View Rule

Statement of Need: The BBA significantly changed the way we pay for Medicare home health services. It requires the establishment of a facility-specific PPS and provides for interim steps until the PPS is established. Under the interim system HHAs will receive payment in accordance with section 4602 of the Balanced Budget Act of 1997. The interim payment system establishes two sets of cost limits for home health agencies. The long-standing home health per visit cost limits are reduced from 112 percent of the mean labor-related and non-labor per visit costs for freestanding agencies to 105 percent of the median. In addition, home health agency costs will be subject to an aggregate per-beneficiary cost limitation. For those providers with a cost report ending in Federal fiscal year 1994, the per-beneficiary cost limitation is based on a blend of costs (75 percent on 98 percent of the agency-specific costs and 25 percent on 98 percent of the standardized regional average of the costs for the agency's census region). For new providers and those providers without a 12-month cost reporting period ending in fiscal year 1994, the per-beneficiary limitation will be the national median of the per-beneficiary limits for HHAs. Under the interim system, HHAs will be paid the lesser of 1) actual costs; 2) the per-visit limits; 3) the per-beneficiary limits. The result of the interim system will be to create a strong incentive for HHAs to reduce utilization to at least 1994 levels to fall within the aggregate cost limit. The interim payment system was effective 10/1/97 and will be in effect until prospective payment for home health agencies is implemented. Section 4603 of the BBA establishes section 1895 of the Social Security Act, which specifies the authority for the development of a prospective payment system for home health services effective 10/1/99, which will ultimately be based on units of payment, most likely episodes of care. In developing the PPS, the Secretary will consider an appropriate unit of service, the number of visits provided within the unit, and their cost. Payment for a unit of home health service will be modified by a case mix adjustor, set by the Secretary, to explain a significant amount of the variation in the cost of different units of service. The HHA would have the potential of profit or loss on each individual patient. Over many patients, the HHA would presumably make or lose money based on its ability to provide needed care effectively and efficiently.

Summary of the Legal Basis: Section 1861(v)(1)(A) of the Social Security Act requires the limits that comprise the interim system. Under this authority, HCFA has maintained limitations on home health agency per-visit costs since 1975. Additional statutory provisions specifically governing limitations applicable to home health agencies are contained at section 1861(v)(1)(L) of the Social Security Act. These limits will be replaced by the establishment of a prospective payment system as defined in section 4603 of the BBA that requires the Secretary to establish and implement the prospective payment system for home health services.

Alternatives: Section 4603 of the BBA specifies the authority for the development of a prospective payment system for home health services effective 10/1/99. However, there is contingency language for the home health prospective payment system provided in BBA. If the Secretary for any reason does not establish and implement the prospective payment system for home health services, the Secretary shall provide for a reduction by 15 percent of the per-visit cost limits and per-beneficiary limits, as those limits would otherwise be in effect on September 30, 2000.

Anticipated Costs and Benefits: The Congress anticipates that the implementation of a PPS for home health services will achieve the combined benefits of establishing a system which will enable HCFA to find the provision of medically necessary HHA care to beneficiaries consistent with the HHA's own case mix and will also prevent the development of further unsustainable growth in HHA costs. The combined effects of the "interim" and final systems are required to achieve this result.

Risks: The statutory contingency for reducing cost caps under the interim system by 15 percent, if the PPS is not timely implemented, is not the preferred method for achieving the desired savings because the interim system does not adjust fully for case mix, as the PPS is required to do. Therefore, the longer the delay in implementation of the PPS, the greater the potential disparity between the case mix of an individual HHA and its payments.