To qualify as long term, hospitals must have an average length of stay of a least 25 days for their Medicare patients. Post-Acute Care Cost Growth

The Medicare SNF, home health, and inpatient rehabilitation benefits are three of the fastest growing components of Medicare spending. The number of beneficiaries receiving home health care more than doubled in the last few years, from 1.7 million in 1989 to about 3.9 million in 1996. Some of this increase in beneficiary use was due to increases in the number of acute-care admissions that often lead to use of rehabilitation facilities. Administration’s Proposals for Prospective Payment Systems

The goal in designing a PPS is to ensure that providers have incentives to control costs and that, at the same time, payments are adequate for efficient providers to furnish needed services and at least recover their costs. Good choices for unit of service and cost coverage can be overwhelmed by bad data. This project was recently expanded to include coverage of ancillary costs in the prospective payment rates. Proposal for a Home Health PPS

The summary of the administration’s proposal for a home health PPS is very general, saying only that a PPS for an appropriate unit of service would be established in 1999 using budget neutral rates calculated after reducing expenditures by 15 percent. As we reported in March 1996, controls over the use of home health care are virtually nonexistent. Consolidated Billing for SNFs

The administration has also announced that it will propose requiring SNFs to bill Medicare directly for all services provided to their beneficiary residents except for physician and some practitioner services. The administration has therefore announced that it will in the future recommend a coordinated payment system for post-acute care services. Moreover, bearing risk often gives incentive to shift the risk to others and raises concerns about quality. Medicare Skilled Nursing Facility and Home Health Expenditures, 1980-96

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Why GAO Did This Study

GAO discussed Medicare's skilled nursing facility (SNF), home health care, and inpatient rehabilitation benefits and the administration's forthcoming legislative proposals related to them.

What GAO Found

GAO noted that: (1) Medicare's SNF costs have grown primarily because a larger portion of beneficiaries use SNFs than in the past and because of a large increase in the provision of ancillary services; (2) for home health care costs, both the number of beneficiaries and the number of services used by each beneficiary have more than doubled; (3) although the average length of stay has decreased for inpatient rehabilitation facilities, a larger portion of Medicare beneficiaries use them now, which results in cost growth; (4) the administration's major proposals for both SNFs and home health care are designed to to give the providers of these services increased incentives to operate efficiently by moving them from a cost reimbursement to a prospective payment system; (5) what remains unclear about these proposals is whether an appropriate unit of service can be defined for calculating prospective payments and whether the Health Care Financing Administration's data bases are adequate for it to set reasonable rates; (6) administration officials also have discussed their intention to propose in the future a coordinated payment system for post-acute care as methods to give providers efficiency incentives; (7) these concepts have appeal, but GAO has concerns about them similar to those it has for SNF and home health prospective payments; (8) finally, the administration is proposing that SNFs be required to bill for all services provided to their Medicare residents rather than allowing outside suppliers to bill; and (9) this latter proposal has merit because it would make control over the use of ancillary services significantly easier.