oversight

Medicare Post-Acute Care: Better Information Needed Before Modifying BBA Reforms

Published by the Government Accountability Office on 1999-09-15.

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

                                United States General Accounting Office

GAO                             Testimony
                                Before the Subcommittee on Health and Environment,
                                Committee on Commerce, House of Representatives




For Release on Delivery
Expected at 10:00 a.m.
Wednesday, September 15, 1999
                                MEDICARE POST-ACUTE
                                CARE

                                Better Information Needed
                                Before Modifying BBA
                                Reforms
                                Statement of William J. Scanlon, Director
                                Health Financing and Public Health Issues
                                Health, Education, and Human Services Division




GAO/T-HEHS-99-192
Summary


          Providers of post-acute care services, such as home health care, skilled
          nursing facility (SNF) care, and rehabilitation therapy, may have to change
          their service delivery practices as a result of the Balanced Budget Act of
          1997 (BBA) payment reforms, which seek to make Medicare a more
          efficient and prudent purchaser. Calls to amend or repeal these BBA
          changes may be premature until information is available to identify and
          distinguish between desirable and undesirable consequences. At the same
          time, imperfections in the design of BBA-mandated payment systems
          require attention. The design details of these systems are key to ensuring
          that payments are not only adequate in the aggregate but are also fairly
          targeted to protect individual beneficiaries and providers.

          Home health care: Our prior work indicated that (1) the reductions in the
          number of HHAs and changes in utilization were consistent with the
          objectives of the interim payment system to control the rapid growth that
          had preceded BBA and (2) appropriate access to Medicare’s home health
          benefit had not been impaired. The prospective payment system (PPS) is a
          more appropriate tool for the long term, however, because it is intended to
          adjust payments for differences in beneficiary needs. As we examine the
          challenges of designing a PPS, we are finding that the PPS will likely require
          further adjustments after it is implemented as more information on home
          health costs, utilization, and users becomes available.

          SNF care: PPS was implemented beginning in July 1998 with a 3-year
          transition to fully prospective rates, giving providers time to adjust to the
          new system. Our ongoing work suggests that factors in addition to the PPS
          have contributed to fiscal difficulties for some SNFs. Nevertheless, certain
          modifications to the PPS may be appropriate to ensure that payments are
          targeted to patients who require costly care. The potential access
          problems that may result if Medicare underpays for high-cost cases could
          lead to beneficiaries’ staying in acute care hospitals longer, rather than
          foregoing care altogether. HCFA is aware of this potential targeting problem
          and is working to develop a solution.

          Caps on coverage of outpatient rehabilitation therapy: In 1999, BBA
          imposed an annual $1,500 per-beneficiary cap on payments for outpatient
          physical and speech therapy combined and a separate $1,500 cap on
          outpatient occupational therapy. The caps reflect a legitimate need to
          constrain service use. For the vast majority of outpatient therapy users,
          the caps are unlikely to curtail access to services. Only a small share of
          beneficiaries receiving therapy services are high users. Further, most of
          those users with greater needs will likely have access to hospital



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Summary




outpatient departments, which are not subject to the $1,500 caps. In
addition, owing to HCFA’s partial approach to enforcing the caps,
noninstitutionalized beneficiaries can avoid having the caps curtail service
coverage by switching providers. Whether the caps restrict coverage for a
small share of nursing home residents is less straightforward. A
need-based payment system could help better target payments toward
beneficiaries who genuinely require more services than allowed under the
current dollar limits.




Page 2                                                     GAO/T-HEHS-99-192
Medicare Post-Acute Care: Better
Information Needed Before Modifying BBA
Reforms
              Mr. Chairman and Members of the Subcommittee:

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

              BBA was enacted in response to continuing rapid growth in Medicare
              spending that was neither sustainable nor readily linked to demonstrated
              changes in beneficiary needs. The act’s payment reforms represented bold
              steps to control Medicare spending by changing the financial incentives
              inherent in payment methods that, prior to BBA, did not reward providers
              for delivering care efficiently. To date, the Congress has remained
              steadfast in the face of intense pressure to roll back certain BBA payment
              reforms while waiting for evidence that demonstrates the need for
              modifications. Calls for BBA changes come at a time when federal budget
              surpluses and lower-than-expected growth in Medicare outlays could
              make it easier to accommodate higher Medicare payments. However, as
              the Comptroller General cautioned in July, the surpluses are merely
              projections and could fall short of expectations; the imperative remains to
              find the reforms that will make Medicare sustainable and affordable for
              the longer term.1

              My comments today focus on the reforms governing payments to three
              providers of post-acute care services: home health agencies (HHA), skilled
              nursing facilities (SNF), and providers of outpatient rehabilitation therapy.
              Among BBA’s changes affecting various providers, these reforms are
              farthest along in their implementation. Furthermore, it is important to
              consider the payment policies for these providers together because
              changes to payments for one of them could affect the costs and utilization
              of another.

              In brief, providers of post-acute care services, such as home health care,
              SNF care, and rehabilitation therapy, may have to change their service
              delivery practices as a result of BBA payment reforms, which seek to make

              1
               Medicare Reform: Observations on the President’s July 1999 Proposal (GAO/T-AIMD/HEHS-99-236,
              July 22, 1999).



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Medicare a more efficient and prudent purchaser. Calls to amend or repeal
these BBA changes may be premature until information is available to
identify and distinguish between desirable and undesirable consequences.
At the same time, imperfections in the design of BBA-mandated payment
systems require attention. The design details of these systems are key to
ensuring that payments are not only adequate in the aggregate but are also
fairly targeted to protect individual beneficiaries and providers.

With regard to home health care, the effect of the interim payment system
on HHAs has raised concerns. Our May 1999 analysis indicated, however,
that the reductions in the number of HHAs and changes in home health
utilization were consistent with the incentives of the interim payment
system to control the rapid and unexplained growth that had preceded
BBA.2 Furthermore, we found little evidence that appropriate access to
Medicare’s home health benefit has been impaired. The interim payment
system, however, is not an appropriate payment method for the long term
because it does not adjust payments for differences in beneficiary needs.
Therefore, it is important to implement the BBA-mandated prospective
payment system (PPS), scheduled for October 1, 2000. In ongoing work, we
are examining the formidable challenges of designing a PPS with the
appropriate unit of payment, level of payment, case-mix adjustment
method, and risk-sharing mechanism. Our work indicates that the PPS will
likely require further adjustments after it is implemented as more
information on home health costs, utilization, and users becomes
available.

The SNF PPS was implemented beginning July 1998 with a 3-year transition
to fully prospective rates; thus, time for providers to adjust to the payment
change has been built into the implementation schedule. Our ongoing
work examining whether the PPS is causing financial problems for some
SNFs suggests that factors in addition to the PPS have contributed to fiscal
difficulties. Nevertheless, certain modifications to the PPS may be
appropriate, as there is evidence that payments are not being adequately
targeted to patients who require costly care. The potential access
problems that may result if Medicare underpays for high-cost cases could
lead to beneficiaries’ staying in acute care hospitals longer, rather than
foregoing care altogether. HCFA is aware of this potential targeting problem
and is working to develop a solution.




2
 Medicare Home Health Agencies: Closures Continue, With Little Evidence Beneficiary Access Is
Impaired (GAO/HEHS-99-120, May 26, 1999).



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             Medicare Post-Acute Care: Better
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             Beginning this year, BBA imposed an annual $1,500 per-beneficiary cap on
             payments for outpatient physical and speech therapy combined and a
             separate $1,500 cap on outpatient occupational therapy, while exempting
             hospital outpatient departments from these caps. The act also replaced
             reasonable cost reimbursement for these services with payment under a
             fee schedule. The caps reflect a legitimate need to constrain service use.
             While not calibrated to accommodate variation in beneficiary needs, the
             per-beneficiary caps are unlikely to curtail access to services for the vast
             majority of outpatient therapy users. Only a small share of beneficiaries
             receiving therapy services use outpatient therapy extensively. Further,
             most of those users with greater needs will likely have access to hospital
             outpatient departments, which are not subject to the $1,500 caps. In
             addition, owing to HCFA’s partial approach to enforcing the caps while year
             2000 adjustments are made to Medicare’s automated systems,
             noninstitutionalized beneficiaries can avoid having the caps curtail service
             coverage by switching providers. However, the caps may restrict coverage
             for some nursing home residents, resulting in their having to pay
             out-of-pocket or seek payment from other sources, such as Medicaid, for
             therapy services. Studies are under way or planned to better measure the
             effect of the caps and how they might be adjusted. BBA also required HCFA
             to recommend a need-based payment system, which could help better
             target payments toward beneficiaries who genuinely require more services
             than allowed under the current dollar limits.


             The Medicare program consists of two parts: “hospital insurance,” or part
Background   A, which covers inpatient hospital, skilled nursing facility, hospice, and
             certain home health care services, and “supplementary medical
             insurance,” or part B, which covers physician and outpatient hospital
             services, outpatient rehabilitation services, home health services under
             certain conditions, diagnostic tests, and ambulance and other medical
             services and supplies.

             Prior to BBA payment reforms, Medicare experienced rapid growth in the
             services beneficiaries receive after a hospitalization (also called
             post-acute-care services), primarily due to increased utilization. During
             much of the 1990s, home health care was one of Medicare’s fastest
             growing benefits; between 1990 and 1997, Medicare spending for home
             health care rose at an annual rate of 25.2 percent. Several factors
             accounted for this spending growth, most notably the relaxation of
             coverage guidelines. In response to a 1988 court case, a change in the
             coverage guidelines essentially transformed the benefit from one that



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focused on patients needing short-term care after hospitalization to one
that serves chronic, long-term-care patients as well.3 The loosening of
coverage and eligibility criteria contributed to an increase in the number
of beneficiaries receiving services and the volume of services they
received. Associated with this rise in utilization was an almost doubling in
the number of Medicare-certified HHAs to 10,524 by 1997.

Also contributing to the historical rise in home health care spending were
a payment system that provided few incentives to control how many visits
beneficiaries received and lax Medicare oversight of claims. As we noted
in a previous report, even when controlling for diagnoses, substantial
geographic variation existed in the provision of home health care, with
little evidence that the differences were warranted by patient care needs.4
Additional evidence indicates that at least some of the high use and the
large variation in practice represented inappropriate billings and
unnecessary care.5 Medicare oversight declined at the same time that
spending mounted, contributing to the likelihood that inappropriate claims
would be paid. To begin to control spending, BBA implemented an interim
payment system for HHAs beginning October 1, 1997. A PPS is scheduled to
be implemented for all HHAs on October 1, 2000.6

As required by BBA, on July 1, 1998, SNFs began a 3-year transition to a PPS,
under which providers are paid a prospective rate for each day of care.
Previously, SNFs were paid the reasonable costs they incurred in providing
Medicare-covered services. Although there were limits on the payments
for the routine portion of care (that is, general nursing, room and board,
and administrative overhead), payments for ancillary services, such as
rehabilitative therapy, were virtually unlimited. Because higher ancillary
service costs triggered higher payments, facilities had no incentive to
provide these services efficiently or only when necessary. Thus, between
1992 and 1995, daily ancillary costs grew 18.5 percent a year, compared to
6.4 percent for routine service costs. Moreover, new providers were

3
 Duggan v. Bowen, 691 F. Supp. 1487 (D.D.C. 1988).
4
Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,
Mar. 27, 1996).
5
 Medicare: Improper Activities by Mid-Delta Home Health (GAO/T-OSI-98-6) and Office of the
Inspector General, Department of Health and Human Services, Variation Among Home Health
Agencies in Medicare Payment for Home Health Services (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).
6
 BBA required the HHA PPS to be in place in fiscal year 2000. Subsequent legislation delayed the
implementation by 1 year and required that there be no transition to the PPS.



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                       exempt from the caps on routine care payments for up to their first 4 years
                       of operation, which encouraged greater participation in Medicare.

                       Rehabilitation therapy comprises a substantial portion of the
                       post-acute-care services provided by SNFs and other providers, such as
                       rehabilitation therapy agencies and comprehensive outpatient
                       rehabilitation facilities. Under BBA, the prices of therapy services provided
                       in outpatient settings are controlled by a fee schedule.7 Generally, when
                       prices are fixed, providers can compensate by increasing the volume of
                       services delivered. To control volume, coverage for outpatient therapy is
                       now limited to $1,500 per beneficiary for physical and speech therapy,
                       with a separate $1,500 per-beneficiary limit for occupational therapy.
                       Hospital outpatient departments are exempt from these coverage limits.


                       By October 2000, HCFA is required to establish a new PPS for home health
Little Evidence to     care—with a fixed, predetermined payment per unit of service, adjusted
Date of Impaired       for patient characteristics. Until that time, HHAs are paid under the
Access to Home         BBA-mandated interim payment system. Although concerns have been
                       raised about the effect of the interim system, our May 1999 analysis
Health Services, but   showed little evidence that appropriate access to Medicare’s home health
Future Payment         benefit had been impaired under this payment method. Nevertheless, a
                       home health PPS is a more appropriate payment tool because it can align
System Will Require    payments with patient needs. Designing an adequate home health care PPS,
Refinements            however, poses substantial challenges.

                       The pre-BBA payment system had controls for payments per visit but left
                       volume unchecked. Since enactment of the BBA, home health agencies
                       have been paid under the interim payment system, which attempts to
                       control the costs and amount of services provided to each beneficiary.
                       Indeed, our work indicates that overall home health utilization in the first
                       3 months of 1998 had declined since 1996, but utilization was about the
                       same for a comparable period in 1994. Moreover, the sizeable variation in
                       utilization between counties with high and low use has narrowed.
                       Although these changes occurred at the time that about 14 percent of HHAs
                       closed their doors to Medicare business, we found little evidence that
                       beneficiary access to services was inappropriately curtailed.

                       The PPS should be a substantial improvement over the interim payment
                       system because payments will reflect current beneficiaries and their needs

                       7
                        Payments for inpatient rehabilitation therapy services, such as those provided by SNFs, HHAs, and
                       rehabilitation facilities, are not subject to the fee schedule and are paid under other rules. In addition,
                       outpatient therapy provided by critical access hospitals is not subject to the fee schedule.



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rather than historical spending patterns. However, our ongoing work on
this subject shows that a number of design issues remains and the
payment system will likely require continued adjustments even after
implementation of the PPS next year. HCFA will pay HHAs a per-episode rate
for up to the first 60 days of services to a patient. Such per-episode
payments are designed to balance competing goals of controlling service
provision while giving HHAs flexibility to vary the intensity or mix of
services delivered during the episode. Evidence indicates that HHAs do
lower their costs in response to prospective payments for an episode of
care. Whether they will inappropriately cut visits, which could reduce the
quality of care and cause Medicare to pay for services that were not
delivered, remains to be seen. Under this prospective payment approach,
HHAs also have incentives to increase the number of episodes of care
provided, which could escalate, rather than constrain, Medicare spending.
HCFA will need to adequately monitor service provision to ensure that
beneficiaries receive the care they need and the number of episodes is not
inappropriately increased.

The design of the case-mix adjustment mechanism is critical to adequately
pay for patients with high services need, yet not overpay for others with
lower requirements. Designing this mechanism requires detailed
information about services and beneficiary characteristics, and such
information is currently available only for a sample of users. Furthermore,
the wide geographic and agency-level variation in service use indicates
that standards of care are not well-defined, nor are the criteria for who
should use the benefit. As a result, the factors that will be used under PPS
for grouping patients with similar resource needs may not adequately
distinguish among types of home health patients, and the PPS payment
adjuster that will be associated with each patient group may not reflect
appropriate cost differences. Systematic errors could result in
overpayments for some beneficiaries and underpayments for others.
Underpayments could lead to impaired access.

Large variations in historic spending patterns mean that a PPS, which will
be based on average payment amounts, may cause payment levels to rise
for certain HHAs and fall for others. Although the PPS may incorporate an
outlier policy—that is, extra payments for extremely costly
cases—additional mechanisms to moderate payment changes may be
appropriate. For example, an “inlier” policy to reduce the payment for a
patient who receives few services may be warranted, particularly given the
fact that multiple episode payments may be made for a single beneficiary.
Policies addressing both extremes of service use could protect the access



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                        of beneficiaries with high needs and protect Medicare from overpaying for
                        low-cost cases. A risk-sharing method, to account for cost differences
                        across agencies, could provide further protection against underpayments
                        or overpayments. Given the heterogeneous use of this benefit and the
                        unresolved PPS design issues, moderating payments through risk-sharing
                        might be warranted, even if such a mechanism would reduce HHAs’
                        incentives to curtail providing unneeded care.


                        Despite industry charges to the contrary, SNF payment rates under BBA are
Aggregate Payments      likely to provide sufficient, or even generous, compensation for providers.
to SNFs Are             Nevertheless, the distribution of these payments may be out of balance
Adequate, but           because the current case-mix adjustment method may not adequately
                        ensure that providers serving high-cost beneficiaries are paid enough and
Refinements Needed      that those serving low-cost beneficiaries are not paid too much.
to Help Match
                        Under the new PPS, SNFs receive a payment for each day of covered care
Payments to Patients’   provided to a Medicare-eligible beneficiary. By establishing fixed
Service Needs           payments and including all services provided to beneficiaries under the
                        per diem amount, the PPS attempts to provide incentives for SNFs to deliver
                        care more efficiently. Under the PPS, SNFs that previously boosted their
                        Medicare ancillary payments—either through higher use rates or higher
                        costs—will need to modify their practices more than others. Scaling back
                        the use of these services, however, may 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’ need for services.

                        Recent industry reports have questioned the ability of some organizations
                        that operate SNF chains to adapt to the new PPS. Indeed, pending
                        bankruptcies have been claimed to be the results of the Medicare payment
                        changes. Our ongoing work suggests that PPS has been only one of many
                        factors contributing to the poor financial performance of these
                        corporations. For one thing, Medicare patients constitute a relatively small
                        share of the business of most SNFs and for these corporations, SNFs are
                        only a portion of their overall revenues. Moreover, the PPS rates are being
                        phased in to allow time for facilities to adapt to the new payment system,
                        and most of the payments are still tied to each facility’s historical costs.
                        The reality is that some corporations invested heavily in the nursing home
                        and ancillary service businesses in the years immediately before the
                        enactment of the PPS, both expanding their acquisitions and upgrading
                        facilities to provide higher-intensity services. Under tighter payment



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constraints, these debt-laden enterprises are particularly challenged. Thus,
while SNFs will have to adapt to the PPS constraints, the performance of
some large post-acute care providers is a reflection of many Medicare
payment policy changes and strategic decisions made during a period
when Medicare was exercising too little control over its payments. We are
gathering additional information and will report soon on the effect of the
PPS on SNF solvency and beneficiary access to care.


We believe that overall payments to SNFs are adequate. In fact, we and the
Department of Health and Human Services’ (HHS) Inspector General (IG)
are concerned that the PPS rates Medicare pays may be too generous. Most
of the data used to establish these rates—from 1995 cost reports—have not
been audited and are likely to include excessive ancillary costs due to the
previous system’s incentives and the lack of appropriate program
oversight.8

We are concerned, however, that payments for individual beneficiaries
could be inappropriately high or low because of certain PPS design
problems. The first of these problems involves the patient classification
system. 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, it may aggregate patients with widely differing needs
into too few payment groups that do not distinguish adequately among
patients’ resource needs. In addition, the cost variation for non-therapy
ancillary services may not have been adequately accounted for in the
payment rates, which may inappropriately compress the range in
payments. Accordingly, access problems or inadequate care could result
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 adjustment method and is working to refine
this system to more accurately reflect patient differences.

Another design problem is that the current case-mix adjustment method
preserves the opportunity for SNFs to increase their compensation by
supplying unnecessary services. A SNF can benefit by manipulating the
services provided to beneficiaries, rather than increasing efficiency. For
example, by providing certain patients an extra minute of therapy over a


8
HHS’ IG recently reported on the inappropriateness of the base year costs. See Office of the Inspector
General, Department of Health and Human Services, Physical and Occupational Therapy in Nursing
Homes: Cost of Improper Billings to Medicare (OEI-09-97-00122, Aug. 1999).



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                       defined threshold, a facility could substantially increase its Medicare
                       payments without a commensurate increase in its costs.


                       Questions have been raised about a BBA coverage restriction for a third
Adverse Effect of      group of post-acute-care services—outpatient rehabilitation therapy.
Outpatient Therapy     Together with a fee schedule that replaces reasonable cost reimbursement
Caps Doubtful, but     for these services, BBA imposed an annual $1,500 per-beneficiary cap on
                       payments for outpatient physical and speech therapy combined and a
Need-Adjusted          separate $1,500 per-beneficiary cap on outpatient occupational therapy.9
Payment Limits Would   Services provided by hospital outpatient departments are exempt from the
                       per-beneficiary caps.
Be Better
                       Rehabilitation therapy providers have raised concerns that the $1,500
                       limits will arbitrarily curtail necessary treatments for Medicare
                       beneficiaries, particularly victims of stroke, hip injuries, or multiple
                       medical incidents within a single year. These concerns have led to several
                       legislative proposals to include various exceptions to the caps or eliminate
                       them altogether.

                       Our ongoing work on this topic for Members of this Subcommittee
                       suggests that eliminating the caps without substituting other controls
                       could undermine BBA’s comprehensive strategy for restricting payments
                       for outpatient therapy services. Controlling the price for each unit of
                       service—as is done with the new requirement that outpatient therapy
                       providers bill Medicare according to the physician fee schedule—may not
                       necessarily control Medicare expenditures if utilization rises. This is
                       particularly likely, given the price and utilization controls imposed through
                       PPS on other providers of rehabilitation therapy. Thus, the per-beneficiary
                       caps serve to limit the volume of services provided.

                       For the vast majority of beneficiaries, the coverage caps are unlikely to
                       curtail access to needed services. An analysis by the Medicare Payment
                       Advisory Commission shows that, in 1996, most users (86 percent) did not
                       exceed $1,500 in payments for physical and speech therapy or for




                       9
                        Physical therapy includes treatments such as whirlpool baths, ultrasound, and therapeutic exercises
                       to relieve pain, improve mobility, maintain cardiopulmonary functioning, and limit the disability from
                       an injury or disease. Speech therapy includes the diagnosis and treatment of speech, language, and
                       swallowing disorders. Occupational therapy helps patients learn the skills necessary to perform daily
                       tasks, diminish or correct pathology, and promote health.



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occupational therapy.10 Moreover, if the fee schedule constrains payments
as expected, the proportion of beneficiaries who are unaffected by the
caps could be even higher in 1999, because beneficiaries could receive
more services before reaching the per-beneficiary caps than under the
former cost-based system.

Even for beneficiaries exceeding $1,500 in payments under the fee
schedule, mitigating factors exist. First, under the BBA exemption,
Medicare beneficiaries have no limits on coverage for rehabilitation
therapy provided by hospital outpatient departments, which are widely
available nationwide. In addition, the caps will initially not be applied as
specified in BBA. Implementing the caps involves many programming
changes to Medicare’s automated information systems that HCFA is unable
to undertake concurrent with its year 2000 preparation efforts. As a result,
HCFA’s claims processing contractors will be unable to track therapy
payments on a per-beneficiary basis. Instead, effective January 1, 1999,
HCFA employed a transitional approach to implementing the caps. Under
this approach, each provider of therapy services is responsible for tracking
its billings for each Medicare patient and stopping them at the $1,500
threshold. The consequence of this partial implementation is that
noninstitutionalized beneficiaries may switch to a new provider when they
have reached the $1,500 limit under the current provider.

The effect of the per-beneficiary caps on nursing home residents is less
clear. The ability of beneficiaries to switch outpatient providers under
HCFA’s partial implementation approach is, practically speaking, not
available to nursing facility residents. Under new billing requirements, the
nursing facility in which the beneficiary resides is required to bill for
outpatient therapy provided to the resident, regardless of the entity that
actually delivered the service. Therefore, unlike their noninstitutionalized
counterparts, nursing facility residents cannot switch providers to restart
the $1,500 coverage allowance. Under these circumstances, some nursing
home residents—like those needing extensive rehabilitation therapy
resulting from conditions such as stroke or hip fractures—could be
vulnerable to out-of-pocket costs for therapy.

Even the risk for these more vulnerable beneficiaries may be moderated,
however, because nursing home residents seeking therapy for such
conditions would likely receive a complement of rehabilitation services as
a SNF inpatient—before the outpatient therapy coverage limit begins to

10
  A July 1998 report sponsored by the National Association for the Support of Long-Term Care and
NovaCare, a rehabilitation services company, projects that 87 percent of beneficiaries will not exceed
the per-beneficiary cap.



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                   apply. That is, individuals suffering a stroke or undergoing hip
                   replacement would likely spend at least 3 days in an acute care hospital,
                   which, combined with the need for daily skilled nursing care or therapy,
                   would make them eligible for a Medicare-covered SNF stay of up to 100
                   days, during which they would likely receive therapy services. After their
                   Medicare coverage ends, a nursing facility resident can continue to receive
                   outpatient therapy services under Medicare part B, subject to the coverage
                   limits. BBA mandates that HCFA develop a classification system based on
                   diagnosis to determine differences in patients’ therapy needs and propose
                   possible alternatives to the caps in a report due January 1, 2001. This
                   report will be significant in that a need-based system could help ensure
                   adequate coverage for those beneficiaries requiring an extraordinary level
                   of services and prevent overprovision to those requiring only limited
                   amounts.


                   In conclusion, the BBA payment reforms affecting providers of home health
Conclusion         care, SNF care, and outpatient rehabilitation therapy are all intended to
                   make these providers more efficient. As the reforms begin to have their
                   intended effects, pressure is building to return to more generous payment
                   policies. Evidence to date shows that BBA is moving Medicare in the right
                   direction but that adjustments will be needed along the way. These
                   adjustments should be based on thorough, quantitative assessments so
                   that misdiagnosed problems do not lead to misguided solutions. With the
                   health care of seniors and the tax dollars of all Americans at stake,
                   policymakers must, in the face of pressure for increased payment rates,
                   preserve new payment policies that exact efficiencies but make
                   adaptations when substantiated evidence supports the need to do so.


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


                   For future contacts regarding this testimony, please call Laura A. Dummit
GAO Contacts and   at (202) 512-7119. Individuals who made key contributions to this
Acknowledgments    statement include Carol L. Carter, Assistant Director; Hannah F. Fein;
                   James E. Mathews; and Deborah Spielberg.




(101893)           Page 13                                                   GAO/T-HEHS-99-192
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