GAO-02-663 Medicare Home Health Care: Payments to Home Health Agencies Are Considerably Higher than Costs

In response to rapidly rising home health spending from the late 1980s through the mid-1990s, the Congress enacted major changes to Medicares home health payments in the Balanced Budget Act of 1997 (BBA).1 These and subsequent changes culminated in the implementation of a prospective payment system (PPS) on October 1, 2000, which provides incentives to home health agencies (HHAs) to operate efficiently. Under the PPS, HHAs are paid a fixed amount, adjusted for a beneficiarys care needs, for providing up to 60 days of care, termed a home health episode. The BBA also created an interim payment system (IPS) that imposed new payment limits to moderate spending until the PPS could be implemented. The PPS was designed to lower Medicare spending below what it was under the IPS. This spending reduction was to be achieved by setting the PPS episode payment amount so that total home health spending under the PPS in fiscal year 2000 would equal what would have been spent had the interim limits been reduced by 15 percent. Subsequent legislation delayed implementation of the mandated reduction to the episode payment amount until October 2002.2 The Centers for Medicare and Medicaid Services (CMS)3 has determined that the fiscal year 2003 episode payment rate would have to be reduced by about 7 percent to achieve the mandated level of savings.4