- ..-._..._ ...---_I -__-. I.l-.l..1.1. ..- -.I..._.,.... “ll^-.-_- .-_-“_. _.II__-___ Sfq)lwillMT I!t!)o MEDICARE Comparison of Two Methods of Computing Home Health Care cost Limits l_l- ---__.---__ .._ ~~Ao/rlltI~-!~o-l~i7 Human Resources Division B-240827 September 28, 1990 The Honorable Lloyd Bentsen Chairman, Committee on Finance United States Senate The Honorable John D. Dingell Chairman, Committee on Energy and Commerce House of Representatives The Honorable Dan Rostenkowski Chairman, Committee on Ways and Means House of Representatives This report discusses the potential effect on Medicare costs and beneficiaries of applying home health cost limits by type of service. The report also discusses the effect on the amounts of the cost limits resulting from the shift from computing the limits at the 75th percentile of home health agency costs to using 112 percent of mean costs. Our work was mandated by the Omnibus Budget Reconciliation Act of 1986. We are sending copies of this report to the Director, Office of Management and Budget; the Secretary of Health and Human Services; Congressional Committees and Subcommittees; and other interested parties. The report was prepared under the direction of Janet Shikles, Director of Health Financing and Policy Issues. She can be reached on (202) 276-6451 if you or your staff have any questions. Other major contributors are listed in appendix I. Lawrence H. Thompson Assistant Comptroller General Ekecutive Summary In 1989, Medicare paid home health agencies about $2.8 billion for the Purpose 38,4 million visits they made to 1.6 million beneficiaries. To provide home health agencies a financial incentive to control their costs, Medi- care prospectively establishes upper limits on the amount per visit it will pay. For the year beginning July 1, 1985, the Department of Health and Human Services (HHS) revised the methods used to compute and to apply the cost limits. The Congress was concerned that the revisions could adversely affect beneficiaries and, in the Omnibus Budget Recon- ciliation Act of 1986, required HHS to reinstate the former method of applying the limits. The act also required GAO to review the effects on beneficiaries and home health agencies of methods of computing and applying cost limits. (See p. 13.) Medicare pays for six types of home health visits to beneficiaries- Background skilled nursing; physical, speech, and occupational therapy; medical social services; and home health aide. Medicare reimburses home health agencies their reasonable costs for providing these visits. Beginning in 1979, Medicare established upper limits on the costs it would recognize as reasonable. Until 1986, the limit for each type of visit was computed at the 75th percentile of all home health agencies’ costs. An agency was permitted, however, to offset costs exceeding the limits for one type of visit by amounts below the limits for other types of visits. This process is known as applying the limits in the aggregate. (See pp. 10-l 1.) In 1986, HHS changed the way the cost limits were computed and applied. For each type of visit, limits were (1) set at a specific per- centage of the mean cost of all agencies for the type of visit and (2) applied to each type of visit. Thus, agencies could not use costs below the limit for one type of visit to offset costs above the limit for another type of visit. (See p. 11.) The Omnibus Budget Reconciliation Act of 1986 codified HHS'S practice of computing limits based on a percentage of mean costs. But the act prohibited applying the limits by type of visit for cost-reporting periods begun after June 30, 1986. Therefore, the former method-applying limits in the aggregate-was reinstated. (See p. 12.) GAO estimates that Medicare costs would have been reduced by 2.6 per- Results in Brief ” cent, or $49 million, if cost limits had been applied by type of visit for cost-reporting periods during the year beginning July 1, 1989. Applying cost limits by type of visit would have produced payment reductions to Page2 GAO/H&D-O-167M~~HomeHealthCareCoetLimite Executive Summary twice as many agencies as applying the limits in the aggregate. The reduction in payments would have been small for most agencies, how- ever. (See pp. 17-21.) GAO surveyed a random sample of agencies that would have faced addi- tional reductions for cost-reporting years beginning between July 1, 1987, and June 30, 1988, if type-of-visit cost limits had been used. Over 40 percent of these agencies said that the additional reductions would have caused them to terminate participation in Medicare or curtail ser- vices. However, in most cases GAO found other agencies in the same geo- graphic areas that were willing and able to expand services even if type- of-visit limits were used. GAO estimates that the net effect would be that 1.8 percent of home health visits to beneficiaries would potentially not be available if type-of-visit cost limits were adopted. (See pp. 21-22.) The purpose of cost limits is to give home health agencies incentives to control cost growth. In the final analysis, the question is whether the additional savings Medicare would realize from applying cost limits by type of visit are worth the small decrease in beneficiary access that could result. GAO also found that changing the cost-limit-computation method-from the 76th percentile of home health agencies to 112 percent of mean costs-had little effect on limit levels. Most limits were slightly higher under the revised method. The main effect was that home health aide limits were 6 percent lower in rural areas and 3 percent lower in urban areas. (See pp. 24-26.) GAO's Analysis Type-of-Visit Cost Limits GAO compared the number of home health agencies whose Medicare pay- Would Have Little Effect ments would be reduced under cost limits when applied in the aggregate to the number affected by type-of-visit cost limits. This comparison cov- on Agencies or ered the years beginning July 1, 1984 through 1987 and 1989. About Beneficiaries twice as many agencies would be affected by applying limits by type of visit: for 1989,48 percent versus 26 percent of urban agencies and 31 percent versus 18 percent of rural agencies. However, the amount of * additional reduction most agencies would face under type-of-visit cost limits was small. For 1987, about 66 percent of agencies would have faced additional reductions of less than 1 percent of Medicare revenues. Page 8 GAO/EJRDBO-167 Medicare Home Health Care Cost Limits Executive Summary I Only 8 percent of agencies would have faced reductions of over 10 per- cent. (See pp. 17-21.) GAO contacted a random sample of 288 home health agencies that would have faced additional reductions in their 1987 through 1988 cost- reporting year. About 11 percent of these agencies said they would stop participation in Medicare under type-of-visit cost limits, 30 percent said they would curtail services. However, in most cases, other providers with costs below the limits said they would expand services to pick up the slack. Overall, 1.8 percent of visits would potentially not be pro- vided by other agencies. (See pp. 21-22.) Most agencies would face no or only small additional reductions under type-of-visit cost limits. In most cases in which agencies said they would reduce services, other providers appear ready and willing to expand ser- vices. Because of these two factors, GAO believes beneficiary access to home health care would not be affected substantially. Changing Cost-Limit- GAO compared the cost limits and the number of agencies affected by Computation Method Had them under the old 75th-percentile-of-agencies costs and the current 112-percent-of-mean cost methods. The cost limits were slightly higher Little Effect under the 1 la-percent-of-mean cost method for most types of visit, with the major exception of home health aide visits, which would have had limits of 3 percent (urban areas) to 5 percent (rural areas) lower under the old method. (See pp. 24-26.) Cost limits were only changed to a small degree by the shift in computa- tion methods; therefore, that change should not have had a significant effect on either beneficiaries or home health agencies. Medicare costs were probably slightly higher during the annual period ended June 30, 1990, under the current method than they would have been under the old method. GAO is making no recommendations. Recommendations GAO did not obtain written comments on this report, but discussed its Agency Comments v contents with HHS officials and included their comments where appropriate. Page 4 GAO/I-IRIMO-167Medicare Home Health Care Cost Limlta Page 6 GAO/HUD90467 Medicare HomeHealth Care Cost Limits i Contents Executive Summary 2 Chapter 1 8 Introduction Medicare and Home Health Care 8 Home Health Agencies 9 Program Administration 10 Medicare Payment Process for HHAs 10 Objectives, Scope, and Methodology 13 Chapter 2 17 Applying Cost Limits Medicare Savings Would Result From Applying Cost 17 Limits by Type of Visit by Type of Visit Effect on Beneficiary Access to Home Health Care Should 21 Should Have Little Be Small Effect on Medicare Quality of Care Should Not Be Significantly Affected Observations of HHA Associations 22 22 Beneficiaries Conclusions 22 Chapter 3 24 Use of Percentage of Difference Between Percentile and Percentage-of-Mean 24 Cost Methods Mean Method Changing Method of Setting Cost Limits Had Little Effect 24 Generally Increased on HHAs Cost Limits Conclusions 26 Appendix Appendix I: Major Contributors to This Report 28 Tables Table 1.1: Medicare-Certified HHAs at Selected Dates 10 Table 1.2: HHA Cost-Limit Method by Year 12 Table 1.3: Base Payment Limits for HHAs (July 1,1987) 13 Table 1.4: Difference in Medicare Payments Between 13 Applying Cost Limits in the Aggregate and by Type of Visit for an Urban Florida HHA Table 1.6: HHAs in Data Base Used to Compute 1986 and 14 1987 Cost Limits by Type of Ownership and Hospital- Based Status Page 6 GAO/HRD-90467Medicare HomeHealth Care Cost Llmita Cvntente Table 2.1: Estimated Medicare Savings and Percentage of 18 HHAs Affected Using Cost Limits by Type of Visit and in the Aggregate by Urban and Rural Location (Annual Periods Beginning July 1, 1984-87, and 1989) Table 2.2: HHAs by Amount of Additional Medicare 20 Revenue Reduction From Applying Cost Limits by Type of Visit (1987) Table 2.3: HHAs by Additional Percentage Reduction in 20 Medicare Revenues From Applying Cost Limits by Type of Visit (1987) Table 2.4: Additional Percentage Reduction of Medicare 20 Revenues by Type of HHA Ownership (1987) Table 2.6: HHAs in Sample That Said They Would 21 Terminate or Curtail Services Under Type-of-Visit Cost Limits Table 3.1: Cost Limits for Urban and Rural HHAs for July 25 1, 1989, Computed Using the 75th-Percentile and 112-Percent-of-Mean Cost Methods Table 3.2: HHAs Affected by July 1,1989, Cost Limits 26 Computed Using the 1 12-Percent-of-Mean and the 7&h-Percentile-of HHA Costs Methods Abbreviations HCFA Health Care Financing Administration HHA home health agency HHS Department of Health and Human Services 0~~~446 Omnibus Budget Reconciliation Act of 1986 Page7 GAO/IiRDW-167 Medicare Home Health Care Cost Limits Chapter 1 , Introduction Medicare paid home health agencies (HHAS) about $2.8 billion during 1989, making it the largest single payer of home health services. The Medicare program covers six types of home visits-skilled nursing; physical, speech, and occupational therapy; medical social services; and home health aide services. In 1989, Medicare paid for about 38.4 million visits provided to about 1.6 million beneficiaries. Medicare uses a reasonable cost-reimbursement system for home health services that pays HHAStheir costs of furnishing services. Under authority of section 223 of the Social Security Amendments of 1972,’ the Department of Health and Human Services (HHS) establishes upper limits on the amount of costs Medicare will recognize as reasonable for home health services. HHSchanged its regulations to revise the methods used to compute and apply these cost limits effective July 1, 1985. HHSstated that most HHASwould receive lower total Medicare payments than under the old method. The Congress, concerned that lower Medicare payments would translate into reduced access to services for beneficiaries, prohib- ited HHS,through section 93 15 of the Omnibus Budget Reconciliation Act of 1986 (OBRASG)(P.L. QQ-509), from revising the method of applying the limits. Section 9315 of the act did, however, revise the method for com- puting the cost limits and require us to study several issues related to setting and applying cost limits. Title XVIII of the Social Security Act authorizes a broad health insur- Medicare and Home ante program-known as Medicare-for most Americans aged 66 and Health Care over and certain people under 65 who are disabled or have chronic kidney disease. Medicare consists of two parts-hospital insurance (part A) and supplemental medical insurance (part B). Part A is prima- rily financed by Social Security payroll taxes from employers, employees, and the self-employed. Part B is a voluntary program financed by federal general revenues and monthly premiums collected from participating beneficiaries. Both parts cover health care services provided to eligible beneficiaries in their homes. Most services have beneficiary deductibles and coinsurance require- ments, but home health care under Medicare is available at no cost to the beneficiaries. Medicare home health care services include: l part-time or intermittent skilled nursing care provided by or under the supervision of a registered nurse; ‘Amendedsection1861(v)of thesocialSecurityAct. Page 8 GAO/HRDQO-167Medicare HomeHealth Care Cost Limits Chapter 1 lntmduction l physical, occupational, and speech therapy; l medical social services, which include services necessary to help patients adjust to social and emotional conditions related to health problems; and . part-time or intermittent services from a home health aide, which include such activities as helping patients bathe, get in and out of bed, take self-administered medications ordered by a physician, and exercise. Medicare also pays HHASfor medical supplies (other than drugs and bio- logicals) and equipment furnished in the beneficiary’s home. To be eligible for home health care, a beneficiary must be confined to his or her residence (homebound); be under a physician’s care; and need part-time or intermittent skilled nursing care, physical therapy, or speech therapy. Services must be (1) ordered in a plan of care prepared and periodically reviewed by a physician and (2) furnished by a partici- pating HHA (either directly or through arrangements with others). To participate in Medicare, an HHA must meet requirements specified in Home Health Agencies the Social Security Act and implementing regulations. The act defines an HHA as a public agency or private organization primarily engaged in pro- viding skilled nursing and other therapeutic services. To become Medi- care certified, an HHA must (1) directly provide skilled nursing care and at least one other service and (2) meet Medicare’s conditions of partici- pation. The regulations related to the conditions of participation set forth standards for such things as staff qualifications, medical record keeping, and quality assurance procedures. HHASare periodically reviewed by state inspection agencies to assure they are in compliance with these standards. The number of Medicare-certified HHASincreased from 2,212 in December 1972 to 6,953 in December 1986. Since that time, however, the number has decreased slightly to about 5,760. The number of partici- pating HHASat selected times is shown in table 1.1. Page 9 GAO/HRD!W167 Medicare Home Health Care Cost Limits Chapter 1 IlltrOdUCtlOll Table 1.1: Medicare-Certified HHAs at Selected Dates Date Number of certified HHAs December 1972 2,212 December I 97ga 2,858 December 1980 3,012 December 1985 5,932 December 1986 5,953 December 1988 5,688 December 1989 5,662 September 1990 5,763 *The first year that cost limits were in effect The growth primarily took place in facility-based2 and for-profit HHAS, while the number of nonprofit HuAs-visiting nurse associations and official agencies3 -declined. Health Care Financing Administration (HCFA) administers Medi- Program HHS’S care. HCFA contracts for claims processing and payment with Blue Cross Administration and Blue Shield plans and commercial insurance companies, such as Aetna Life and Casualty and Mutual of Omaha. Those organizations that help administer part A are known as intermediaries; those that help administer part B, carriers. Intermediaries are responsible for processing home health claims whether covered under part A or part B. Medicare uses nine regional intermediaries to pay claims from HHAS. Intermediaries (1) make pay- ments for services provided by HHAS, (2) act as a channel of communica- tion between HHAS and HCFA, and (3) help in establishing and applying safeguards against the unnecessary use of program services. are paid during the year based on their estimated costs, and the Medicare Payment MIAS intermediaries make final settlements based on the amount of actual Processfor HHAs costs found to be reasonable under Medicare’s cost-reimbursement rules. MIAS’ annual cost reports, which are subject to desk review and field %‘acility-based agencies are those affiliated with hospitals, skilled nursing facilities, and rehabilita- tion agencies. “Visiting nurse associations are generally community-based HHAs supported by contributions and patient fees. Official (government) agencies consist mostly of county or local public health depart- ments, Another agency type is combined official agency, which is a governmental HHA that also receives voluntary support. Page 10 GAO/HRD-96-167Medicare Home Health Care Cast Limits chapter 1 Introduction audit by the intermediaries, are the basis for determining the costs of furnishing services and determining Medicare’s share of those costs. A general concern about cost-reimbursement systems is that they give providers little incentive to control cost growth. However, Medicare’s reimbursement system for home health care includes some cost-control incentives, primarily through the limits on reimbursable costs, estab- lished under section 223 of the Social Security Amendments of 1972. This provision authorizes HHS to prospectively establish limits “on the direct or indirect overall incurred costs or incurred costs of specific items or services or groups of items or services to be recognized as reasonable based on esti- mates of the costs necessary in the efficient delivery of needed health services to individuals covered by [Medicare].” Beginning in 1979, HHS established prospective maximum amounts, known as cost limits, that Medicare will pay for home health care. Accordingly, HHAS know in advance the maximum amount they can receive for providing services. Separate limits are set for rural and urban HHAs because costs tend to differ between them. A maximum is set for each type of visit-skilled nursing; physical, speech, or occupa- tional therapy; medical social services; and home health aide. However, the limits were applied in the aggregate. The maximum amount an HHA could be paid was determined by summing the products of the number of each type of visit provided by the cost limit for that type of visit. Thus, costs exceeding the limit for one type of visit could be offset if, and to the extent that, the HI-LA’Scosts were below the limit for other type(s) of visit. In other words, an HHA would not receive less than its total costs unless that amount exceeded the aggregate maximum limit. During the 198Os, the Congress enacted several provisions directly related to the home health cost limits. Section 2144 of the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-36) directed HHS to set the limits at an amount no higher than the 75th percentile of HHAS’ costs. Section 106 of the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248) directed HHS to set the limits based on the costs of free- standing HHAS only. HHS was to increase these limits for hospital-based agencies by an amount estimated to represent inpatient hospital costs apportioned to HHAS through the hospital-cost-report allocation process. For cost-reporting periods beginning on or after July 1, 1985, HHS changed its regulations for the methods of computing and applying cost limits. Instead of using the 75th percentile, a percentage of HHA mean Page 11 GAO/IiRD90-167 Medicare Home Health Care Cost Limits Chapter 1 Introduction cost was used as the limit. The percentage of mean cost was set at 120 percent for 1986, 116 percent for 1986, and 112 percent for 1987. Instead of applying the limits in the aggregate, they were to be applied by type of visit. Thus, costs exceeding the limit for one type of visit could no longer be offset, in applying cost limits, by amounts below the limit for other types of visits. HHS estimated that these two changes would result in 70 percent of all HHAS having Medicare payments reduced. Section 9316 of OBRA-86 (1) required HHS to revert to applying the cost limits in the aggregate for cost-reporting periods beginning on or after July 1, 1986, and (2) incorporated into law the percentage-of- mean method for setting the limits. Table 1.2 lists by year the method used to compute the cost limits and how they were applied. Table 1.2: HHA Cost-Limit Method by Year Year beginning July 1’ Computed at Applied 1979and1980 80th percentile of providers in aggregate 1981 to 1984 75th percentile of providers in aggregate 1985 120 percent of mean costs by type of visit 1986 115 percent of mean costs in aggregate 1987 onward 112 percent of mean costs in aggregate “Limits for 1981 were effective on October 1 and for 1982 on September 3. Currently, a base cost limit is computed by HCFA using the universe of cost reports for freestanding HHAS. The reported costs are standardized to remove the effect of differences in cost-reporting periods and local wage levels. Costs that are at the extremes are eliminated, and a cost limit for each type of visit is computed. Information from cost reports for hospital-based HHAS is used to compute the add-on amount for these HHAS. The limits are then applied in the aggregate. The base limits established for cost-reporting periods beginning on or after July 1, 1987, are shown in table 1.3. Page 12 GAO/lflU%96-167Medicare Home Health Care C&t Limb chapter 1 Introduction Table 1.3: BasePayment Limit8 for HHAs (July 1, 1987) Per-visit limits for HHAs Urban areas Rural areas Labor Nonlabor Labor Nonlabor Type of service Total portion portion Total portion portion Skilled nursing ..~ . -~._--.-_-_- . $58.19 - $45.90 - $12.29 $64.07 - $52.85 ‘$11.22 Physical therapy 55.94 44.11 11.83 64.61 53.37 11.24 Speech.--_ therapy . . ..L....- -” .._..__‘-L...-- ..-~..-- 60.14 47.39 12.75 73.87 60.79 13.08 Occupational ---_I_---..__-~___ therapy 57.46 45.12 12.34 70.92 58.28 1264 Medical ,._._..__._-social ._.- services _L__-_--.___ -- -.. 87.40 68.22 19.18 112.82 92.51 20.31 Home health aide 33.40 26.37 7.03 34.22 28.20 6.02 Applying cost limits by type of visit rather than in the aggregate can affect Medicare payments to an HHA. For the two methods, the differ- ence in effect on an urban Florida HHA in 1987 is shown in table 1.4. In this case, the HHA would receive its actual costs of $1.82 million under the aggregate method of applying the limits. This is because the excess costs for skilled nursing and physical therapy visits would be offset by amounts below the limits for other services. Under the type-of-visit method, the agency would receive $1.78 million, or about $38,500 less. Table 1.4: Difference in Medicare Payments Between Applying Cost Limits in the Aggregate and by Type of Visit for an Urban Florida HHA Effect using limits No. of Payment In the By type7 Type “..___- of visit --_-.._-I_.- . . I. . . - ._.- .-“._-.-_.- visits Cost limit limir Actual cost” aggregate visit Skilled nursing 19,454 $51.21 $996,239 $1,023,280 $-27,041 $-27,041 Phvsical therapv 4.613 48.69 224.607 236.093 -11.486 -11.486 Occupational -.__ therapy ..__-_ --.~----.----~.~-- 581 52.38 30,433 24,082 +6,351 0 Speech therapy ---_-___-_--- 318 54.41 17,302 13,229 +4,073 0 Medical l_."- "-l_._-social.------.- services 45 81.34 3.660 1.874 +I .786 0 Home health .._-_^.--__l_- aide 18,694 34.40 6431074 518:385 +124,689 0 Total $0 $-38,527 ‘Rounded to nearest dollar. Section 9316 of OBRA-86 required us to review, (1) the appropriateness Objectives, Scope,and and effect on beneficiaries of applying home health cost limits by type MethodologyY of visit and, (2) the appropriateness of the percentage-of-mean-cost limits in the law. For both of these requirements, the appropriateness of the cost limits depends on one’s perspective of how strong a cost-control Page 13 GAO/HRDBO-167Medicare Home Health Care Cost Limtta -- Chapter1 lntroductlon incentive the limits should give to HHAS. For this reason, and because of the Congress’ concern about the potential effect of the limits on benefi- ciary access to home health care, we assessed the effect on beneficiaries and HHAS of (1) applying limits by type of visit and (2) setting limits at 112 percent of mean costs. For the annual periods beginning July 1, 1984 through July 1, 1987, we obtained the HIHA cost-report data base that HCFA had used to compute the cost limits. This data base contained information extracted from the cost reports of 3,491 HHAS. Of these cost reports, 364 covered less than a full year and were not used by HCFA or us in calculating cost limits. (An additional 15 were dropped for other reasons.) The remaining 3,112 cost reports were for annual periods ending between October 1, 1982, and September 30,1983. The numbers of HHAS by type of ownership and hospital-based status are listed in table 1.5. Table 1.5: HHA8 in Data Base Ueed to Compute 1986 and 1987 Cost Limits by Ownership Hospital-based Others Total Type Statusof Ownership and Hospital-Based Voluntary nonprofit 2 563 565 Private nonprofit 279 425 704 Official 86 794 880 Proprietary 20 900 920 Combination official 0 28 28 Unclassified 0 15 15 Total 387 2,725 3,112 Hospital-based HHAS were not used to compute cost limits because the Medicare statute requires that the limits be based on the costs of free- standing HHAS. However, our computation of effect on HHAS included hospital-based HHAS. The 3,112 HHAS provided a total of about 33.8 mil- lion visits, with urban HHAS providing about 80 percent of the total. For a random sample of 102 HHAS, we verified the accuracy of cost- related items by checking key elements of the data base against the cost reports. We found errors in the data base for 14 of the HHA cost reports. Some errors were trivial, but others were not. For example, the cost per skilled nursing visit was overstated by only 39 cents for one HHA, but the number of physical therapy visits was overstated by 5,770 for another. We also verified the accuracy of HHA classification data for 388 ran- domly selected HHAS and found inaccuracies for 16. For example, rural HHAS were classified as urban ones and vice versa. In addition, while Page14 chapter 1 Introduction checking to ensure the data were complete, we found 84 HHA cost reports that lacked only one easily obtainable data element. We added the data element and used these costs reports in our computations. Cor- rection of the errors identified by verifying the two random samples and use of the additional HHA cost reports resulted in the cost limits we com- puted differing somewhat from those computed by HCFA. For the annual periods beginning July 1, 1984, and July 1, 1985, we used the cost limits published by HCFAin the Federal Register. To com- pute cost limits for annual periods beginning on July 1 of 1986 and 1987, we used (1) the data base and (2) the same computation method that HCFAused for these years. For each HHA in the data base, we then calculated the effect of applying the limits by type of visit versus in the aggregate. For hospital-based HHAS,we used HCFA’Spublished add-on amount for the 1984 and 1985 limits; we computed the add-on amount for 1986 and 1987 using the data base as modified by us. We selected a random sample of 388 HHASfrom the universe of HHAS that would face an additional reduction in Medicare payments if cost limits were applied by type-of-visit beyond any reduction faced if cost limits were applied in the aggregate. Of these HHAS,78 no longer partici- pated in Medicare, and 22 could not be used for such reasons as not responding to questions and inability to contact HHA officials. This left a sample of 288 HJSAS that were contacted. We interviewed officials from each of the HHAS,asking whether the HHA would stop providing or cur- tail the affected types of visit in view of the additional payment reduc- tion and, if so, how many beneficiaries would be affected. We also interviewed officials of other HHASin the same service areas, asking whether their HHASwould expand services if other agencies eliminated or curtailed them. We used the results of these two sets of interviews to estimate the number of visits that may not be available to beneficiaries if the cost limits were applied by type of visit. We recognize that some responses to our questions might not represent what would actually occur if the method of applying cost limits was changed. That is, some HHASthat said they would curtail services might not actually do so; some that said they would expand might not. However, we believe that, on balance, the responses provide a reasonable estimate of the possible negative effect of changing the method of applying the cost limits. Two factors could result in our estimate being high. First, we did not contact all potential alternative providers who might be willing and able Page 15 GAO/HRD-!IO-167 Medicare Home Health Care Cost Limita Chapter 1 . Introduction to expand services. Second, some of the rural HHAS that said they would terminate or curtail services could probably qualify for an exception to the cost limits on the basis of being the only HHA in an area. With an exception, an HHA is reimbursed its full reasonable costs and would not need to terminate or curtail services. To assess the effect of the percentile of mean HHA cost limits established by section 9315, we determined the level the limits would have been set at if the 75th~percentile-of-costs method had been used, the previous maximum amount allowed by law. We then compared these amounts with those computed under the section 9315 method. We also compared the number of HHAS affected by the cost limits under the two methods. In 1989, HCFA prepared a new data base, consisting of 4,119 HHA cost reports, and computed cost limits for cost-reporting periods beginning July 1, 1989, through June 30, 1990. To determine if our findings would remain consistent with the new data, we did the same analyses using these data. We did not reinterview HHA officials, however. We also discussed the issues and the results of our analyses with offi- cials of HCFA, Medicare intermediaries, and HHAS in all areas of the country, and their comments are reflected in the report were appro- priate. Our work was carried out between October 1987 and March 1990 in accordance with generally accepted government auditing standards. Page 16 GAO/HlDW167 Medicare Home Health Care Cost Limita Chapter 2 Applying Cost Limits by Type of Visit Should Have Little Effect on Medicare Ekneficiaries If HHA cost limits had been applied by type of visit during the annual period beginning July 1, 1989, we estimate that Medicare payments would have been about $49 million lower. Because Medicare benefi- ciaries are not responsible for any payment for covered home health ser- vices, applying cost limits on a type of visit rather than an aggregate basis would not affect their costs for these services. The two potential effects on beneficiaries would be l decreased access to care if home health agencies dropped certain ser- vices or stopped participation because of lower limits and l lower quality of care if HHAs, to reduce their costs below the limits, take actions that effect quality. Our analysis indicates that access should not be affected to any large extent because for most HHAS the amount of additional payment reduc- tion resulting from applying cost limits by type of service would be small-about one-half of the HHAS affected would have reductions rep- resenting less than 1 percent of their Medicare revenues. HHA cost- reduction efforts should, in many cases, help to keep costs below the limits. Moreover, in most cases, other HHAS in the same area with costs below the limits would be able to pick up the slack if any HHA dropped services or stopped participation because type-of-visit cost limits were implemented. We found no way to estimate effects on quality of care. In view of the small or no reduction in revenues for most HHAS, we would not antici- pate any large effect on quality to result from type-of-visit cost limits, We estimate that Medicare home health costs would have been about Medicare Savings $36.9 million lower during the July 1,1987, through June 30,1988, Would Result From period if the cost limits had been applied by type of service rather than Applying Cost Limits in the aggregate.1 For the annual period July 1, 1989, through June 30, 1990, we estimate that Medicare costs would have been $49.3 million by Type of Visit less under type-of-visit cost limits. These estimates of Medicare savings, as well as the percentage of HHAS affected by applying cost limits by type of visit and in the aggregate for 1984 through 1987 and 1989, are shown in table 2.1. ‘HCFA had estimatedsavingsof about $30 million for this period. Whiie reviewing HCFA’sHHA cost- report data base,we identified a numberof errors for randomsamplesof HHAs.Wecorrectedthe identified errors beforecomputingthe cost-limit amounta,which resultedin amountsdifferent from thosecomputedby HCFAand in the difference in estimatedsavings.The figures in this chapter reflect the reviseddata. Page 17 GAO/HRIMO-167Medicare Home Health Care Cost Limits chapter 2 Applying Coat Limits by Type of Visit Should Have Little JSffecton Medicare BenefAdariefs Table 2.1: Estimated Medicare Saving8 and Percentage of HHAs Affected Using Dollars in millions Cost Limits by Type of Visit and in the 1984 Aggre ate by Urban and Rural Location Urban Percent affected Savings (Annua B Periods Beginning July 1, 1984-87, and 1989) Skilled nursing 28.5 $39.1 Phvsical therapv 23.8 10.6 Occupational therapy 18.0 2.3 Speech therapv 23.0 9.9 Medical social services 22.3 5.6 Home health aide 10.0 6.0 Total if applied by type of service 42.7 73.5 Total if applied in the aggregate 21.4 34.7 Difference 21.3 $38.8 Rural Skilled nursiw 16.0 $11.5 Physical therapy 11.2 2.0 Occupational theraov 5.3 0.3 Speech therapv 8.1 0.7 Medical social services 7.2 1.4 Home health aide 6.3 1.1 Total if applied by type of service 23.9 17.0 Total if applied in the aggregate 13.2 10.1 Difference 10.7 $8.9 Page 18 GAO/H&D90-167 Medicare Home Health Care Cost Limits chapter 2 Applyku( Co& Limtta by Type of Visit Should Hava Ltttle Effkt on Medicare Beneflclarloe _".-_-- -.-. 1995 1988 1987 1989 “-- -.-.Percent l-^-_- affected Savings Percent affected Savings Percent affected Savings Percent affected Savings 26.1 $36.5 20.6 $22.7 21.0 $27.2 18.8 $81.0 22.3 10.4 18.2 6.8 18.3 7.8 18.8 17.6 ._.. 14.9 ._.... _ .. . _._-..____.___- 2.0 11.9 1.4 12.3 1.7 14.8 3.7 .___ .. 16.2 ."..__ __..* __... --..-.__-..-_. 9.6 14.3 6.3 14.9 7.2 14.8 3.6 13.5 3.2 10.5 2.4 10.7 2.7 11.5 7.0 15.3 12.7 16.9 -____ 15.3 18.6 17.6 17.7 40.5 39.3 74.4 35.8 54.9 36.8 64.2 47.9 153.4 21.9 40.1 15.8 24.8 17.9 31.7 25.9 115.0 17.4 $34.3 20.0 $30.1 18.9 $32.5 22.0 $38.4 17.2 $13.8 21.0 $19.9 22.5 $23.1 9.8 $26.4 10.7^ _._ ..,-2.1 ~---- . ...- -.---- 13.8 3.2 14.7 3.8 8.2 5.3 4.2 0.2 5.3 0.3 5.7 0.4 4.0 0.6 -3 -..-..---~j... 8.0 0.8 7.1 0.9 5.2 0.9 ~- . -.-~~ ---... 1.0 5.3 -_._.---..--.-_ 4.6 0.9 4.6 0.9 2.5 0.9 12.5 4.1 18.2 8.1 19.0 9.5 11.4 13.5 24.6 21.8 28.3 33.2 28.9 38.6 30.6 47.6 16.5 16.8 21.8 28.5 23.0 34.2 17.8 36.7 8.1 95.0 6.5 94.7 5.9 $4.4 12.8 910.9 To assess the effect on HHAS of the additional reductions in revenues that would result from applying cost limits by type of visit, we looked at the number of agencies that would have reductions in spe- cific dollar ranges (see table 2.2 for results). We also looked at the additional revenues lost as a percentage of Medicare revenues (see table 2.3 for results). For the 198’7 limits, only about 11 percent of HHAS would have additional reductions exceeding $25,000. About 56 percent would lose additional amounts of less than 1 percent of Medicare revenues; less than 8 percent would have additional reduc- tions of 10 percent or more. Page 19 GAO/liRLMW167 Medicare Home Health Care Cost Limits Chapter 2 Applybq Cast Limits by Type of Vi.& Should Have Little Effect on Mcdicarc Beneficiaries Table 2.2: WAS by Amount of Additional Medicare Revenue Reduction From HHAs $#ng Cost Limits by Type of Visit Additional reductions 1984 1985 1986 1987 None 907 1.050 1.102 1.097 $15,000 805 779 779 770 $5,001-10,000 286 290 273 262 $lO,OOl-25,000 418 369 387 385 $25.001-50.000 219 184 162 168 $50,001-100,000 116 94 66 87 Over$100,000 61 46 43 43 Table 2.3: HHAs by Additional Percentage Reduction in Medicare Percentage of Medicare HHAs Revenues From Applying Cost Limits by revenues lost 1984 1985 1986 1987 Type of Visit (1987) None 907 1.050 1.102 1.097 Less than 0.50 370 333 321 306 0.50to 0.99 177 166 168 167 1.oo to 2.49 328 344 332 341 2.50to .- 4.99 375 349 356 352 5.00to 9.99 373 3.51 326 339 10ormore 282 219 207 210 The additional percentage reduction of Medicare revenues, resulting from applying cost limits by type of visit in 1987, viewed from the per- spective of type of HHA ownership is shown in table 2.4. Private non- profit and proprietary HHAS would be most affected, followed by official HHAS. Voluntary nonprofit HHAS would be affected the least, with only 8 percent of them having revenue reductions of 5 percent or more com- pared with 27 percent of the proprietary HHAS. Table 2.4: Additional Percentage Reduction of Medicare Revenues by Type of HHA Ownership (1987) Percent of HHAs with additional reductions by percent reduction Type of ownership HHAs 0.0 0.01-0.49 0.50-0.99 1.00-2.49 2.50-4.99 5.00-9.99 Over 10 Combinktion 27 44 15 7 4 19 4 7 Official 805 40 ..--- 11 5 13 12 12 7 Volumary nonprofit 539 53 ___- 14 6 11 8 5 -__ i Private nonprofit 668 33 12 6 14 12 13 9 Probrietarv 763 31 8 6 14 14 16 11 Note: Percentages may not total 100 due to rounding. Page 20 GAO/~90-167 Medicare Home Health Care Cost Limits Chapter 2 Applying Cost Limits by !l’ype of VI& Should Have Little Effect on Medicare Beneflciariee Additional reductions as a percentage of Medicare revenue showed vir- tually the same distribution for rural and urban HHAS. To assess the effect on beneficiary access to home health services that Effect on Beneficiary might occur if cost limits were applied by type of visit, we contacted a Accessto Home Health random sample of 288 HHAS across the country that would have had Care Should Be Small additional revenue reductions in 1987 under such cost limits.2 The cost reports for these HHAS showed that they provided 3.3 million beneficiary visits, 2.6 million by urban HHAS, and 0.7 million by rural HHAS. Overall, 33 of the sample HHAS (11 percent) told us they would stop par- ticipating in Medicare under type-of-visit cost limits; 86 others (30 per- cent) said they would curtail one or more types of service. The number of HHAS sampled that said they would terminate participation or curtail services is shown in table 2.5. Table 2.6: HHAs in Sample That Said They Would Terminate or Curtail Services HHAs with Under Type-of-Vislt Cost Limits additional HHAs that would reduction Terminate Curtail services Type of visit Urban Rural Urban Rural Urban Rural Skilled nursing 82 47 11 13 13 1 Physical therapy 76 39 7 6 32 12 Occupational therapy 58 14 7 2 12 3 Speech therapy .l___- 67 34 5 5 19 5 Medical social services 46 26 2 3 18 6 Home health aide 35 28 6 7 9 5 Total’ 178 111 16 17 60 26 Wnduplicated count. Individual HHAs could curtail more than one type of visit or terminate with more than one type exceeding its cost limit. To determine whether other providers were willing to pick up services, we contacted officials of other providers with costs below the limits located in the same zip code area as HHAS that said they would terminate or curtail services. In addition, for one-half of the Department of Health and Human Services regions, we contacted other providers that we could identify as serving the service area of the HHAS but not located in 20f the original sample of 388 HHAs, 78 no longer participated in Medicare. Some of these HHAs had closed; others had been bought or had merged with another entity. We were able to contact 28 of the former owners. Fifteen of these HHAs were part of large chains that went through the process of deciding which individual HHAs were worth keeping in operation from an administrative or profit- ability perspective or both. Our interviews with the former HHA administrators showed that only 2 of 28 HHAs stopped operations because of Medicare reimbursement levels. Page 21 GAO/HRD-90-167Medicare Home Health Care Cost Limits Chapter 2 Apply& Coat Limita by Type of Visit Should Have Little Effect on Mexlkare Beneflcinrles the same zip code area. On the basis of these interviews, we estimate that nationally 1.8 percent of visits that could be eliminated by termina- tion or curtailment if type-of-visit limits were used would not be picked up by other providers who are ready and willing to expand services.3 Thus, it appears that applying cost limits by type of visit would not sig- nificantly affect the availability of home health services to Medicare beneficiaries. Cost-reduction efforts could, in theory, result in decreased quality of Quality of Care Should care. Under type-of-visit cost limits (1) more HHAS would face reductions Not Be Significantly in Medicare revenues than under aggregate cost limits and (2) those Affected HHAS affected by aggregate limits would face larger reductions under type-of-visit limits. In response, HHAS can take actions to reduce costs in order to eliminate or reduce the potential for not recovering their full costs. We did not find a way of directly assessing the effects on quality of care that would result from shifting to a type-of-visit cost-limit system because of the lack of a method to determine the kinds of cost-reduction actions HHASwould take. However, we do not believe quality of care would be significantly affected. As discussed previously (see pp. 19 and 20), most HHASaffected by a change in the method of applying cost limits would face relatively small additional reductions in Medicare rev- enues. Over 65 percent of the HHAS would need to reduce costs by less than 1 percent. The major associations representing HHAS have opposed applying cost Observations of HHA limits on a type-of-visit basis. Association officials believe that the cur- Associations rent aggregate method of applying the limits has the important advan- tage of allowing HHASto offset high costs for some types of visits with lower costs for types with more controllable costs. Under type-of-visit cost limits, association officials believe that HHAS’ only options are to incur financial losses or discontinue services when costs exceed limits. The purpose of cost limits is to give HHASa financial incentive to control Conclusions their costs, thereby helping to assure that Medicare does not pay for costs related to inefficient and uneconomical provision of services. ” Changing the method of applying cost limits-from the aggregate to 3The confidence interval at the f&percent confidence level is 0.9 to 2.7 percent. Page 22 GAO/IUD-90-167 Medicare HomeHealth Care Cost Umita Chapter 2 Applying tit Limits by Type of Visit Should Have Little ECffecton Medicare Beneflciaxiea type of visit-would give HHAS increased incentives to control costs for each type of visit. This is because costs above the limit for one type would no longer be able to be offset by costs below the limits for other types of service. In addition, Medicare costs for home health services would be reduced somewhat. We held discussions with HHAS that would be affected by a change in application method and other providers that serve the same areas. The results indicate that access to home health services would not be greatly affected. Most affected HHAS would continue to provide services and in most cases other providers could be expected to pick up the slack for affected HHAS that stop participating in Medicare or curtail services. We could not directly estimate the effect changing application methods would have on quality of care. But the fact that most HHAS would need to reduce costs by small amounts indicates that quality should not be significantly affected. In the final analysis, the question is whether obtaining the additional savings to Medicare is worth the small decrease in access that could result from applying cost limits by type of visit. Page 29 GAO/HRD!W-167Medicare HomeHealth Care Cost Unita Chapter 3 Use of Percentageof Mean Method Generally IncreasedCost Limits OBRA-86required us to assess the appropriateness of using the per- centage-of-mean-costs method of setting HHA cost limits. The purpose of cost limits is to give financial incentives to HHASto control growth in their costs; thus, the appropriateness of a particular method of setting limits depends on how strong the observer believes the incentives should be. We compared the effects on HHASof using the 112-percent-of- mean-cost method with those of using the former 75th-percentile-of- HHA-COStSmethod. The change to 112-percent-of-mean costs generally resulted in fewer HHASfacing reduced payments. Thus, HHASreceived somewhat weaker cost-control incentives than they would have under the 75th-percentile-of-costs method. Section 9316 of 0~~~46 incorporated into the Social Security Act HHS'S Difference Between regulatory action that changed the method for setting HHA cost limits Percentile and from the 76th percentile of HHA costs to a percentage of HHA mean costs. Percentage-of-Mean Under the percentile method, the standardized costs for each free- standing HHA in HCFA'Sdata base were arrayed from highest-cost to Cost Methods lowest-cost HHA. The limit was set at the point at which 75 percent of the applicable type of visit had a cost no more than of that HHA. For example, if the data base included 10 million skilled nursing visits, the cost limit for that service would be set at the cost of the HHA that fell at the point where 7.5 million visits had lower costs (10 million visits times 0.75 = 7.5 million visits). Under the percentage-of-mean method, the average (mean) standardized cost of all freestanding HHASin HCFA'Sdata base is computed. This mean cost is then multiplied by the applicable percentage, currently 112 per- cent, and the resulting amount becomes the cost limit. For example, if the weighted mean cost for skilled nursing visits was $65, the limit for that type of visit would be $72.80 ($66 times 1.12 = $72.80). The cost-limit program was established by the Congress as a means of Changing Method of giving providers an incentive to (1) control cost growth and (2) help Setting Cost Limits assure that Medicare did not pay unreasonably high costs. Because HHAS Had Little Effect on know in advance the maximum amount Medicare will pay them, they can take actions to lower costs if the limits would otherwise be HHAs exceeded. The goal is to set limits at levels so that efficient providers will recover their full costs, but less efficient ones will need to take cost- ” reducing steps or suffer a loss. Page 24 GAO/HRD9@107Medicare Home Health Care Cost Limb Chapter3 Use of Percentageof Mean Method Generally IncreasedCostLimits To assess the effect of the two methods of setting cost limits, we com- pared the number and extent of HHASfacing reduced payments under each. We computed what the cost limits would have been under the former 76th-percentile method for the period beginning July 1, 1989, and compared these amounts with those obtained using the 112-percent- of-mean method. The base cost limits for urban and rural areas under the two methods are shown in table 3.1. Table 3.1: Cost Limits for Urban and Rural HHAs for July 1,1989, Computed Urban Rural Using the 75th-Percentile and 112- 3pe Percentage- Percentiz Percentage- Percentile Percent-of-Mean Cost Methods of-mean of-mean of service costs HHAs Difference costs HHAs Difference- Skilled nursing $71.18 $70.54 $0.64 $74.34 $74.17 $0.17 Physical therapy 60.43 67.97 0.46 74.40 73.54 0.86 Occupational therapy 70.33 69.30 1.03 81.25 84.29 -3.04 Speech therapy 74.19 73.76 0.43 80.16 79.36 0.80 Medical social services 101.61 101.38 0.23 114.39 117.32 -2.93-. Home health aide 42.24 43.33 -1.09 30.20 40.49 -2.21 The cost limits for HHASwere higher under the 112-percent-of-mean method than under the old 7&h-percentile method, except in the case of occupational therapy and medical social services visits by rural HHAS and home health aide visits by both rural and urban HHAS. This means that the change to percentage-of-mean cost limits probably resulted in somewhat higher total Medicare payments and fewer HHAS being affected by the cost limits. The amount that affected HHASwould need to reduce costs to avoid a loss was also lower than it would have been under the 7&h-percentile method. Relatively few occupational therapy and medical social services visits are made, so the main effect would have been on home health aide visits. The number of HHASaffected in 1989 using the two methods is shown in table 3.2. Page 26 GAO/HRD-90-167Medicare HomeHealth Care Cost Limits chapter 8 Ueeof Percentageof Mean Method Generally Increased cost umlta Table 3.2: HHAo Affected by July 1,1989, Cost Llmita Computed U8ing the 112- Urban Rural Percent-of-Mean and the 75th- 1 pe Percentage- Percenti; Percentage- Percenti: Percentile-of HHA Cortr Method8 0r of-mean of-mean service costs HHAs Difference corn HHAs Difference Skilled nursing 774 820 -46 402 416 -14 Physical theratw 776 815 -39 337 350 -13 611 654 -43 166 140 +26 Speech theraw 610 631 -21 213 217 -4 Medical social services 474 400 -6 104 98 +6 Home health aide 729 674 +55 469 398 +71 The cost limits computed using the percentage-of-mean costs and Conclusions percentile-of-Has methods are similar. In 1989, the main effect of changing to the percentage-of-mean method was a decrease in the limit for home health aide visits-about 5 percent for rural HHAS and about 3 percent for urban HHAS. For the other major type of visit, skilled nursing, the cost limits are slightly higher. Page 26 GAO/IUD(H)-167 Medicare Home Health Care Cost Limits J Page 27 GAO/HRD-90-107Medicare Home Health Care Cost Limita * ” Ppe a hzr Contributors to This Report Jane L. Ross, Senior Assistant Director, (202) 276-6196 Human Resource Thomas G. Dowdal, Assistant Director Division, Matthew A. Varden, Evaluator Washington, D.C. Daniel J. Feehan, Site Senior Chicago Regional Office Dallas Regional Office Mary K. Muse, Site fknior James A. Slaterbeck, Site Senior Philadelphia Regional Office Belinda F. Jones, Site Senior San Francisco Regional Office (106304) Page 28 GAO/HRD-90-167 Medicare Home Health Care Cost Limits I *.,- _ - ----.-.----. ---_--_--l_ll~. tllll,*,-,II-II_“_-- - --1”1m11-1-- Ordtving lnftmnation Iii ‘I’ht~ first five copies of e!ach (;A(1 report. are free. Additional copies art’ $2 each. Ortitvs should he sent to the following address, atom- i 1J.S. Gtvltm~l Accounting Office I’.(). Box 6015 Gtithtv-sburg, MD 201377 1 Orders may also be placed by calling (202) 2756241. I -- - FirstAhss Mail POSCik#e 82 FWhS PiLid GAO Permit. No. G IO0
Medicare: Comparison of Two Methods of Computing Home Health Care Cost Limits
Published by the Government Accountability Office on 1990-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)