Effects of Medicare Payment Reform: Evidence from the Home Health Interim and Prospective Payment Systems

Peter J Huckfeldt,David C Grabowski,Neeraj Sood,Joseph P Newhouse,Jose Escarce

doi:10.2139/ssrn.2020441

Abstract

Medicare continues to implement payment reforms that shift reimbursement from fee-for-service towards episode-based payment, affecting average and marginal reimbursement. We contrast the effects of two reforms for home health agencies. The Home Health Interim Payment System in 1997 lowered both types of reimbursement; our conceptual model predicts a decline in the likelihood of use and costs, both of which we find. The Home Health Prospective Payment System in 2000 raised average but lowered marginal reimbursement with theoretically ambiguous effects; we find a modest increase in use and costs. We find little substantive effect of either policy on readmissions or mortality.

Highlights

With the passage of the Patient Protection and Affordable Care Act (ACA), policymakers face the challenge of minimizing health care costs while maintaining or improving quality of care
We investigate the presence of heterogeneous effects of the Interim Payment System (IPS) and the prospective payment system (PPS) on home health agency costs and admissions by patients with differential changes in average payments. 6.1
In this paper we examine the effects of changes in Medicare reimbursement for home health agencies, including the Interim Payment System (IPS) in 1997 and the Prospective Payment System (PPS) in 2000

Summary

Introduction

With the passage of the Patient Protection and Affordable Care Act (ACA), policymakers face the challenge of minimizing health care costs while maintaining or improving quality of care. The Center for Medicaid and Medicare Services is currently piloting programs that provide a fixed payment for an acute hospital stay and any subsequent post-acute care (CMS 2011). These reforms require an appropriate definition of a treatment "episode" and understanding the effects of alternate reimbursement rules. In 1983, in an attempt to curtail rapidly increasing inpatient hospital costs, Medicare instituted the Inpatient Prospective Payment System, which provides a single payment for the inpatient stay, based on principal diagnosis, complications and comorbidities, procedure use, and local wages. Admissions, patient visits, and resource use skyrocketed in home health agencies, resulting in Medicare home health expenditures increasing from $2 billion in 1987 to $17 billion in 1997 (MedPAC 2002)

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