oversight

Medicare Home Health: Success of Balanced Budget Act Cost Controls Depends on Effective and Timely Implementation

Published by the Government Accountability Office on 1997-10-29.

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

                              United States General Accounting Office

GAO                           Testimony
                              Before the Subcommittee on Oversight and Investigations,
                              Committee on Commerce, House of Representatives




For Release on Delivery
Expected at 10:30 a.m.
Wednesday, October 29, 1997
                              MEDICARE HOME
                              HEALTH

                              Success of Balanced Budget
                              Act Cost Controls Depends
                              on Effective and Timely
                              Implementation
                              Statement of William J. Scanlon, Director
                              Health Financing and Systems Issues
                              Health, Education, and Human Services Division




GAO/T-HEHS-98-41
Medicare Home Health: Success of Balanced
Budget Act Cost Controls Depends on
Effective and Timely Implementation
              Mr. Chairman and Members of the Subcommittee:

              We are pleased to be here today to discuss how the Balanced Budget Act
              of 1997 (BBA)1 addressed the issues of rapid cost growth in Medicare’s
              home health benefit. The home health benefit is important for many
              beneficiaries recovering from illness or injury after a hospitalization, the
              original purpose of the benefit. In recent years, an increasing number of
              beneficiaries also received under the benefit more custodial-type care for
              chronic conditions. This change has been a primary contributor to growth
              in Medicare home health costs, which averaged about 33 percent per year
              as costs went from about $2 billion in 1989 to almost $18 billion in 1996.

              My testimony today focuses on four areas: the reasons for the rapid
              growth of Medicare home health care costs in the 1990s, the interim
              changes in the BBA to Medicare’s current payment system, issues related to
              implementing the BBA’s requirement to establish a prospective payment
              system (PPS) for home health care,2 and the status of efforts by the
              Congress and the administration to strengthen program safeguards to
              combat fraud and abuse in home health services. The information
              presented is based primarily on our analysis of the BBA and on our
              previous work on Medicare’s home health benefit. A list of related GAO
              products is at the end of this statement.

              In brief, changes in law and program guidelines have led to rapid growth in
              the number of beneficiaries using home health care and in the average
              number of visits per user. In addition, more patients now receive home
              health services for longer periods of time. These changes have not only
              resulted in accelerating costs but also marked a shift from an acute-care,
              short-term benefit toward a more chronic-care, longer-term benefit.

              The recently enacted BBA included a number of provisions designed to
              slow the growth in home health expenditures. These include tightening
              payment limits immediately, requiring a PPS beginning in fiscal year 2000,
              prohibiting certain abusive billing practices, strengthening participation
              requirements for home health agencies, and authorizing the Secretary of
              Health and Human Services (HHS) to develop normative guidelines for the
              frequency and duration of home health services. All of these provisions
              should help control Medicare costs. However, the Health Care Financing
              Administration (HCFA), the agency within HHS responsible for administering
              Medicare, has considerable discretion in implementing the law which, in

              1
               P.L. 105-33, Aug. 5, 1997.
              2
               A system in which payment is based on a fixed, predetermined amount per unit.



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                   turn, means the agency has much work to do within a limited time period.
                   HCFA’s actions, both in designing a PPS and in implementing enhanced
                   program controls to assure that unscrupulous providers cannot readily
                   “game” the system, will determine to a large extent how successful the
                   legislation will be in curbing past abusive billing practices and slowing the
                   rapid growth in spending for this benefit.


                   To qualify for home health care, a beneficiary must be confined to his or
Background         her residence (that is, “homebound”); require intermittent skilled nursing,
                   physical therapy, or speech therapy; be under the care of a physician; and
                   have the services furnished under a plan of care prescribed and
                   periodically reviewed by a physician. If these conditions are met, Medicare
                   will pay for part-time or intermittent skilled nursing; physical,
                   occupational, and speech therapy; medical social services; and home
                   health aide visits. Beneficiaries are not liable for any coinsurance or
                   deductibles for these home health services, and there is no limit on the
                   number of visits for which Medicare will pay.

                   Medicare pays for home health care on the basis of the reasonable costs
                   actually incurred by an agency (costs that are found to be necessary and
                   related to patient care), up to specified limits. The BBA reduced these cost
                   limits for reporting periods beginning on or after October 1, 1997.


                   The Medicare home health benefit is one of the fastest growing
Home Health Cost   components of Medicare spending. From 1989 to 1996, part A
Growth             expenditures for home health increased from $2.4 billion to
                   $17.7 billion—an increase of over 600 percent. Home health payments
                   currently represent 13.5 percent of Medicare part A expenditures.

                   At Medicare’s inception in 1966, the home health benefit under part A
                   provided limited posthospital care of up to 100 visits per year after a
                   hospitalization of at least 3 days. In addition, the services could only be
                   provided within 1 year after the patient’s discharge and had to be for the
                   same illness. Part B coverage of home health was limited to 100 visits per
                   year. These restrictions under part A and part B were eliminated by the
                   Omnibus Reconciliation Act of 1980 (ORA) (P.L. 96-499), but little
                   immediate effect on Medicare costs occurred.

                   In 1983, the Medicare PPS for inpatient hospital services was implemented,
                   and many health financing experts expected use of the home health



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benefit to grow as patients were discharged from the hospital earlier in
their recovery periods. However, HCFA’s relatively stringent interpretation
of coverage and eligibility criteria held growth in check for the next few
years. Then, as a result of court decisions in the late 1980s, HCFA issued
guideline changes for the home health benefit that had the effect of
liberalizing coverage criteria, thereby making it easier for beneficiaries to
obtain home health coverage. For example, HCFA policy had been that daily
skilled nursing services provided more than four times a week were
excluded from coverage because such services were not part-time and
intermittent. The court held that regardless of how many days per week
services were required they would be covered so long as they were
part-time or intermittent.3 HCFA was then required to revise its coverage
policy. Daily skilled nursing care is now covered for a period of up to 3
weeks. Additionally, another court decision prevented HCFA’s claims
processing contractors from denying certain physician-ordered services
unless the contractors could supply specific clinical evidence that
indicated which particular service should not be covered.4

The combination of these changes has had a dramatic effect on utilization
of the home health benefit in the 1990s, both in terms of the number of
beneficiaries receiving services and in the extent of these services. (The
appendix contains a figure that shows growth in home health expenditures
in relation to the legislative and policy changes.) For example, ORA and
HCFA’s 1989 home health guideline changes have essentially transformed
the home health benefit from one focused on patients needing short-term
care after hospitalization to one that serves chronic, long-term care
patients as well. The number of beneficiaries receiving home health care
has more than doubled in recent years, from 1.7 million in 1989 to about
3.9 million in 1996. During the same period, the average number of visits to
home health beneficiaries also more than doubled, from 27 to 72.

In a recent report on home health,5 we found that from 1989 to 1993, the
proportion of home health users receiving more than 30 visits increased
from 24 percent to 43 percent and those receiving more than 90 visits
tripled, from 6 percent to 18 percent, indicating that the program is serving
a larger proportion of longer-term patients. Moreover, about a third of
beneficiaries receiving home health care in 1992 did not have a prior
hospitalization, another indication of the shift of program focus from

3
 Duggan v. Bowen, 691 F.Supp. 1487 (D.D.C. 1988).
4
  Fox v. Bowen, 656 F.Supp. 1236 (D.Conn. 1987). This case involved physical therapy services in
skilled nursing facilities, and HCFA also applied the principle to home health services.
5
Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,
Mar. 27, 1996). This report includes a detailed discussion of the reasons for home health cost growth.


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                      beneficiaries needing short-term care following a hospital stay to those
                      receiving care for chronic conditions.


                      To gain some measure of control over payments immediately, the BBA
Interim Changes to    made some significant changes to the cost-based reimbursement system
Cost Reimbursement    used for home health care while HCFA is developing a PPS for the longer
                      term. Home health agency cost limits had been set separately for agencies
                      in rural and urban areas, at 112 percent of the mean costs of freestanding
                      agencies.6 Limits will now be set at 105 percent of the median costs of
                      freestanding agencies. In addition, the BBA added a limit on the average
                      per-beneficiary payment received during a year. This limitation is based on
                      a blend—75 percent on the agency’s 1994 costs per beneficiary and
                      25 percent on the average regional per beneficiary costs in that year,
                      increased for inflation in the home health market basket index since then.
                      Hospital-based agencies have the same limits.

                      The per-visit cost-limit provision of Medicare’s reimbursement system for
                      home health agencies gave some incentives for providers to control their
                      costs, and the revised per-visit and per-beneficiary limits should increase
                      those incentives. However, for providers with per-visit costs considerably
                      below their limits, there is little incentive to control costs, and per-visit
                      limits do not give any incentive to control the number of visits. On the
                      other hand, the new per-beneficiary limit should give an incentive to not
                      increase the number of visits per beneficiary above the 1994 levels used to
                      set this limit. However, the number of visits per beneficiary had already
                      more than doubled by 1994 from that in 1989, so the per-beneficiary limits
                      will be based on historically high visit levels. Moreover, per-beneficiary
                      limits give home health agencies an incentive to increase their caseloads,
                      particularly with lighter-care cases, perhaps in some instances cases that
                      do not even meet Medicare coverage criteria. This creates an immediate
                      need for more extensive and effective review by HCFA of eligibility for
                      home health coverage.


                      A PPS, where agencies receive a fixed, predetermined amount per unit, is
Design Issues for a   generally seen as having the potential to improve provider incentives to
Home Health PPS       control costs. Effective and timely design and implementation of the BBA’s
                      mandate to implement a PPS for home health services requires
                      considerable HCFA action on several fronts. Issues needing HCFA’s attention

                      6
                       Home health agencies are classified as “freestanding” or “facility-based.” Facility-based agencies are
                      those that are a part of hospitals or other institutional providers.



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                        include selecting an appropriate unit of service, providing for adjustments
                        to reflect case complexity, and assuring that adequate data are available to
                        set the initial payment rates and service use parameters.

                        The primary goal of a PPS is to give providers incentives to control costs
                        while delivering appropriate services and at the same time pay rates that
                        are adequate for efficient providers to at least cover their costs. If a PPS is
                        not properly designed, Medicare will not save money, cost control
                        incentives will at best be weak, or access to and quality of care can suffer.
                        With the altered incentives inherent in a PPS, HCFA will also need to design
                        and implement appropriate controls to ensure that beneficiaries receive
                        necessary services of adequate quality. Most of the specifics about the
                        home health PPS required by the BBA were left to HCFA’s discretion. This
                        delegation was appropriate because insufficient information was available
                        for the Congress to make the choices itself.


Selecting the Unit of   Many major decisions need to be made. First, HCFA must choose a unit of
Service                 service, such as a visit or episode of care, upon which to base payment. A
                        per-visit payment is not a likely choice because it does little to alter home
                        health agency incentives and would encourage making more, and perhaps
                        shorter, visits to maximize revenues. An episode-of-care system is the
                        better choice, and HCFA is looking at options for one.

                        Designing a PPS based on an episode of care also raises issues. The episode
                        should generally be long enough to capture the care typically furnished to
                        patients, because this tends to strengthen efficiency incentives. A number
                        of ways to accomplish this goal exist. For example, HCFA could choose to
                        set a constant length of time as the episode. In 1993, to cover 82 percent of
                        home health patients, the episode would have to have been long enough to
                        encompass 90 visits, which, assuming four visits a week on average, would
                        mean an episode of about 150 days. Because of the great variability across
                        patients in the number of visits and length of treatment, this alternative
                        places very great importance on the method used to distinguish the
                        differences among patients served across home health agencies in order to
                        ensure reasonable and adequate payments.

                        Another option for defining an episode of care is to vary the length of the
                        period on the basis of patient characteristics such as the primary condition
                        affecting the patient, other complicating conditions, and any limitations in
                        performing the activities of daily living. For example, a healthy person
                        recovering from a broken leg would normally need a short recovery period



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                            Effective and Timely Implementation




                            with mainly physical therapy, while a patient with arthritis recovering
                            from the same injury might need a longer period with perhaps more home
                            health aide services. This option would also require a good method for
                            classifying patients into the various patient categories and determining
                            resource needs. A third option is to use a fixed but relatively brief period,
                            such as 30 or 60 days, sufficient to cover the needs of the majority of
                            patients, with subsequent periods justified by the patient’s condition at the
                            end of each period. The effectiveness of this option would, among other
                            things, depend on a good process for verifying and evaluating patient
                            condition periodically and adequate resources to operate that process.

                            Also, HCFA will need to design a utilization and quality control system to
                            guard against decreases in visits, which could affect quality, and home
                            health agencies treating patients who do not quality for benefits. This will
                            be necessary because an episode-of-care system gives home health
                            agencies an incentive to maximize profits by decreasing the number of
                            visits during the episode, potentially harming quality of care. Such a
                            system also gives agencies an incentive to increase their caseloads,
                            perhaps with patients who do not meet Medicare’s requirements for the
                            benefit. The effectiveness of PPS will ultimately depend on the effective
                            design of these systems and devoting adequate resources to operate them.


Adjusting for Case          Another major decision for HCFA, closely related to the unit-of-service
Complexity                  decision, is the selection and design of a method to adjust payments to
                            account for the differences in the kinds of patients treated by various
                            home health agencies, commonly called a case-mix adjuster. Without an
                            adequate case-mix adjuster, agencies that serve populations that on
                            average require less care would be overcompensated. Also, agencies
                            would have an incentive to seek out patients expected to need a low level
                            of care and shun those needing a high level of care, thus possibly affecting
                            access to care. Currently, there is limited understanding of the need for,
                            and content of, home health services and, at the same time, a large
                            variation across agencies in the extent of care given to patients with the
                            same medical conditions. HCFA is currently testing a patient classification
                            system for use as a case-mix adjuster, and the BBA requires home health
                            agencies to submit to HCFA the patient-related data HCFA will need to apply
                            this system. However, it is too early to tell whether HCFA’s efforts will
                            result in an adequate case-mix adjuster.


Ensuring an Adequate        A third challenge for HCFA is the need to improve its home health
Database for Calculations   databases so that they will represent an adequate foundation for setting


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PPS rates. Historical data on utilization and cost of services form the basis
for calculating the “normal” episode of care and the cost of services, so it
is important that those data are adequate for that purpose. Our work and
that of the HHS Inspector General has found examples of questionable
costs in home health agency cost reports. For example, we reported in
August 1995 on a number of problems with contractor payments for
medical supplies such as surgical dressings, which indicate that excessive
costs are being included and not removed from home health agency cost
reports.7 Also, the Inspector General found substantial amounts of
unallowable costs in the cost reports of a large home health agency chain,
which was convicted of fraud on the basis of these findings. Earlier this
year, we suggested that it would be prudent for HCFA to audit thoroughly a
projectable sample of home health agency cost reports. The results could
then be used to adjust HCFA’s cost database to help ensure that
unallowable costs are not included in the base for setting prospective
rates.

In response to a presidential directive, HCFA is planning to audit about
1,800 home health agency cost reports over the next year, about double
the number that it otherwise would have audited. If these audits are
thorough and the results are properly used, this effort could represent a
significant step toward improving HCFA’s home health cost database. A
good cost database could be a considerable aid to HCFA in calculating the
initial payment rates under PPS.

We are also concerned about the appropriateness of using current
Medicare data on utilization in designing a PPS. As we reported in
March 1996, controls over the use of home health care are virtually
nonexistent.8 Our report included a number of examples of noncovered
services that were billed to Medicare. For example, a physician called a
claims processing contractor to complain that some of his patients were
being told by a home health agency that they were “homebound” merely
because they did not own a car. In another study, we found that some
home health agency staff had been directed to alter or falsify medical
records to ensure continued or prolonged visits, including recording visits
that were never made or noting that patients were homebound even after
they were no longer confined to their homes.9 In another study of home
health claims, we asked the fiscal intermediary in California to perform a

7
 Medicare: Excessive Payments for Medical Supplies Continue Despite Improvements
(GAO/HEHS-95-171, Aug. 8, 1995).
8
 GAO/HEHS-96-16.
9
 Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17, July 19, 1995).



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                        medical review of 80 high-dollar claims it had previously processed. The
                        intermediary found that it should have denied 46 of them in whole or in
                        part.10

                        Also, Operation Restore Trust, a joint effort by federal and several state
                        agencies to identify fraud and abuse in Medicare and Medicaid, found very
                        high rates of noncompliance with Medicare’s coverage conditions. For
                        example, in a sample of 740 patients drawn from 43 home health agencies
                        in Texas and 31 in Louisiana that were selected because of potential
                        problems, some or all of the services received by 39 percent of the
                        beneficiaries were denied. About 70 percent of the denials were because
                        the beneficiary did not meet the homebound definition. Although these are
                        results from agencies suspected of having problems, they illustrate that
                        substantial amounts of noncovered care are likely to be reflected in HCFA’s
                        home health care utilization data. Because of these problems, it would also
                        be prudent for HCFA to conduct thorough on-site medical reviews, which
                        increase the likelihood of identifying whether patients are eligible for
                        services, of a projectable sample of agencies to give it a basis on which to
                        adjust utilization rates for purposes of establishing a PPS. We are not aware
                        that such a review is under way or planned.


                        A PPS for home health should enable Medicare to give agencies increased
Safeguards Against      incentives to control costs and to slow the growth in program payments. A
Fraud and Abuse Still   reduction in program safeguards contributed to the cost growth of the
Needed                  1990s, and HCFA will need to develop a utilization and quality control
                        program to protect against the likely incentives that agencies will have to
                        increase caseloads unnecessarily and to diminish care, and harm quality.
                        Moreover, a PPS alone will not eliminate home health fraud and abuse.
                        Continued vigilance will be needed, and the BBA gives HCFA additional tools
                        that should help it protect the program.


Reduced Program         Rapid growth in home health expenditures in the 1990s was accompanied
Safeguards Made the     by decreased, rather than increased, funding for program safeguard
Program Vulnerable      activities. For example, our March 1996 report found that part A
                        contractor funding for medical review (review of claims for medical
                        necessity) had decreased by almost 50 percent between 1989 and 1995.11
                        As a result, while contractors had reviewed over 60 percent of home

                        10
                         Medicare: Need to Hold Home Health Agencies More Accountable for Inappropriate Billings
                        (GAO/HEHS-97-108, June 13, 1997).
                        11
                          GAO/HEHS-96-16.



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                             health claims in fiscal year 1987, the contractors’ review target was
                             lowered by 1995 to 3.2 percent of all claims (or even, depending on
                             available resources, to a required minimum of 1 percent). We found that a
                             lack of adequate controls over the home health program, such as little
                             contractor medical review and limited physician involvement, makes it
                             nearly impossible to know whether the beneficiary receiving home care
                             qualifies for the benefit, needs the care being delivered, or even receives
                             the services being billed to Medicare. Also, because of the small
                             percentage of claims selected for review, home health agencies that bill for
                             noncovered services are less likely to be identified than was the case 10
                             years ago.

                             In addition, because relatively few resources had been available for
                             auditing end-of-year provider cost reports, HCFA has little ability to identify
                             whether home health agencies were charging Medicare for costs unrelated
                             to patient care or other unallowable costs. Because of the lack of adequate
                             program controls, some of the increase in home health costs likely
                             stemmed from abusive practices. The Health Insurance Portability and
                             Accountability Act of 1996 (HIPAA)12 recently increased funding for
                             program safeguards. However, per-claim expenditures will remain below
                             the level in 1989, after adjusting for inflation. We project that in 2003,
                             payment safeguard spending as authorized by HIPAA will be just over
                             one-half of the 1989 per-claim level, after adjusting for inflation.

                             Finally, as discussed earlier, a PPS will give home health agencies
                             incentives to increase the number of patients they treat and to cut back on
                             the amount of care furnished to patients in order to maximize profits. To
                             safeguard against the new incentives of a PPS, HCFA needs to implement
                             utilization and quality control systems specifically designed to address the
                             PPS’s incentives. Without adequate monitoring, home health agencies that
                             choose to do so could game the system to maximize profits or take actions
                             that reduce quality.


New                          The Congress and the administration recently have taken actions to
Anti-Fraud-And-Abuse         combat fraud and abuse in the provision of and payment for Medicare
Provisions and Initiatives   home health services. Through BBA, the Congress has given HCFA some new
                             tools to improve the administration of this benefit. The administration also
                             has recently announced a moratorium on home health agency
                             certifications as HCFA revises the criteria for certification.


                             12
                               P.L. 104-191, Aug. 21, 1996.



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BBA Provisions   The BBA included several provisions that could be used to prevent
                 untrustworthy providers from entering the Medicare home health market.
                 For example, BBA authorizes HHS to refuse to allow individuals or entities
                 convicted of felonies from participating in Medicare. Also, Medicare can
                 exclude an entity whose former owner transfers ownership to a family or
                 household member in anticipation of, or following, an exclusion or cause
                 for exclusion. In addition, BBA requires entities and individuals to report to
                 HCFA their taxpayer identification numbers and the Social Security
                 numbers of owners and managing employees. This should make easier the
                 tracking of individuals who have been sanctioned under the Social
                 Security Act or convicted of crimes, if they move from one provider to
                 another.

                 Another provision of the BBA that may prove useful in fighting fraud and
                 abuse is the requirement that any entity seeking to be certified as a home
                 health agency must post a surety bond of at least $50,000. This should
                 provide at least minimal assurance that the entity has some financial and
                 business capability. Finally, BBA authorizes HCFA to establish normative
                 guidelines for the frequency and duration of home health services and to
                 deny payment in cases exceeding those guidelines.

                 One area where changes could help to control abuse in home health not
                 directly addressed by the BBA is the survey and certification of agencies for
                 participation in Medicare. State health departments under contract with
                 HCFA visit agencies that wish to participate in Medicare to assess whether
                 they meet the program’s conditions of participation—a set of 12 criteria
                 covering such things as nursing services, agency organization and
                 governance, and medical records—thought to be indicative of an agency’s
                 ability to provide quality care.

                 When Medicare was set up, it was not done with abusive billers and
                 defrauders in mind. Rather, Medicare’s claims system assumes that, for the
                 most part, providers submit proper claims for services actually rendered
                 that are medically necessary and meet Medicare requirements. For home
                 health care, the home health agency usually develops the plan of care and
                 is responsible for monitoring the care provided and ensuring that care is
                 necessary and of adequate quality. In other words, the agency is
                 responsible for managing the care it furnishes. While these functions are
                 subject to review by Medicare’s regional home health intermediaries, only
                 a small portion of claims (about 1 percent) are reviewed, and most of
                 those are paper reviews of the agency’s records.




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                    Early this year, HCFA proposed regulations to modify the home health
                    conditions of participation and their underlying standards. The
                    modifications would change the emphasis of the survey and certification
                    process from an assessment of whether an agency’s internal processes are
                    capable of ensuring quality of care toward an assessment that includes
                    some of the outcomes of the care actually furnished. HCFA believes this
                    change in emphasis will provide a better basis upon which to judge quality
                    of care. HCFA is currently considering the comments received on the
                    proposed revisions in preparation for finalizing them, but it does not yet
                    have a firm date for their issuance.

                    We believe that the survey and certification process could be further
                    modified so that it would also measure agencies’ compliance with their
                    responsibilities to develop plans for, and deliver, only appropriate,
                    necessary, covered care to beneficiaries. Such modifications could be tied
                    to the new features that HCFA selects as it designs the home health PPS. For
                    example, the case-mix adjuster might be designed to take into account the
                    specific illnesses of the patients being treated along with other factors that
                    affect the resources needed to care for patients, such as limitations in their
                    ability to perform the activities of daily living. Agencies would have a
                    financial incentive to exaggerate the extent of illness or limitations
                    because doing so would increase payments. The survey teams might be
                    able to evaluate whether the agency being surveyed had in fact correctly
                    classified patients at the time the outcome information is reviewed. Use of
                    state surveyors for such purposes would not be unprecedented because
                    survey teams also assessed whether Medicare home health coverage
                    criteria were met during Operation Restore Trust.

                    As discussed previously, HCFA needs to design utilization review systems to
                    ensure that, if home health agencies respond inappropriately to the
                    incentives of PPS, such responses will be identified and corrected. HCFA
                    should also consider as it designs such systems using the survey and
                    certification process to measure whether home health agencies meet their
                    utilization management responsibilities. This would help to identify
                    abusive billers of home health services while at the same time help to
                    ensure quality.

Moratorium on New   On September 15, 1997, the administration announced a moratorium on
Certifications      the admission of new home health agencies to the Medicare program. HCFA
                    noted in testimony earlier this month that the moratorium was called in
                    response to reports of “the steadily increasing volume of investigations,
                    indictments, and convictions against home health agencies.” According to



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             HCFA,the moratorium is designed to stop the admission of untrustworthy
             providers while HCFA strengthens its requirements for entering the
             program.

             In a September 19 memorandum, HCFA clarified the provisions of the
             moratorium. According to the memorandum, the moratorium applies to
             new home health agencies and new branches of existing agencies. It will
             last until the requirements to strengthen the home health benefit have
             been put in place, which HCFA officials estimate to be in 6 months. No new
             federal or state surveys are to be scheduled or conducted for the purpose
             of certifying new home health agencies; those surveys in progress but not
             completed when the moratorium was announced are to be terminated; and
             previously scheduled surveys for new certifications are to be canceled.
             HCFA will, however, enter into new home health agency provider
             agreements if the new agency has completed the initial survey
             successfully, meaning that the agency has complied with Medicare’s
             conditions of participation and has satisfied all other provider agreement
             requirements. HCFA said it would make rare exceptions to the certification
             moratorium if a home health agency provides compelling evidence
             demonstrating that the agency will operate in an underserved area that has
             no access to home care.

             According to a HCFA official, several actions are planned during the
             moratorium. HHS is expected to implement the program safeguards
             mandated by the BBA, such as implementing the requirement for home
             health agencies to post at least a $50,000 surety bond before they are
             certified and promulgating a rule requiring new agencies to have enough
             funds on hand to operate for the first 3 to 6 months. HHS is also expected to
             develop new regulations requiring home health agencies to provide more
             ownership and other business-related information and requiring agencies
             to reenroll every 3 years.

             At this point, it is difficult to say what practical effect the moratorium will
             have on the home health industry or the Medicare program. However, the
             moratorium could be useful, first, in sending a signal that the
             administration is serious about weeding out untrustworthy providers and,
             second, in establishing a milestone for issuing regulatory reforms.


             To achieve the intended goals of the cost control and anti-fraud-and-abuse
Conclusion   initiatives of the BBA, HCFA will have to take effective and timely actions to
             implement the initiatives. HCFA needs to select an appropriate unit of



             Page 12                                                        GAO/T-HEHS-98-41
Medicare Home Health: Success of Balanced
Budget Act Cost Controls Depends on
Effective and Timely Implementation




service and an adequate case-mix adjuster for a PPS as well as remove the
effects of cost report abuse and inappropriate utilization from its
databases so that those problems do not result in overstatement of PPS
rates. HCFA also needs to quickly implement the new tools in the BBA so
that it can keep untrustworthy providers from gaining access to the
program and remove those that already have access. Moreover, HCFA needs
a new utilization and quality control system designed specifically to
address the new incentives under PPS.


This concludes my prepared remarks, and I will be happy to answer any
questions you or Members of the Subcommittee may have.




Page 13                                                  GAO/T-HEHS-98-41
Appendix

Medicare Home Health Expenditures,
1980-96


Dollars in Millions
 20,000




 15,000
                               Prospective                                Issuance of
                               Payment                                    Revised
                               System                                     Guidelines

 10,000
          Omnibus
          Reconciliation
          Act of 1980

  5,000




     0
     1980      1981   1982   1983   1984     1985   1986   1987   1988   1989   1990    1991   1992   1993   1994   1995   1996

      Year

           Disabled and ESRD
           Aged
                                                     Note: ESRD = end-stage renal disease.

                                                     Source: HCFA’s Office of the Actuary.




                                                     Page 14                                                                      GAO/T-HEHS-98-41
Page 15   GAO/T-HEHS-98-41
Related GAO Products


              Medicare Home Health Agencies: Certification Process Is Ineffective in
              Excluding Problem Agencies (GAO/T-HEHS-97-180, July 28, 1997).

              Medicare: Need to Hold Home Health Agencies More Accountable for
              Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997).

              Medicare Post-Acute Care: Cost Growth and Proposals to Manage It
              Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106, Apr. 9,
              1997).

              Medicare: Home Health Cost Growth and Administration’s Proposal for
              Prospective Payment (GAO/T-HEHS-97-92, Mar. 5. 1997).

              Medicare Post-Acute Care: Home Health and Skilled Nursing Facility Cost
              Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90, Mar. 4,
              1997).

              Medicare: Home Health Utilization Expands While Program Controls
              Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).

              Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17,
              July 19, 1995).

              Medicare: Increased Denials of Home Health Claims During 1986 and 1987
              (GAO/HRD-90-14BR, Jan. 24, 1990).

              Medicare: Need to Strengthen Home Health Care Payment Controls and
              Address Unmet Needs (GAO/HRD-87-9, Dec. 2, 1986).

              The Elderly Should Benefit From Expanded Home Health Care but
              Increasing These Services Will Not Insure Cost Reductions (GAO/IPE-83-1,
              Dec. 7, 1982).

              Response to the Senate Permanent Subcommittee on Investigations’
              Queries on Abuses in the Home Health Care Industry (GAO/HRD-81-84,
              Apr. 24, 1981).

              Medicare Home Health Services: A Difficult Program to Control
              (GAO/HRD-81-155, Sept. 25, 1981).

              Home Health Care Services—Tighter Fiscal Controls Needed
              (GAO/HRD-79-17, May 15, 1979).



(101703)      Page 16                                                    GAO/T-HEHS-98-41
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