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

Agency effects such as agency size and type of organization (non-profit, government, hospital-based, and proprietary) were seen (Tables 3-5) to be associated with pronounced disparities in number of visits, duration of episodes, and reimbursement per episode. Dummy variables were defined for agency type (non-profit is on-fitted), size, and market share. The dummy variables for agency size might appear at first to be problematic. Agencies that attain larger-than-average size surely do so in part by providing more visits per period to a given patient than do other agencies; they may also extend episodes for a longer time than do other agencies. However, because the regression equations are estimated at the episode level, not at the agency level, bias as the result of endogenous agency size can only arise from the effects of additional visits from a given episode on agency size and must therefore be quite small.

Patient characteristics can be expected to have stronger effects on the number of visits and duration of episodes than agency or locality effects. However, no such characteristics are available to us other than patient age, gender, and diagnosis. The age categories are included, with the disabled (under 65 years of age) omitted. Dummy variables for each of the 44 diagnostic categories were also included even though their coefficients are not reported. Although patient characteristics would be expected to have no effect on payment per visit for any given discipline, they may nevertheless affect mean episode payment per visit through their influence on the composition of visits (e.g., the proportion of visits that are skilled nursing, physical therapy, etc.) and so appear in the equation for payment per visit.

Regression estimates are displayed in Table 9. All regressors but two are dummy variables. Columns (1) and (2) show effects on reimbursement for full episodes and for 120-day episodes.(4) The results show a marked effect of agency ownership on Medicare reimbursement for episodes of home health care. Proprietary agencies receive 22-24 percent more in reimbursement than non-profit agencies (the omitted category) and 38-40 percent more than government agencies. Total episode reimbursement also tends to increase with size; large agencies receive 24-26 percent more per episode than small agencies.(5) Reimbursement falls with increases in industry concentration as measured by the Herfindahl index and rises with the market share of the agency providing the episode; a 10-percentage point increase in the market share of an episode's provider produces a one-tenth-of-1-percent increase in episode reimbursement. Finally, episodes provided to male beneficiaries cost the Medicare program about 12 percent less, on average, than do episodes provided to women. There is no statistically significant relationship between episode reimbursement and beneficiary age.(6)

[TABULAR DATA 9 OMITTED]

As previously noted, the logarithmic specification of the dependent variables permits a simple arithmetic decomposition of episode reimbursements. Each coefficient in column (10) may be expressed also as the sum of the corresponding coefficients in columns (3), (4), and (5) (or, alternatively, in [41 and [6]). Each coefficient in column (2) may be expressed as the sum of coefficients in columns (3) and (7). For example, nearly three-quarters of the 24-percent-greater episode reimbursement associated with proprietary versus non-profit agencies results from greater numbers of visits per day; about 20 percent results from increasing the duration of episodes, and only about 5 percent results from greater reimbursement per visit.