Medicare Home Health: Success of Balanced Budget Act Cost Controls
Depends on Effective and Timely Implementation (Testimony, 10/29/97,
GAO/T-HEHS-98-41).

This testimony examines how the Balanced Budget Act of 1997 has
addressed rapid cost growth in Medicare's home health benefit. This
benefit is important to many beneficiaries recovering from illness or
injury following hospitalization--the original purpose of the benefit.
Of late, however, increasing numbers of beneficiaries have used the
benefit for custodial-type care for chronic conditions. This change has
helped to fuel growth in Medicare home health costs, which soared from
about $2 billion in 1989 to nearly $18 billion in 1996. GAO's remarks
focus on the following four areas: the reasons for the rapid growth of
Medicare home health care costs in the 1990s, the interim changes in the
act to Medicare's current payment system, establishment under the act of
a prospective payment system for home health care, and efforts by
Congress and the administration to strengthen program safeguards to
prevent fraud and abuse in home health services.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-98-41
     TITLE:  Medicare Home Health: Success of Balanced Budget Act Cost 
             Controls Depends on Effective and Timely
             Implementation
      DATE:  10/29/97
   SUBJECT:  Home health care services
             Health care cost control
             Health care programs
             Health services administration
             Fraud
             Program abuses
             Quality control
IDENTIFIER:  Medicare Program
             HHS Operation Restore Trust
             Medicaid Program
             Medicare Prospective Payment System
             
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Cover
================================================================ COVER


Before the Subcommittee on Oversight and Investigations, Committee on
Commerce, House of Representatives

For Release on Delivery
Expected at 10:30 a.m.
Wednesday, October 29, 1997

MEDICARE HOME HEALTH - SUCCESS OF
BALANCED BUDGET ACT COST CONTROLS
DEPENDS ON EFFECTIVE AND TIMELY
IMPLEMENTATION

Statement of William J.  Scanlon, Director
Health Financing and Systems Issues
Health, Education, and Human Services Division

GAO/T-HEHS-98-41

GAO/HEHS-98-41T


(101703)


Abbreviations
=============================================================== ABBREV

  BBA - Balanced Budget Act of 1997
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HIPAA - The Health Insurance Portability and Accountability Act of
     1996
  ORA - Omnibus Reconciliation Act of 1980
  PPS - prospective payment system

MEDICARE HOME HEALTH:  SUCCESS OF
BALANCED BUDGET ACT COST CONTROLS
DEPENDS ON EFFECTIVE AND TIMELY
IMPLEMENTATION
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss how the Balanced Budget
Act of 1997 (BBA)\1 addressed the issues of rapid cost growth in
Medicare's home health benefit.  The home health benefit is important
for many beneficiaries recovering from illness or injury after a
hospitalization, the original purpose of the benefit.  In recent
years, an increasing number of beneficiaries also received under the
benefit more custodial-type care for chronic conditions.  This change
has been a primary contributor to growth in Medicare home health
costs, which averaged about 33 percent per year as costs went from
about $2 billion in 1989 to almost $18 billion in 1996. 

My testimony today focuses on four areas:  the reasons for the rapid
growth of Medicare home health care costs in the 1990s, the interim
changes in the BBA to Medicare's current payment system, issues
related to implementing the BBA's requirement to establish a
prospective payment system (PPS) for home health care,\2

and the status of efforts by the Congress and the administration to
strengthen program safeguards to combat fraud and abuse in home
health services.  The information presented is based primarily on our
analysis of the BBA and on our previous work on Medicare's home
health benefit.  A list of related GAO products is at the end of this
statement. 

In brief, changes in law and program guidelines have led to rapid
growth in the number of beneficiaries using home health care and in
the average number of visits per user.  In addition, more patients
now receive home health services for longer periods of time.  These
changes have not only resulted in accelerating costs but also marked
a shift from an acute-care, short-term benefit toward a more
chronic-care, longer-term benefit. 

The recently enacted BBA included a number of provisions designed to
slow the growth in home health expenditures.  These include
tightening payment limits immediately, requiring a PPS beginning in
fiscal year 2000, prohibiting certain abusive billing practices,
strengthening participation requirements for home health agencies,
and authorizing the Secretary of Health and Human Services (HHS) to
develop normative guidelines for the frequency and duration of home
health services.  All of these provisions should help control
Medicare costs.  However, the Health Care Financing Administration
(HCFA), the agency within HHS responsible for administering Medicare,
has considerable discretion in implementing the law which, in turn,
means the agency has much work to do within a limited time period. 
HCFA's actions, both in designing a PPS and in implementing enhanced
program controls to assure that unscrupulous providers cannot readily
"game" the system, will determine to a large extent how successful
the legislation will be in curbing past abusive billing practices and
slowing the rapid growth in spending for this benefit. 


--------------------
\1 P.L.  105-33, Aug.  5, 1997. 

\2 A system in which payment is based on a fixed, predetermined
amount per unit. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

To qualify for home health care, a beneficiary must be confined to
his or her residence (that is, "homebound"); require intermittent
skilled nursing, physical therapy, or speech therapy; be under the
care of a physician; and have the services furnished under a plan of
care prescribed and periodically reviewed by a physician.  If these
conditions are met, Medicare will pay for part-time or intermittent
skilled nursing; physical, occupational, and speech therapy; medical
social services; and home health aide visits.  Beneficiaries are not
liable for any coinsurance or deductibles for these home health
services, and there is no limit on the number of visits for which
Medicare will pay. 

Medicare pays for home health care on the basis of the reasonable
costs actually incurred by an agency (costs that are found to be
necessary and related to patient care), up to specified limits.  The
BBA reduced these cost limits for reporting periods beginning on or
after October 1, 1997. 


   HOME HEALTH COST GROWTH
---------------------------------------------------------- Chapter 0:2

The Medicare home health benefit is one of the fastest growing
components of Medicare spending.  From 1989 to 1996, part A
expenditures for home health increased from $2.4 billion to $17.7
billion--an increase of over 600 percent.  Home health payments
currently represent 13.5 percent of Medicare part A expenditures. 

At Medicare's inception in 1966, the home health benefit under part A
provided limited posthospital care of up to 100 visits per year after
a hospitalization of at least 3 days.  In addition, the services
could only be provided within 1 year after the patient's discharge
and had to be for the same illness.  Part B coverage of home health
was limited to 100 visits per year.  These restrictions under part A
and part B were eliminated by the Omnibus Reconciliation Act of 1980
(ORA) (P.L.  96-499), but little immediate effect on Medicare costs
occurred. 

In 1983, the Medicare PPS for inpatient hospital services was
implemented, and many health financing experts expected use of the
home health benefit to grow as patients were discharged from the
hospital earlier in their recovery periods.  However, HCFA's
relatively stringent interpretation of coverage and eligibility
criteria held growth in check for the next few years.  Then, as a
result of court decisions in the late 1980s, HCFA issued guideline
changes for the home health benefit that had the effect of
liberalizing coverage criteria, thereby making it easier for
beneficiaries to obtain home health coverage.  For example, HCFA
policy had been that daily skilled nursing services provided more
than four times a week were excluded from coverage because such
services were not part-time and intermittent.  The court held that
regardless of how many days per week services were required they
would be covered so long as they were part-time or intermittent.\3
HCFA was then required to revise its coverage policy.  Daily skilled
nursing care is now covered for a period of up to 3 weeks. 
Additionally, another court decision prevented HCFA's claims
processing contractors from denying certain physician-ordered
services unless the contractors could supply specific clinical
evidence that indicated which particular service should not be
covered.\4

The combination of these changes has had a dramatic effect on
utilization of the home health benefit in the 1990s, both in terms of
the number of beneficiaries receiving services and in the extent of
these services.  (The appendix contains a figure that shows growth in
home health expenditures in relation to the legislative and policy
changes.) For example, ORA and HCFA's 1989 home health guideline
changes have essentially transformed the home health benefit from one
focused on patients needing short-term care after hospitalization to
one that serves chronic, long-term care patients as well.  The number
of beneficiaries receiving home health care has more than doubled in
recent years, from 1.7 million in 1989 to about 3.9 million in 1996. 
During the same period, the average number of visits to home health
beneficiaries also more than doubled, from 27 to 72. 

In a recent report on home health,\5 we found that from 1989 to 1993,
the proportion of home health users receiving more than 30 visits
increased from 24 percent to 43 percent and those receiving more than
90 visits tripled, from 6 percent to 18 percent, indicating that the
program is serving a larger proportion of longer-term patients. 
Moreover, about a third of beneficiaries receiving home health care
in 1992 did not have a prior hospitalization, another indication of
the shift of program focus from beneficiaries needing short-term care
following a hospital stay to those receiving care for chronic
conditions. 


--------------------
\3 Duggan v.  Bowen, 691 F.Supp.  1487 (D.D.C.  1988). 

\4 Fox v.  Bowen, 656 F.Supp.  1236 (D.Conn.  1987).  This case
involved physical therapy services in skilled nursing facilities, and
HCFA also applied the principle to home health services. 

\5 Medicare:  Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar.  27, 1996).  This report includes a
detailed discussion of the reasons for home health cost growth. 


   INTERIM CHANGES TO COST
   REIMBURSEMENT
---------------------------------------------------------- Chapter 0:3

To gain some measure of control over payments immediately, the BBA
made some significant changes to the cost-based reimbursement system
used for home health care while HCFA is developing a PPS for the
longer term.  Home health agency cost limits had been set separately
for agencies in rural and urban areas, at 112 percent of the mean
costs of freestanding agencies.\6 Limits will now be set at 105
percent of the median costs of freestanding agencies.  In addition,
the BBA added a limit on the average per-beneficiary payment received
during a year.  This limitation is based on a blend--75 percent on
the agency's 1994 costs per beneficiary and 25 percent on the average
regional per beneficiary costs in that year, increased for inflation
in the home health market basket index since then.  Hospital-based
agencies have the same limits. 

The per-visit cost-limit provision of Medicare's reimbursement system
for home health agencies gave some incentives for providers to
control their costs, and the revised per-visit and per-beneficiary
limits should increase those incentives.  However, for providers with
per-visit costs considerably below their limits, there is little
incentive to control costs, and per-visit limits do not give any
incentive to control the number of visits.  On the other hand, the
new per-beneficiary limit should give an incentive to not increase
the number of visits per beneficiary above the 1994 levels used to
set this limit.  However, the number of visits per beneficiary had
already more than doubled by 1994 from that in 1989, so the
per-beneficiary limits will be based on historically high visit
levels.  Moreover, per-beneficiary limits give home health agencies
an incentive to increase their caseloads, particularly with
lighter-care cases, perhaps in some instances cases that do not even
meet Medicare coverage criteria.  This creates an immediate need for
more extensive and effective review by HCFA of eligibility for home
health coverage. 


--------------------
\6 Home health agencies are classified as "freestanding" or
"facility-based." Facility-based agencies are those that are a part
of hospitals or other institutional providers. 


   DESIGN ISSUES FOR A HOME HEALTH
   PPS
---------------------------------------------------------- Chapter 0:4

A PPS, where agencies receive a fixed, predetermined amount per unit,
is generally seen as having the potential to improve provider
incentives to control costs.  Effective and timely design and
implementation of the BBA's mandate to implement a PPS for home
health services requires considerable HCFA action on several fronts. 
Issues needing HCFA's attention include selecting an appropriate unit
of service, providing for adjustments to reflect case complexity, and
assuring that adequate data are available to set the initial payment
rates and service use parameters. 

The primary goal of a PPS is to give providers incentives to control
costs while delivering appropriate services and at the same time pay
rates that are adequate for efficient providers to at least cover
their costs.  If a PPS is not properly designed, Medicare will not
save money, cost control incentives will at best be weak, or access
to and quality of care can suffer.  With the altered incentives
inherent in a PPS, HCFA will also need to design and implement
appropriate controls to ensure that beneficiaries receive necessary
services of adequate quality.  Most of the specifics about the home
health PPS required by the BBA were left to HCFA's discretion.  This
delegation was appropriate because insufficient information was
available for the Congress to make the choices itself. 


      SELECTING THE UNIT OF
      SERVICE
-------------------------------------------------------- Chapter 0:4.1

Many major decisions need to be made.  First, HCFA must choose a unit
of service, such as a visit or episode of care, upon which to base
payment.  A per-visit payment is not a likely choice because it does
little to alter home health agency incentives and would encourage
making more, and perhaps shorter, visits to maximize revenues.  An
episode-of-care system is the better choice, and HCFA is looking at
options for one. 

Designing a PPS based on an episode of care also raises issues.  The
episode should generally be long enough to capture the care typically
furnished to patients, because this tends to strengthen efficiency
incentives.  A number of ways to accomplish this goal exist.  For
example, HCFA could choose to set a constant length of time as the
episode.  In 1993, to cover 82 percent of home health patients, the
episode would have to have been long enough to encompass 90 visits,
which, assuming four visits a week on average, would mean an episode
of about 150 days.  Because of the great variability across patients
in the number of visits and length of treatment, this alternative
places very great importance on the method used to distinguish the
differences among patients served across home health agencies in
order to ensure reasonable and adequate payments. 

Another option for defining an episode of care is to vary the length
of the period on the basis of patient characteristics such as the
primary condition affecting the patient, other complicating
conditions, and any limitations in performing the activities of daily
living.  For example, a healthy person recovering from a broken leg
would normally need a short recovery period with mainly physical
therapy, while a patient with arthritis recovering from the same
injury might need a longer period with perhaps more home health aide
services.  This option would also require a good method for
classifying patients into the various patient categories and
determining resource needs.  A third option is to use a fixed but
relatively brief period, such as 30 or 60 days, sufficient to cover
the needs of the majority of patients, with subsequent periods
justified by the patient's condition at the end of each period.  The
effectiveness of this option would, among other things, depend on a
good process for verifying and evaluating patient condition
periodically and adequate resources to operate that process. 

Also, HCFA will need to design a utilization and quality control
system to guard against decreases in visits, which could affect
quality, and home health agencies treating patients who do not
quality for benefits.  This will be necessary because an
episode-of-care system gives home health agencies an incentive to
maximize profits by decreasing the number of visits during the
episode, potentially harming quality of care.  Such a system also
gives agencies an incentive to increase their caseloads, perhaps with
patients who do not meet Medicare's requirements for the benefit. 
The effectiveness of PPS will ultimately depend on the effective
design of these systems and devoting adequate resources to operate
them. 


      ADJUSTING FOR CASE
      COMPLEXITY
-------------------------------------------------------- Chapter 0:4.2

Another major decision for HCFA, closely related to the
unit-of-service decision, is the selection and design of a method to
adjust payments to account for the differences in the kinds of
patients treated by various home health agencies, commonly called a
case-mix adjuster.  Without an adequate case-mix adjuster, agencies
that serve populations that on average require less care would be
overcompensated.  Also, agencies would have an incentive to seek out
patients expected to need a low level of care and shun those needing
a high level of care, thus possibly affecting access to care. 
Currently, there is limited understanding of the need for, and
content of, home health services and, at the same time, a large
variation across agencies in the extent of care given to patients
with the same medical conditions.  HCFA is currently testing a
patient classification system for use as a case-mix adjuster, and the
BBA requires home health agencies to submit to HCFA the
patient-related data HCFA will need to apply this system.  However,
it is too early to tell whether HCFA's efforts will result in an
adequate case-mix adjuster. 


      ENSURING AN ADEQUATE
      DATABASE FOR CALCULATIONS
-------------------------------------------------------- Chapter 0:4.3

A third challenge for HCFA is the need to improve its home health
databases so that they will represent an adequate foundation for
setting PPS rates.  Historical data on utilization and cost of
services form the basis for calculating the "normal" episode of care
and the cost of services, so it is important that those data are
adequate for that purpose.  Our work and that of the HHS Inspector
General has found examples of questionable costs in home health
agency cost reports.  For example, we reported in August 1995 on a
number of problems with contractor payments for medical supplies such
as surgical dressings, which indicate that excessive costs are being
included and not removed from home health agency cost reports.\7
Also, the Inspector General found substantial amounts of unallowable
costs in the cost reports of a large home health agency chain, which
was convicted of fraud on the basis of these findings.  Earlier this
year, we suggested that it would be prudent for HCFA to audit
thoroughly a projectable sample of home health agency cost reports. 
The results could then be used to adjust HCFA's cost database to help
ensure that unallowable costs are not included in the base for
setting prospective rates. 

In response to a presidential directive, HCFA is planning to audit
about 1,800 home health agency cost reports over the next year, about
double the number that it otherwise would have audited.  If these
audits are thorough and the results are properly used, this effort
could represent a significant step toward improving HCFA's home
health cost database.  A good cost database could be a considerable
aid to HCFA in calculating the initial payment rates under PPS. 

We are also concerned about the appropriateness of using current
Medicare data on utilization in designing a PPS.  As we reported in
March 1996, controls over the use of home health care are virtually
nonexistent.\8 Our report included a number of examples of noncovered
services that were billed to Medicare.  For example, a physician
called a claims processing contractor to complain that some of his
patients were being told by a home health agency that they were
"homebound" merely because they did not own a car.  In another study,
we found that some home health agency staff had been directed to
alter or falsify medical records to ensure continued or prolonged
visits, including recording visits that were never made or noting
that patients were homebound even after they were no longer confined
to their homes.\9 In another study of home health claims, we asked
the fiscal intermediary in California to perform a medical review of
80 high-dollar claims it had previously processed.  The intermediary
found that it should have denied 46 of them in whole or in part.\10

Also, Operation Restore Trust, a joint effort by federal and several
state agencies to identify fraud and abuse in Medicare and Medicaid,
found very high rates of noncompliance with Medicare's coverage
conditions.  For example, in a sample of 740 patients drawn from 43
home health agencies in Texas and 31 in Louisiana that were selected
because of potential problems, some or all of the services received
by 39 percent of the beneficiaries were denied.  About 70 percent of
the denials were because the beneficiary did not meet the homebound
definition.  Although these are results from agencies suspected of
having problems, they illustrate that substantial amounts of
noncovered care are likely to be reflected in HCFA's home health care
utilization data.  Because of these problems, it would also be
prudent for HCFA to conduct thorough on-site medical reviews, which
increase the likelihood of identifying whether patients are eligible
for services, of a projectable sample of agencies to give it a basis
on which to adjust utilization rates for purposes of establishing a
PPS.  We are not aware that such a review is under way or planned. 


--------------------
\7 Medicare:  Excessive Payments for Medical Supplies Continue
Despite Improvements (GAO/HEHS-95-171, Aug.  8, 1995). 

\8 GAO/HEHS-96-16. 

\9 Medicare:  Allegations Against ABC Home Health Care
(GAO/OSI-95-17, July 19, 1995). 

\10 Medicare:  Need to Hold Home Health Agencies More Accountable for
Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997). 


   SAFEGUARDS AGAINST FRAUD AND
   ABUSE STILL NEEDED
---------------------------------------------------------- Chapter 0:5

A PPS for home health should enable Medicare to give agencies
increased incentives to control costs and to slow the growth in
program payments.  A reduction in program safeguards contributed to
the cost growth of the 1990s, and HCFA will need to develop a
utilization and quality control program to protect against the likely
incentives that agencies will have to increase caseloads
unnecessarily and to diminish care, and harm quality.  Moreover, a
PPS alone will not eliminate home health fraud and abuse.  Continued
vigilance will be needed, and the BBA gives HCFA additional tools
that should help it protect the program. 


      REDUCED PROGRAM SAFEGUARDS
      MADE THE PROGRAM VULNERABLE
-------------------------------------------------------- Chapter 0:5.1

Rapid growth in home health expenditures in the 1990s was accompanied
by decreased, rather than increased, funding for program safeguard
activities.  For example, our March 1996 report found that part A
contractor funding for medical review (review of claims for medical
necessity) had decreased by almost 50 percent between 1989 and
1995.\11 As a result, while contractors had reviewed over 60 percent
of home health claims in fiscal year 1987, the contractors' review
target was lowered by 1995 to 3.2 percent of all claims (or even,
depending on available resources, to a required minimum of 1
percent).  We found that a lack of adequate controls over the home
health program, such as little contractor medical review and limited
physician involvement, makes it nearly impossible to know whether the
beneficiary receiving home care qualifies for the benefit, needs the
care being delivered, or even receives the services being billed to
Medicare.  Also, because of the small percentage of claims selected
for review, home health agencies that bill for noncovered services
are less likely to be identified than was the case 10 years ago. 

In addition, because relatively few resources had been available for
auditing end-of-year provider cost reports, HCFA has little ability
to identify whether home health agencies were charging Medicare for
costs unrelated to patient care or other unallowable costs.  Because
of the lack of adequate program controls, some of the increase in
home health costs likely stemmed from abusive practices.  The Health
Insurance Portability and Accountability Act of 1996 (HIPAA)\12
recently increased funding for program safeguards.  However,
per-claim expenditures will remain below the level in 1989, after
adjusting for inflation.  We project that in 2003, payment safeguard
spending as authorized by HIPAA will be just over one-half of the
1989 per-claim level, after adjusting for inflation. 

Finally, as discussed earlier, a PPS will give home health agencies
incentives to increase the number of patients they treat and to cut
back on the amount of care furnished to patients in order to maximize
profits.  To safeguard against the new incentives of a PPS, HCFA
needs to implement utilization and quality control systems
specifically designed to address the PPS's incentives.  Without
adequate monitoring, home health agencies that choose to do so could
game the system to maximize profits or take actions that reduce
quality. 


--------------------
\11 GAO/HEHS-96-16. 

\12 P.L.  104-191, Aug.  21, 1996. 


      NEW ANTI-FRAUD-AND-ABUSE
      PROVISIONS AND INITIATIVES
-------------------------------------------------------- Chapter 0:5.2

The Congress and the administration recently have taken actions to
combat fraud and abuse in the provision of and payment for Medicare
home health services.  Through BBA, the Congress has given HCFA some
new tools to improve the administration of this benefit.  The
administration also has recently announced a moratorium on home
health agency certifications as HCFA revises the criteria for
certification. 


         BBA PROVISIONS
------------------------------------------------------ Chapter 0:5.2.1

The BBA included several provisions that could be used to prevent
untrustworthy providers from entering the Medicare home health
market.  For example, BBA authorizes HHS to refuse to allow
individuals or entities convicted of felonies from participating in
Medicare.  Also, Medicare can exclude an entity whose former owner
transfers ownership to a family or household member in anticipation
of, or following, an exclusion or cause for exclusion.  In addition,
BBA requires entities and individuals to report to HCFA their
taxpayer identification numbers and the Social Security numbers of
owners and managing employees.  This should make easier the tracking
of individuals who have been sanctioned under the Social Security Act
or convicted of crimes, if they move from one provider to another. 

Another provision of the BBA that may prove useful in fighting fraud
and abuse is the requirement that any entity seeking to be certified
as a home health agency must post a surety bond of at least $50,000. 
This should provide at least minimal assurance that the entity has
some financial and business capability.  Finally, BBA authorizes HCFA
to establish normative guidelines for the frequency and duration of
home health services and to deny payment in cases exceeding those
guidelines. 

One area where changes could help to control abuse in home health not
directly addressed by the BBA is the survey and certification of
agencies for participation in Medicare.  State health departments
under contract with HCFA visit agencies that wish to participate in
Medicare to assess whether they meet the program's conditions of
participation--a set of 12 criteria covering such things as nursing
services, agency organization and governance, and medical
records--thought to be indicative of an agency's ability to provide
quality care. 

When Medicare was set up, it was not done with abusive billers and
defrauders in mind.  Rather, Medicare's claims system assumes that,
for the most part, providers submit proper claims for services
actually rendered that are medically necessary and meet Medicare
requirements.  For home health care, the home health agency usually
develops the plan of care and is responsible for monitoring the care
provided and ensuring that care is necessary and of adequate quality. 
In other words, the agency is responsible for managing the care it
furnishes.  While these functions are subject to review by Medicare's
regional home health intermediaries, only a small portion of claims
(about 1 percent) are reviewed, and most of those are paper reviews
of the agency's records. 

Early this year, HCFA proposed regulations to modify the home health
conditions of participation and their underlying standards.  The
modifications would change the emphasis of the survey and
certification process from an assessment of whether an agency's
internal processes are capable of ensuring quality of care toward an
assessment that includes some of the outcomes of the care actually
furnished.  HCFA believes this change in emphasis will provide a
better basis upon which to judge quality of care.  HCFA is currently
considering the comments received on the proposed revisions in
preparation for finalizing them, but it does not yet have a firm date
for their issuance. 

We believe that the survey and certification process could be further
modified so that it would also measure agencies' compliance with
their responsibilities to develop plans for, and deliver, only
appropriate, necessary, covered care to beneficiaries.  Such
modifications could be tied to the new features that HCFA selects as
it designs the home health PPS.  For example, the case-mix adjuster
might be designed to take into account the specific illnesses of the
patients being treated along with other factors that affect the
resources needed to care for patients, such as limitations in their
ability to perform the activities of daily living.  Agencies would
have a financial incentive to exaggerate the extent of illness or
limitations because doing so would increase payments.  The survey
teams might be able to evaluate whether the agency being surveyed had
in fact correctly classified patients at the time the outcome
information is reviewed.  Use of state surveyors for such purposes
would not be unprecedented because survey teams also assessed whether
Medicare home health coverage criteria were met during Operation
Restore Trust. 

As discussed previously, HCFA needs to design utilization review
systems to ensure that, if home health agencies respond
inappropriately to the incentives of PPS, such responses will be
identified and corrected.  HCFA should also consider as it designs
such systems using the survey and certification process to measure
whether home health agencies meet their utilization management
responsibilities.  This would help to identify abusive billers of
home health services while at the same time help to ensure quality. 


         MORATORIUM ON NEW
         CERTIFICATIONS
------------------------------------------------------ Chapter 0:5.2.2

On September 15, 1997, the administration announced a moratorium on
the admission of new home health agencies to the Medicare program. 
HCFA noted in testimony earlier this month that the moratorium was
called in response to reports of "the steadily increasing volume of
investigations, indictments, and convictions against home health
agencies." According to HCFA, the moratorium is designed to stop the
admission of untrustworthy providers while HCFA strengthens its
requirements for entering the program. 

In a September 19 memorandum, HCFA clarified the provisions of the
moratorium.  According to the memorandum, the moratorium applies to
new home health agencies and new branches of existing agencies.  It
will last until the requirements to strengthen the home health
benefit have been put in place, which HCFA officials estimate to be
in 6 months.  No new federal or state surveys are to be scheduled or
conducted for the purpose of certifying new home health agencies;
those surveys in progress but not completed when the moratorium was
announced are to be terminated; and previously scheduled surveys for
new certifications are to be canceled.  HCFA will, however, enter
into new home health agency provider agreements if the new agency has
completed the initial survey successfully, meaning that the agency
has complied with Medicare's conditions of participation and has
satisfied all other provider agreement requirements.  HCFA said it
would make rare exceptions to the certification moratorium if a home
health agency provides compelling evidence demonstrating that the
agency will operate in an underserved area that has no access to home
care. 

According to a HCFA official, several actions are planned during the
moratorium.  HHS is expected to implement the program safeguards
mandated by the BBA, such as implementing the requirement for home
health agencies to post at least a $50,000 surety bond before they
are certified and promulgating a rule requiring new agencies to have
enough funds on hand to operate for the first 3 to 6 months.  HHS is
also expected to develop new regulations requiring home health
agencies to provide more ownership and other business-related
information and requiring agencies to reenroll every 3 years. 

At this point, it is difficult to say what practical effect the
moratorium will have on the home health industry or the Medicare
program.  However, the moratorium could be useful, first, in sending
a signal that the administration is serious about weeding out
untrustworthy providers and, second, in establishing a milestone for
issuing regulatory reforms. 


   CONCLUSION
---------------------------------------------------------- Chapter 0:6

To achieve the intended goals of the cost control and
anti-fraud-and-abuse initiatives of the BBA, HCFA will have to take
effective and timely actions to implement the initiatives.  HCFA
needs to select an appropriate unit of service and an adequate
case-mix adjuster for a PPS as well as remove the effects of cost
report abuse and inappropriate utilization from its databases so that
those problems do not result in overstatement of PPS rates.  HCFA
also needs to quickly implement the new tools in the BBA so that it
can keep untrustworthy providers from gaining access to the program
and remove those that already have access.  Moreover, HCFA needs a
new utilization and quality control system designed specifically to
address the new incentives under PPS. 


-------------------------------------------------------- Chapter 0:6.1

This concludes my prepared remarks, and I will be happy to answer any
questions you or Members of the Subcommittee may have. 


MEDICARE HOME HEALTH EXPENDITURES,
1980-96
==================================================== Appendix Appendix



   (See figure in printed
   edition.)

Note:  ESRD = end-stage renal disease. 

Source:  HCFA's Office of the Actuary. 

RELATED GAO PRODUCTS

Medicare Home Health Agencies:  Certification Process Is Ineffective
in Excluding Problem Agencies (GAO/T-HEHS-97-180, July 28, 1997). 

Medicare:  Need to Hold Home Health Agencies More Accountable for
Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997). 

Medicare Post-Acute Care:  Cost Growth and Proposals to Manage It
Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106,
Apr.  9, 1997). 

Medicare:  Home Health Cost Growth and Administration's Proposal for
Prospective Payment (GAO/T-HEHS-97-92, Mar.  5.  1997). 

Medicare Post-Acute Care:  Home Health and Skilled Nursing Facility
Cost Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90,
Mar.  4, 1997). 

Medicare:  Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar.  27, 1996). 

Medicare:  Allegations Against ABC Home Health Care (GAO/OSI-95-17,
July 19, 1995). 

Medicare:  Increased Denials of Home Health Claims During 1986 and
1987 (GAO/HRD-90-14BR, Jan.  24, 1990). 

Medicare:  Need to Strengthen Home Health Care Payment Controls and
Address Unmet Needs (GAO/HRD-87-9, Dec.  2, 1986). 

The Elderly Should Benefit From Expanded Home Health Care but
Increasing These Services Will Not Insure Cost Reductions
(GAO/IPE-83-1, Dec.  7, 1982). 

Response to the Senate Permanent Subcommittee on Investigations'
Queries on Abuses in the Home Health Care Industry (GAO/HRD-81-84,
Apr.  24, 1981). 

Medicare Home Health Services:  A Difficult Program to Control
(GAO/HRD-81-155, Sept.  25, 1981). 

Home Health Care Services--Tighter Fiscal Controls Needed
(GAO/HRD-79-17, May 15, 1979). 


*** End of document. ***