United States GAO General Accounting Washbgton, D.C. 20648 Office Health, Education, and Euman~ce!sDivisioII B-283578 October 19. 1999 The Honorable Fortney (Pete) Stark Ranking Minority Member Subcommittee on Health Committee on Ways and Means House of Representatives Subject: Medicare Home Health: Effect on Suendinn of Limitina Pavment for Non- Patient-Care Costs Dear Mr. Stark: Medicare spending for home health care grew from $3.7 billion in 1990 to $17.3 billion in 1998. Concerned about rising spending, the Congress required the Secretary of Health and Human Services to implement an interim payment system (IPS) to control outlays until a prospective payment system (PPS) could be put in place on October 1,200O. PPS rates will be set so that Medicare expenditures will be equivalent to what would have been spent under the IPS if the IPS limits that will be in effect on September 30,2000, were reduced by 15 percent. Concerned about the substantial portion of home health agency (HHA) costs that were not directly related to patient care, you asked us to model the impact of constraining these costs through various limits. In this context, we (1) examined the variation in total and non- patient-care costs across agencies and (2) estimated the effect on Medicare payments if constraints were imposed on payments for non-patient-care costs. To obtain this information, we used data on 4,910, or approximately 75 percent, of the free-standing HHAs with information in the Health Cam Financing Administration’s (HCFA) fiscal year 1996 Health Care Provider Cost Report Infotmation System data file (see encl. I).’ We pexformed our work between August and October 1999 in accordance with generally accepted government auditing standards. SUMMARY Per-visit costs varied widely both by visit type and across free-standing agencies. Home health aide visits were the least expensive, and medical social service visits were the most expensive. Across agencies, costs per visit for the most expensive agencies were 4 to 10 times those of the least expensive agencies, depending on the type of visit. Non-patient-care ‘HHAs may be either free-standing or facility-based. Most of the facility-based agencies are hospital-based. According to fiscal year 1996 data, there were 2,628 facility-based agencies and 6,465 free-standing agencies. GAO/EEHS-OO-19R Medicare Home Health Payment Limits B-283578 costs constituted a substantial portion of the cost for each home health visit, averaging around 44 percent for each visit type. Moreover, the portion of visit costs that were not directly related to patient care was higher for more expensive visits. In addition, for the sample of free-standing HHAs we analyzed,Medicare payments would have been approximately 4 to 13 percent less if payments for non-patient-care costshad been heid to various limits based on the cost experience of a subsetof HHAs. For example, if Medicare payments for non-patient-care costs had been limited to the median costs of free- standing HHAs (the 50th percentile), total payments would have been reduced by 3.9 percent. If payments for non-patient-care costs had been limited to the cost level of the least expensive 20 percent of HHAs (the 20th percentile), total spending would have been 12.6 percent lower. The current per-visit cost limits already indirectly constrain Medicare payments for non-patient-care costs, although not as much as a limit applied directly to non- patient-care costs would. It is not known how the savings estimateswould have differed if all HHA.~, including the generally higher-cost hospital-based ones, had been included in the analysis. BACKGROUND Home health care is an important Medicare benefit that enables beneficiaries with post-acute care needs (such as recovery from joint replacement) and chronic conditions (such as congestive heart failure) to receive care at home rather than in other settings. The scopeof home health care has changed markedly since Medicare began to cover it. Expansion of eligibility has allowed more beneficiaries to qualify for services and permitted more services to be provided to users, transforming the benefit from one that originally covered short-term care to one that covers long-term care as well. The standardsfor what constitutes necessary or appropriate home health care are not well defined, and service provision is inconsistent across agencies. Even the most basic unit of service, the visit, is not clearly defined. Costs per user vary widely, reflecting differences in patient needs,treatment patterns, agency type, and ogeogmphiclocation. . Costs per user also reflect the number, mix, and cost of individual home health visits. Costs for each visit type are composed of direct patient care expenses(predominantly labor costs for caregivers) and non-patient-care expenses (such as capital, plant operations and ? maintenance, transportation, and administration). Hospital-based HHAs generally have higher total per-visit and non-patient-care costs than free-standing agencies do. Prior to payment changes mandated in the Balanced Budget Act of 1997, agencies were paid on the basis of their costs up to preestablished per-visit limits equal to 112 percent of the national average cost per visit.2 There was a separate limit for each type of visit (skilled nursing; physical, occupational, or speech therapy; medical social service; and home health aide), bat the knits were applied in the aggregate to each agency’s costs. That is, costs above the limit for one visit type would still be paid if costswere sufficiently below the limit %e schedule of limits for cost reporting periods be,@nningon or after July 1,1994, and before July 1,1996, was based on per-visit limits calculated in 1993 (which were based on data from cost reporting periods ending on or after June 30,1989, and before May 3 1, 1991, and were adjusted forward to 1993). The Omnibus Budget Reconciliation Act of 1993 mandated that there be no changes in the HHA limits for cost reporting periods beginning on or after July 1, 1994, and before July 1, 1996. 2 GAO/HEHSOO-19R Medicare Home Health Payment Limits B-283578 for other visit types so that, in total. agency costswere below the sum of their volume- adjusted Per-visit limits. The IPS was implemented on October 1, 1997. Under the IPS, agencies are paid their actual costs up to the lower of the per-visit limits applied in the aggregate or an agency-specific revenue cap that is based on a per-beneficiary amount and the number of beneficiaries served. The per-visit limits control the payments per visit, while the revenue cap constrains the visits provided to users. Under the PPS,the payment methodology will change again: payments will be established in advance of service delivery, and the payment for each user will vary to account for patient characteristics and other factors that affect the cost of home health care. VARIATION IN NON-PATIENT-CARE COSTS Average agency costs per visit varied considerably by the type of home health visit. Average visit costs varied even more for each type of visit across agencies. As a result of the wide range in visit costs across both visit fypes and agencies, the dollar amounts attributed to non-patient-care expenses were highly variable as well. Moreover, the share of per-visit costs attributable to non-patient-care expenseswas larger for more expensive visits of all types. In fiscal year 1996, the average free-standing agency per-visit costsranged from $43 for a home health aide visit, the most frequent visit type, to $15 1 for a medical social service visit (see encl. II). Skilled nursing visits, the secondmost frequently supplied service, averaged $95. Non-patient-care costs accounted for a substantial proportion of these costs, averaging around 44 percent for each visit type. The dollar amount of the average agency’s non- patientcare expenses varied from $19 for home health aide visits to $66 for medical social service visits. For each of the visit types, the cost per visit varied substantially across agencies. For example, one-quarter of the HHAs had skilled nursing costs at or below $76, while the quarter of agencies with the most expensive skilled nursing visits had visit costs of $107 or higher (see table 1). Across the f&e-standing agenciesin our sample, per-visit costs for the most expensive agencies were 4 to 10 times those of the least expensive agencies, depending on the visit type. 3 GAO/HEHS-00-19R Medicare Home Health Payment Limits B-283578 Table 1: Free-Standiw HHA Costs uer Visit. bv Visit Tvoe. Fiscal Year 1996 Distribution of agency costs, by quartile” Visit type 25th percentile 50th percentile 75th percentile Skilled nursing $76 $91 $107 Physical therapy 86 105 131 Occupational 84 105 134 therapy Speech therapy 85 107 136 Medical social 100 130 171 services Home health 34 41 48 aide %e first quartile is the 25th percentile, the median is the 50th percentile, and the third quartile is the 75th percentile. Source: GAO analysis of fiscal year 1996 HHA Medicare cost report data. The share of the total costs attributed to non-patient-care expenses was higher for more costly visits. For example, non-patient-care costsfor skilled nursing visits averaged 38 percent of total visit costs for the least expensive quarter of agencies, compared with 47 percent for the most expensive quarter. The range is even greater for home health aide visits, with the non-patient-care portion averaging 37 percent of total visit costs for the least expensive quarter of agencies and 49 percent for the most expensive quarter of agencies. 4 GAO/HEHS-OO-19R Medicare Home Health Payment Limits B-283578 EFFECT ON MEDICARE PAYMENTS OF CAPPING NON-PI?ITIENT-CARE COSTS Caps on Medicare payments for non-patient-care costs, in addition to the existing per-visit limits, could have lowered Medicare payments to free-standing HHAs by nearly 4 percent to almost 13 percent, depending on the level of the caps. The per-visit limits, which are based on national average costs, indirectly restrict payment for non-patient-care costs, so non- patient-care payment caps would need to be set below the cost of the median HHA to substantially affect Medicare expenditures. Although non-patient-care COW are constrained, the application of the current per-visit cost limits still allows considerable vtiation in non- patient-care costs across agencies. Aggregate Medicare spending for free-standing HHAs in fiscal year 1996 could have been 3.9 percent lower if non-patient-care costs had been limited to the median costs of free- standing HHAs, or the 50th percentile amount. At this cap, non-patient-care payments would have been no higher than $40 for a skilled nursing visit and $18 for a home health aide visit (see table 2). Table 2: Free-Standing HHA Estimated Non-Patient-Care Costs Der Visit. bv Visit Tvne, Fiscal Year 1996 I-ski&xi Distribution of non-patient-care costs, by docile” Visit type 20th percentile 39th percentile 40th percentile 50th percentile rnllsill~ Physical $27 27 $32 34 $36 40 $40 46 thera 26 33 39 45 E Occupational thera Speech 27 33 39 45 34 42 49 57 11 14 16 18 TkciIes are percentiles at the IO’, 20” . . .90” percentiles. Source: GAO analysis of fiscal year 19% HHA Medicare cost report data. Aggregate savings could have reached 12.6 percent if the non-patient-care payment limits had been equal to the 20th percentile costs of free-standing HHAs (see table 3). At this cap, non- 5 GAOIHEHS-OO-19R Medicare Home Health Payment Limits B-283578 Ijatient-care payments would have been limited to $27 for a skilled nursing visit and $11 for a home health tide visit, as shown in table 2. ITable 3: Estimated Reductions in Medicare Spending for Free-Standing HHAs With Various I,imts on Non-Patient-Care ExDenses. bv Percentile. Fiscal Year 1996 Payment limit, set at percentile of non-patient-care costs 20th percentile 30th percentile 40th percentile 50th percentile . Percent reduction 12.6 8.8 5.9 3.9 in Medicare &urce: GAO analysis of fiscal year 1996 HHA Medicare cost report data. In 1996, the per-visit limits for each visit type except home health aide were near or below the median agency per-visit costs (see table 4). As a result, payments for non-patient-care costs were already being constrained. This is why the savings associatedwith a non-patient- care payment cap at the 50 * percentile are not higher. Table 4: Per-Visit Pavment Limit and Proportion of Free-Standing HHAs With Costs at or Below the Pavment Limit, bv Visit Tm, Fiscal Year 1996 Source: GAO analysis of fiscal year 1996 HHA Medicare cost report data. Per-visit limits on HHA payments do not constrain payments for non-patient- costs,or limit the variation in these payments, as much as a cap directly applied to payment for such costswould. Under the per-visit limits, agencies could receive higher payments for non- patient-care costsif low direct patient care costs resulted in total visit coststhat were below the per-visit limit. Furthermore, the per-visit limits are applied in the aggregate, so agencies with costshigher than the limits for one type of visit may still be paid their total costsif their costsfor another visit type are sufficiently below the limit. AGENCY COMMENTS HCFA had an opportunity to comment on a draft of this letter. HCFA officials affirmed the need to implement a PPS that will ensure accurate payments that are based on patient needs and that will no longer vary from agency to agency on the b&s of non-patient-care costs. 6 GAOIHEHS-OO-19B Medicare Home Health Payment Limits B-283578 We are sending copies of this report to the Honorable Nancy-Ann Min DeParle, HCFA Administrator, and other interested patties, and we will make copies available to others on request. If you or your staff have any questions regarding this letter, please contact me at 1,202) 5 12-7 119 or Carol Carter, Assistant Director, at (3 12) 220-77 11. Other contributors to this analysis were Jean Chung, Christine DeMars, and Daniel Lee. Sincerely yours, Laura A. Dummit Associate Director, Health Fiiancing and Public Health Issues Enclosures - 2 GAO/HEHS-00-19B Medicare Home Health Payment Limits ENCLOSURE I ENCLOSURE I SCOPE AND METHODOLOGY We used fiscal year 1996 Medicare cost report data from the Health Care Financing Administration’s (HCFA) Health Care Provider Cost Report Information System (HCRIS) data file to determine the variation in home health per-visit costs, identify actual home health agency (HHA) payments, and estimate payments that could result from limiting non-patient-care costs. We used fiscal year 1996 data because they were the most complete data available at the time of our analysis. To control for regional wage differences, we adjusted costs for wage differences across8eo8raphic areas according to the methodology prescribed in the regulations1 We excluded the 2,628 facility-based agencies from our sample because their non-patient-care costs are not separately reported in HCRK2 We excluded 1,555 other providers that fell into the following categories: - agencies with low or no Medicare utilization or no administrative costs; agencies we defined as outliers, or those with wage-adjusted average cost per visit greater than $800 or less than $10; agencies for which the individual cost component amounts did not add up to the reported total cost per visit amount; and agencies with cost report periods lasting less than 10 months or more than 13 months, since these agencies may have distorted costs. After all exclusions, the total number of agencies remainin g for our analysis was 4,910. Because some agencies do not provide all types of visits, however, the number of agencies included in each step of the analysts varied depending on the type of visit being analyzed. The Medicare cost report presents costs for each visit type in five categories: direct costs associated with providing a visit, capital-related costs,plant operations and maintenance costs,transportation costs, and administrative and general costs. The non-patient-care costs were defined as the last four cost categories. ‘58 Fed. Reg. 36,751 (July 8, 1993). *Although our sample excluded facility-based HHAs, it is important to note that there are instances in which the Medicare pro,- has discounted facility-based costsin developing reimbursement rates (for example, for skikd nursing facility payments) and has calculated separate rates for free-standing and hospital-based facilities (for example, for dialysis services). 8 GAOIHEHS-OO-19R Medicare Home Health Payment Limits ENCLOSURE I ENCLOSURE I Almost all (97 percent) of the non-patient-care costs in aggregate are in the administrative and gene& cost category. GAO/HEHSdKb19R Medicare Home Health Payment Limits ENCLOSURE II ISNCLOSURE II ‘I’OTAL AND NON-PATIENT-CARE COSTS PER VISIT. BY VISIT TYPE AND PERCENTILE GROIJPINGS Home health alde Average cosl/vlsit 4,897 $46 $43 $23 $28 $32 $38 $46 562 $61 $03 Average IIon-pallent-care cosUvislt SIO $8 110 $13 $16 $21 $26 530 546 Average % nonpatlent care 44% 34% 36% 30% _-42% -.-46% ___ 46% 60% 60% Average % nonpntlent care for 44% all vlalt types - - I II GAO/HEW+OO-19R Medicare Home Hcnltl~ Fnyment IhIts Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by maik U.S. General Accosting Office P.O. Box 37050 Washington, DC 20013 or visiti Boom 1100 700 4th St. NW (corner of 4th and G Sts. 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Medicare Home Health: Effect on Spending of Limiting Payment for Non-Patient-Care Costs
Published by the Government Accountability Office on 1999-10-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)