oversight

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)

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                                                               MEDICARE
                                                               Comparison of Two
                                                               Methods of Computing
                                                               Home Health Care
                                                               cost Limits




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~~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_“_--                       -




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                                                                                  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.
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      FirstAhss        Mail
    POSCik#e 82 FWhS PiLid
             GAO
      Permit. No. G IO0