent of all episodes. Of those, about
                       42 percent of the episodes of patients with ostomies were grouped into the “low” clinical
                       severity payment groups, 42 percent into the “medium” groups, and 15 percent were in the
                       “high” groups. Each of the three groups includes 20 HHRGs.
                       25
                         The United Ostomy Association based its estimates on the episode data used to develop
                       the PPS.
                       26
                         Under the 2002 Medicare fee schedule, payments for large dressings averaged over $9 per
                       item for foam dressings and $174 for collagen dressings, and were between $16 and $39 per
                       item for hydrogel and hydrocolloid dressings.




                       Page 11                      GAO-03-878 Home Health Care Nonroutine Medical Supplies
or more than three times the average supply cost.27 If there are no lower-
cost alternatives or it is not possible to reduce the number of dressings,
the HHA would be limited in its ability to provide a more cost-effective
mix of visits and supplies to care for this patient. Therefore, some HHAs
may be unwilling to provide costly supplies or will be financially
disadvantaged if they do so.

There is mixed evidence on whether there are any high-cost, infrequently
provided nonroutine medical supplies. Some of clinical experts we
consulted said there are no nonroutine medical supplies that are both
high-cost and infrequently provided.

Our review of the Medicare fee schedules for supplies indicated that most
medical supplies are relatively low cost. For beneficiaries who are not
receiving home health care, Medicare’s payment would be less than $20 for
over 80 percent of all nonroutine medical supply items. But there are some
high-priced items. For example, Medicare pays over $40 per item for
certain tracheostomy, wound-care, and ostomy supplies when provided to
patients not receiving home health care.

The clinical experts suggested, however, that including nonroutine
medical supplies in the payment has disrupted care for some patients,
which could justify excluding these supplies from the episode payment.
The experts noted that the use of nonroutine medical supplies for patients
who were self-managing a chronic condition prior to their entering home
health care could be disrupted by the cost containment strategies adopted
by some HHAs. HHA representatives and wound-care nurses told us that
under the PPS some HHAs have limited their inventories of particular
types of nonroutine medical supplies or reduced the number of supplies
they provide to patients. Such changes required some patients who had
been self-managing chronic conditions to either change the type of supply



27
  The Medicare coverage guidelines indicate that hydrogel dressings with borders are
typically changed up to three times per week. With 8 weeks in an episode, up to 24 dressing
changes could be included in an episode without requiring additional documentation. The
Medicare fee schedule amount for medium-sized (16 to 48 square inches) hydrogel
dressings without borders is at least $10, but HHAs may be able to use their volume as
leverage to obtain discounted prices. In this example, we have assumed that an HHA can
purchase supplies at 30 percent less than the fee schedule amount. These supply costs
would be higher if more expensive dressings (such as hydrogel dressings without borders
or collagen dressings) are used, if the dressings are changed more frequently (for example,
hydrogel dressings without borders are typically changed daily), or if the HHA purchases
the supplies at a higher price than what we assumed.




Page 12                       GAO-03-878 Home Health Care Nonroutine Medical Supplies
              (for example, the type of ostomy appliance) or number of supplies used
              while receiving home health care. Such actions are most likely to have
              affected patients with chronic medical conditions (such as bowel ostomies
              and tracheotomies) that they self-manage, where switching products may
              have impaired their sense of security and their ability to function as
              normally as possible.

              As part of its assessment of the effects of the home health PPS, CMS plans
              to examine changes in home health utilization, including the number, type,
              and duration of home health visits and the number of patients served. This
              could include an examination of whether certain types of patients, such as
              those requiring nonroutine medical supplies, have the same utilization
              now as they did prior to the PPS. But, due to the lack of information about
              individual supply items, these analyses cannot evaluate whether patterns
              of self-care have been disrupted.


              The adequacy of Medicare’s home health payment groups and adjustments
Conclusions   to reflect the variation in episode costs across patients is critical to
              ensuring that patients and HHAs are not disadvantaged under the PPS.
              CMS is working on refinements that might include additional payment
              groups, different payment adjustments, or the exclusion of particular
              supplies from the episode payment. While there are sound reasons to
              retain most nonroutine medical supplies in the episode payment,
              excluding certain supplies may be warranted if the payment groups will
              not adequately account for their costs or if it has been demonstrated that
              patient access to care or continuity of care has been disrupted.

              Yet, CMS continues to lack patient-specific cost and utilization data on
              individual nonroutine medical supplies needed to evaluate if the payment
              groups could be improved or if certain supplies warrant consideration for
              exclusion from the PPS. Because CMS’s efforts to gather these data on a
              voluntary basis from HHAs have not been successful, the agency needs an
              alternative data collection method. One approach would be to gather data
              on the patients treated by a representative sample of HHAs, as CMS did in
              establishing the average episode payment. The agency also needs to gather
              systematic evidence on patterns of care to assess whether any supplies
              warrant consideration for exclusion because care has been disrupted. Yet
              even if these data confirm that there are high-cost and infrequently
              provided nonroutine medical supplies or that care has been disrupted,
              congressional authority is needed to make these exclusions.




              Page 13                 GAO-03-878 Home Health Care Nonroutine Medical Supplies
                      We are recommending that in evaluating refinements to the PPS, the
Recommendations for   Administrator of CMS collect and analyze patient-specific data on the cost
Executive Action      and utilization of individual nonroutine medical supplies to determine
                      whether the payment groups and adjustments appropriately reflect the
                      differences in supply costs. The Administrator should also gather and
                      evaluate evidence on whether there have been systematic disruptions in
                      the care for some patients under the PPS. If these analyses indicate
                      problems with the current PPS, the Administrator of CMS should modify
                      the payment groups and adjustments to better account for these supply
                      costs or minimize care disruptions. If such refinements cannot resolve
                      identified problems, the Administrator should seek the necessary
                      legislative changes to exclude selected nonroutine medical supplies from
                      the episode payment.


                      CMS provided written comments on a draft of this report. (See app. I.)
Agency Comments       CMS noted the importance of monitoring the impact of Medicare payment
                      changes and improving payment systems over time. It referenced the
                      research it is sponsoring with regard to the home health PPS. CMS agreed
                      with the recommendation on the need to collect sufficient data to be able
                      to evaluate the appropriateness of Medicare’s payments with regard to the
                      provision of nonroutine medical supplies to home health patients. It stated
                      that it was collecting such data and plans to fund analyses of these data,
                      which will guide future policy decisions. CMS did not indicate whether it
                      will consider changes to home health payment groups and adjustments if
                      its research indicates problems nor did it mention if it will investigate
                      whether particular types of patients are experiencing disruptions in care.
                      Because HHAs could identify many of the patients with costly nonroutine
                      medical supply needs prior to admitting them for home health care, we
                      believe it is important to explicitly consider this group of patients in
                      designing analyses of the impact of the home health PPS and to consider
                      changes to the payment to ameliorate any identified problems.

                      CMS also provided technical comments, which we incorporated as
                      appropriate.




                      Page 14                 GAO-03-878 Home Health Care Nonroutine Medical Supplies
We are sending copies of this report to the Administrator of the Centers
for Medicare & Medicaid Services, appropriate congressional committees,
and other interested parties. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov. If you or your staffs
have any questions, please call me at (202) 512-7119. This report was
prepared under the direction of Carol Carter.




Laura A. Dummit
Director, Health Care—Medicare Payment Issues




Page 15                  GAO-03-878 Home Health Care Nonroutine Medical Supplies
List of Committees

The Honorable Charles E. Grassley, Jr.
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable Bill Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives

The Honorable W.J. “Billy” Tauzin
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives




Page 16                  GAO-03-878 Home Health Care Nonroutine Medical Supplies
           Appendix I: Comments from the Centers for Medicare &
Appendix I: Comments from the Centers for
           Medicaid Services



Medicare & Medicaid Services




(290036)
           Page 17                      GAO-03-878 Home Health Care Nonroutine Medical Supplies
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