Balanced Budget Act: Any Proposed Fee-for-Service Payment Modifications
Need Thorough Evaluation (Testimony, 06/10/99, GAO/T-HEHS-99-139).

Pursuant to a congressional request, GAO discussed the effect of the
Balanced Budget Act of 1997 (BBA) on the Medicare Fee-for-Service
Program, focusing on the: (1) payment reforms for providers under the
fee-for-service portion of the program; and (2) changes made to skilled
nursing facility (SNF) and home health agency (HHA) payment policies.

GAO noted that: (1) both SNFs and HHAs have felt the effect of the BBA
provisions, and both industries will need time to adapt, but the calls
to amend or repeal the new payment systems are premature; (2) the SNF
prospective payment system (PPS) was implemented with a 3-year
transition to the fully prospective rates, and facilities are phased
into this transition schedule according to their fiscal year; thus, the
adjustment time has been built into the PPS schedule; (3) concerns that
the PPS is causing extreme financial pressures for some SNFs need to be
systematically evaluated on the basis of additional evidence; (4)
several factors suggest that the problem may be less severe than is
being claimed by providers; (5) nevertheless, certain other
modifications to the PPS may be appropriate because there is evidence
that payments are not being appropriately targeted to patients who
require costly care; (6) the potential access problems that may result
from underpaying for high-cost cases will likely result in
beneficiaries' staying in acute care hospitals longer, rather than
forgoing care; (7) this is a safety net for beneficiaries while
modifications are made; (8) the Health Care Financing Administration
(HCFA), which has responsibility for managing the Medicare program, is
aware that payments may not be adequately targeted to high-cost
beneficiaries and is working to address this problem; (9) as a result of
the swift implementation of the home health interim payment system (IPS)
and the lack of a transition period, the BBA's impact on home health
agencies has been more noticeable; (10) the number of participating
agencies declined by 14 percent between October 1997 and January 1999,
and utilization has dropped to 1994 levels, the base year for the IPS;
(11) however, since the number of HHAs and utilization had both grown
considerably throughout most of the decade, beneficiaries are still
served by over 9,000 HHAs--approximately the same number that were
available just prior to the recent declines; (12) GAO's interviews with
HHAs, advocacy groups, and others in rural areas that lost a significant
number of agencies indicated that the decline in HHAs has not impaired
beneficiary access; (13) while the drop in utilization does not appear
to be related to HHA closures, it is consistent with IPS incentives to
control the volume of services provided to beneficiaries; and (14) in
designing the PPS, it will be essential that HCFA adequately adjust
payments to account for the wide differences in patient needs.

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

 REPORTNUM:  T-HEHS-99-139
     TITLE:  Balanced Budget Act: Any Proposed Fee-for-Service Payment
	     Modifications Need Thorough Evaluation
      DATE:  06/10/99
   SUBJECT:  Home health care services
	     Health care programs
	     Patient care services
	     Health resources utilization
	     Health insurance cost control
	     Skilled nursing facilities
	     Health insurance
	     Medical expense claims
	     Claims processing
IDENTIFIER:  Medicare Program
	     Medicare Hospital Insurance Trust Fund
	     Medicare Interim Home Health Payment System
	     Medicare Fee-for-Service Program
	     Medicare Prospective Payment System

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Cover
================================================================ COVER

Before the Committee on Finance, U.S.  Senate

For Release on Delivery
Expected at 10:00 a.m.
Thursday, June 10, 1999

BALANCED BUDGET ACT - ANY PROPOSED
FEE-FOR-SERVICE PAYMENT
MODIFICATIONS NEED THOROUGH
EVALUATION

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

GAO/T-HEHS-99-139

GAO/HEHS-99-139T

(101855)

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

  BBA - Balanced Budget Act of 1997
  HCFA - Health Care Financing Administration
  HHA - home health agency
  IPS - interim payment system
  PPS - prospective payment system
  SNF - skilled nursing facility

BALANCED BUDGET ACT:  ANY PROPOSED
FEE-FOR-SERVICE PAYMENT
MODIFICATIONS NEED THOROUGH
EVALUATION
============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

I am pleased to be here today as you discuss the effect of the
Balanced Budget Act of 1997 (BBA) on the Medicare fee-for-service
program.  The BBA set in motion significant changes that attempted to
both modernize Medicare and rein in spending.  The act's combination
of constraints on provider fees, increases in beneficiary payments,
and structural reforms is projected to lower program spending by $386
billion over the next 10 years.  Because certain key provisions have
only recently or have not yet been phased in, the full effects on
providers, beneficiaries, and taxpayers wrought by the BBA will not
be known for some time. 

My comments focus on the payment reforms for providers under the
fee-for-service portion of the program.  I will concentrate on the
changes made to skilled nursing facility (SNF) and home health agency
(HHA) payment policies.  Although the BBA mandated similar reforms
for other types of providers, the SNF and HHA changes are, at this
time, farthest along in their implementation.  These provisions were
enacted in response to continuing rapid growth in Medicare spending
that was neither sustainable nor readily linked to demonstrated
changes in beneficiary needs.  These provisions represented bold
steps to control Medicare spending by changing the financial
incentives inherent in provider payment methods to promote more
efficient service delivery.  Yet the Congress is coming under
increasing pressure from providers to revisit these reforms.  As
additional BBA provisions are implemented, and other providers feel
the effects of the mandated changes, calls for modifications may
continue or even intensify.  How responsibilities to current and
future seniors, the American taxpayer, and the health care provider
community are balanced will shape the resulting responses.  Achieving
an appropriate balance will require recognition of legitimate
concerns about beneficiary access and the ability of providers to
adjust to the new payment methods. 

Calls by providers to moderate the effect of BBA changes come at a
time when federal budget surpluses and smaller-than-expected
increases in Medicare outlays may make it easier to accommodate
higher Medicare payments.  Indeed, many provider groups contend that
BBA changes produced more savings than originally intended.  The
Congressional Budget Office has revisited and lowered its estimates
of Medicare spending since BBA enactment.  As a result of the lower
projected spending, the estimated savings from the BBA provisions
will represent a proportionately larger share of Medicare
expenditures.  Lower projected Medicare spending, however, does not
necessarily mean that the effect of the BBA changes was greater than
intended.  Rather, it merely raises again issues of how much the
federal government should pay for health care for the elderly and
what payment levels are appropriate for the various provider groups. 

The BBA mandated the continued movement of fee-for-service Medicare
away from cost-based reimbursement methods and toward prospective
payment systems (PPS).  The goal is to foster more efficient
provision and use of services to lower spending growth rates,
replicating the experience of acute care hospitals after a PPS was
implemented, beginning in the mid-1980s.  The BBA mandated such
payment systems for SNFs, HHAs, hospital outpatient services, and
certain hospitals.  On July 1, 1998, SNFs began a 3-year transition
to a PPS.\1 An interim payment system (IPS) for HHAs was phased in
beginning on October 1, 1997, and a PPS is scheduled to be
implemented for all HHAs on October 1, 2001.\2

In brief, both SNFs and HHAs have felt the effect of the BBA
provisions, and both industries will need time to adapt, but the
calls to amend or repeal the new payment systems are, in our view,
premature.  The SNF PPS was implemented with a 3-year transition to
the fully prospective rates, and facilities are phased into this
transition schedule according to their fiscal year; thus, the
adjustment time has been built into the PPS schedule.  Current
concerns that the PPS is causing extreme financial pressures for some
SNFs need to be systematically evaluated on the basis of additional
evidence.  Several factors suggest that the problem may be less
severe than is being claimed by providers.  Nevertheless, certain
other modifications to the PPS may be appropriate because there is
evidence that payments are not being appropriately targeted to
patients who require costly care.  The potential access problems that
may result from underpaying for high-cost cases will likely result in
beneficiaries' staying in acute care hospitals longer, rather than
forgoing care.  This is a safety net for beneficiaries while
modifications are made.  The Health Care Financing Administration
(HCFA), which has responsibility for managing the Medicare program,
is aware that payments may not be adequately targeted to high-cost
beneficiaries and is working to address this problem. 

As a result of the swift implementation of the home health IPS and
the lack of a transition period, the BBA's impact on home health
agencies has been more noticeable.  The number of participating
agencies declined by 14 percent between October 1997 and January
1999, and utilization has dropped to 1994 levels, the base year for
the IPS.  However, since the number of HHAs and utilization had both
grown considerably throughout most of the decade, beneficiaries are
still served by over 9,000 HHAs--approximately the same number that
were available just prior to the recent declines.  Our interviews
with HHAs, advocacy groups, and others in rural areas that lost a
significant number of agencies indicated that the recent decline in
HHAs has not impaired beneficiary access.  While the drop in
utilization does not appear to be related to HHA closures, it is
consistent with IPS incentives to control the volume of services
provided to beneficiaries.  In short, after years of substantial
increases in home health visits, the IPS has curbed the growth in
home health spending.  Some of the decline in utilization appears to
involve greater sensitivity to who qualifies for the home health care
benefit, with some who do not qualify, but who may have been
previously served, not receiving services now.  There are
indications, however, that beneficiaries who are likely to be
costlier to serve than the average may have more difficulty than
before in obtaining home health services because the revenue caps
imposed by the IPS are not adjusted to reflect variations in patient
needs.  This problem should be ameliorated with the implementation of
the PPS.  In designing the PPS, it will be essential that HCFA
adequately adjust payments to account for the wide differences in
patient needs. 

To date, the principal lessons to be drawn from the SNF and HHA
payment reforms and their implementation are that

  -- the particulars of payment mechanisms largely determine the
     extent to which a reform option can control excess government
     spending while protecting beneficiary access to care and

  -- revisions to newly implemented policies should be based on a
     thorough assessment of their effects so that, at one extreme,
     policies are not unduly affected by external pressures and
     premature conclusions and, at the other extreme, policies do not
     remain static when change is clearly warranted. 

--------------------
\1 The SNF PPS will be phased in on the basis of facility
cost-reporting years.  During the transition, payment rates will be a
blend of a declining portion of a facility-specific historical amount
and an increasing portion of the national prospective rate. 

\2 The BBA required the HHA PPS to be in place in fiscal year 2000. 
Subsequent legislation delayed the implementation by 1 year and
eliminated the phasing in of the system. 

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

Medicare is the nation's largest health insurance program, covering
about 39 million elderly and disabled beneficiaries at a cost of more
than $193 billion a year.  The sheer size of this program during a
period of particular concern over government spending made it the
target of spending reforms.  That Medicare was growing faster than
the overall economy and the Medicare Hospital Insurance Trust Fund
was facing imminent depletion only heightened attention on this
program.  Medicare expenditures had been rising at an average annual
rate of 10.1 percent between 1985 and 1995 (see fig.  1).  While the
outlook for the federal budget has changed, with projected surpluses
replacing deficits, the importance of ensuring that Medicare is an
efficient purchaser of health services remains. 

   Figure 1:  Average Annual Rate
   of Growth in Medicare
   Expenditures, 1985-95, by Type
   of Provider

   (See figure in printed
   edition.)

Sources:  HCFA Office of the Actuary and Medicare Payment Advisory
Commission. 

Despite significantly lower projected spending due to BBA reforms,
there is a growing consensus among experts, including the trustees of
the Medicare Hospital Insurance Trust Fund, that additional reforms
are needed.  As the baby boomers reach retirement age, the pressures
on Medicare program spending will intensify.  Fueled by medical
technology advancements that allow more and better treatments for a
larger portion of the elderly, Medicare spending growth will continue
to be an important budgetary issue.  The Congressional Budget Office
projects that by 2009 Medicare's expenditures as a portion of the
gross domestic product will rise almost one-third. 

   INDUSTRY AND OTHER CONCERNS
   ABOUT SNF PPS REQUIRE THOROUGH
   ANALYSIS
---------------------------------------------------------- Chapter 0:2

Prior to the PPS, SNFs were paid the reasonable costs they incurred
in providing Medicare-allowed services.  Although there were limits
on the payments for the routine portion of care--that is, general
nursing, room and board, and administrative overhead--payments for
other costs--primarily ancillary services such as rehabilitative
therapy--were virtually unlimited.  Because higher ancillary service
costs triggered higher payments, facilities had no incentive to
provide these services efficiently or only when necessary.  Thus,
growth in ancillary costs far outpaced the growth in routine service
costs between 1992 and 1995 and drove up overall Medicare payments to
SNFs (see fig.  2).  Moreover, new providers were exempt from even
the routine caps for their first 4 years of operation, which
encouraged expansion of the industry. 

   Figure 2:  Percentage Growth in
   SNF Routine and Ancillary Costs
   per Day, 1992-95

   (See figure in printed
   edition.)

Source:  Prospective Payment Assessment Commission. 

Under the new PPS, facilities receive a payment for each day of care
provided to a Medicare-eligible beneficiary.  This per diem rate is
based on the average daily cost of providing all Medicare-covered
services, as reflected in facilities' 1995 costs, adjusted to take
into account the nature of each patient's condition and expected care
needs.  By establishing fixed payments and including all services
provided to beneficiaries under the per diem amount, the PPS attempts
to provide incentives for SNFs to deliver care more efficiently and
judiciously. 

The PPS represents a major change to the previous incentives of
cost-based reimbursement and, as a result, Medicare treatment
patterns that were influenced by the previous payment method will
need to be modified.  Previously, SNFs benefited from providing more
ancillary services, without regard to the price paid for those
services, since Medicare's payment was based on each facility's
actual costs.  SNFs that boosted their Medicare ancillary
costs--either through higher use rates or higher prices--will need to
make more modifications than those that did not.  Scaling back these
services, however, will not necessarily affect the quality of care. 
There is little evidence to indicate that the rapid growth in
Medicare spending was due to a commensurate increase in Medicare
beneficiaries' needs.  Further, practice pattern changes may not be
very disruptive because Medicare patients constitute a small share of
most SNFs' business.  And, blending facility-specific costs with the
national PPS rates during the transition will ease the adjustments
for facilities that have a history of providing many ancillary
services. 

Recent industry reports, however, have questioned the ability of some
organizations operating SNF chains to adapt to the new PPS.  Indeed,
claims of pending bankruptcies have been linked to the Medicare
payment changes.  It is likely, however, that a combination of
factors has contributed to the poor financial performance of these
businesses.  For example, many of the organizations have other lines
of post-acute-care services--including the provision of outpatient
rehabilitation therapy and ancillary services to affiliated SNFs as
well as independent SNFs.  The PPS may have affected the demand for
these services, but other BBA provisions likely have had an effect as
well.\3 In addition, some of these organizations invested heavily in
the nursing home and ancillary service businesses not long before the
enactment of the PPS, both expanding their acquisitions and upgrading
facilities to provide higher-intensity services.  Yet HCFA had been
developing a PPS for some time that would curtail unnecessary growth
in ancillary payments.  We are studying these issues and will provide
more details later this year on the effect of the PPS on solvency and
beneficiary care. 

While we think that industry concerns about the financial viability
of SNFs operating under PPS have not been substantiated and may be
premature, we have identified three key PPS design issues that may
affect Medicare's ability to realize program savings and may limit
beneficiaries' access to care.  First, we are concerned about the SNF
case-mix adjusters, which are needed to ensure that facilities
serving patients with more intensive care needs receive adequate
payments and, conversely, that SNFs are not overcompensated for
patients with lower care needs.  The current case-mix adjusters
preserve the opportunity for SNFs to increase their compensation by
supplying potentially unnecessary services.  A SNF can benefit by
manipulating the services provided to beneficiaries, rather than
increasing efficiency.  For example, the payment for a patient who
requires 143 minutes of therapy care daily is $286 per day, compared
with $346 for a patient who requires 144 minutes (see table 1). 
Thus, by providing an extra few minutes of therapy to certain
patients, a facility could increase its Medicare payments without a
commensurate increase in its costs.  Rather than improving efficiency
and patient care, this might only raise Medicare outlays.  We believe
that HCFA needs to continue its research into a classification system
that is less dependent on service use and more closely tied to
patient characteristics and needs.  It also must provide adequate
oversight to ensure that providers properly classify patients and do
not manipulate service provision to take advantage of the
classification system. 

                          Table 1
          
           Comparison of Length of Average Daily
           Therapy and per Diem SNF Payments for
          Different Rehabilitation Case-Mix Groups

                                        Per diem payment
                                        (federal
                    Length of average   unadjusted rate
Rehabilitation      daily therapy (for  for urban
case-mix groups     5 days per week)    facilities)
------------------  ------------------  ------------------
Ultra high          144+ minutes        $346

Very high           100 to 143 minutes  286

High                65 to 99 minutes    250

Medium              30 to 64 minutes    239
----------------------------------------------------------
Source:  GAO analysis of data from HCFA's May 12, 1998, Interim Final
Rules. 

Our second concern is whether the system adequately identifies the
most expensive patients and adjusts payment rates accordingly.  This
concern emanates from limitations in the data HCFA had available to
establish the case-mix groups and the rates.  The classification
system was based on a small sample of patients and, because of the
age of the data, may not reflect current treatment patterns.  As a
result, the classification system may aggregate expensive patients
with widely differing needs into too few groups to distinguish
adequately among patients' resource needs.  In addition, the
classification system does not take into account varying nontherapy
ancillary service needs and is likely to overpay SNFs for treating
patients with low service needs and underpay those SNFs treating
patients with high service requirements.  These design weaknesses
could result in access problems or inadequate care for some high-cost
beneficiaries.  Hospitals have reported an increase in placement
problems due to the reluctance of some facilities to admit certain
beneficiaries with high expected treatment costs, which will increase
hospital lengths of stay for these patients.  HCFA is aware of the
limitations of the case-mix adjusters and is working to refine these
measures to more accurately reflect patient differences. 

Finally, we are concerned that the cost reports submitted to Medicare
for the year on which payments are based (1995) include unreasonable
costs and may establish payments levels that are too high.  Most of
the data used to establish these rates have not been audited and are
likely to include excessive ancillary costs, because the prior system
had no incentives to constrain such costs.  Moreover, it is likely
that the base year includes too many services and that the costs per
service were inappropriately high. 

--------------------
\3 The BBA applied a per beneficiary payment cap of $1,500 for
outpatient physical and speech therapy and a $1,500 cap for
outpatient occupational therapy, although neither cap is applicable
to services provided through a hospital outpatient department.  These
limits will not apply to Medicare beneficiaries during a
Medicare-covered SNF stay, but could affect Medicare SNF residents if
their stay is not covered by Medicare.  This provision, in
combination with consolidated billing for all services under the PPS,
could limit some providers' ability to sell therapy and other
ancillary services to other SNFs. 

   HHA CLOSURES AND DECLINING
   UTILIZATION SIGNAL IPS IMPACT,
   BUT THERE IS LITTLE EVIDENCE OF
   IMPAIRED ACCESS
---------------------------------------------------------- Chapter 0:3

Medicare spending for home health care rose at an annual rate of 25.2
percent between 1990 and 1997.  Several factors accounted for this
spending growth, most notably the relaxation of coverage guidelines. 
In response to a 1988 court case, the benefit was essentially
transformed from one that focused on patients needing short-term care
after hospitalization to one that serves chronic, long-term-care
patients as well.\4 Thus, Medicare may now be covering services that
would previously have been paid for by Medicaid or by beneficiaries
themselves.  The loosening of coverage criteria contributed to an
increase in the number of beneficiaries receiving services.  Between
1990 and 1997, the number of Medicare home health users per 1,000
beneficiaries increased from 57 to 109.\5

Associated with the increase in beneficiaries being served over this
period was the near doubling of Medicare-certified HHAs to 10,524 by
1997. 

Also contributing to the historical rise in spending were a payment
system that provided few incentives to control how many visits
beneficiaries received and lax Medicare oversight of claims.  Between
1990 and 1997, the average number of visits per user climbed from 36
to 73.  HHAs could boost revenues by providing more services to more
beneficiaries, a strategy that could actually help HHAs avoid being
constrained by Medicare's limits on payments per visit.\6 There is
evidence that some HHAs provided visits of marginal value.  For
example, as we noted in a previous report, even when controlling for
diagnoses, substantial geographic variation exists in the provision
of home health care.\7 In 1996, the average number of visits per user
in the West South Central region (Arkansas, Louisiana, Oklahoma, and
Texas) was 129, compared with 47 in the Middle Atlantic region (New
York, New Jersey, and Pennsylvania).  While the precise reasons for
this variation are not known, there is no reason to assume that it
was warranted by patient care needs.  Evidence indicates that at
least some of the high use and the large variation in practice
represented inappropriate care.\8

Medicare oversight declined at the same time that spending mounted,
contributing to the likelihood that inappropriate claims would be
paid.  The proportion of claims that were reviewed dropped sharply,
from about 12 percent in 1989 to 2 percent in 1995, while the volume
of claims almost tripled. 

To control spending while ensuring the appropriate provision of
services, the BBA mandated expeditious implementation of the IPS
while the PPS was under development.  Prior to BBA, HHAs were paid on
the basis of their costs, up to preestablished limits.  The limits
were set for each type of visit but were applied in the aggregate for
each agency; that is, costs above the limit for one type of visit
could still be paid if costs were sufficiently below the limit for
other types of visits.  The IPS lowered the visit payment limits and
subjected HHAs to an aggregate Medicare revenue cap based on a
historical per beneficiary amount that factors in both
agency-specific and regional average per beneficiary payments.  The
purpose of the cap is to control the number of services provided to
users.  The blending of agency-specific and regional amounts accounts
for the significant differences in service use across agencies and
geographic areas.  For new HHAs, without historical cost data, the
caps are based solely on the national median.  Because per
beneficiary limits are tied to fiscal year 1994 payments, the new
payment limits will be more stringent for agencies and areas that
experienced significant growth in the number of visits per user
between 1994 and 1997.  Notably, the growth in Louisiana, Oklahoma,
and Texas, where 1994 utilization levels were approximately twice the
national average, greatly exceeded the average increase nationally. 
By comparison, utilization levels declined in one-fifth of the states
with utilization levels below the national average in 1994, making it
easier for HHAs in those states to cope with the cap. 

In contrast to the SNF PPS, the IPS had a more immediate effect on
the operation of providers because there was no gradual transition to
imposition of the revenue cap.  The IPS was phased in according to an
HHA's cost reporting year--61 percent of agencies came under the IPS
by January 1, 1998, and the remainder by September 30, 1998. 
Moreover, unlike the situation with SNFs, Medicare beneficiaries
represent a substantial proportion of the patients served by HHAs. 
The closure of a significant number of HHAs occurred after the IPS
was implemented.  Between October 1, 1997, and January 1, 1999, 1,436
Medicare-certified HHAs stopped serving Medicare beneficiaries. 
However, because of the growth in the industry since 1990, there were
still 9,263 Medicare certified HHAs in January 1999--only 500 fewer
than in October 1996.  (See fig.  3.)

   Figure 3:  Change in Number of
   Medicare-Certified HHAs,
   October 1, 1995, Through
   January 1, 1999

   (See figure in printed
   edition.)

Forty percent of the closures were concentrated in three states that
had experienced considerable growth in the number of HHAs and had
utilization rates (visits per user as well as users per thousand
fee-for-service beneficiaries) well above the national average (see
table 2).  Furthermore, the majority of closures occurred in urban
areas that still have a large number of HHAs to provide services. 
The pattern of HHA closures suggests a response to the IPS.  The IPS
revenue caps would prove particularly stringent for HHAs that
provided more visits per user, for smaller agencies, for those with
less ability to recruit low-cost patients, and for newer agencies. 
In fact, HHAs that closed had provided over 40 percent more services
per user than agencies that remained open.  Closing HHAs were also
about half the size of those that remained open, and they had been
losing patients before the implementation of IPS. 

                                         Table 2
                         
                              Decline in HHAs and Changes in
                           Utilization Nationally and in Three
                                     High-Use States

                                    People served per 1,000
                                    Medicare fee-for-service
                                           enrollees                Visits per user
                                   --------------------------  --------------------------
                  HHA
             closures
                 as a
           percentage   Number of
            of active   Medicare-
            agencies,   certified
              Oct. 1,  HHAs, Jan.                  Percentage                  Percentage
                 1997     1, 1999    1994    1997      change    1994    1997      change
---------  ----------  ----------  ------  ------  ----------  ------  ------  ----------
Nationwid       -14.0       9,263    94.2   109.2        15.9    66.0    72.9        10.5
 e
Louisiana       -21.6         407   138.6   157.3        13.5   125.8   161.0        28.0
Oklahoma        -23.2         299   108.9   131.9        21.1   105.7   147.0        39.1
Texas           -20.1       1,580   106.9   133.7        25.1    97.4   141.0        44.8
-----------------------------------------------------------------------------------------
Despite the widespread attention focused on closures, the critical
issue is whether beneficiaries who are eligible to receive services
are still able to do so.  Utilization rates during the first 3 months
of 1998 are consistent with IPS incentives to control costs.  Home
health utilization in the first quarter of 1998 was lower than during
a comparable period in 1996 but was about the same as during a
comparable period in 1994--the base year for the IPS.  Moreover, the
sizeable variation in utilization between counties with high and low
use has narrowed.  In counties without an HHA, both the proportion of
beneficiaries served and the visits per user declined slightly during
the first 3 months of 1998, compared with a similar period in 1994,
but these counties' levels of utilization remained above the national
average.  Our February 1999 interviews with officials at HHAs,
hospital discharge planners, advocacy groups, and others in 34
primarily rural counties with significant closures indicated that
beneficiaries continue to have access to services.  Some of the
decline in utilization appears to be for beneficiaries who no longer
qualify for the home health care benefit.  However, these interviews
also suggested that as HHAs change their operations in response to
the IPS, beneficiaries who are expected to be costlier than average
to treat may have increased difficulty obtaining home health care. 
The pending implementation of the PPS, which will adjust payments to
account for costlier patients, has the potential to ameliorate future
access problems.\9

--------------------
\4 Duggan v.  Bowen, 691 F.  Supp.  1487 (D.D.C.  1988). 

\5 These numbers reflect Medicare fee-for-service beneficiaries only. 

\6 Agencies could avoid the payment limits by lowering their per
visit costs in two ways:  by serving less expensive patients with
shorter visits and by providing more visits and thereby spreading
fixed costs over more visits. 

\7 Medicare:  Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar.  27, 1996). 

\8 Medicare:  Improper Activities by Mid-Delta Home Health
(GAO/T-OSI-98-6, Mar.  19, 1998) and Department of Health and Human
Services, OIG, Variation Among Home Health Agencies in Medicare
Payment for Home Health Services (Washington, D.C.:  HHS, July 1995). 
Our 1997 analysis of a small sample of high-dollar claims found that
over 40 percent of these claims should not have been paid by the
program.  See Medicare:  Need to Hold Home Health Agencies More
Accountable for Inappropriate Billings (GAO/HEHS-97-108, June 13,
1997). 

\9 For additional information on the impact of the home health IPS on
beneficiary access, see Medicare Home Health Agencies:  Closures
Continue With Little Evidence Beneficiary Access Is Impaired
(GAO/HEHS-99-120, May 26, 1999). 

   CONCLUSION
---------------------------------------------------------- Chapter 0:4

The BBA made necessary and fundamental changes to Medicare's payment
methods for SNFs and HHAs to slow spending growth while promoting
more appropriate beneficiary care.  Further refinements are required
to make these systems more effective.  However, the intentional
design of these systems is to require inefficient providers to adjust
their practice patterns to remain viable. 

The very boldness of these changes has generated pressure to reverse
course.  In the current environment, the Congress will face difficult
decisions that could pit particular interests against a more global
interest in preserving Medicare for the long term.  As PPSs are
implemented for rehabilitation facilities and hospital outpatient
services, and as SNFs continue their transition to full PPS rates,
provider complaints about tight payment rates and impaired
beneficiary access will continue to be heard.  It is important that
the implementation of these new payment mechanisms is monitored to
ensure that the correct balance between appropriate beneficiary
access and holding the line on Medicare spending is being achieved. 
Our work suggests that it would be premature at this juncture,
however, to significantly modify the BBA's provisions without
thorough analysis or a fair trial of the provisions over a reasonable
period of time. 

-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, this concludes my prepared statement.  I will be happy
to answer any questions you or other Members of the Committee may
have. 

   GAO CONTACT AND ACKNOWLEDGMENTS
---------------------------------------------------------- Chapter 0:5

For future contacts regarding this testimony, please call William J. 
Scanlon at (202) 512-7114.  Individuals who made key contributions to
this statement include Carol Carter and Walter Ochinko. 

*** End of document. ***