News Release

William A. Dombi, Director of the National Association for Home Care's Center for Health Care Law, today took issue with the Department of Health and Human Services’ (HHS) assertion that the Medicare home health benefit will grow at a rate of 42 percent this year as “…counter to the evidence and experience reported by home care professionals, administrators, and state home care associations." Dombi offered the following analysis:

With respect to growth rates, the Office of the Actuary at the Centers for Medicare and Medicaid Services (the agency at HHS that administers the Medicare program) and the Office of Management and Budget (OMB) have projected that, between FY2001 and FY2002, home health outlays will grow by approximately 42 percent, from $9.3 billion to $13.2 billion. (The Congressional Budget Office (CBO) projects home health spending for FY2002 will be $11.4 billion, not $13.2 billion.) The NAHC analysis of the 40+percent growth figure shows that:

1. About 15 percent of the growth relates purely to a cash flow change that occurred in late 2001 related to the shift from a 30-day billing cycle to a 60-day billing cycle when home health transitioned to a prospective payment system (PPS). In essence, FY2001 outlay figures were artificially lowered by this shift, resulting in artificially higher FY2002 numbers;
2. Another 5 percent of the growth factor relates to projected changes in case-mix; these are projections that are based on historical data from other provider payment changes, not home health. It is anyone's guess as to whether or not case-mix severity will increase to this extent;
3. An additional 5 percent relates to the application of the temporary 10 percent rural add-on for its first full year (the add-on is in effect from April 2001 through April 2003); and
4. The remaining 15 percent is accounted for as follows: 2.4 percent relates to the market basket inflation update; 1.1 percent relates to former HMO enrollees shifted to fee-for-service due primarily to closures; an unknown amount related to increased number of enrollees in Medicare; and a guesstimate of what increased use of services will result from behavioral adjustments by providers due to changes in the payment system and imposition of the 15 percent cut.

In short, most of the growth projected for the home health program is based on guesses. Given the difficulty that both CBO and the Centers for Medicare and Medicaid Services (CMS) have had over the last five years in accurately predicting Medicare outlays for home health, and their tendency to overstate expected outlays as part of their projections, the current data should be viewed with great suspicion. For example, CBO projected the Balanced Budget Act of 1997 (BBA97) cuts to yield about $16 billion from home health over five years; instead, it is expected that more than $72 billion will be cut over the same time period. Further, in February 2001, CMS projected home health outlays for FY2001 to be $10.3 billion. In July 2001, that estimate was reduced to $9.6 billion. Today the CBO estimate for FY2001 is $9.1 billion. That's over a $1 billion drop in estimated outlays in less than one year's time. Most astonishingly, CBO projects expenditures to reach $45 billion by 2012 while CMS projections are set nearly $20 billion lower at $25.5 billion.
OMB and HHS have also asserted that the 15 percent cut scheduled for October 1, 2002, is actually a 7 percent cut. They overlook the fact that the BBA97 mandated a 15 percent cut in the per beneficiary and per visit limits as home health transitioned to the new prospective payment system. If the actual cut in payments for FY2003 should turn out to be less than 15 percent, it will be because home health agencies were very cautious in the last year of the preceding interim payment system and incurred average costs significantly below allowable levels. In effect, this means that a portion of the 15 percent cut has already been implemented, through the careful stewardship of home health agencies. As a result of the fiscally responsible behavior of home health agencies, the initial PPS payment rates were set at 12 percent below the average estimated costs. As such, if implemented, the net impact of the “15 percent cut” will be closer to 20 percent (12 percent from the initial PPS payment rate setting and an additional 7 to 8 percent in October 2002).

NAHC does not dispute that some growth is projected in the Medicare home health benefit. This growth reflects some of the effects of the change to a new payment system, the temporary 10 percent add-on for care provided to rural patients, and modest recovery from the drastic cuts of BBA97 that has been long in coming. Yet, even with this projected growth, expected expenditures are far below what was projected for the home care benefit in the 1990s. In 1997 CBO projected that home health spending for FY 2002 would be reduced as a result of BBA97 from $29.9 billion to $25.2 billion. CBO now projects that spending for FY2002 will be reduced to $11.4 billion. (March 2002 CBO Report.) Even in the unlikely event that CMS's estimate of $13.2 billion for FY2002 should turn out to be accurate, home health spending for FY 2002 will have been cut in half.

Moreover, factors indicate that growth in the benefit will not keep pace with need. There are no indications that new providers are entering the program, that there is a decrease in patient care needs, or that unmet needs are now being addressed. For the first time in the history of Medicare, spending on nursing homes is outpacing home health spending. This despite the growing preference by patients for care in a non-institutional setting. The bottom line is that home care cannot withstand additional cuts of any magnitude.

Founded in 1982, NAHC is the largest trade association serving the nation's home care agencies, hospices, and home care aide organizations. Home care and hospice services help keep families together by providing vitally needed healthcare and supportive services to millions of Americans each year in the dignity of their own homes.

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