Balanced Budget Act: Any Proposed Fee-for-Service Payment Modifications Need Thorough Evaluation

Published by the Government Accountability Office on 1999-06-10.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Committee on Finance, U.S. Senate

For Release on Delivery
Expected at 10:00 a.m.
Thursday, June 10, 1999
                          BALANCED BUDGET ACT

                          Any Proposed
                          Fee-for-Service Payment
                          Modifications Need
                          Thorough Evaluation
                          Statement of William J. Scanlon, Director
                          Health Financing and Public Health Issues
                          Health, Education, and Human Services Division

Balanced Budget Act: Any Proposed
Fee-for-Service Payment Modifications Need
Thorough Evaluation
              Mr. Chairman and Members of the Committee:

              I am pleased to be here today as you discuss the effect of the Balanced
              Budget Act of 1997 (BBA) on the Medicare fee-for-service program. The BBA
              set in motion significant changes that attempted to both modernize
              Medicare and rein in spending. The act’s combination of constraints on
              provider fees, increases in beneficiary payments, and structural reforms is
              projected to lower program spending by $386 billion over the next 10
              years. Because certain key provisions have only recently or have not yet
              been phased in, the full effects on providers, beneficiaries, and taxpayers
              wrought by the BBA will not be known for some time.

              My comments focus on the payment reforms for providers under the
              fee-for-service portion of the program. I will concentrate on the changes
              made to skilled nursing facility (SNF) and home health agency (HHA)
              payment policies. Although the BBA mandated similar reforms for other
              types of providers, the SNF and HHA changes are, at this time, farthest along
              in their implementation. These provisions were enacted in response to
              continuing rapid growth in Medicare spending that was neither sustainable
              nor readily linked to demonstrated changes in beneficiary needs. These
              provisions represented bold steps to control Medicare spending by
              changing the financial incentives inherent in provider payment methods to
              promote more efficient service delivery. Yet the Congress is coming under
              increasing pressure from providers to revisit these reforms. As additional
              BBA provisions are implemented, and other providers feel the effects of the
              mandated changes, calls for modifications may continue or even intensify.
              How responsibilities to current and future seniors, the American taxpayer,
              and the health care provider community are balanced will shape the
              resulting responses. Achieving an appropriate balance will require
              recognition of legitimate concerns about beneficiary access and the ability
              of providers to adjust to the new payment methods.

              Calls by providers to moderate the effect of BBA changes come at a time
              when federal budget surpluses and smaller-than-expected increases in
              Medicare outlays may make it easier to accommodate higher Medicare
              payments. Indeed, many provider groups contend that BBA changes
              produced more savings than originally intended. The Congressional
              Budget Office has revisited and lowered its estimates of Medicare
              spending since BBA enactment. As a result of the lower projected spending,
              the estimated savings from the BBA provisions will represent a
              proportionately larger share of Medicare expenditures. Lower projected
              Medicare spending, however, does not necessarily mean that the effect of

              Page 1                                                     GAO/T-HEHS-99-139
Balanced Budget Act: Any Proposed
Fee-for-Service Payment Modifications Need
Thorough Evaluation

the BBA changes was greater than intended. Rather, it merely raises again
issues of how much the federal government should pay for health care for
the elderly and what payment levels are appropriate for the various
provider groups.

The BBA mandated the continued movement of fee-for-service Medicare
away from cost-based reimbursement methods and toward prospective
payment systems (PPS). The goal is to foster more efficient provision and
use of services to lower spending growth rates, replicating the experience
of acute care hospitals after a PPS was implemented, beginning in the
mid-1980s. The BBA mandated such payment systems for SNFs, HHAs,
hospital outpatient services, and certain hospitals. On July 1, 1998, SNFs
began a 3-year transition to a PPS.1 An interim payment system (IPS) for
HHAs was phased in beginning on October 1, 1997, and a PPS is scheduled to
be implemented for all HHAs on October 1, 2001.2

In brief, both SNFs and HHAs have felt the effect of the BBA provisions, and
both industries will need time to adapt, but the calls to amend or repeal
the new payment systems are, in our view, premature. The SNF PPS was
implemented with a 3-year transition to the fully prospective rates, and
facilities are phased into this transition schedule according to their fiscal
year; thus, the adjustment time has been built into the PPS schedule.
Current concerns that the PPS is causing extreme financial pressures for
some SNFs need to be systematically evaluated on the basis of additional
evidence. Several factors suggest that the problem may be less severe than
is being claimed by providers. Nevertheless, certain other modifications to
the PPS may be appropriate because there is evidence that payments are
not being appropriately targeted to patients who require costly care. The
potential access problems that may result from underpaying for high-cost
cases will likely result in beneficiaries’ staying in acute care hospitals
longer, rather than forgoing care. This is a safety net for beneficiaries
while modifications are made. The Health Care Financing Administration
(HCFA), which has responsibility for managing the Medicare program, is
aware that payments may not be adequately targeted to high-cost
beneficiaries and is working to address this problem.

 The SNF PPS will be phased in on the basis of facility cost-reporting years. During the transition,
payment rates will be a blend of a declining portion of a facility-specific historical amount and an
increasing portion of the national prospective rate.
 The BBA required the HHA PPS to be in place in fiscal year 2000. Subsequent legislation delayed the
implementation by 1 year and eliminated the phasing in of the system.

Page 2                                                                            GAO/T-HEHS-99-139
                 Balanced Budget Act: Any Proposed
                 Fee-for-Service Payment Modifications Need
                 Thorough Evaluation

                 As a result of the swift implementation of the home health IPS and the lack
                 of a transition period, the BBA’s impact on home health agencies has been
                 more noticeable. The number of participating agencies declined by
                 14 percent between October 1997 and January 1999, and utilization has
                 dropped to 1994 levels, the base year for the IPS. However, since the
                 number of HHAs and utilization had both grown considerably throughout
                 most of the decade, beneficiaries are still served by over 9,000
                 HHAs—approximately the same number that were available just prior to
                 the recent declines. Our interviews with HHAs, advocacy groups, and others
                 in rural areas that lost a significant number of agencies indicated that the
                 recent decline in HHAs has not impaired beneficiary access. While the drop
                 in utilization does not appear to be related to HHA closures, it is consistent
                 with IPS incentives to control the volume of services provided to
                 beneficiaries. In short, after years of substantial increases in home health
                 visits, the IPS has curbed the growth in home health spending. Some of the
                 decline in utilization appears to involve greater sensitivity to who qualifies
                 for the home health care benefit, with some who do not qualify, but who
                 may have been previously served, not receiving services now. There are
                 indications, however, that beneficiaries who are likely to be costlier to
                 serve than the average may have more difficulty than before in obtaining
                 home health services because the revenue caps imposed by the IPS are not
                 adjusted to reflect variations in patient needs. This problem should be
                 ameliorated with the implementation of the PPS. In designing the PPS, it will
                 be essential that HCFA adequately adjust payments to account for the wide
                 differences in patient needs.

                 To date, the principal lessons to be drawn from the SNF and HHA payment
                 reforms and their implementation are that

             •   the particulars of payment mechanisms largely determine the extent to
                 which a reform option can control excess government spending while
                 protecting beneficiary access to care and
             •   revisions to newly implemented policies should be based on a thorough
                 assessment of their effects so that, at one extreme, policies are not unduly
                 affected by external pressures and premature conclusions and, at the
                 other extreme, policies do not remain static when change is clearly

                 Medicare is the nation’s largest health insurance program, covering about
Background       39 million elderly and disabled beneficiaries at a cost of more than
                 $193 billion a year. The sheer size of this program during a period of

                 Page 3                                                      GAO/T-HEHS-99-139
                                                           Balanced Budget Act: Any Proposed
                                                           Fee-for-Service Payment Modifications Need
                                                           Thorough Evaluation

                                                           particular concern over government spending made it the target of
                                                           spending reforms. That Medicare was growing faster than the overall
                                                           economy and the Medicare Hospital Insurance Trust Fund was facing
                                                           imminent depletion only heightened attention on this program. Medicare
                                                           expenditures had been rising at an average annual rate of 10.1 percent
                                                           between 1985 and 1995 (see fig. 1). While the outlook for the federal
                                                           budget has changed, with projected surpluses replacing deficits, the
                                                           importance of ensuring that Medicare is an efficient purchaser of health
                                                           services remains.

Figure 1: Average Annual Rate of Growth in Medicare Expenditures, 1985-95, by Type of Provider

      All Providers                                 10.1

        Acute Care                       5.9

        Physicians                                   10.9

Hospital Outpatient                                              14.8

     Rehabilitation                                                                 22.9

      Home Health

    Skilled Nursing                                                                                                     38.8

                        0            5         10              15         20          25         30          35         40

                                                           Sources: HCFA Office of the Actuary and Medicare Payment Advisory Commission.

                                                           Page 4                                                                  GAO/T-HEHS-99-139
                     Balanced Budget Act: Any Proposed
                     Fee-for-Service Payment Modifications Need
                     Thorough Evaluation

                     Despite significantly lower projected spending due to BBA reforms, there is
                     a growing consensus among experts, including the trustees of the
                     Medicare Hospital Insurance Trust Fund, that additional reforms are
                     needed. As the baby boomers reach retirement age, the pressures on
                     Medicare program spending will intensify. Fueled by medical technology
                     advancements that allow more and better treatments for a larger portion
                     of the elderly, Medicare spending growth will continue to be an important
                     budgetary issue. The Congressional Budget Office projects that by 2009
                     Medicare’s expenditures as a portion of the gross domestic product will
                     rise almost one-third.

                     Prior to the PPS, SNFs were paid the reasonable costs they incurred in
Industry and Other   providing Medicare-allowed services. Although there were limits on the
Concerns About SNF   payments for the routine portion of care—that is, general nursing, room
PPS Require          and board, and administrative overhead—payments for other
                     costs—primarily ancillary services such as rehabilitative therapy—were
Thorough Analysis    virtually unlimited. Because higher ancillary service costs triggered higher
                     payments, facilities had no incentive to provide these services efficiently
                     or only when necessary. Thus, growth in ancillary costs far outpaced the
                     growth in routine service costs between 1992 and 1995 and drove up
                     overall Medicare payments to SNFs (see fig. 2). Moreover, new providers
                     were exempt from even the routine caps for their first 4 years of operation,
                     which encouraged expansion of the industry.

                     Page 5                                                     GAO/T-HEHS-99-139
                                       Balanced Budget Act: Any Proposed
                                       Fee-for-Service Payment Modifications Need
                                       Thorough Evaluation

Figure 2: Percentage Growth in SNF
Routine and Ancillary Costs Per Day,   Percentage Change




                                                    7.1         6.9


                                                            Routine Costs                          Ancillary Costs


                                       Source: Prospective Payment Assessment Commission.

                                       Under the new PPS, facilities receive a payment for each day of care
                                       provided to a Medicare-eligible beneficiary. This per diem rate is based on
                                       the average daily cost of providing all Medicare-covered services, as
                                       reflected in facilities’ 1995 costs, adjusted to take into account the nature
                                       of each patient’s condition and expected care needs. By establishing fixed
                                       payments and including all services provided to beneficiaries under the

                                       Page 6                                                            GAO/T-HEHS-99-139
Balanced Budget Act: Any Proposed
Fee-for-Service Payment Modifications Need
Thorough Evaluation

per diem amount, the PPS attempts to provide incentives for SNFs to deliver
care more efficiently and judiciously.

The PPS represents a major change to the previous incentives of cost-based
reimbursement and, as a result, Medicare treatment patterns that were
influenced by the previous payment method will need to be modified.
Previously, SNFs benefited from providing more ancillary services, without
regard to the price paid for those services, since Medicare’s payment was
based on each facility’s actual costs. SNFs that boosted their Medicare
ancillary costs—either through higher use rates or higher prices—will
need to make more modifications than those that did not. Scaling back
these services, however, will not necessarily affect the quality of care.
There is little evidence to indicate that the rapid growth in Medicare
spending was due to a commensurate increase in Medicare beneficiaries’
needs. Further, practice pattern changes may not be very disruptive
because Medicare patients constitute a small share of most SNFs’ business.
And, blending facility-specific costs with the national PPS rates during the
transition will ease the adjustments for facilities that have a history of
providing many ancillary services.

Recent industry reports, however, have questioned the ability of some
organizations operating SNF chains to adapt to the new PPS. Indeed, claims
of pending bankruptcies have been linked to the Medicare payment
changes. It is likely, however, that a combination of factors has
contributed to the poor financial performance of these businesses. For
example, many of the organizations have other lines of post-acute-care
services—including the provision of outpatient rehabilitation therapy and
ancillary services to affiliated SNFs as well as independent SNFs. The PPS
may have affected the demand for these services, but other BBA provisions
likely have had an effect as well.3 In addition, some of these organizations
invested heavily in the nursing home and ancillary service businesses not
long before the enactment of the PPS, both expanding their acquisitions
and upgrading facilities to provide higher-intensity services. Yet HCFA had
been developing a PPS for some time that would curtail unnecessary
growth in ancillary payments. We are studying these issues and will
provide more details later this year on the effect of the PPS on solvency and
beneficiary care.

 The BBA applied a per beneficiary payment cap of $1,500 for outpatient physical and speech therapy
and a $1,500 cap for outpatient occupational therapy, although neither cap is applicable to services
provided through a hospital outpatient department. These limits will not apply to Medicare
beneficiaries during a Medicare-covered SNF stay, but could affect Medicare SNF residents if their stay
is not covered by Medicare. This provision, in combination with consolidated billing for all services
under the PPS, could limit some providers’ ability to sell therapy and other ancillary services to other

Page 7                                                                          GAO/T-HEHS-99-139
                                     Balanced Budget Act: Any Proposed
                                     Fee-for-Service Payment Modifications Need
                                     Thorough Evaluation

                                     While we think that industry concerns about the financial viability of SNFs
                                     operating under PPS have not been substantiated and may be premature,
                                     we have identified three key PPS design issues that may affect Medicare’s
                                     ability to realize program savings and may limit beneficiaries’ access to
                                     care. First, we are concerned about the SNF case-mix adjusters, which are
                                     needed to ensure that facilities serving patients with more intensive care
                                     needs receive adequate payments and, conversely, that SNFs are not
                                     overcompensated for patients with lower care needs. The current case-mix
                                     adjusters preserve the opportunity for SNFs to increase their compensation
                                     by supplying potentially unnecessary services. A SNF can benefit by
                                     manipulating the services provided to beneficiaries, rather than increasing
                                     efficiency. For example, the payment for a patient who requires 143
                                     minutes of therapy care daily is $286 per day, compared with $346 for a
                                     patient who requires 144 minutes (see table 1). Thus, by providing an extra
                                     few minutes of therapy to certain patients, a facility could increase its
                                     Medicare payments without a commensurate increase in its costs. Rather
                                     than improving efficiency and patient care, this might only raise Medicare
                                     outlays. We believe that HCFA needs to continue its research into a
                                     classification system that is less dependent on service use and more
                                     closely tied to patient characteristics and needs. It also must provide
                                     adequate oversight to ensure that providers properly classify patients and
                                     do not manipulate service provision to take advantage of the classification

Table 1: Comparison of Length of
Average Daily Therapy and Per Diem                                     Length of average daily          Per diem payment (federal
SNF Payments for Different           Rehabilitation case-mix           therapy (for 5 days per           unadjusted rate for urban
Rehabilitation Case-Mix Groups       groups                            week)                                             facilities)
                                     Ultra high                        144+ minutes                                            $346
                                     Very high                         100 to 143 minutes                                       286
                                     High                              65 to 99 minutes                                         250
                                     Medium                            30 to 64 minutes                                         239
                                     Source: GAO analysis of data from HCFA’s May 12, 1998, Interim Final Rules.

                                     Our second concern is whether the system adequately identifies the most
                                     expensive patients and adjusts payment rates accordingly. This concern
                                     emanates from limitations in the data HCFA had available to establish the
                                     case-mix groups and the rates. The classification system was based on a
                                     small sample of patients and, because of the age of the data, may not
                                     reflect current treatment patterns. As a result, the classification system
                                     may aggregate expensive patients with widely differing needs into too few

                                     Page 8                                                                        GAO/T-HEHS-99-139
                         Balanced Budget Act: Any Proposed
                         Fee-for-Service Payment Modifications Need
                         Thorough Evaluation

                         groups to distinguish adequately among patients’ resource needs. In
                         addition, the classification system does not take into account varying
                         nontherapy ancillary service needs and is likely to overpay SNFs for
                         treating patients with low service needs and underpay those SNFs treating
                         patients with high service requirements. These design weaknesses could
                         result in access problems or inadequate care for some high-cost
                         beneficiaries. Hospitals have reported an increase in placement problems
                         due to the reluctance of some facilities to admit certain beneficiaries with
                         high expected treatment costs, which will increase hospital lengths of stay
                         for these patients. HCFA is aware of the limitations of the case-mix
                         adjusters and is working to refine these measures to more accurately
                         reflect patient differences.

                         Finally, we are concerned that the cost reports submitted to Medicare for
                         the year on which payments are based (1995) include unreasonable costs
                         and may establish payments levels that are too high. Most of the data used
                         to establish these rates have not been audited and are likely to include
                         excessive ancillary costs, because the prior system had no incentives to
                         constrain such costs. Moreover, it is likely that the base year includes too
                         many services and that the costs per service were inappropriately high.

                         Medicare spending for home health care rose at an annual rate of
HHA Closures and         25.2 percent between 1990 and 1997. Several factors accounted for this
Declining Utilization    spending growth, most notably the relaxation of coverage guidelines. In
Signal IPS Impact, but   response to a 1988 court case, the benefit was essentially transformed
                         from one that focused on patients needing short-term care after
There Is Little          hospitalization to one that serves chronic, long-term-care patients as well.4
Evidence of Impaired      Thus, Medicare may now be covering services that would previously have
                         been paid for by Medicaid or by beneficiaries themselves. The loosening of
Access                   coverage criteria contributed to an increase in the number of beneficiaries
                         receiving services. Between 1990 and 1997, the number of Medicare home
                         health users per 1,000 beneficiaries increased from 57 to 109.5 Associated
                         with the increase in beneficiaries being served over this period was the
                         near doubling of Medicare-certified HHAs to 10,524 by 1997.

                         Also contributing to the historical rise in spending were a payment system
                         that provided few incentives to control how many visits beneficiaries
                         received and lax Medicare oversight of claims. Between 1990 and 1997, the
                         average number of visits per user climbed from 36 to 73. HHAs could boost

                          Duggan v. Bowen, 691 F. Supp. 1487 (D.D.C. 1988).
                          These numbers reflect Medicare fee-for-service beneficiaries only.

                         Page 9                                                                GAO/T-HEHS-99-139
Balanced Budget Act: Any Proposed
Fee-for-Service Payment Modifications Need
Thorough Evaluation

revenues by providing more services to more beneficiaries, a strategy that
could actually help HHAs avoid being constrained by Medicare’s limits on
payments per visit.6 There is evidence that some HHAs provided visits of
marginal value. For example, as we noted in a previous report, even when
controlling for diagnoses, substantial geographic variation exists in the
provision of home health care.7 In 1996, the average number of visits per
user in the West South Central region (Arkansas, Louisiana, Oklahoma,
and Texas) was 129, compared with 47 in the Middle Atlantic region (New
York, New Jersey, and Pennsylvania). While the precise reasons for this
variation are not known, there is no reason to assume that it was
warranted by patient care needs. Evidence indicates that at least some of
the high use and the large variation in practice represented inappropriate
care.8 Medicare oversight declined at the same time that spending
mounted, contributing to the likelihood that inappropriate claims would
be paid. The proportion of claims that were reviewed dropped sharply,
from about 12 percent in 1989 to 2 percent in 1995, while the volume of
claims almost tripled.

To control spending while ensuring the appropriate provision of services,
the BBA mandated expeditious implementation of the IPS while the PPS was
under development. Prior to BBA, HHAs were paid on the basis of their
costs, up to preestablished limits. The limits were set for each type of visit
but were applied in the aggregate for each agency; that is, costs above the
limit for one type of visit could still be paid if costs were sufficiently below
the limit for other types of visits. The IPS lowered the visit payment limits
and subjected HHAs to an aggregate Medicare revenue cap based on a
historical per beneficiary amount that factors in both agency-specific and
regional average per beneficiary payments. The purpose of the cap is to
control the number of services provided to users. The blending of
agency-specific and regional amounts accounts for the significant
differences in service use across agencies and geographic areas. For new
HHAs, without historical cost data, the caps are based solely on the national
median. Because per beneficiary limits are tied to fiscal year 1994
payments, the new payment limits will be more stringent for agencies and

 Agencies could avoid the payment limits by lowering their per visit costs in two ways: by serving less
expensive patients with shorter visits and by providing more visits and thereby spreading fixed costs
over more visits.
Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,
Mar. 27, 1996).
 Medicare: Improper Activities by Mid-Delta Home Health (GAO/T-OSI-98-6, Mar. 19, 1998) and
Department of Health and Human Services, OIG, Variation Among Home Health Agencies in Medicare
Payment for Home Health Services (Washington, D.C.: HHS, July 1995). Our 1997 analysis of a small
sample of high-dollar claims found that over 40 percent of these claims should not have been paid by
the program. See Medicare: Need to Hold Home Health Agencies More Accountable for Inappropriate
Billings (GAO/HEHS-97-108, June 13, 1997).
Page 10                                                                          GAO/T-HEHS-99-139
Balanced Budget Act: Any Proposed
Fee-for-Service Payment Modifications Need
Thorough Evaluation

areas that experienced significant growth in the number of visits per user
between 1994 and 1997. Notably, the growth in Louisiana, Oklahoma, and
Texas, where 1994 utilization levels were approximately twice the national
average, greatly exceeded the average increase nationally. By comparison,
utilization levels declined in one-fifth of the states with utilization levels
below the national average in 1994, making it easier for HHAs in those
states to cope with the cap.

In contrast to the SNF PPS, the IPS had a more immediate effect on the
operation of providers because there was no gradual transition to
imposition of the revenue cap. The IPS was phased in according to an HHA’s
cost reporting year—61 percent of agencies came under the IPS by
January 1, 1998, and the remainder by September 30, 1998. Moreover,
unlike the situation with SNFs, Medicare beneficiaries represent a
substantial proportion of the patients served by HHAs. The closure of a
significant number of HHAs occurred after the IPS was implemented.
Between October 1, 1997, and January 1, 1999, 1,436 Medicare-certified
HHAs stopped serving Medicare beneficiaries. However, because of the
growth in the industry since 1990, there were still 9,263 Medicare certified
HHAs in January 1999—only 500 fewer than in October 1996. (See fig. 3.)

Page 11                                                     GAO/T-HEHS-99-139
                                      Balanced Budget Act: Any Proposed
                                      Fee-for-Service Payment Modifications Need
                                      Thorough Evaluation

Figure 3: Change in Number of
Medicare-Certified HHAs, October 1,             October                        October           October             October                 January
1995, Through January 1, 1999         11,000 1995                              1996              1997                1998                    1999






                                                        1,179                     1,213

                                                                -338                                                            -308
                                       -500                                               -459


                                                          FY 96                     FY 97                 FY 98              FY 99
                                                                                                                             (1st Quarter)
                                                Active HHAs



                                      Forty percent of the closures were concentrated in three states that had
                                      experienced considerable growth in the number of HHAs and had
                                      utilization rates (visits per user as well as users per thousand
                                      fee-for-service beneficiaries) well above the national average (see table 2).
                                      Furthermore, the majority of closures occurred in urban areas that still
                                      have a large number of HHAs to provide services. The pattern of HHA
                                      closures suggests a response to the IPS. The IPS revenue caps would prove
                                      particularly stringent for HHAs that provided more visits per user, for
                                      smaller agencies, for those with less ability to recruit low-cost patients,

                                      Page 12                                                                                    GAO/T-HEHS-99-139
                                          Balanced Budget Act: Any Proposed
                                          Fee-for-Service Payment Modifications Need
                                          Thorough Evaluation

                                          and for newer agencies. In fact, HHAs that closed had provided over
                                          40 percent more services per user than agencies that remained open.
                                          Closing HHAs were also about half the size of those that remained open,
                                          and they had been losing patients before the implementation of IPS.

Table 2: Decline in HHAs and Changes in Utilization Nationally and in Three High-Use States
                   HHA closures
                 as a percentage      Number of     People served per 1,000 Medicare
                        of active      Medicare-         fee-for-service enrollees                             Visits per user
                       agencies, certified HHAs,                              Percentage                                         Percentage
                     Oct. 1, 1997   Jan. 1, 1999       1994        1997           change                1994         1997            change
Nationwide                –14.0            9,263         94.2        109.2                 15.9         66.0          72.9                10.5
Louisiana                 –21.6               407      138.6         157.3                 13.5        125.8        161.0                 28.0
Oklahoma                  –23.2               299      108.9         131.9                 21.1        105.7        147.0                 39.1
Texas                     –20.1            1,580       106.9         133.7                 25.1         97.4        141.0                 44.8

                                          Despite the widespread attention focused on closures, the critical issue is
                                          whether beneficiaries who are eligible to receive services are still able to
                                          do so. Utilization rates during the first 3 months of 1998 are consistent
                                          with IPS incentives to control costs. Home health utilization in the first
                                          quarter of 1998 was lower than during a comparable period in 1996 but
                                          was about the same as during a comparable period in 1994—the base year
                                          for the IPS. Moreover, the sizeable variation in utilization between counties
                                          with high and low use has narrowed. In counties without an HHA, both the
                                          proportion of beneficiaries served and the visits per user declined slightly
                                          during the first 3 months of 1998, compared with a similar period in 1994,
                                          but these counties’ levels of utilization remained above the national
                                          average. Our February 1999 interviews with officials at HHAs, hospital
                                          discharge planners, advocacy groups, and others in 34 primarily rural
                                          counties with significant closures indicated that beneficiaries continue to
                                          have access to services. Some of the decline in utilization appears to be for
                                          beneficiaries who no longer qualify for the home health care benefit.
                                          However, these interviews also suggested that as HHAs change their
                                          operations in response to the IPS, beneficiaries who are expected to be
                                          costlier than average to treat may have increased difficulty obtaining home
                                          health care. The pending implementation of the PPS, which will adjust
                                          payments to account for costlier patients, has the potential to ameliorate
                                          future access problems.9

                                           For additional information on the impact of the home health IPS on beneficiary access, see Medicare
                                          Home Health Agencies: Closures Continue With Little Evidence Beneficiary Access Is Impaired
                                          (GAO/HEHS-99-120, May 26, 1999).

                                          Page 13                                                                       GAO/T-HEHS-99-139
                  Balanced Budget Act: Any Proposed
                  Fee-for-Service Payment Modifications Need
                  Thorough Evaluation

                  The BBA made necessary and fundamental changes to Medicare’s payment
Conclusion        methods for SNFs and HHAs to slow spending growth while promoting more
                  appropriate beneficiary care. Further refinements are required to make
                  these systems more effective. However, the intentional design of these
                  systems is to require inefficient providers to adjust their practice patterns
                  to remain viable.

                  The very boldness of these changes has generated pressure to reverse
                  course. In the current environment, the Congress will face difficult
                  decisions that could pit particular interests against a more global interest
                  in preserving Medicare for the long term. As PPSs are implemented for
                  rehabilitation facilities and hospital outpatient services, and as SNFs
                  continue their transition to full PPS rates, provider complaints about tight
                  payment rates and impaired beneficiary access will continue to be heard.
                  It is important that the implementation of these new payment mechanisms
                  is monitored to ensure that the correct balance between appropriate
                  beneficiary access and holding the line on Medicare spending is being
                  achieved. Our work suggests that it would be premature at this juncture,
                  however, to significantly modify the BBA’s provisions without thorough
                  analysis or a fair trial of the provisions over a reasonable period of time.

                  Mr. Chairman, this concludes my prepared statement. I will be happy to
                  answer any questions you or other Members of the Committee may have.

                  For future contacts regarding this testimony, please call William J. Scanlon
GAO Contact and   at (202) 512-7114. Individuals who made key contributions to this
Acknowledgments   statement include Carol Carter and Walter Ochinko.

(101855)          Page 14                                                     GAO/T-HEHS-99-139
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:


or visit GAO’s World Wide Web Home Page at:


United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested