Prospective Payment for HHAs

On October 1, 2000, HCFA implemented the PPS for home health care. Even with the revisions, HCFA  officials acknowledged that the HHRGs may not adequately differentiate  among home health patients, particularly those who need wound-care  supplies, and that additional modifications might be needed. Episode Payments May Not Reflect Variation in Nonroutine Medical Supply Costs across Patients

HCFA used the total costs associated with furnishing home health care,  including the costs of nonroutine medical supplies, to establish the  average episode payment. For some types of patients,  such as those needing wound-care supplies and dressing changes,  increasing payments in proportion to the cost of staff time is likely to  result in an appropriate adjustment to total payments if wound-care supply  costs are proportionately higher for patients receiving more costly staff  time. Although the agency  asked HHAs to provide patient-specific information on the use of and  charges for wound-care supplies, HHAs have not done so, which will  hamper CMS’s ability to better account for these costs in the episode  payments. Certain Nonroutine Medical Supplies May Warrant Exclusion from Episode Payment

Patients requiring nonroutine medical supplies are classified into many  different payment groups, so the payment for any given group, which is  based on the group’s average cost, may not account for unusually high  nonroutine medical supply costs. Some of clinical experts we  consulted said there are no nonroutine medical supplies that are both  high-cost and infrequently provided. Such changes required some patients who had  been self-managing chronic conditions to either change the type of supply  (for example, the type of ostomy appliance) or number of supplies used  while receiving home health care. This  could include an examination of whether certain types of patients, such as  those requiring nonroutine medical supplies, have the same utilization  now as they did prior to the PPS. Conclusions

The adequacy of Medicare’s home health payment groups and adjustments  to reflect the variation in episode costs across patients is critical to  ensuring that patients and HHAs are not disadvantaged under the PPS. While there are sound reasons to  retain most nonroutine medical supplies in the episode payment,  excluding certain supplies may be warranted if the payment groups will  not adequately account for their costs or if it has been demonstrated that  patient access to care or continuity of care has been disrupted. Recommendations for Executive Action

We are recommending that in evaluating refinements to the PPS, the  Administrator of CMS collect and analyze patient-specific data on the cost  and utilization of individual nonroutine medical supplies to determine  whether the payment groups and adjustments appropriately reflect the  differences in supply costs. Because HHAs could identify many of the patients with costly nonroutine  medical supply needs prior to admitting them for home health care, we  believe it is important to explicitly consider this group of patients in  designing analyses of the impact of the home health PPS and to consider  changes to the payment to ameliorate any identified problems. Appendix I: Comments from the Centers for Medicare & Medicaid Services
Why GAO Did This Study

Under Medicare's prospective payment system (PPS), home health agencies receive a single payment, adjusted to reflect the care needs of different types of patients, for providing up to 60 days of home health care. Some home health industry representatives have suggested that certain nonroutine medical supplies (such as wound-care dressings) should be excluded from this payment and reimbursed separately because of their high cost. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 required GAO to examine home health agency payments for nonroutine medical supplies and recommend whether payment for any such supplies should be excluded from the PPS.

What GAO Found

Although Medicare's home health payment includes the average costs of nonroutine medical supplies, adjusted payments may not reflect variation in supply costs across types of patients. Further, home health agencies can be paid the same amount for treating patients with quite different supply costs. This means that under the PPS, patients who require costly supplies may have problems accessing home health care and the agencies that treat them may be financially disadvantaged. This is of particular concern for patients who have nonroutine medical supply needs that are easily identified prior to admission or who require supplies for which there are no lower-cost alternatives. Excluding certain nonroutine medical supplies from the home health payment and reimbursing them separately would help ensure that patients have access to these supplies and that agencies are protected financially for providing them. At the same time, this would weaken the cost-control incentives of the PPS as well as increase patient out-of-pocket costs. Such a policy might be warranted, however, for nonroutine medical supplies that are high-cost, relative to the total payment, and infrequently used because the payment adjustment to account for differences in patient needs may not be adequate to compensate a home health agency for providing these supplies. Patient care representatives suggest that an additional category of supplies should be excluded from the payment and reimbursed separately, namely those that a patient had been using prior to home health care to treat an ongoing condition. Clinical experts indicated that care has been disrupted for some patients who require these kinds of supplies because some home health agencies have required patients to switch supplies or limited the supplies provided to them. Although the Centers for Medicare & Medicaid Services (CMS) has asked home health agencies to report information on nonroutine medical supply use and cost, they have not done so. Without this patient-specific supply data, CMS does not have the ability to determine whether the PPS needs to be adjusted to account for nonroutine medical supply costs or whether certain supplies should be excluded from the payment.