Medicare fee-for-service (FFS)—Medicare Parts A or B—provides coverage in a beneficiary's home for certain services and treatments of an illness or injury. Beneficiaries who meet the home health eligibility requirements are entitled to a 60-day episode of home health coverage and then to an unlimited number of 60-day episodes, so long as they continue to meet the eligibility requirements. Medicare Home Health Eligibility

To be eligible for Medicare-covered home health services, a beneficiary must meet three requirements:
he/she must be homebound, he/she must need part-time or intermittent skilled nursing care and/or skilled rehabilitation , or, after establishing prior eligibility, a continuing need for occupational therapy, and he/she must be under the care of a physician and need reasonable and necessary home health services that have been certified by a physician and established in a 60-day plan of care. Medicare Home Health Services and Beneficiaries

Medicare beneficiaries who meet the home health eligibility criteria are entitled to a 60-day episode of home visits by skilled health care professionals. Roughly 9.5% (or 3.4 million) of Medicare FFS beneficiaries used home health services in 2011. Most Medicare-certified HHAs (85%) are freestanding—not a part of a larger institution (such as a hospital or nursing home). Since the implementation of the home health prospective payment system (HH PPS) in 2000, the number of HHAs has grown steadily with a large majority of the increase in freestanding for-profit HHAs. Between 2000 and 2011, the number of Medicare-certified HHAs increased by 62%, from 7,528 to 12,199. Under the HH PPS, Medicare provides a payment to HHAs for covered home health services on a 60-day per episode basis. This method is in contrast to the prior Medicare payment method that reimbursed HHAs for each home health visit performed on the basis of "reasonable costs." Medicare Home Health Financial Trends

Total Medicare FFS home health payments increased from $8.5 billion in 2001 to roughly $18.4 billion in 2011—an average annual rate of growth of 8.0%. Home Health Margins

Under the HH PPS, freestanding HHAs have had consistently high Medicare margins—the percentage difference in Medicare home health payments relative to the HHA's costs in providing home health services to beneficiaries (a positive margin is a profit, a negative margin a loss). Over the same time period, Part A home health expenditures increased at an average annual rate of 5% while Part B home health expenditures have increased at an average annual rate of 10.5%. Standardized home health payments are Medicare payments for home health services that have removed geographic wage adjustments that are included in the PPS. Additionally, as required by ACA, CMS recently issued a plan to implement a value-based purchasing (VBP) program for HHAs in addition to the existing Medicare VBP programs currently being implemented for acute-care hospitals and physicians. Further, additional issues for congressional consideration stems from a proposed settlement agreement, which requires CMS to revise its existing Medicare benefit guidelines as a result of a recent class-action lawsuit between HHS and the Center for Medicare Advocacy, and the temporary moratoria on new HHAs in targeted geographic areas. Cost-Sharing for Home Health Services

Currently, the home health benefit does not require beneficiary cost-sharing for home health services. Additionally, the aggregate Medicare margin for freestanding HHAs has remained consistently high: 13.6% in 2003 and 14.8% in 2011. Beginning on or after October 1, 1999 (but implemented on October 1, 2000), BBA 97 required a home health prospective payment system (HH PPS) to supplant the interim payment system and reimburse home health agencies (HHAs) based upon a beneficiary's expected care needs and geographic location, among other factors.
The Medicare home health benefit provides coverage for home visits by skilled health care professionals. Medicare Parts A and B provide coverage for home health services. To be eligible for the home health benefit, a beneficiary must meet three different criteria. The beneficiary must (1) be homebound, (2) require intermittent skilled nursing care and/or skilled rehabilitation services, and (3) be under the care of a physician who has established that the home health visits are medically necessary in a 60-day plan of care. A beneficiary who meets these requirements is entitled to a 60-day episode of Medicare coverage for home health visits, and is then entitled to an unlimited number of subsequent 60-day episodes so long as he or she continues to meet the eligibility requirements. There is no cost-sharing requirement for home health services. Roughly 9.5% of Medicare fee-for-service (FFS) beneficiaries (or 3.4 million individuals) used home health services in 2011.
Home health services are provided through home health agencies (HHAs), most of which (85%) are freestanding—HHAs not affiliated with an institution such as a hospital or a nursing facility. The number of HHAs participating in Medicare grew by 62% between 2000 and 2011 (from 7,528 to 12,199), with a vast majority of the increase in for-profit freestanding HHAs.
Similar to most Medicare payment methods, Medicare Part A or Part B reimburses HHAs using a prospective payment system (PPS). A PPS reimburses providers with payments that are predetermined by a formula that adjusts payments for beneficiaries' expected care needs and location, among other factors. The home health PPS (HH PPS) was implemented for services beginning on or after October 1, 2000. Generally, the HH PPS provides a single payment for a 60-day episode to HHAs for the estimated costs of home health services. The 60-day episode payment is in contrast to the prior home health payment system that reimbursed HHAs retrospectively on a per visit basis.
While total Medicare FFS expenditures have grown at an average annual rate of roughly 5.6% between 2001 and 2011, Medicare FFS expenditures on home health services have increased at an average annual rate of 8.0% over the same time period. In 2011, Medicare FFS expenditures on covered home health services totaled $18.4 billion. In addition to the high growth rate in Medicare home health payments, the home health benefit has drawn attention due to the consistently high Medicare margins (percentage of Medicare revenue that exceeds costs of services) of participating HHAs. Between 2003 and 2011, aggregate Medicare margins for freestanding HHAs have remained consistently high—from 13.6% in 2003 to 14.8% in 2011.
As deficit reduction pressures increase, the 113th Congress may debate whether to include beneficiary cost-sharing for home health services (a proposal recommended by the Medicare Payment Advisory Commission and various other groups). Congress may also consider proposals to implement a value-based purchasing program for HHAs that would adjust Medicare payments based upon certain HHA quality measures. Similar proposals are currently being implemented in other Medicare payment systems. Congress may also choose to monitor the implementation of the settlement agreement of a recent class-action lawsuit between the Department of Health and Human Services (HHS) and the Center for Medicare Advocacy regarding the so-called "improvement standard" as well as the moratoria on new HHAs in targeted geographic areas.