Contemplating home health PPS: current patterns of Medicare service use - prospective payment system - Issues in Reforming Home Health Care

Health Care Financing Review, Fall, 1994 by Henry B. Goldberg, Robert J. Schmitz

INTRODUCTION

Rapid increases in expenditures for home health services under the Medicare program provide the Health Care Financing Administration (HCFA) with a motivation to evaluate alternatives to the current system of cost-based reimbursement. This system provides few incentives for providers to deliver services in an efficient manner or to limit increases in costs. A PPS is one alternative payment approach that can provide such incentives. It is also one that Congress has mandated (Omnibus Budget Reconciliation Act of 1987) for consideration as an alternative for the Medicare program.

There are a number of possible approaches to prospective payment for home health care. Payments can be set prospectively for each visit provided, each month of care, each episode of care, or each month of program enrollment, for example. Each of these approaches cedes differing amounts of control (and provides different incentives) to providers. When prospective rates are set per visit, the provider has an incentive to provide that visit at lower cost in order to retain the difference between cost and rate as profit (or surplus). However, the payer, not the provider, is at risk for increases in the number of visits. Therefore, the payer has the incentive to monitor service use and is likely to assess each visit for eligibility and coverage in order to assure that it pays only for those visits for which it has an obligation to pay. When rates are set for units of service larger than a visit, e.g., an episode of care, the risks for increases in cost per visit and increases in the number of visits are shifted to the provider, and the payer need worry only about the number of episodes of care (i.e., admissions). The payer's review of the coverage of individual visits is likely to decrease, whereas the confirmation of the appropriateness of each admission is likely to intensify.

Under the National Home Health Agency Prospective Payment Demonstration, two of these alternatives are being tested. The demonstration, which began operation in 1990, is enrolling Medicare-certified agencies in five States (California, Florida, Illinois, Massachusetts, and Texas) and using a randomized treatment-control design to measure the impacts of PPS on home health agency (HHA) operations, organization, and finances. The demonstration is being implemented in two phases: Phase I has been testing a system where payment rates are set on a per visit basis; and Phase II, to begin in 1995, will test a system where rates are set for each episode of care provided.

Participation in the demonstration is voluntary, but it is hoped that the findings will be generalizable to the universe of Medicare home health providers. Therefore, steps have been taken to encourage participation by a broad range of agencies. Payment rates are set for each participating agency based on its own historical costs, so neither high-cost nor low-cost agencies are at a disadvantage. Participants' risk is further mitigated by stop-loss provisions that limit agencies' financial liability for costs that exceed the prospective payment rates. Finally, under the per episode phase of the demonstration, an algorithm will be implemented to adjust the payment rate for significant changes in a participating agency's case mix (relative to the time period on which its payment rate was based).

Even with such protection in place, however, it would be prudent to attempt to gain an understanding of how implementing per episode payment as a demonstration, let alone as policy, is likely to affect participating HHAs, and whether the impacts WHI differ systematically across definable types of agencies. Systematic differences in current patterns of utilization would place agencies of different types at different baseline points relative to the new payment approach. Although considerable variation in the pattern of gross Medicare home health service utilization across areas (Benjamin, 1986; Bishop and Skwara, 1993; Kenney, 1993) and types of patients (Branch et al., 1993) has been documented, no previous studies have used the demonstration's definition of the episode of care, or worked with data on such recent (1992-93) utilization.

The definition of an episode of home health care is not a straightforward matter. Unlike inpatient hospital care, where the stay is readily defined by the patient's continuous presence m the facility, home care is generally provided on an intermittent basis in the patient's home. For instance, a patient can receive a single visit every 30 to 45 days for a catheter change, receive no home health care in the interim, and still be considered an "active" patient on an agency's caseload. Although Medicare billing practices provide for the submission of separate admission and discharge bills for the beginning and ending of episodes of home care, agencies are not consistent in their use. For the implementation of the demonstration, therefore, we have chosen to define the episode as a fixed length of time following admission. The analysis presented here applies the demonstration's definition of an episode to the most recent available data on Medicare utilization, developing a simulated profile of utilization in terms of that episode definition. We attempted to answer the following questions: