Medicare Home Health — Benefits and Payments

Medicare Home Health — Benefits and Payments

Order Code RS21814
April 12, 2004
CRS Report for Congress
Received through the CRS Web
Medicare Home Health — Benefits
and Payments
Jennifer Boulanger
Specialist in Social Legislation
Domestic Social Policy Division
Summary
Medicare pays for unlimited care in the home as long as the following criteria are
met: the beneficiary is “homebound,” in need of skilled care on an intermittent basis,
and under the care of a physician. Beneficiaries do not have any cost sharing
requirements for home health services.1
Medicare pays home health agencies (HHA) using a prospective payment system
(PPS). Under home health PPS, Medicare makes a payment for every 60-day episode
of care that an eligible beneficiary receives. This episode payment is adjusted to reflect
the intensity of beneficiary care needs using home health resource groups (HHRGs).
Congress, in the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) made a number of changes to home health agency payments including
changing the update time frame from a federal fiscal year basis to a calendar year (CY)
basis. HHA payments are increased by the full market basket percentage (3.3%) for the
last quarter of 2003 (October, November, and December) and for the first quarter of
2004 (January, February, and March). The update for the last three quarters of CY2004
is the market basket minus 0.8 percentage points. MMA also provided a temporary
payment add-on of 5% for home care provided to beneficiaries in a rural area beginning
April 1, 2004 and ending March 31, 2005. This report will be updated as warranted.
Background
Medicare’s home health benefit has specific statutory eligibility criteria: a
beneficiary must be confined to his or her home (that is, be “homebound”), under the care
of a physician, and need skilled nursing care on an intermittent basis or skilled therapy
care. A homebound individual is defined as one who cannot leave home without a
considerable and taxing effort, or who requires the aid of a supportive device (such as
crutches, a cane, a wheelchair, or a walker), or if the individual has a condition such that
1 For a complete discussion of cost sharing in Medicare home health, see CRS Report RL31628,
Medicare’s Home Health Benefit: Cost Sharing Issues and Options, by Carolyn Merck.
Congressional Research Service ˜ The Library of Congress

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leaving the home is medically contraindicated. Absences from home may occur
infrequently for short periods of time for purposes such as to receive medical treatment,
attend certain adult day care programs, or attend church.2 Skilled care includes skilled
nursing or therapy (physical, speech/language, occupational) services delivered under the
care of a physician and in accordance with a plan of care periodically reviewed by a
physician.
For beneficiaries meeting the qualifying criteria, Medicare’s home health benefit
covers the following services:
! Part-time or intermittent nursing care provided by or under the
supervision of a registered nurse;3
! Physical or occupational therapy or speech-language pathology services;
! Medical social services;
! Part-time or intermittent services of a home health aide who has
successfully completed a training program approved by the Secretary;4
! Medical supplies (excluding drugs and biologicals) and durable medical
equipment (DME);
! Medical services provided by an intern or resident in training under an
approved training program with which the agency may be affiliated; and
! Certain other outpatient services which involve the use of equipment that
cannot readily be made available in the beneficiary’s home.
Home health care is covered by Medicare as long as the care is medically reasonable
and necessary for the treatment of illness or injury. Although the number of home health
visits a beneficiary may receive is unlimited, services must be provided pursuant to a plan
of care that is prescribed and periodically reviewed by a physician. In general, Medicare’s
home health benefit is intended to serve beneficiaries needing acute, skilled medical care.
It was never envisioned as providing coverage for nonmedical supportive care or personal
care assistance needed by chronically impaired persons. It is not a long-term care
program for the disabled or the frail elderly.
Home Health Utilization and Spending
From 1987 to 1997, the number of beneficiaries receiving home health services more
than doubled and the number of visits per home care patient increased more than
threefold, from 23 visits in 1987 to 73 in 1997 (Table 1). During this time period, the
2 Sections 1814(a)(2)(c), 1814(a), and 1861(m) of the Social Security Act.
3 “Part-time or intermittent” is defined in the statute Section 1861(m) of the Social Security Act)
as “less than eight hours each day and 28 or fewer hours each week (or, subject to review on a
case-by-case basis as the need for care, less than eight hours each day or 35 or fewer hours per
week).”
4 Home health aide visits include “hands-on personal care to the beneficiary or services that are
needed to maintain the beneficiary’s health or to facilitate treatment of the beneficiary’s illness
or injury.” (42 CFR 409.45(b)(1)) Covered aide services include personal care such as bathing,
grooming and dressing of the patient; simple dressing changes that do not require the skills of a
licensed nurse; and assistance with medications that ordinarily are self-administered and do not
require the skills of a licensed nurse.

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number of HHAs participating in Medicare also increased sharply, growing from 5,686
agencies in 1989 to 10,492 in 1997. This dramatic growth resulted in similarly dramatic
increases in Medicare spending for home health. Home health spending rose from $1.9
billion in 1987 to about $17.5 billion in 1997, an average annual increase of almost 27%
(Table 1). This growth led to the imposition of new cost limits on HHAs in the Balanced
Budget Act of 1997 (BBA), that attempted to control growth in number of visits paid by
the program until a prospective payment system could be implemented (the interim
payment system). The growth also led to scrutiny by the Department of Health and
Human Services (HHS) Office of the Inspector General and the General Accounting
Office (GAO) regarding fraudulent practices by some home health agency operators. The
Center for Medicare and Medicaid Services (CMS) changed a number of practices
regarding home health agencies and initiated a moratorium on allowing new HHAs to
enter the Medicare program from September 1997 through January 1998.
Table 1. Medicare Home Health Agency Payments, People Served,
and Visits, Calendar Years 1987-2003
People served
Visits
Payments
(in
Percent
Number (in
Per 1000
Percent
Number (in Per person Percent
Year
millions)
change
thousands)
enrolled
change
thousands)
served
change
1987
$1.9
1,564.5
48
35,589
23
1988
2.1
8.5
1,601.7
49
2.1
37,129
23
1.9
1989
2.6
24.3
1,724.9
51
4.1
46,296
27
15.8
1990
3.9
51.7
1,967.1
57
11.8
69,386
35
31.4
1991
5.6
43.5
2,242.9
64
12.3
98,643
44
24.7
1992
7.9
39.4
2,506.2
70
9.4
132,499
53
20.2
1993
10.3
31.6
2,874.1
79
12.9
167,802
58
10.4
1994
13.8
33.1
3,179.2
93
17.7
218,790
69
17.9
1995
16.3
18.2
3,469.4
102
9.7
264,178
76
10.6
1996
17.7
8.6
3,599.7
107
4.9
281,887
78
2.8
1997
17.5
-1.2
3,557.5
108
0.9
260,162
73
-6.6
1998
11.0
-36.8
3,061.6
95
-12.0
159,247
52
-28.9
1999
8.4
-24.3
2,719.7
85
-10.5
112,866
41
-20.2
2000
8.5
1.5
2,461.2
75
-11.8
107,941
44
-5.7
2001
9.2
8.3
2,402.5
71
-5.3
66,172
28
-37.2
2002
10.1
9.5
2,550.3
NA
NA
69,184
27
-1.5
2003
10.0
— 0.3
NA
NA
NA
72,247
NA
NA
Average annual percent change:
1987-1997
(pre-BBA)
24.9
8.4
12.2
1997-2003
(post-BBA)
-8.8
NA
NA
Source: Centers for Medicare and Medicaid Services, Office of the Actuary and Office of Information
Services.
Notes: Payments are on an incurred basis. NA — not available.

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After the BBA, Medicare payments to HHAs decreased sharply falling 37% in the
first full year the interim payment system was in place and an additional 24% in the
second year. The number of beneficiaries served decreased about 10% a year for the three
years after BBA passed. This decrease was due to the stepped up program integrity
activities directed at HHAs and a change in a qualifying service by BBA5. The average
number of visits per beneficiary served also decreased dramatically falling almost 30%
in the first full year after BBA due to the application of new payment limits.
After implementation of the home health prospective payment system (HHPPS) in
October 1, 2000, payments increased by 8.3% in 2001 and by 9.5% in 2002. Payments
fell slightly in 2003 due to the impact of the so-called 15% reduction.6 The number of
visits and, to a lesser degree, the number of beneficiaries served, continued to decline
immediately after the implementation of PPS. In 2001, the average number of visits per
person dropped to 28 and the number of beneficiaries served per thousand dropped to 71.
However, in 2002, the number of beneficiaries served increased and in both 2002 and
2003 the number of visits increased.
Home Health Prospective Payment System
Begun October 1, 2000, HHPPS groups patients according to the type and intensity
of services the patients require and sets a payment rate for each payment group. The basic
unit of payment is for a 60-day episode of care and is adjusted for the wages of the area
in which the beneficiary resides. Payment for the 60-day episode covers skilled nursing
and therapy visits, aide visits, and medical supplies needed by the beneficiary. Physician
services, durable medical equipment and osteoporosis drugs are not included in the
HHPPS. The 60-day episode base payment, called the “national standardized 60-day
episode rate” is based on actual, audited average FY1997 per visit home health costs that
have been trended forward for inflation. There is no distinction between urban and rural
base payment amounts.
The payment amount is then adjusted for the care needs of the beneficiaries by using
HHRGs. Each of these represent specific amounts of nursing and therapy care. Care
information is obtained through the initial assessment of the patient’s care needs using the
Outcome and Assessment Information Set (OASIS). Like other PPSs that pay health care
providers for care to Medicare beneficiaries on the basis of predetermined fixed amounts,
Medicare payments to HHAs are intended to pay the HHA for its Medicare beneficiary
5 BBA removed venipuncture services from the list of skilled services that was used in
determining beneficiary eligibility for the home health benefit. Because venipuncture is a
covered Part B service beneficiaries could continue to receive that service.
6 BBA required that PPS payments be calculated so that, in the first year of PPS, home health
spending would be the same as under the previous cost-reimbursement system, but the cost of the
old system would be calculated as though the cost limits under the interim payment system were
reduced by 15%. Delayed until Oct. 1, 2002 — two years after the start of PPS, the reduction in
actual payments amounted to approximately 7% (because HHAs are paid the lesser of their actual
costs or their costs subject to the limits, reduced 15%) and when coupled with the update in
payments that also occurred Oct. 1, 2002, HHA payments were actually reduced by
approximately 4.9%. See CRS Report RL31420, Medicare’s Home Health Benefit: The Fifteen
Percent Payment Cut, by Carolyn L. Merck.

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costs on average. That is, although the payment is a predetermined rate, an agency’s
actual costs may be above or below that amount for an individual patient. Agencies have
an incentive to manage costs so that, on average, costs do not exceed the PPS average
amounts. HHAs that provide services at lower costs than the Medicare payment are able
to keep the difference.
HHAs are paid 60% of the wage-and case mix-adjusted payment after submitting a
request for anticipated payment (RAP). The RAP may be submitted at the beginning of
a beneficiary’s care once the HHA has received verbal orders from the beneficiary’s
physician and the assessment is completed. The remaining payment is made when the
beneficiary’s care is completed or the 60-day episode ends. Depending upon the
circumstances additional adjustments may be made to the payment:
! Outliers. Outlier payments are made for extraordinarily costly episodes
whose estimated costs exceed a threshold amount for each HHRG. Five
percent of total home health payments are set aside for outlier payments.
! Significant Change in a Beneficiary’s Condition. An HHA’s
payments can be modified within a patient’s 60-day episode when a
significant change in a beneficiary’s condition occurs. Payment will be
an amount that is proportional between the HHRG prior to the change
and the HHRG after the significant change in condition.
! Partial Episode Payment. If a beneficiary transfers from one HHA to
another during a 60-day episode, the first HHA to provide care will have
its payment reduced to a portion equal to the amount of time during the
60-day episode in which care was provided. The second HHA will
conduct an assessment, and a new, 60-day episode of care will begin.
! Low Utilization Payment Adjustment. The PPS payment for an agency
is adjusted if a beneficiary’s care is delivered in four or fewer visits. The
payment is a standardized, service-specific per-visit amount multiplied
by the number of visits actually provided during the episode.
Current Issues
MMA. MMA contained a number of provisions affecting HHAs and provided for
two home health demonstration projects. The MMA changed the time frame for the home
health update from the federal fiscal year to a calendar year basis beginning with 2004.
HHA payments are increased by the full market basket percentage for the last quarter of
2003 (October, November, and December) and for the first quarter of 2004 (January,
February, and March). The update for the remainder of calendar year 2004 and for all of
calendar years 2005 and 2006 is the home health market basket percentage increase minus
0.8 percentage points. MMA also provides a one-year, 5% additional payment for home
health care services furnished in a rural area without regard to certain budget-neutrality
requirements. The temporary additional payment begins for episodes and visits ending
on or after April 1, 2004 and before April 1, 2005 and is not to be used in calculating
future home health payment amounts.7
7 The Benefits Improvement and Protection Act of 2000 (BIPA) provided a temporary two-year,
10% increase in payments for services furnished in rural areas that expired Mar. 31, 2003.

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MMA suspends the requirement that home health agencies must collect OASIS data
on private pay (non-Medicare, non-Medicaid) until the Secretary (1) reports to Congress
on the benefits of these data, the value of the data compared to the administrative burden
of data collection in small agencies, and the use of the OASIS information by both large
and small agencies, and then (2) publishes final regulations regarding the collection and
use of OASIS. The provision does not prohibit home health agencies from collecting
OASIS data on private pay patients for the agencies’ own use.
MMA requires two demonstration projects: (1) beneficiaries enrolled in Medicare
Part B with specified chronic conditions would be deemed to be homebound in order to
receive home health services under Medicare; and (2) an HHA, directly or under
arrangement with a medical adult day care facility, provides medical adult day care
services to substitute for a portion of home health services otherwise provided in a
beneficiary’s home.
In addition, MMA requires the Medicare Payment Assessment Commission
(MedPAC) to study payment margins of home health agencies paid under the Medicare
home health prospective payment system, using cost reports filed by agencies, and
examine whether systematic differences in payment margins are related to differences in
patient care needs, as measured by home health resource groups, among agencies.

Payment Adequacy. After three years experience of HHPPS, analysis is ongoing
to assess the adequacy of Medicare payments. Both the GAO and MedPAC have
analyzed available data on HHA costs and Medicare payments. Recently, GAO studied
payments to freestanding HHAs for the first two years of HHPPS and concluded that
Medicare payments “more than covered aggregate costs” of caring for their Medicare
home health patients.8 GAO found that aggregate Medicare margins for freestanding
facilities were 16.2% in 2001 and 17.8% in 2002. Furthermore, MedPAC has estimated
that aggregate PPS margins for all HHAs were 16.1% in 2001 and projected margins of
16.8% for 2004.
Quality of Care. Efforts have been underway since the late 1980s to develop and
use measures of outcomes in home care in order to eventually use continuous quality
improvement techniques. OASIS was developed for that purpose. In demonstrations of
these techniques, outcomes were found to improve.9 In November 2003, CMS launched
a national home health quality initiative to provide HHA quality data to consumers, using
selected measures from OASIS data. Data on individual HHAs can be obtained on
[www.Medicare.gov] or through the 1-800-Medicare phone line. In addition to providing
the data to consumers, CMS has offered HHAs assistance in improving the quality of care
they provide. A recent MedPac study concludes that there appears to be a very slight
increase in the quality of care since PPS began although there is “little difference in the
overall quality of care provided” before and after PPS began.10
8 U.S. General Accounting Office, Medicare Home Health Payments to Most Freestanding Home
Health Agencies More Than Covered Their Costs, GAO-04-359, Feb. 2004, p. 3.
9 Peter W. Shaughnessy, et al., OASIS and Outcome-Based Quality Improvement in Home Health
Care: Research and Demonstration Findings, Policy Implications, and Considerations for Future
Change, Feb. 2002. [http://www.cms.hhs.gov/oasis/obqi.asp#vol4 ]
10 Outcome Concept Systems, Inc., The Effect of the Prospective Payment System on Home
Health Quality of Care, Mar. 2004.