Also, exemptions from and exceptions to the cost limits are available to SNFs and home health agencies that meet certain conditions. The combination of these legislative and coverage policy changes has had a dramatic effect on utilization of these two benefits in the 1990s, both in terms of the number of beneficiaries receiving services and in the extent of these services. 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. We found that a lack of adequate controls over the home health program, such as little intermediary medical review and limited physician involvement, makes it nearly impossible to know whether the beneficiary receiving home care qualifies for the benefit, needs the care being delivered, or even receives the services being billed to Medicare. 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. An alternative to the proposal’s choice of a day of care as the unit of service is an episode of care—the entire period of SNF care covered by Medicare. Regarding the types of costs covered by PPS rates, a major contributor to Medicare’s SNF cost growth has been the increased use of ancillary services, particularly therapy services. 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 for all services provided to their beneficiary residents except for physician and some practitioner services. In effect, outside suppliers would have to make arrangements with SNFs under such a provision so that nursing homes would bill for suppliers’ services and would be financially liable and medically responsible for the care.
Why GAO Did This Study

GAO discussed Medicare's skilled nursing facility (SNF) and home health care 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) a combination of factors led to the increased use of both benefits: (a) legislation and coverage policy changes in response to court decisions liberalized coverage criteria for the benefits, enabling more beneficiaries to qualify for care; (b) these changes also transformed the nature of home health care from primarily posthospital care to more long-term care for chronic conditions; (c) earlier discharges from hospitals led to the substitution of days spent in SNFs for what in the past would have been the last few days of hospital care, and increased use of ancillary services, such as physical therapy, in SNFs; and (d) a diminution of administrative controls over the benefits, resulting at least in part from fewer resources being available for such controls, reduced the likelihood of inappropriately submitted claims being denied; (4) the major proposals by the administration for both SNFs and home health care are designed 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) however, 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 databases are adequate for it to set reasonable rates; (6) the administration is also proposing that SNFs be required to bill for all services provided to their Medicare residents rather than allowing outside suppliers to bill; and (7) this latter proposal has merit, because it would make control over the use of ancillary services significantly easier.