Focus on a necessary benefit. (Health Policy Update).

More than 9,000 home health agencies (HHAs) serve Medicare beneficiaries, making home health care the fastest growing Medicare benefit. However, the Balanced budget Act of 1997 made significant changes to the structure of Medicare's home health benefit and reimbursement. In addition, efforts to reduce fraud will impact significantly the business practices of home health agencies.

Medicare home health changes

The changes enacted by the Balanced Budget Act should reduce spending for home health by $14 billion over five years, while reorganizing the way Medicare pays for these services. Changes include:

* Separating home health services Into two distinct benefits under Medicare's Part A and Part B. Those services not directly related to hospital stays will be paid by Medicare Part B, will tend to be for chronic conditions, and are very different from home care services needed for convalescence and rehabilitation following a hospital stay.

* Defining limits on hours and days that home health care can be provided.

* Authority to establish a prospective payment system for home health services to be implemented by October 1, 1999. Instead of open-ended billing, the Health Care Financing Administration will establish what it will pay for a unit of services, how many visits will be Included, and what mix of services will be provided.

* Eliminating periodic interim payments that were made in advance of agencies and not justified until the end of the year. Moving to a prospective payment system will make this unnecessary.

* Billings by location of service, rather than based on the agency's headquarters. This will prevent agencies from getting a higher urban reimbursement when, in fact, the services were provided in a lower-cost rural setting.

* Establishing guidelines for the frequency and duration of home health services. Payments would be denied for visits that exceed the established standard.

* Clarifying the definition of part-time or intermittent nursing care.

Why change was needed

* Baring felons from participating in the Medicare program.

In 1996, more than 10 percent of Medicare beneficiaries received home health services at a total cost of $18 billion. The growth came from an increase in the number of:

* beneficiaries using the services--from 700,000 in 1980 to 3.7 million in 1996;

* home health agencies serving beneficiaries--from 3,125 in 1982 to 9,800 in 1996; and

* beneficiary visits--from 22 in 1980 to about 76 in 1996, an increase of 246 percent. (1)

The growth in visits is a direct result of the Omnibus Budget Reconciliation Act of 1980 (OBRA 80) which essentially transformed the home health benefit into an unlimited benefit by eliminating the 3-day prior hospitalization requirement under Part A of Medicare, the 100-visit limits for both part A and Part B, and the deductible for home health services under Part B. The Part B home health services then became used only by a small group of beneficiaries not enrolled in Part A of Medicare. Thus, the changes by OBRA 80 had the unintended consequence of burdening the Hospital Insurance Trust Fund (Part A) with financing approximately 99 percent of the home health benefit, regardless of whether or not visits were related to a hospital stay. (2)

The Health Care Financing Administration (HCFA) attempted to control excessive growth in utilization through enhanced review of claims and more detailed reporting, but these efforts brought about a lawsuit. The success of this 1989 litigation led to rapid expansion of the benefit and an explosive growth in the number of HHAs. In addition, the implementation of the prospective payment system for inpatient hospitals and pressure from managed care has enhanced the demand for post-acute services.

Payment changes

As HCFA works to implement a prospective payment system, Congress has adopted an interim reimbursement system for Medicare home health services effective for the cost reporting period on or after October 1, 1997. The interim payment system (IPS) remains cost-based. HHAs will be reimbursed the lowest of: (1) their actual allowable costs; (2) the aggregate reduced per visit cost limits; or (3) a new aggregate per beneficiary limit. The per beneficiary limit is based on the cost per patient, including non-routine medical supplies during federal fiscal year 1994. The combined effect of these provisions will require many agencies to significantly reduce their average cost per visit and per patient. The per patient limit has also introduced the need to manage utilization.

Quality of care

Another effort by the Department of Health and Human Services (HHS) is requiring home health agencies to use a standard system called the Outcomes and Assessment Information Set (OASIS) to monitor patients' conditions and satisfaction. Under OASIS, home health care agencies perform a standardized assessment of new patients within 48 hours to determine immediate care and support needs. Home health care agencies update this initial assessment continuously until a patient is discharged to reflect changes in the patient's condition and to measure satisfaction. HHAs would also be required to evaluate the results of OASIS assessments and apply this information to agency practices as part of their continuous quality improvement programs. This standardized measurement system helps both inspectors and agencies to identify opportunities to improve performance and patient satisfaction. (3)

Fraud and abuse

As the fastest growing expenditure within Medicare, home health care has become a target for fraud and abuse. An HHS Inspector General report on home health agencies revealed that in four of five states reviewed, 40 percent of Medicare payments for home health should not have been made. (4) These improper payments resulted in loses of approximately $2.6 billion over a 15 month period.

The General Accounting Office (GAO) found that in February 1993, Medicare paid $16.6 million for home health claims in Florida that should have been disallowed. The GAO also discovered that reduced funding for payment safeguards in recent years helped to explain the marked absence for adequate claims review by Medicare contractors. Ten years ago, more than 60 percent of home health claims were reviewed. In 1996, Medicare intermediaries reviewed only 2 percent of all claims. In June of 1997, the GAO urged the HCFA to create an enforcement tool that would make providers accountable for the proprietary of their claims. (5)

In addition, on September 15, 1997 HHS announced an unprecedented moratorium on the entry of home health agencies into Medicare. During the "time-out," regulations will be written to take aim at the fraud. The HCFA will increase the number of claims reviewed from 200,000 to 250,000, the number of home health agency audits will be doubled, and other changes promulgated through the rule-making process. A key change is requiring home health agencies to supply information about related businesses they own in order to track fraudulent activities through subsidiaries.

The Department plans to propose regulations that will require home health agencies to re-enroll in Medicare every three years. Agencies will have to submit an independent audit of their records and practices--if they do not meet the new requirements, they will not be renewed as providers. The HCFA also will require agencies to serve a minimum number of private-pay patients to demonstrate experience and expertise in the field before they are allowed to serve Medicare and Medicaid populations. The HCFA is publishing an interim final rule requiring new agencies to have enough funds on hand to operate for the first three to six months to establish financial stability. HHS proposed regulations would require home health agencies to conduct criminal background checks of the aides they hire.

Conclusion

Home health agencies are facing a challenge to deliver legitimate, high-quality services at a time when their industry is under scrutiny. The rapid growth of any federal program or benefit places it under investigation for fraud and it becomes a target for federal budget cutters. Changes in the last 15 years in the U.S. health care system have made home health care an important, necessary benefit for the elderly. In controlling costs and fraud, and in making the benefit structurally sound, Congress and the Department of Health and Human Services have to strike a balance between making the benefit available to those who need it and ensuring the integrity of system that funds it.

TABLE 1

MEDICARE/TYPE OF BENEFIT

                           Fiscal year 1995 benefit
                           payments in millions

Total HI (Part A)          $113,403
Inpatient Hospital           87,512
Skilled Nursing Facility      9,142
Home Health Agency           14,895
Hospice                       1,854
Total SMI (Part B)           63,482
Physician/other Suppliers    40,376
Outpatient Hospital          14,576
Home Health Agency              166
Group Practice Prepayment     6,297
Independent Laboratory        2,067

                           Percent distribution


Total HI (Part A)          100
Inpatient Hospital          77.2
Skilled Nursing Facility     8.1
Home Health Agency          13.1
Hospice                      1.6
Total SMI (Part B)         100
Physician/other Suppliers   63.6
Outpatient Hospital         23.0
Home Health Agency           0.3
Group Practice Prepayment    9.9
Independent Laboratory       3.3

* Includes the effect of regulatory items, but excludes peer review
organizations' (PRO) expenditures. Numbers may not add to totals because
of rounding.

Health Care Financing Administration, Office of Financial and Human
Resource

References

(1.) Remarks of Bruce C. Vladek, Administrator, Health Care Financing Administration, "FY 98 Budget Proposals", before the National Association for Home Care, April 15. 1997.

(2.) Ibid.

(3.) Health Care Financing Administration Fact Sheet Home Health Care: Improving Quality. Tightening Standards", September 15, 1997.

(4.) Remarks of Bruce C. Vladek, Administrator, Health Care Financing Administration. "FY98 Budget Proposals," before the National Association for Home Care, April 15, 1997.

(5.) Medicare: Need to Hold Home health Agencies More Accountable for Inappropriate Billings. GAO/HEHS-97-108, June 13, 1997, p. 4.

Georges C. Benjamin, MD, FACP, FACEP, is the Maryland Deputy Secretary for Public Health Services in Baltimore. He can be reached at 410/767-6510 or via fax at 410/767-6489.

Stephanie A. Kennan, MA, is Assistant Director of Governmental Relations for the Maryland Department of Health and Mental Hygiene in Baltimore. She can be reached at 410/767-6459 or via fax at 410/767-6483.