CRISIS IN HOME CARE:
Dismantling of the Medicare
Home Health Benefit
- Balanced Budget Act Leads to Unprecedented Reductions in Home Health Utilization and Spending
- Network of Agencies Severely Diminished
- Agencies Less Able to Provide Needed Care
- Cost of Lost Medicare Being Borne by Other Payers
- Agencies Must Subsidize Medicare to Provide Services
- Diminished Capacity to Serve Medicare Home Health Beneficiaries Leads to Access Problems
- The Move to Prospective Payment for Home Health: Future of Home Care Hangs in the Balance<
- Recommendations
Medicare-Certified Home Health Agencies by State
Comparison of HCIS Data on Medicare Home Health Number of Patients
Comparison of HCIS Data on Medicare Home Health Payments
Comparison of HCIS Data on Average Payment per Medicare Home Care Patient
Comparison of HCIS Data on Medicare Home Health Claims
2000 Legislative Priorities of the Five National Home Health Associations
Question and Answer Fact Sheet on Comprehensive Home Health Legislation
Dear Colleague Letter Requesting Support for the Home Care Bill of the Year.
H.R. 5163 (Peterson/McGovern bill) and Senate Companion Bill S. 3034 (Sen. Kerry)
Senate Contact List ~ House Contact List ~ Pending Legislation ~ House Home Health Working Group List
Since enactment of the Balanced Budget Act of 1997 (BBA) and imposition of the interim payment system, (IPS), the Medicare home health benefit has been seriously eroded. As documented by several studies, access to care has become a major problem, particularly for patients with care-intensive needs. A prospective payment system (PPS) for home care is scheduled for implementation on October 1, 2000. The new system has the potential to better provide needed services to Medicare beneficiaries. However, the PPS will fall short of this goal if not properly developed and implemented and adequately funded. This will require legislative action.
As this document shows, the home health benefit has been in rapid decline since BBA was enacted.
Despite a growing consensus that individuals should receive care in the least restrictive setting, 877,998 fewer beneficiaries received home care in 1999 than were served in 1997. (HCIS, 1999)
From 1997 to 1998, the total number of Medicare home health visits delivered decreased by 40% and the average number of visits per patient declined by 30% (visit data is not yet available for 1999). From 1997 to 1999, the average payment per patient declined by 38.5%. (HCIS, 1999)
By HCFA's estimates, home health spending was reduced 48% between FY97 and FY99. In March 2000, the Congressional Budget Office (CBO) projected that home health outlays for FY98-FY02 will be reduced by $69 billion, more than four times the amount anticipated in 1997 ($16.1).
Independent studies indicate that Medicare patients are being denied access to home health, and that the sickest patients (those who require the most intensive services) are most at risk.
Since October 1997, more than 3,050 agencies have left the Medicare program. (HCFA: OSCAR, July, 2000)
Home health has decreased as a percent of Medicare outlays from 9% of program outlays in FY97 to 4% in FY2000. (HCFA, 2000)
The five national home health associations, representing non-profit, for-profit, hospital-based and freestanding home health agencies, believe that the following two issues are of equal importance and join together to urge Congress and the Administration to restore and preserve the Medicare home health benefit by taking the following legislative actions this year:
Eliminate the pending 15% cut in home health expenditures currently scheduled for October 1, 2001.
Restore access to care for the sickest and most costly patients by:
- Authorizing $500 million in each of the next five years to be used as outlier payments under the prospective payment system for services to the most medically complex and costly patients;
- Increasing payments for home health services in rural areas by 10% to address the higher costs of delivering care in these areas; and
- Remove medical supplies from the per episode payments under the prospective payment system and create a budget neutral fee schedule for only the supplies that are actually used by patients.
It is also the consensus of the five national associations that Congress must direct the Health Care Financing Administration to:
Confine the OASIS data collection and reporting requirements to only Medicare and Medicaid patients;
Limit the OASIS assessment items to only the 20 questions that are actually needed to implement the new prospective payment system unless the costs associated with performing the full 80 question assessments during a 60 day episode of care are fully reimbursed; and
Provide for an emergency payment mechanism during at least the first six months of the new payment system to ensure that there is no interruption in patient services.
The reductions in Medicare's home health benefit since enactment of the Balanced Budget Act of 1997 (BBA) are startling and unprecedented. Since fiscal year 1997 (FY1997, the federal budget year that ended September 30, 1997), program expenditures decreased 48%, from $18.3 billion in FY97 to $9.5 billion in FY99. (Fig. 1)
While other Medicare programs have seen reductions due to the BBA, no other decrease has been close to what the home health benefit has experienced. (Table 1) In fact, FY99 was the first year in the history of the home health benefit in which Medicare outlays for skilled nursing facility care exceeded those of home health. Less was spent on Medicare home health services in FY99 than was spent in FY94 and 877,998 fewer home health patients were served in 1999 than were served in 1997. (Medicare-Certified Home Health Agencies by State)
| Table 1. Medicare Program Benefits, Fiscal Years 1997, 1998, 1999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Source: HCFA, Office of the Actuary unpublished estimates for the President's fiscal year 2001 budget. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
According to the American Hospital Association's Year 2000 Lewin Study, the BBA '97 has reduced reimbursement to hospital-based home health services by 30.5% -- the largest reduction of any hospital service affected by the BBA '97.
Of the total reductions in projected Medicare outlays for hospitals, skilled nursing facilities, and home health agencies between fiscal year 1997 and 1999, 60% of the total reductions in projected outlays came from home health.
Home health spending as a percent of Medicare has dropped precipitously from 9% of total Medicare outlays in FY97 to just 5% of total Medicare benefits in FY99. (Fig.2) HCFA's current projections for FY2000 indicate that home health will drop further to 4% of total Medicare outlays.
Every state has seen reductions in Medicare home health utilization and expenditures since 1997. In one year, 1997 to 1998, total visits decreased 40% and the average number of visits per patient declined 30% (visit data is not yet available for 1999). From 1997 to 1999, the average payment per patient decreased 38.5%. (Appendix A)
The Congressional Budget Office (CBO) originally anticipated a $16.1 billion reduction in home health spending over five years following enactment of the BBA. March 2000 CBO estimates and projections for home health show that spending was reduced by a total of $19.7 billion in just two years (FY98 and FY99). (Table 2) Based on these CBO projections, home care spending will be reduced by a total of $69 billion over 5 years (FY98-FY02)-or, four times the intended reduction.
| Table 2. Home Health Reductions Exceed $60 Billion Through FY2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Not surprisingly, given the level of reductions, home health agencies have been closing at a rate of more than 90 per month since October 1997, leading to a recorded loss of over 3,000 agencies nationwide as of July 2000. (Fig. 3) HCFA data, from which these figures are drawn, generally lags behind actual closures. These losses are particularly problematic in states with large portions of their elderly population living in rural areas (Comparison of HCIS Data on Average Payment per Medicare Home Care Patient). There are now fewer agencies serving Medicare patients than there were in 1994.
Staffing levels of home health agencies has also decreased. From 1996 to 1999, over 133,000 full-time positions in Medicare-certified agencies were lost. This reduction in full-time equivalent (FTE) staffing includes 51,395 fewer nurses, and 54,426 fewer home health aides available to care for patients in 1999 than were employed by agencies in 1996.
The employment reductions in Medicare are in sharp contrast to forecasts of continued growth in demand for home care personnel resulting from strong underlying demographic trends which include an aging population, increased availability of in-home medical technology, and consumer preference for avoiding institutionalization or delaying entrance to nursing homes. The Bureau of Labor Statistics forecasts an 82% increase in the demand for key home health personnel for the period 1998 to 2008. Due to the severity of the payment reductions under the BBA, agencies increasingly are unable to offer competitive wages and benefits to attract qualified staff and labor shortages are developing across the country as a result.
In contrast to the severe reductions in Medicare, funding of home health services by other sources, including Medicaid and private insurance, has increased since 1997. In contrast to the 32% reduction in Medicare home health spending from FY97 to FY98, Medicaid payments for home health services increased 12.2% in FY98. Medicaid expenditures for home care services (including home health, personal care, home and community-based waiver services) exceeded Medicare home health expenditures for the first time in history in FY98. Private third party payments increased 3.6% between 1997 and 1998.
Concern about the financial viability of home health agencies is growing as cost reports are settled and overpayment notices sent. One fiscal intermediary reported that 91% of home health agencies they oversee had overpayments in 1998, for a total of over one billion dollars. These figures give an indication of the extreme degree to which home health agencies are subsidizing the Medicare home health program.
Further, agencies throughout the nation have reported using funds other than Medicare to help pay for the care they provide to Medicare patients. An informal survey conducted during 1999 by the National Association for Home Care (NAHC) revealed that 93% of responding agencies must find other funding sources in order to maintain home health access for Medicare beneficiaries. The median subsidy was $165,000. Agencies are tapping funding sources such as state and local government monies, local community charitable funding, profits from other businesses or programs, personal lines of credit, bank loans, bequests, hospital systems, and financial reserves in order to continue providing care to needy and eligible Medicare beneficiaries. This continuing subsidization of the Medicare program means that agencies are less able to provide indigent care and other services that had been previously funded from some of these same sources, and is threatening the financial viability of many agencies.
Reductions in utilization of the home health benefit have been dramatic. There were 877,998 fewer beneficiaries served by Medicare home health agencies in 1999 than were served in 1997.
Studies that have examined access to the home health benefit since 1997 agree on one central point: for certain groups of beneficiaries, access to the home health benefit has decreased. For example, a study of the effects of the BBA on home health agencies conducted by George Washington University (GWU) reported that agencies were finding it increasingly difficult to meet the needs of high-cost patients, particularly complex diabetics. Among hospital discharge planners surveyed as part of the GWU study, 68% reported it was increasingly difficult to obtain home health services for Medicare beneficiaries.
Despite strong evidence that certain groups of eligible patients are in some cases unable to find home health care, The Medicare Payment Advisory Commission (MedPAC) in its March 2000 report to Congress equivocates on the issue of access. The following excerpt from the report is particularly suggestive:
MedPAC sponsored a survey of home health agencies to examine whether access has been compromised by the IPS (MedPAC 1999). This research reveals that the broad impact of the IPS [interim payment system] did not fulfill 'the worst predictions,' but has likely negatively affected beneficiaries (Abt Associates 1999). Results indicate that the new payment system has led agencies to exercise cost-cutting measures, including refusing services to Medicare patients who have chronic, long-term conditions, especially diabetics. More than half of agencies surveyed expected to exceed their per-beneficiary limits and said that, as a result of the IPS, they would be more likely to decrease their Medicare caseloads, deny admission to certain types of patients, discharge certain types of patients, or reduce clinical staff or hours.
In its summary of previous research about access, MedPAC's report states,
The General Accounting Office (GAO) found that access generally has not been impaired, despite the closure of approximately 14 percent of home health agencies since 1997 (GAO 1999). But interviews with key stakeholders in areas with higher frequencies of closures suggest that home health agencies are asking more detailed information about potential patients, and that patients who require costlier services are facing difficulty in finding an agency willing to provide visits.
The controversy over the impact on access to home health is focused on how much access has been compromised, not whether it has decreased. Several research institutes, including the Robert Wood Johnson Foundation, have funded studies to look at the impact of the BBA97 on home health beneficiaries.
Media reports have also identified access problems due to the BBA97. An editorial in the April 25 edition of The New York Times notes that spending on home care services has dropped by over 45 percent since 1997. The Times editorial concludes by calling for the restoration of the Medicare home health benefit stating that, "Congress had reason to rein in ballooning Medicare costs in 1997. But the nation's oldest and most fragile citizens should not have to suffer for good intentions gone awry."
In the midst of the chaos that the BBA created, home health faces a major change in the Medicare payment system that is scheduled to take effect October 1, 2000. The interim payment system (IPS) that began in October 1997 will be replaced by a prospective payment system (PPS). The concept behind the new system is to encourage efficient provision of home health services by paying an amount based on the average national cost of treating a home health client for 60 days. Final payments to agencies are based on the average base payment, and adjusted to take into account patient characteristics (case-mix) and labor market differences (wage index). An outlier payment is provided for cases that exceed the expected costs.
The goal of the PPS for home health is to encourage efficient provision of services without compromising quality. Under a cost-based reimbursement system, there is little financial incentive to reduce utilization because providers are paid for each unit of service. The IPS introduced a per beneficiary limit, which discouraged agencies from providing care that costs more than their average cost of providing care in federal fiscal year 1994. There is no adjustment for patient need under IPS; therefore, agencies have a financial incentive to avoid high-cost patients who may cause the agency to exceed their aggregate per beneficiary limit. Theoretically, PPS mitigates this financial incentive to avoid high-cost patients by paying greater amounts for higher need patients and by allowing agencies to be paid for multiple episodes as long as the patient continues to meet the Medicare home health coverage criteria.
The five national home health associations have reviewed, digested and analyzed the final PPS rule as published by HCFA on June 28. The final rule addresses many of the concerns voiced by the home care community. There are notable "improvements" in such areas as increases in low utilization payment adjustments (LUPA), per visit payment rates, billing and payment processes that enhance cash flow, and refinements to the case-mix adjuster. These changes, however, do not make up for the inadequacy of the overall funding of the home health benefit, which results in significant weaknesses in even the best PPS.
In addition, the final rule leaves unresolved some of the conflicts and concerns expressed with the proposed PPS. Of particular concern is HCFA's position on medical supplies, which may mean a dramatically expanded responsibility for home health agencies. The agencies should only be responsible for those medical supplies used to treat illness or injury that occasioned the need for services.
As noted earlier, all five national home health associations - The National Association for Home Care, the American Federation of HomeCare Providers, the Home Care Association of America, the American Association for Home Care, and the Visiting Nurse Associations of America -- have reached a consensus on the reforms necessary to protect the Medicare home health program and the beneficiaries it serves. The associations have established two priorities of equal importance -- to restore and to preserve the Medicare home health benefit. All five national home health associations agree that Congress must take the following action in this legislative session: