An Examination of Medicare Home Health Services: A Descriptive Study of the Effects of the Balanced Budget Act Interim Payment System on Access to and Quality of Care

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Between 1987 and 1993 sharp increases in Medicarefinanced home health care utilization occurred, peeking in 1990 at a growth rate of over 40%. Multiple factors contributed to this growth including an increasing number of beneficiaries, expanded coverage to include care for chronically ill beneficiaries as well as those seeking post-hospital care, and increased utilization per beneficiary. This rapid rise in home care spending led to inclusion in Balanced Budget Act of 1997 (BBA) of changes in payment methodology designed to substantially reduce payments for and utilization of home health services. This article examines specific responses made by home health agencies to BBA payment reforms. The ultimate goal of BBA home health provisions was to convert home care reimbursement to a case-mix adjusted prospective payment system (PPS) and end cost-based reimbursement considered to create incentives to increase utilization. The BBA mandated an interim payment system (IPS) to be in effect for two years to allow time for permanent risk-adjusted PPS to be developed and implemented (Smith, Rosenbaum, Schwartz, 1998). However, because of difficulties in developing PPS, IPS remained in place until October, 2000 (Nancy Ann Min De Parle, Administrator HCFA, personal communication to Honorable Bill Thomas, Chairman Health Subcommittee on Ways and Means, September 14, 1998). The IPS included a number of elements designed to constrain growth substantially in home care costs. Of primary concern, however, was payment formula known as the per beneficiary limit. This element of IPS imposed limits on aggregate payments to home health agencies that capped total payment an agency could receive based on an agency's average cost per beneficiary in 1994. In other words, an agency's maximum payment was its average per beneficiary cost in 1994 multiplied by number of beneficiaries admitted in current fiscal year, subject to other adjustments. (For a detailed analysis of home health payment reforms established by BBA, see Center for Health Services initial report on this issue, Medicare Home Health Services: An Analysis of Implications of Balanced Budged Act of 1997 for Access and Quality) (Report 1) (Smith, Rosenbaum, & Schwartz, 1998). The authors raised concern that this payment methodology would create incentives to deny care to sickest and frailest beneficiaries that could result in substantial regional variation in access to and in quality of care. METHODOLOGY This research was conducted as a descriptive study to explore and document effect of IPS on service delivery patterns of home health agencies; examine whether these effects led to a reduction in availability of services; and assess whether a reduction in services affected disproportionately sickest (i.e., high-cost) beneficiaries. The purpose of study was to examine changes, if any, in home health agency behavior and their potential effects on access to and quality of care. We hypothesized that agencies would avoid highcost patients because of lack of cost-based or riskadjusted payment. We also anticipated that sicker beneficiaries would experience access problems including difficulty being admitted to a home health agency, premature discharge from home health agency care, increased referrals to other sources of care and financing, and increased institutional care. This study was not designed to statistically quantify national changes in home health utilization or to serve as outcomes research. Quantification of changes is therefore used to illustrate changes in service delivery patterns and capacity of agencies studied. In order to explore behavior of home health agencies since implementation of BBA, authors solicited home health agency participation in study through state home health associations in nine states: California, Florida, Indiana, Iowa, Louisiana, Massachusetts, Mississippi, Pennsylvania, and Texas. …