SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
42–509 CC
1997
MEDICARE HOME HEALTH CARE, SKILLED NURSING FACILITY, AND OTHER POSTACUTE CARE PAYMENT POLICIES
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
MARCH 4, 1997
Page 2 PREV PAGE TOP OF DOC
Serial 105–5
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
Page 3 PREV PAGE TOP OF DOC
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
A.L. Singleton, Chief of Staff
Page 4 PREV PAGE TOP OF DOC
Janice Mays, Minority Chief Counsel
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut
JIM McCRERY, Louisiana
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILIP M. CRANE, Illinois
AMO HOUGHTON, New York
SAM JOHNSON, Texas
FORTNEY PETE STARK, California
BENJAMIN L. CARDIN, Maryland
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
XAVIER BECERRA, California
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records.
Page 5 PREV PAGE TOP OF DOC
C O N T E N T S
Advisory of February 25, 1997, announcing the hearing
WITNESSES
Prospective Payment Assessment Commission, Joseph P. Newhouse, Ph.D., Chairman; accompanied by Donald A. Young, M.D., Executive Director
U.S. Department of Health and Human Services, George F. Grob, Deputy Inspector General for Evaluation and Inspections, Office of the Inspector General
U.S. General Accounting Office, William J. Scanlon, Ph.D., Director, Health Financing and Systems Issues, Health, Education, and Human Services Division; accompanied by Thomas Dowdal, Senior Assistant Director, Health Financing and Systems Issues
American Health Care Association Advocacy Committee, and North Cities Health Care, Inc., Steven Chies
California Association for Health Services at Home, and PPS Work Group, Joseph H. Hafkenschiel
VNA Health Care, Inc., and National Association for Home Care, Margaret J. Cushman
Page 6 PREV PAGE TOP OF DOC
SUBMISSIONS FOR THE RECORD
American Association of Homes and Services for the Aging, Sheldon L. Goldberg, statement
American Federation of Home Health Agencies, Silver Spring, MD, Ann B. Howard, statement
American Occupational Therapy Association, Inc., Bethesda, MD, statement
American Physical Therapy Association, Alexandria, VA, statement
Health Industry Distributors Association, Alexandria, VA, statement
Home Care Association of America, Jacksonville, FL, Dwight S. Cenac, statement
National Association for the Support of Long Term Care, statement
National Subacute Care Association, Bethesda, MD, Sanford J. Hill, statement
Premier, Inc., James L. Scott, statement
Page 7 PREV PAGE TOP OF DOC
MEDICARE HOME HEALTH CARE, SKILLED NURSING FACILITY, AND OTHER POST-ACUTE CARE PAYMENT POLICIES
TUESDAY, MARCH 4, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:08 p.m., in room 1310, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225–3943
FOR IMMEDIATE RELEASE
February 25, 1997
Page 8 PREV PAGE TOP OF DOC
No. HL–3
Thomas Announces Hearing on
Medicare Home Health Care,
Skilled Nursing Facility, and
Other Post-Acute Care Payment Policies
Congressman Bill Thomas (R–CA), Chairman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on Medicare home health care, skilled nursing facility, and other post-acute care payment policy. The hearing will take place on Tuesday, March 4, 1997, in room 1310 Longworth House Office Building, beginning at 1:00 p.m.
In view of the limited time available to hear witnesses, oral testimony will be heard from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Medicare payments to post-acute care providers continue to be the fastest growing component of the Medicare program. Medicare home health care and skilled nursing facility payments have each increased, on average, by more than 30 percent per year since 1990. High rates of growth are fueled by Medicare's payment policies which provide few incentives for post-acute care providers to provide services more efficiently and reduce costs. While Medicare has modified its policies over the years to address payment per unit of service, it has had little success controlling the volume of services delivered.
Page 9 PREV PAGE TOP OF DOC
For more than a decade, Congress has directed the Secretary of Health and Human Services to establish a prospective payment system for both home health care and skilled nursing facility services. Most recently, the vetoed Balanced Budget Act of 1995 included new policies that would have implemented separate prospective payment systems for both of these services. The President's fiscal year 1998 budget proposal contains provisions to establish prospective payment systems for these services as well as a number of initiatives to prevent fraud and abuse in the provisions of home health care and skilled nursing facility services.
Medicare rehabilitation facility and long-term care hospital admissions and payments have also risen in recent years. The vast majority of the patients in these facilities have a prior acute inpatient admission before entering the facility. These post-acute care services are paid under a system established in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). In the Omnibus Budget Reconciliation Act of 1990, the Secretary was instructed to reform the TEFRA system or replace it with a prospective payment system. There has been little progress in this area.
In announcing the hearing, Chairman Thomas stated: ''I am confident this is the year we will finally establish prospective payment systems for home health care and skilled nursing facilities. The Congress, the Administration and the provider communities should work to develop new payment systems with incentives that ensure that Medicare beneficiaries have access to medically appropriate care that is cost-effective.''
FOCUS OF THE HEARING:
Page 10 PREV PAGE TOP OF DOC
This hearing will focus on the provisions in the President's fiscal year 1998 budget proposal regarding Medicare payments for home health care, skilled nursing facility, and other post-acute care services. These proposals will be assessed in light of the recommendations developed for the Congress by the Prospective Payment Assessment Commission, as well as the policies contained in the Medicare Preservation Act of 1995 and the Balanced Budget Act of 1995.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement and a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of hearing noted, by the close of business, Tuesday, March 18, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Health office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
Page 11 PREV PAGE TOP OF DOC
1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same time written statements are submitted to the Committee, witnesses are now requested to submit their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.
Page 12 PREV PAGE TOP OF DOC
Note: All Committee advisories and news releases are available on the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/'.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202–225–1721 or 202–225–1904 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
—————
Chairman THOMAS. The Subcommittee will come to order. In the spirit of bipartisanship, I have been told I can begin. [Laughter.]
I am beginning to think that maybe we ought to return to the old ways so I do not have to do all the lifting.
Today's hearing will focus on two of Medicare's postacute care benefits, the home health and skilled nursing services. Among the fastest growing benefits, Medicare spending for both home health and skilled nursing services has increased over 30 percent over the past several years. It is projected to grow at similar levels well into the future, and I am looking at a chart which clearly indicates that.
In the 104th Congress, this Subcommittee held several hearings on home health and skilled nursing care. The hearings sought to examine the causes for the tremendous growth in spending in these services, as well as to develop payment reforms that would maintain the quality of services while reducing their growth and discouraging fraud and abuse in these benefit areas.
Page 13 PREV PAGE TOP OF DOC
In the last session, the Ways and Means Committee included in BBA, the Balanced Budget Act of 1995, new prospective payment systems for both home health and skilled nursing. Unfortunately, the President chose to veto the measure.
This year there is a consensus, I believe, among the Congress, the administration, and even the respective industries that home health and skilled nursing services should be purchased by Medicare using a prospective payment system.
Notwithstanding that, there are concerns that have been raised about the data and the methodologies available for prospective payment for these services. But despite these issues which have been raised, I am confident that now is the time to refine and implement the prospective approaches which have been raised.
To be sure, we do not have a complete solution, no initiative that we begin or conclude now is going to be perfect. But just as we learned in 1983, when the hospital prospective payment system was established that reform, although not flawless or perfect, nevertheless, can be effective in bringing about the desired effects.
I believe the longer we wait, we really do jeopardize losing a system which improves things for patients, providers, and Medicare.
I believe we can no longer wait for not just the perfect system, but even a better one. These costs are out of hand and they grow more out of hand every day. So, in that context, I look forward to the testimony that is going to be provided. Prior to recognizing the witnesses, if the gentlemen from Wisconsin wishes to be recognized for his own or someone else's opening statement, the Chair would do so.
Mr. KLECZKA. Not at this time, Mr. Chairman.
Chairman THOMAS. The panel before us is one that we have seen recently and we will see again, but it provides us with the kind of in-house expertise that is invaluable in our attempting to bring forth a plan that Democrats and Republicans in the House and the Senate and the President can agree to.
Page 14 PREV PAGE TOP OF DOC
We have with us Dr. Newhouse, who is Chairman of the Prospective Payment Assessment Commission. And I will recognize Dr. Young, who is with him, who has been the long-time Executive Director.
William Scanlon, who is the Director of the Health Financing and Systems Issues, of the General Accounting Office, and has with him Thomas Dowdal, who is the Senior Assistant Director of Health Financing and Systems Issues; and George Grob, who is the Deputy Inspector General in the Office of the Inspector General in the U.S. Department of Health and Human Services.
Obviously, any written testimony you have will be made a part of the record, and you can inform the Subcommittee in any way you see fit, beginning with Dr. Newhouse and moving to Mr. Grob and then to Dr. Scanlon.
I welcome the gentleman from California. We have finished our opening statements. The gentleman from Wisconsin was eloquent in presenting your opening statement. And we are moving now to the witnesses, if that is OK with you.
Dr. Newhouse.
STATEMENT OF JOSEPH P. NEWHOUSE, PH.D., CHAIRMAN, PROSPECTIVE PAYMENT ASSESSMENT COMMISSION; ACCOMPANIED BY DONALD A. YOUNG, M.D, EXECUTIVE DIRECTOR
Mr. NEWHOUSE. Thank you very much, Mr. Chairman, for welcoming me and Dr. Young today. As you noted in your opening statement, payments for skilled nursing facilities and home health facilities have been growing very rapidly and they are now one-fifth of the part A spending, as my first chart shows.
As you also noted, there is a need to move away from the cost-based reimbursement policies that have been followed for these providers. And the Prospective Payment Assessment Commission endorses moves toward prospective payment and away from cost-based reimbursement.
Page 15 PREV PAGE TOP OF DOC
On the skilled nursing facility side as my second chart shows, the bulk of the increase has been in payments per day which just in the last 4 years have gone from around $150 to just under $300 per day. That has mainly been driven by increased spending for ancillary services, although there has also been a substantial growth in new providers, as shown in chart 3.
Ideally, there would be a case mix system that could adjust for prospective payments but we do not have such a system in place. And in the meantime, we suggest that some kind of cost limits, either applied to ancillary services or to an all-inclusive per diem, be used.
Beyond that, we are concerned about some important more technical matters. In my testimony I note that facilities are not required to use any particular service unit definitions when billing. And, therefore, it is difficult to compare services across facilities. We recommend you mandate the use of a common procedure coding system, the HCPCS, across all facilities.
We also recommend that you have the SNF bill for all services. We are concerned if a prospective payment system were implemented, that some services could be shifted to part B. This is now very small but it could grow, and we think it would be easier on the beneficiary if all services were billed through the SNF.
Finally, we would eliminate the cost exemption for new providers. We think that exemption, which can apply for over 3 years, has encouraged the entry of new providers which was one of its intents, but that the change from around 10,000 SNFs to around 15,000 in the nineties, has meant that the policy has succeeded and we should declare victory.
Moving on to the home health side, home health has grown like skilled nursing facilities. From 1992 to 1996 it has grown from $7 to $17 billion. If you look at my chart 4, you see the payment growth annually has been around 25 percent a year. Visits growth has been around 22 percent a year. So, you put those two together and essentially all of the growth is in the number of visits, it is not in payment per visit.
Page 16 PREV PAGE TOP OF DOC
If you look at chart 6, you see the home health visits per user divide into two rather distinct populations. Over one-half of the users use fewer than 30 visits, but that is a relatively small portion of the visits. In fact, it is right around 10 percent of the visits. So, over one-half the users are using only 10 percent of the visits.
At the other end of the spectrum, 12 percent of the users are using 150 or more visits and that accounts for one-half the visits. Since this benefit does not require a prior hospital stay, we believe that the high volume of users who are using relatively few visits are mostly the people coming out of a hospital, and the people using a lot of visits are people that are using chronic kinds of care.
There are some recommendations here, as well. We would try to limit the number of visits that Medicare would pay a full rate for. We would reduce that rate after a certain number of visits in the interim until we could get a prospective payment system up.
I have some technical comments here, as well, and also some comments on copays, but I see since the yellow light is on, I would like to skip to my last recommendation, which is contained in my last chart, where we show the hospital length of stay. We suggest that hospitals have been increasingly delivering services in a postacute setting that were delivered before in the hospital and included in the DRG payment, and that the implications of that is that we should attempt a demonstration project that would link the postacute payment with the acute payment. There are a number of technical issues to be resolved in that, but this would then not mean that the hospital would collect more money if it could figure out a way to deliver services in the postacute setting that had been delivered in the acute setting.
Thank you, Mr. Chairman, I will look forward to your questions.
[The prepared statement follows:]
Statement of Joseph P. Newhouse, Ph.D., Chairman, Prospective Payment Assessment Commission
Page 17 PREV PAGE TOP OF DOC
Good afternoon, Mr. Chairman. I am Joseph Newhouse, Ph.D., Chairman of the Prospective Payment Assessment Commission (ProPAC). I am accompanied by Donald Young, M.D., the Commission's Executive Director. We are pleased to be here to discuss Medicare's policies for post-acute care providers, focusing on skilled nursing facilities (SNFs) and home health agencies. During my testimony, I will refer to several charts. These charts are appended to the end of my written testimony.
As we have testified previously before this Subcommittee, Medicare payments to post-acute care providers, which include skilled nursing facilities, home health agencies, rehabilitation facilities, and long-term care hospitals, are among the fastest growing components of the Medicare program. As a result of spending growth that has been nearly triple that of the rest of the program, the share of Part A spending accounted for by these providers has increased from 8 percent in 1988 to 25 percent in 1994 (see Chart 1).
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 1 HERE
Spending for services provided by SNFs and home health agencies make up the bulk of post-acute care payments. Between fiscal years 1992 and 1996, Part A payments to these two provider types nearly tripled, from $11 billion to $29 billion. While their spending growth has slowed somewhat in the past two years, the Congressional Budget Office projects that payments to SNFs and home health agencies will continue to rise faster than overall Medicare spending between now and 2002.
The rise in post-acute care spending is driven primarily by increases in both the number of beneficiaries receiving post-acute care and the number of services they receive. The increased usage reflects several factors. Medical advances and changing practice patterns have expanded the range of patients and the conditions that can be treated in post-acute care settings. This, in turn, has allowed post-acute care providers to furnish services that previously could be furnished only in acute-care hospitals.
Page 18 PREV PAGE TOP OF DOC
Relatively generous payment and coverage policies also have contributed to growing post-acute care use. Post-acute care providers generally are paid based on their costs per unit of service. As you know, cost-based payment systems have few incentives for providers to improve efficiencies, and fee-for-service methods lead to greater utilization because provider revenues rise with each service furnished. In addition, Medicare's coverage guidelines permit broad discretion in determining the need for these services.
In our Report and Recommendations to the Congress, which we released yesterday, ProPAC makes a number of recommendations that, if adopted, would improve Medicare's payment policies for post-acute care providers and control spending increases. This afternoon, I would like to focus on our recommendations related to SNF and home health services. At some later date, we would be happy to discuss with you our views concerning payment policies for rehabilitation facilities and long-term care hospitals.
Much attention has been focused on developing prospective payment systems for SNFs and home health agencies. Both the Congress and the President have proposed such systems. The Commission strongly supports prospective payment systems for these, and all, providers. As I will discuss, however, SNF and home health prospective payment systems are not ready to be implemented. The Commission, therefore, recommends other improvements that can be implemented in the near term that will help constrain spending and move towards new payment systems.
After I discuss these recommendations, I would like to briefly address the relationships between acute care hospitals, hospital-based post-acute facilities, and the provision of post-acute care. Financial incentives and changes in service delivery are blurring the distinctions between the levels of care furnished by traditional acute care hospitals and post-acute care providers. The Commission believes Medicare should begin considering payment policies that encourage the efficient delivery of services throughout a patient's entire episode of care.
Page 19 PREV PAGE TOP OF DOC
Skilled Nursing Facilities
Medicare pays for up to 100 days of SNF care per spell of illness for beneficiaries who recently completed a minimum three-day hospital stay and are in need of skilled nursing or rehabilitative services on a daily basis. A beneficiary copayment equal to one-eighth of the hospital inpatient deductible begins on the 21st day of the stay; in 1997, this copayment is $95 per day. Services may be furnished by free-standing or hospital-based facilities. Certain rural acute care hospitals also may designate certain beds, known as ''swing beds,'' to be used for skilled nursing care.
Although the Medicare SNF benefit covers up to 100 days of care, a typical Medicare-covered stay is much shorter. In 1994, for example, the average stay lasted 28 days. This varied substantially, however, depending upon whether the SNF was based in a hospital or was free-standing. The average stay in free-standing SNFs was 34 days, which was about twice the length of the typical stay in hospital-based facilities, and almost three times as long as in swing-bed hospitals. Interestingly, in a recent analysis we found that Medicare beneficiaries who also were Medicaid recipients accounted for a quarter of all SNF stays, but represented 40 percent of all 100-day stays. This may be due to the fact that these beneficiaries are more likely to remain in the nursing facility for custodial care. Since Medicare generally is a more generous payer than Medicaid, there are incentives for facilities to bill Medicare for the full 100 days allowed before billing Medicaid.
Medicare pays SNFs based on their costs. Separate payments are made for routine services, ancillary services, and capital. Payments for routine services, which include room, board, and skilled nursing services, are based on facility-specific costs subject to a limit. SNFs generally are reimbursed their reasonable costs without limits for capital and ancillary services. Ancillary services typically include physical, occupational, and speech therapies, as well as laboratory and radiology services.
Page 20 PREV PAGE TOP OF DOC
Medicare payments to SNFs increased, on average, 28.8 percent per year from 1992 to 1996 (see Chart 2). The primary reason for this growth was the rise in Medicare's average payment per day, which jumped from $152 to $286 over this period. This per day payment growth is driven largely by increased spending for ancillary services, although the growth in new providers also has played a role. The number of beneficiaries receiving SNF services has further contributed to overall spending growth.
Mr. Chairman, like the Congress and the President, the Commission believes that reforming SNF payments is critical to constraining spending. In our March report, we make several recommendations that we believe would improve SNF payment methods. I would like to summarize our views.
Prospective Payment
The Commission believes that a prospective payment system could slow expenditures and encourage providers to deliver services in the most efficient manner. A critical component of any prospective payment system is the case-mix classification system. Such a system accounts for variations in patients' needs. Payments should be higher for patients with greater resource needs and lower for those who require less care. The ability to adjust prospective payment rates for differences in case mix is critical to ensuring fair payment to providers and access to services for patients. Without an adequate case-mix adjustment, prospective payment could unduly reward providers that treat low-cost individuals and penalize those that treat patients with more complex needs.
Developing a case-mix system is a challenging task generally, but it is especially difficult in the post-acute care arena where patients' service needs often depend on multiple factors. For example, functional status often is more important than diagnosis in predicting resource requirements for SNF patients.
Page 21 PREV PAGE TOP OF DOC
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 2 HERE
The case-mix system being examined for use in a SNF prospective payment system is known as the resource utilization group system, version III (RUGS–III). This system uses patients' clinical characteristics, functional status, and counts of services received to classify patients. RUGS–III accounts for differences in resource use for each day of SNF care, rather than for the entire stay. Thus, a payment system based on RUGS–III would provide financial incentives for SNFs to control the cost of services provided during a day of care, but it also would continue incentives to increase revenues by lengthening patients' stays.
Ideally, a case-mix system should account for differences among patients over an entire admission to encourage facilities to manage the amount of care they provide throughout an entire stay, but such a system has yet to be developed for SNFs. An all-inclusive per diem approach to SNF payments, however, would be an improvement over current methods.
Limiting Ancillary Service Payments
Until prospective payment rates are implemented, the Commission believes that overall SNF expenditures should be constrained by limiting payments for ancillary services. As I mentioned, the growth in ancillary services is one of the major reasons SNF payments per day grew from $152 in 1992 to $286 in 1996.
For most ancillary services, providers are paid their costs subject only to Medicare's definition of reasonableness, which is very broad. In addition, Medicare policies allow SNFs to apply for an exception from their routine cost limits if they demonstrate high ancillary service use. This policy further encourages the provision of ancillary services.
Page 22 PREV PAGE TOP OF DOC
Part of the difficulty in monitoring and controlling ancillary service use is that these services can be furnished and billed for in a number of ways. For example, if the services are provided by the SNF that admitted the patient, they are reflected on the SNF's cost report and the SNF is reimbursed its costs under Medicare part A. The admitting SNF may also have an external provider furnish ancillary services. If the external provider furnishes these services ''under arrangement,'' the admitting SNF is reimbursed the costs it pays the external provider, and reports the services on its cost report. If the external provider is not ''under arrangement'' with the admitting SNF, the external provider bills Medicare directly for the ancillary services under Part B. Under this method, the services are not reflected on the admitting SNF's cost report, and the beneficiary is responsible for the applicable Part B cost-sharing requirements.
There are several ways to constrain ancillary payments. HCFA is developing salary guidelines that will place limits on the costs for which SNFs can be reimbursed when ancillary services are furnished under arrangement by an external provider. But these caps will not control service volume, nor will they affect services delivered by the admitting SNF or by external providers that bill Medicare directly. Other methods that should be explored include applying cost limits to all ancillary services or developing prospective rates. These rates could be based on national or regional costs, or the resource-based relative value scale used for Medicare physician payment.
At the same time, the Commission recommends that uniform service codes be developed and mandated for reporting ancillary services. Currently, facilities are not required to use any particular service unit definitions when billing for ancillary services. Consequently, service use cannot be consistently quantified or compared across facilities. This prevents an accurate depiction of service costs, which is necessary to develop appropriate prospective rates. Implementing procedure codes like those used in the HCFA Common Procedure Coding System (HCPCS), which is used to define physician and independent therapy services, is a straightforward solution to this problem.
Page 23 PREV PAGE TOP OF DOC
Consolidated Billing for SNF Services
We also recommend that the admitting SNF bill for all services, both routine and ancillary, provided during a patient's stay. Currently, the dollar amount of services provided to Part A-eligible beneficiaries but billed under Part B is quite small, but we are concerned that it will grow if Part A payments to SNFs are constrained. Consolidated billing would allow Medicare to monitor the total costs of providing SNF services, which is necessary to develop a prospective payment system. This requirement also would prevent efforts to shift the provision of services to Part B if a prospective system is implemented. Finally, billing Part A for all services would ensure that cost sharing requirements are applied consistently across beneficiaries.
Eliminating the Cost Limit Exemption for New SNF Providers
Finally, Mr. Chairman, the Commission believes that the initial exemption period for new SNFs should be eliminated. As I mentioned earlier, SNF payments for routine services are subject to facility-specific limits. Under current policy, however, new providers are exempt from these limits for up to their first four years of operation. During this period, they receive full cost reimbursement for all the services they provide, subject only to meeting Medicare's definition of reasonableness.
The new provider exemption has contributed to rising expenditures and helped to fuel rapid growth in the number of these facilities. Between 1990 and 1996, the number of SNFs increased by almost 50 percent, from 10,508 facilities to 15,553 (see Chart 3). While the majority of skilled nursing facilities are free-standing, the number of hospital-based facilities grew the fastest over this period.
Page 24 PREV PAGE TOP OF DOC
The Commission believes that payments to new facilities should be subject to the national cost limits that apply to existing SNFs. For providers currently operating under an exemption, cost limits could be imposed immediately or phased in over time. Alternatively, the exemption could be eliminated for providers opening after a specified date.
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 3 HERE
Home Health Agencies
The home health benefit presents a unique set of challenges for policymakers. Its broad coverage guidelines establish few constraints on utilization. Unlike SNF stays, qualifying for home health services does not require a prior hospitalization. In fact, the bulk of home health visits are not associated with a hospitalization. While 60 percent of home health episodes—defined as a group of visits preceded and followed by a 60 day period without visits—were preceded by a hospital stay, 85 percent of home health visits in a given month did not follow a hospital stay within 30 days of the visit and about 50 percent of visits did not have a hospitalization within the previous year.
Medicare pays for home health services provided to beneficiaries if they are homebound and under the care of a physician who prescribes intermittent skilled nursing services, or physical or speech therapy. Once authorized, beneficiaries may receive an unlimited number of these services, as well as home health aide, occupational therapy, or medical social services. Beneficiaries pay no coinsurance or deductibles for home health visits.
Home health agencies are either facility-based or independent free-standing organizations. Medicare pays agencies the lower of their costs or a limit; there are no exemptions for new entrants. The limits are based on 112 percent of the average costs per visit for free-standing agencies for each of the six visit types, computed separately for urban and rural areas. Medicare does not specify the duration of a visit; therefore, the limits reflect varying visit lengths across and within individual agencies.
Page 25 PREV PAGE TOP OF DOC
Payments for home health care more than doubled between 1992 and 1995 (see Chart 4). The primary reason for this spending growth is the number of visits provided. Medicare's home health cost limits have generally controlled payments per visit, but not the rise in the number of visits. The initial surge in utilization came after Medicare relaxed the home health benefit qualification criteria in the late 1980s in response to a legal challenge. Since then, the number of visits has continued to climb. Between 1992 and 1996, Medicare-covered home health visits more than doubled, from 127 million to 281 million. This is due both to more users of services and to more visits per user. Over this period, the number of annual visits per user increased by nearly 50 percent, from 52 to 76.
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 4 HERE
The growth in the number of home health agencies also has contributed to spending growth. Between 1990 and 1996, the number of agencies grew by 71 percent to reach 9,886 (see Chart 5). The supply of free-standing and hospital-based facilities rose at about the same rate.
Beneficiaries' use of home health care reveals two distinct patterns. ProPAC analyzed fiscal year 1994 data and found that half of beneficiaries who received home health care received fewer than 30 visits. These visits were generally provided over a short period, and the majority of them were for skilled nursing services. By contrast, 12 percent of home health users had 150 or more visits. These users tended to receive home health care over long periods of time, sometimes a year or more, and received more home health aide visits, which include personal care services such as bathing, dressing, and simple wound dressings.
This small group of beneficiaries receiving large numbers of visits account for the bulk of home health use. In 1994, they accounted for slightly more than half of all visits (see Chart 6). These individuals are likely to be older or disabled. One of our recommendations is that the Secretary analyze the factors associated with this long-term use and determine whether additional policies are necessary.
Page 26 PREV PAGE TOP OF DOC
The Commission believes a number of changes should be made to improve the home health benefit. I would like to discuss each of these in turn.
Defining the Home Health Care Benefit
One of the difficulties in constraining home health spending is the existence of broad coverage guidelines that allow for prolonged service use by an increasing number of beneficiaries. Beneficiaries qualify for home health services if they are homebound and under the care of a physician who prescribes intermittent skilled nursing care or physical or speech therapy. The homebound requirement is not very restrictive and is difficult to enforce. The physician certification requirement is a weak restraint at best, partly because there are no specific criteria to constrain physicians' determinations of medical necessity.
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 5 HERE
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 6 HERE
Currently, the Medicare program is paying for what appears to be two different types of benefits. One covers care that is of short duration and is heavily weighted to skilled services. The other covers longer-term care and is weighted towards home health aide services.
The Commission believes that the Medicare program has a responsibility to ensure that the services it pays for are reasonable, necessary, and medically appropriate. The lack of a clearly defined benefit compromises this responsibility. Efforts to more clearly define the appropriate use of home health services could help constrain home health spending while allowing the Medicare program to continue to meet the needs of its beneficiaries.
Page 27 PREV PAGE TOP OF DOC
Prospective Payment
To be effective, prospective payment for home health care must cover more than an individual visit. Ideally, the program should pay for all services furnished over a period of time. Defining the appropriate period is difficult, however, because in the home setting it is hard to identify when appropriate treatment begin and ends. In turn, this is complicated because of the lack of a clear definition of the home health benefit, or of the nature of the home health visit.
In addition, developing a case mix classification system is particularly challenging for home health. Part of the difficulty in matching resource use with patient needs stems from the wide variation in use patterns. This variation may, in some cases, be related more to a need for social support rather than to functional or to health status.
We understand that HCFA is in the preliminary stages of developing a new case mix system. This system, however, will not be ready for several years. In the meantime, the Commission believes that an interim system should be implemented immediately to stem rising expenditure growth. I would like to discuss some of our views on such a system.
An Interim Payment System
An interim payment system should specify per visit payments and limit total home health payments for each beneficiary. For the short term, per visit payments could continue to be based on the current method of agency-specific costs subject to a per visit limit. This method can effectively constrain per visit payments, although it continues the link between costs and payments, contrary to the premise of prospective payment. Alternatively, establishing prospective per visit payment rates could begin the transition away from cost-based payments. Separate rates for each home health service could be calculated using agency-specific costs, national average amounts, or a blend of the two. Either method would reward facilities for keeping their costs per visit below the payment amount.
Page 28 PREV PAGE TOP OF DOC
As I mentioned earlier, however, a home health visit is not uniformly defined. Therefore, agencies could simultaneously reduce their costs and increase revenues by shortening visits and providing more of them. I should note that we recommend that Medicare require consistent home health visit coding so that home health usage can be monitored and evaluated. These data also are necessary to develop an effective case-mix adjustment system.
Beneficiary payment limits would dampen the incentive to provide more visits because such limits would encourage home health agencies to control the number of visits and adjust the mix of services furnished to each user. The limits could be associated with payments for services provided over a specific period, such as a year or a month. An annual limit would constrain service use for those beneficiaries who use services for a long period of time. Given that most visits are associated with these users, this might be an appropriate course of action. Shorter time periods would affect service use for almost all Medicare patients, although agencies could respond by spreading visits over a longer period to reduce the likelihood that payments for a beneficiary would reach the limit in the given time frame.
Beneficiary limits could be calculated based on agency-specific costs, national average expenditures, or a blended amount. The limits could be applied to an agency's aggregate payments or to spending for individual patients. Regardless of the method chosen, an outlier payment mechanism similar to that included under Medicare's Prospective Payment System for acute care hospitals could be incorporated to minimize incentives to avoid high-cost cases. That is, reaching a limit would result in a reduced per visit payments but the drop would not be to zero.
Home Health Copayments
Mr. Chairman, with the exception of lab services, home health is the only Medicare benefit not subject to beneficiary cost-sharing. The Commission believes it is both appropriate and fair to impose modest copayments, subject to annual limits, for home health care visits.
Page 29 PREV PAGE TOP OF DOC
With copayments, patients would share financial responsibility for services with the program. Although many beneficiaries have some form of supplemental insurance or Medicaid coverage that could cover these outlays, copayments could curb use by involving beneficiaries more in treatment decisions and making them more aware of service costs. Copayments also might limit fraudulent billing practices, since beneficiaries could identify services for which Medicare was billed but that were never delivered.
Bundling Acute and Post-Acute Payments
The Commission believes its recommendations on payment policies for post-acute care providers will slow spending growth and promote more equitable payments. Increasingly, however, the distinction between the levels of care furnished by traditional acute care hospitals and post-acute care providers is blurring. Consequently, controlling overall expenditures while ensuring quality care may depend on payment methods that encompass both the acute and post-acute portions of a patient's care.
Recent accelerations in declines in hospital lengths of stay combined with increasing post-acute care use suggests that hospitals may be moving services they previously furnished as part of the acute care stay to post-acute care sites. Lengths of stay declined when Medicare initially implemented the prospective payment system for acute care hospitals in 1984, but the greatest drops in lengths of stay have occurred in the 1990s (see Chart 7). Between 1990 and 1995, length of stay for all Medicare cases fell 20 percent. Acute care hospital stays for DRGs associated with frequent post-acute use declined even more rapidly, on average.
"The Official Committee record contains additional material here."
STRIP OFFSET FOLIO 7 HERE
Page 30 PREV PAGE TOP OF DOC
Increasingly, acute care hospitals are entering the post-acute care arena by developing their own post-acute care capacity. Between 1990 and 1996, the number of hospital-based skilled nursing facilities and home health agencies increased by more than 60 percent. In 1996, about 40 percent of hospitals operated skilled nursing facilities and half owned home health agencies.
Offering hospital-based post-acute care services provides financial advantages to hospitals because of the separate payment systems used to reimburse these services. Moving patients into post-acute units allows hospitals to lower their inpatient costs relative to their DRG payment, as well as receive cost-based reimbursement for services provided in the unit.
Hospitals appear to be responding to these financial incentives. A recent ProPAC analysis showed that hospitals with skilled nursing units were more likely to discharge patients to a SNF than those without a SNF, although we did not see a similar pattern for hospitals with hospital-based home health agencies.
Our analysis also showed that hospitals that have their own post-acute care providers have shorter acute care lengths of stay than hospitals without such providers. Furthermore, patients spend less time in hospital-based SNFs than in free-standing facilities: 17 days compared to 34 days. It is not clear why the length of a SNF stay varies so widely between these settings. ProPAC analyses indicate that the DRG assigned to each patient during the hospitalization that preceded the SNF stay was similar across facilities. Possibly, the differences are related to patient severity of illness and differences in functional abilities. Our analyses show that free-standing facilities tend to admit a greater share of patients who are 85 and older. These patients may have more functional limitations, requiring longer SNF stays. Unfortunately, current data on patient severity and functional need are not adequate to make accurate distinctions between the types of patients treated in these different settings. Longer stays in free-standing facilities may also be related to an increased number of dual-eligible beneficiaries who receive up to 100 days of Medicare-covered care and then move on to Medicaid custodial care.
Page 31 PREV PAGE TOP OF DOC
While additional data are needed to better understand the reasons for differing patterns of service delivery across hospitals and post-acute care providers, this information demonstrates that Medicare's current provider-specific payment polices are lagging behind the changing patterns of acute care hospital and post-acute care service use. The disparate payment systems used to reimburse providers for these services do not encourage them to minimize their total costs of care over an episode of illness by directing patients to the least intensive appropriate site of care, or to coordinate services across settings. At the moment, a hospital gains revenues by moving a patient to the post-acute provider for the last few days of the acute stay. The Commission believes consideration should be given to bundling payments for the acute and post-acute portions of an episode of care. Bundling would provide incentives to control total episode costs. A demonstration project would provide insight into whether such a method could constrain spending and better coordinate service delivery.
A bundled system has the potential to affect a substantial share of Medicare outlays. In 1994, about one quarter of all Medicare patients discharged from an acute care hospital received services from a post-acute care provider within 30 days, and more than 10 percent of these individuals received services from more than one of these providers. For certain DRGs, up to 80 percent of discharges went on to receive post-acute care.
A demonstration project could focus on the small group of DRGs that accounts for the largest share of post-acute care. A number of technical issues would need to be addressed, including deciding which entity would receive the episode payment. Depending on the results of the demonstration, a bundled system could benefit beneficiaries because overall service use would be better coordinated. It also could benefit the Medicare program by controlling service utilization, which would lead to lower expenditures.
Conclusion
Page 32 PREV PAGE TOP OF DOC
Mr. Chairman, payments for post-acute care services, particularly for skilled nursing facilities and home health agencies, are growing at an unsustainable rate. Reforming the payment methods for these providers should be given a high priority. ProPAC is continuing work in this area and we will share our findings with the Subcommittee as you seek ways to improve post-acute payments.
This concludes my formal statement, Mr. Chairman. I would be pleased to answer any questions from you or other members of the Subcommittee.
—————
Chairman THOMAS. I thank you, Dr. Newhouse.
Mr. Grob.
STATEMENT OF GEORGE F. GROB, DEPUTY INSPECTOR GENERAL FOR EVALUATION AND INSPECTIONS, OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. GROB. Thank you, Mr. Chairman.
The testimony which was provided for the record replays the same story that everyone else is saying these days. It remarks on the very fast rate of growth of the home health benefit, both in terms of the money being spent and the number of visits, and similar problems in the skilled nursing facilities setting.
So, I would like to use my 5 minutes here instead to highlight just a few facets of the problem which do not always receive precise attention but which we think are helpful to understand what is going on behind those numbers.
Page 33 PREV PAGE TOP OF DOC
The first one, of course, for people in my line of work is a concern over fraud and abuse. This is something we have been looking at in the home health setting, and I would like to direct my initial remarks to home health. I will turn to SNFs later.
I must tell you, Mr. Chairman, we have been finding lately that there seems to be a rise or an increase in the amount of things we might call fraud and abuse in the home health setting.
We have recently completed eight audits of providers in three States, Florida, Pennsylvania, and California. And in those audits we found error rates for the services delivered to range from 19 to 64 percent. The errors we found were related to patients not being home-bound, services not rendered or documented, services not medically necessary, and invalid physician certifications of these services.
Now, these audits were performed of providers for whom we had some concern or some reason to believe that they might be having more problems than other providers are. So, we have undertaken additional work as well where we have taken random samples—for example, one study now where we are looking at Texas, New York, Illinois, and California, and another study where we have a random sample nationwide of these services. In this context, although these studies are not finished yet, I can tell you that the preliminary work we are seeing in these studies now shows us error rates that are comparable to the rates we were finding in the preliminary work of the studies we have already published. So, I do think we need to be concerned about that.
Mr. STARK. Mr. Grob, you are not finding any under payments in those areas, are you?
Mr. GROB. No, sir.
Mr. STARK. OK.
Mr. GROB. Another point that is frequently mentioned in this context has to do with the variation in payments that has been mentioned before. We, too, have done our studies of this and can repeat numbers very similar to those that we heard from the previous speaker about some providers providing 30 visits, others providing into the hundreds of visits.
Page 34 PREV PAGE TOP OF DOC
When we did our study, I would like to let you know that we tried to find out what could account for this and used statistical studies to see what might be underlying it. And I can tell you that we were able to rule out age, race, gender, deaths while in care, qualifying condition, and principal diagnostic codes. We were also able to rule out, as explanatory causes, deficiencies or complaints to the Health Care Financing Administration survey and certification staffs and accreditation status.
These statistics are very rough measures of perhaps what the medical need of the patient is or the quality of care that is rendered. We know they are not perfect. It was the best we could get our hands on. But it seems to indicate that the variation is not related to the medical needs of the patients. Rather it seems to be much more related to the discretion that the home health agencies have in promoting a larger number of visits.
We have continuously found problems with the role that the physician plays in certifying visits, physicians not understanding the requirements or not having valid physician certifications. When we interviewed physicians, too, we found they seemed to play a somewhat active role in the beginning when a patient first comes in, but in terms of the continuing monitoring of care, their role becomes much, much weaker.
The one concern we have for the prospective payment system, which we do favor and we think it is a very good solution to the problem, is simply that we need to take action very quickly. Each year this program is growing by 25 or 30 percent. So, if it is delayed, we are going to lock in some increases in that program which will be difficult to undo with the passage of time.
So, we would urge that if it takes time to develop a prospective payment system, that other options of a structural nature be used temporarily and in the meantime. It might include such things as caps on visits per beneficiary, costs limits per beneficiary, visit limits based on the condition the person has, benefit targeting relating to the types of visits that might be provided to different beneficiaries, limits on the average number of visits per beneficiary per home health agency, limits on the average cost, and so forth, and possibly, as well, beneficiary copayments which are used in many other parts of the Medicare Program.
Page 35 PREV PAGE TOP OF DOC
Let me shift my attention just momentarily to the problems in SNFs. And what I would like to focus on there is the remarks of our colleague here who was commenting on the need to make sure we consolidate all of the payments, as much as possible, into the payment made under the prospective payment system.
Right now, when we pay SNFs, we pay a per diem, we pay ancillary costs, capital costs, and there are services in part B as well. These programs all have different rules and providers tend to game the system, trying to seek where the reimbursement is the highest. I will give you only one example, although I have more.
We found nursing homes that billed for enteral nutrition under their per diem rate are probably charged about 30 percent less than Medicare pays under part B. And the nursing home pretty much has the ability to charge it either way or to arrange for a provider to do it. But the incentives for bulk purchasing and competitive bidding that you find in the nursing home setting seem to work. We found other examples of that as well.
So, our primary recommendation for the skilled nursing facility is to make sure that we specify all the items that are to be included in the prospective payments so that we do not end up paying for them outside the rate. And, then, of course, as was remarked, those that do not fit under the per diem rate or the prospective payment, to require that the nursing home be the one that submits those bills so they can be concerned about the care the patient gets.
Thank you very much.
[The prepared statement follows:]
Statement of George F. Grob, Deputy Inspector General for Evaluation and Inspections, Office of the Inspector General, U.S. Department of Health and Human Services
Good Morning, Mr. Chairman. I am George Grob, Deputy Inspector General for Evaluation and Inspections, Department of Health and Human Services. Since 1976, the primary mission of the Office of Inspector General has been to protect and recommend improvements to the programs and management of the Department of Health and Human Services. This mission is accomplished through audits, investigations, and inspections designed to reach all organizational levels of the Department, its contractors, grantees and providers of goods and services to departmental programs.
Page 36 PREV PAGE TOP OF DOC
The press release for this hearing indicated a particular interest of this Subcommittee in prospective payment systems for Medicare home health and skilled nursing facility services. Our office has done a considerable amount of work related to these subjects over the last several years. I am pleased to have this opportunity to summarize the results of our audits, inspections, and investigations on these topics and hope this information will be useful to you in formulating legislation to deal with pervasive problems afflicting these program areas.
In summary, let me say that our work strongly supports the need for prospective payment or other similar approaches for home health and skilled nursing care. Such systems are needed to prevent significant fraud, waste, and abuse that has arisen in these programs and to control costs which are now almost uncontrollable. With regard to home health, I will emphasize the emergence of significant fraud and abuse, the immediacy of the need for action, and options to limit Medicare's exposure to losses while prospective payment systems are being developed. With regard to skilled nursing facilities, I will describe the complexities of the current payment systems and show how this provides incentives and opportunities to unbundle services and billings, with resulting cost increases for both the Medicare program and its beneficiaries and possibly loss of quality of care. I will then discuss some important details to be considered in the design of a prospective payment system for skilled nursing facilities.
Home Health
Medicare Part A pays for home health services for beneficiaries who are homebound, in need of care on an intermittent basis, and under the care of a physician who both establishes a plan of care and periodically reviews it. Beneficiaries receive numerous services including part-time or intermittent skilled nursing care; home health aide services; physical, speech and occupational therapy; medical equipment and supplies; and medical social services. The benefit is unlimited as long as the services are considered medically necessary.
Page 37 PREV PAGE TOP OF DOC
Rapid Growth.
All observers of Medicare's home health program are quick to describe its rapid growth. It is the fastest growing component of the Medicare program. FY 1996 expenditures are estimated to have been $16.9 billion, or five times the $3.5 billion spent in 1990. The number of beneficiaries increased from 2 to 3.7 million during this same period. Home health expenditures now account for 8.8 percent of total Medicare spending, compared to 3.5 percent in 1990. Utilization continues to rise from an average of 36 visits per Medicare beneficiary receiving home health benefits in 1990 to 72 visits in 1995, and an additional increase to 76 in 1996. The Congressional Budget Office has estimated that spending for home health services will reach $31 billion by 2002.
The reasons for the rapid growth of home health expenditures are well known—demographic trends, court cases which have liberalized coverage of the benefit, technological advances, such as infusion therapies, which can now be provided at home, a growing and aging Medicare population, and a trend toward providing more care in the community instead of institutions. Growth can be attributed to the fundamental structure of the benefit as well as problems with the management of it.
Fraud and Abuse.
It is unfortunately true that fraud and abuse also play a significant role in the high growth rates of home health.
A synopsis of some of the investigative cases completed by the Office of Inspector General over the past two years illustrates the vulnerability of the Medicare program and the type of home health fraud and abuse it is exposed to.
Page 38 PREV PAGE TOP OF DOC
• The Chief Executive Officer and his wife and co-owner at a Georgia home health agency were convicted of conspiracy to defraud Medicare. They were accused of filing cost reports that included personal expenses, political contributions, ghost employees and lobbying expenses. They were also charged with mail fraud, paying kickbacks, making false statements, witness tampering, money laundering, and submitting false tax returns. The defendants were sentenced to 90 months and 32 months incarceration, respectively. These individuals and the company will pay $255 million fines, restitutions, and other penalties.
• The owner of a Louisiana home health agency was sentenced to 5 years probation and ordered to repay $119,000 for defrauding the Medicare program. The owner included in Medicare cost reports the expenses of a costume shop she owned and a magazine she produced monthly. Expenses charged included payroll, leases, telephone service, and advertising.
• The owner of a Texas Home health agency entered a settlement agreement to pay $493,000 in civil damages and penalties for submitting false Medicare claims. Investigation found that over a 9-month period, the agency billed Medicare for home health services for patients that were not homebound, and for services not rendered.
These are not isolated examples. We have now completed audits of eight home health agencies in Florida, Pennsylvania, and California. These audits revealed agency error rates—the percent of the home health visits paid for by Medicare but which did not meet Medicare guidelines—from 19 to 64 percent. We found visits that were not reasonable or necessary, patients who were not homebound, visits which were not documented or even provided to Medicare beneficiaries, and improper or missing physician authorizations. In a few cases we even found forged physician signatures. Preliminary data from Statewide audits underway in New York, Texas, Illinois, and California show similarly high error rates.
Unjustifiable Variation.
Page 39 PREV PAGE TOP OF DOC
We have also found extreme variation in payments to home health agencies. In FY 1993, lower cost home health agencies (those which provided less than the national average of visits per episode) averaged 30 visits per episode, whereas the higher cost agencies (those with visits per episode above the national average) provided 85. One year later, the lower cost agencies provided 33 visits per episode, while the average for the higher cost agencies jumped to 102.
We tried to find out what could account for the variation in the number of visits.
Beneficiary characteristics and medical condition did not account for it. We specifically examined beneficiary age, race, gender, deaths while in care, qualifying conditions, and principal diagnostic codes. We found nothing here to suggest that beneficiaries in the high-cost groups were any sicker or in any greater need of medical services than those beneficiaries in the low and middle-cost groups.
We also found no differences in the quality of care provided by home health agencies, as measured by the number of deficiencies and complaints recorded by HCFA's Survey and Certification Branch and the home health agencies' accreditation status. Providers in the higher cost group had about the same number of deficiencies as did those in the lower groups.
We did find that private for-profit home health agencies tended to be the more costly. Additionally, we found that home health agencies in four southeastern States—Tennessee, Alabama, Mississippi, and Georgia—averaged twice as many visits per Medicare beneficiary as home health agencies in all other States. These four States averaged approximately 100 visits per episode compared to approximately 54 for all other States.
It appears to us that other than the geographic difference, the differences are due mostly to the discretion afforded home health agencies to influence the amount of care given to their clients.
Page 40 PREV PAGE TOP OF DOC
Looking for Solutions.
Our work has shown repeatedly that there is a need for greater control and protection from fraud and abuse. However, we must proceed cautiously to ensure that any measures to control the benefit do not harm those beneficiaries who truly need these services. Our focus must be on protecting the benefit as well as controlling expenditures and minimizing the potential for fraud and abuse.
The logical places to establish controls are: 1) HCFA's Regional Home Health Intermediaries, first at the point of certifying providers to participate in the Medicare program, and later when reviewing bills submitted for payment; 2) physicians authorizing the plan of care; 3) the beneficiaries receiving the care; and 4) the service providers.
Unfortunately, the volume of new providers entering the market and the volume of claims to be processed have made it extremely difficult for HCFA's intermediaries to scrutinize provider applications and bills as much as is needed to prevent fraud, waste, and abuse. HCFA is now developing new conditions of participation which may help prevent problem providers from entering the program; but the volume of claims will remain a problem for some time to come.
Physicians' involvement in home health care is inconsistent. Our studies have shown that they are typically involved in initial referrals of patients for home care, approving plans of care, and monitoring progress of complex patients. However, they are less involved in continuing monitoring of beneficiary eligibility, coordinating services, determining medical necessity of services, visiting patients at home, and participating in interdisciplinary conferences.
Likewise, Medicare beneficiaries have limited involvement in controlling home health services they receive. Many beneficiaries, while satisfied with the home health care they receive, do not understand what Medicare paid for. Furthermore, they have no financial liability or responsibility for the services. Therefore, beneficiaries have little incentive to control services.
Page 41 PREV PAGE TOP OF DOC
Most home health service providers are dedicated to caring for their clients. They have not increased their visits just to maximize profits, but have focused on the needs to the beneficiaries under their care. Unfortunately, for unscrupulous providers, the current cost-based reimbursement systems does not provide incentives for providers to properly manage costs. In fact, it does just the opposite. Cost-based reimbursement provides incentives to increase revenues by providing more visits. Theoretically, home health agencies cannot themselves authorize home health visits. However, they can be very influential is obtaining certification from physicians.
To learn more about how costs can be controlled, we examined practices of private insurance companies, State Medicaid agencies, the Department of Veterans Affairs, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), and numerous health maintenance organizations (HMOs). While their benefit structures were similar to Medicare's, they did try to control costs in ways that Medicare does not. For example, some place limits on the number of visits or caps on the dollar amount that can be paid. Many tried to target their programs more specifically to the individualized needs of their beneficiaries. They also undertook more intensive utilization control measures such as reviews of physician referral rates, post-pay edits, and utilization profiling combined with physician education.
We found that HMO's provide home health care for only one-fourth the cost of the Medicare fee-for-service program. The HMOs that responded to our survey spent an average of $882 per beneficiary in 1994 compared to Medicare's fee-for-service cost of $3,464. They do this by using case managers to review and approve patient care. These case managers work with physicians to plan care and write orders, review and approve both initial and continuing visits, review medical necessity, track and report outcomes and cost savings on a monthly basis, and participate in quality assurance activities such as clinical record reviews, team meetings, and case conferences. They carefully control both the number and kind of visits, constantly evaluating the care provided.
Page 42 PREV PAGE TOP OF DOC
Administrative Remedies.
HCFA has already begun to take administrative action to address problems which we have described here. As mentioned earlier, a new set of conditions of participation is under development. HCFA has also strengthened the role of its Survey and Certification teams by asking them to look for financial abuses during the surveys. HCFA has recently started issuing a Notification of Utilization (similar to the Explanation of Medical Benefits used for other Medicare bills) to inform patients of the services billed on their behalf, and in other ways is reaching out to educate both beneficiaries and physicians about their roles in preventing abusive billing.
Additional steps can also be taken. Based on private sector practices and on our own analysis of weaknesses which we found, we have made several recommendations aimed at controlling Medicare expenditures and reducing the potential for fraud, waste and abuse. These include:
• Focused HHA Reviews: Target the HHAs with average reimbursement higher than a standard established by HCFA for closer scrutiny by the Survey and Certification Branch as well as reviews by the Regional Home Health Intermediaries.
• Regional Home Health Intermediary Resources and Flexibility: Ensure that Regional Home Health Intermediaries have adequate resources and tools to review applications for providers wishing to participate in the Medicare program and to detect and act on claims they suspect are fraudulent or abusive.
• Case Management: Fund case management programs in the fiscal intermediaries. Case managers would be used to monitor and manage cases that reach a trigger point, or benefit threshold.
Page 43 PREV PAGE TOP OF DOC
• Beneficiary Certification: Require beneficiaries to certify their ''homebound'' status.
• Stronger Physician Role: Require physicians to examine the patient before they order home health service. Require the patient to see the certifying physician at least once every 6 months.
Legislative Changes.
However, we believe that management actions like these will not be sufficient. The problems are so commonplace that a restructuring of Medicare's payment system is called for. Options include:
• Prospective Payment System: Establish a per episode prospective payment system. This may be the most effective long-term model for restructuring the benefit. We encourage HCFA to continue their work in testing such a system. We believe, however, that it is important that a new system not ''grandfather'' in utilization patterns of the higher-reimbursement agencies. It is worth noting that this was an important issue when a prospective payment system was being developed for hospitals.
• Cap on Number of Visits Per Beneficiary: Limit the number of visits that Medicare will pay for any one beneficiary per year, or per episode. This would be similar to the approach Medicare takes for skilled nursing facilities.
• Cost Limits Per Beneficiary: Develop a cost ceiling, limiting the amount payable in a given period for home health benefits on behalf of a beneficiary. The period to which the limit could apply might be lifetime, annual, or episodic. This is similar to a prospective payment system, except that it provides a cap rather than a fixed fee for services rendered. Also, the cap may or may not vary according to the diagnosis or treatment of the patient.
Page 44 PREV PAGE TOP OF DOC
• Visit Parameters Based on Condition: Set parameters on the number of visits a beneficiary may receive for a specified condition. When that parameter is reached, an additional set of conditions, documentation, or justification would be required to obtain reimbursement for additional visits.
• Benefit Targeting: This is similar to the preceding option, but goes further by considering not only the number of visits authorized, but also the types of visits. Medicare might wish to channel patients with different needs (e.g., chronic vs. acute care patients) into different home health ''programs,'' with different kinds of treatments, to create better, more appropriate care and greater program controls.
• Limit on Average Number of Visits Per Beneficiary for Each Home Health Agency: Develop an average number of visits per beneficiary which HHAs may provide in a year. Beneficiaries who need a large number of visits would be offset by those who need very few visits. This budget would need to be flexible enough to allow for hardship cases, which warrant an unusually high number of visits, and/or adjusted for case mix.
• Limit on Average Cost Per Beneficiary for Each Home Health Agency: This is the same as the preceding proposal, except that costs rather than visits would be used as the limiting factor.
• Beneficiary Copayments: Require beneficiary copayments as a way to give them a stake in home health billings and to further ensure that unnecessary services are not provided. A copayment could begin upon admission or after a certain number of visits. This would create an incentive for patients and families to reduce over utilization. Medicare uses co-payments or other forms of co-insurance for most of its benefits.
Given the current rapid growth rate, it is important to take action quickly. If the goal is to establish a prospective payment system, and if that cannot be done immediately, we suggest that one or more of the approaches outlined above be used in the interim.
Page 45 PREV PAGE TOP OF DOC
Skilled Nursing Facilities
Medicare Part A provides up to 100 days of coverage for stays in a skilled nursing facility (SNF) that is certified as meeting a set of statutory requirements. Like home health, this is one of the fastest growing parts of the Medicare program. Medicare Part A payments to SNFs have more than doubled, from $3.7 billion to more than $9 billion from FY 1992 to FY 1995. The number of beneficiaries in covered SNFs stays increased from 779,000 in 1992 to more that 1 million in 1994.
Moving Toward Prospective Payment.
Because of this rapid growth, and because the current payment system does not provide adequate incentives for providers to restrain costs, both the Administration and Members of Congress have advocated switching to a prospective payment system.
In recent years, the Office of Inspector General has also been paying close attention to Medicare SNF payments as part of a broader look at nursing home care in general—including medical services which are reimbursed under Medicare Part B for Medicare beneficiaries who are residents of nursing homes (whether or not the stay itself is paid under Medicare Part A).
Our audits and inspections reveal vulnerabilities inherent in Medicare reimbursement rules, and provide some insights which may be useful to consider by those developing a prospective payment system for SNFs. In summary, the studies show that composition of services and resources reimbursed under a prospective system are just as important as the rate of payment itself, and that if care is not taken to prevent the unbundling of services from the payment rate, then uncontrollable and wasteful cost growth will continue unabated outside the prospective payment.
Page 46 PREV PAGE TOP OF DOC
Complications of the Current Payment System.
The following is a brief description of the way Medicare pays for nursing home services.
Part A.
Medicare Part A only pays for nursing home care in a skilled nursing facility. The amount it pays has three separate components—the per diem, ancillary costs, and capital costs.
Per Diem: The per diem, or routine service costs such as nursing, room and board, administrative and other overhead costs of the facility. These costs are subject to a limit.
Ancillary Services: Ancillary costs include laboratory, radiology, drugs, therapy, and other items and services. These are paid on the basis of reasonable costs, but are not subject to a limit as such.
Capital: Capital is also reimbursed on the basis of cost and is not subject to a limit as such.
A deeper look at the Part A payment methods will reveal additional details about how the per diem limit is established and how payments vary depending on whether A SNF is free standing or hospital based. Certain SNFs, under certain conditions, are also allowed to elect to be paid on the basis of a prospective payment rate.
Part B.
Page 47 PREV PAGE TOP OF DOC
In addition to the Part A payment, Medicare beneficiaries who are residents of nursing homes, including but not limited to Medicare Part A covered SNFs, may be eligible to be reimbursed under Medicare Part B for medical services covered under that part and for which they would be eligible whether or not they are in a nursing home. A good example would be physician services. Other examples include psychotherapy, lab services, wound care, etc.
Some services can be reimbursed under more than one payment category. This provides opportunities and incentives for service providers to ''game'' the payment system to maximize reimbursements, and it reduces incentives to economize. It sometimes also dilates the responsibility for the overall care of a nursing home resident.
Medicare Not Always a Prudent Purchaser.
We found that in 1992 Medicare Part B paid about $57 million in total enteral nutrition; $55 million in rehabilitation therapy; and $44 million for surgical dressings, incontinence supplies, braces, catheters, and similar items. Beneficiaries paid up to $18 million in coinsurance and deductibles for these services. We believe that these services are more appropriately paid as part of the per diem under Part A of the program. One reason is that payment under Medicare Part B reduces the incentive for nursing homes to economize. Some recent studies provide evidence to this effect.
Enteral Nutrition: Some nursing homes include their enteral supplies in their per diem rate. We found that nursing homes and hospitals who purchase enteral nutrition supplies in bulk are able to get them on average 30% below what Medicare allows for them. We also looked at what other third party payers are able to purchase enteral products at rates 17 to 48 percent less than Medicare allows.
Page 48 PREV PAGE TOP OF DOC
IV Poles: We found that IV poles can be purchased in bulk by nursing homes for as little as $33. Generally, the cost of these poles is included in the nursing home per diem rate, and Medicare benefits from the incentives that nursing homes have to keep their costs down and from the limit placed on per diem payments. However, current payment rules allow these poles to be reimbursed under Part B if they are used for enteral feeding services. The purchase costs on the Medicare fee schedule exceed $110.
Fraud and Abuse.
Another problem with Part B reimbursement for nursing home patients is their vulnerability to fraud and abuse. Over the years, we have observed many types of abusive practices that have occurred in SNF and other nursing home settings. These include outright fraud such as billing for services and supplies that have not been provided, upcoding, and unnecessary or uncovered services. In some cases we have observed aggressive marketing techniques including the offering of kickback and the routine waiver of coinsurance. Excessive utilization has also been problematic in this setting.
We have particular concern regarding Part B supplies and services when they are furnished in a nursing facility setting because they are frequently furnished and billed by an outside entity, not the nursing home. When items are furnished as such, the nursing home may have very little to do with authorizing or overseeing the service or the quantity of services provided. Without appropriate oversight, the opportunity and incentive exist for aggressive marketing as well as excessive and unnecessary utilization. While the following examples of our work are not limited to SNFs, they illustrate some of the abuses we have found in these settings:
Wound Care: We found that questionable payments of wound care supplies may account for as much as two-thirds of the $98 million in Medicare allowances from June 1994 through February 1995. In the more egregious cases:
Page 49 PREV PAGE TOP OF DOC
• One beneficiary was charged $5,290 for tape over a 6-month period, almost $5,000 of which appears excessive. Medicare paid for, but the beneficiary probably did not receive, 66,000 feet or 12.5 miles of one-inch tape.
• Another beneficiary was charged with $11,880 in hydrogel wound filler, $11,533 of which may be unnecessary. This beneficiary's record showed payments for 120 units of one-ounce hydrogel wound filler each month for 6 consecutive months, or over 5 gallons.
We also assessed the marketing of wound care supplies and found that nursing homes and physicians generally determine which patients need supplies, but some suppliers determine the amount provided. Of most concern, we found that 13 percent of nursing homes have been offered inducements in exchange for allowing suppliers to provide wound care products to patients in their facility.
Incontinence Supplies: We found that questionable billing practices may account for almost half of incontinence allowances in 1993. In addition, information obtained from nursing facilities and beneficiaries indicates that some suppliers engage in questionable marketing practices.
Upper Body Jackets: We reported that 95 percent of claims paid by Medicare ($14 million in 1992) were for non-legitimate devices. These non-legitimate devices are more properly categorized as seat cushions rather than body jackets. In addition, we found that suppliers, rather than physicians, initiated orders for the non-legitimate body jackets, and that physicians provided limited controls for preventing the sale of non-legitimate devices.
Mental Health Services: We conducted a review of the medical necessity of mental health services furnished in nursing homes and found that in 32 percent of the records we reviewed that Medicare paid for unnecessary services ($17 million or 24 percent of all 1993 Medicare payments). In addition, we found that in 16 percent of the records we reviewed Medicare paid for highly questionable services ($10 million).
Page 50 PREV PAGE TOP OF DOC
Overspending for Ancillary Services.
As noted earlier, ancillary services are not subject to the limit imposed on per diem. Also, since they are reimbursed under Part A, they are not subject to the limits imposed on services reimbursed under Part B. This can lead to excessive costs which are difficult to control.
For example, we recently completed 16 joint HCFA-directed surveys of Florida SNFs which were undertaken to evaluate the medical necessity of the care and services provided and the reasonableness of the charges and reimbursements made to these facilities. These 16 surveys of 1-year periods, questioned charges of about $2.5 million for selected beneficiaries residing in these facilities. Most of the questioned costs related to physical, occupational, and speech therapy services. We recommended that these overpayments be collected and that the fiscal intermediaries conduct a focused review of all rehabilitation therapies at most of these facilities.
We are now studying the cost of portable x-rays provided to nursing home patients. We believe that Medicare pays more under the Part A SNF benefit than it would if reimbursed under Part B.
Administrative Remedies.
I am pleased to report that in addition to discovering problems we are also developing new and effective ways to deal with them. One good example is the problem with incontinence supplies which I mentioned above. Our exposure of these billing abuses, coupled with a coordinated nationwide investigation involving more than 20 separate cases and a concerted effort by the Health Care Financing Administration's durable medical equipment carriers has turned the escalating reimbursements downward. By the end of FY 1995, the abusive practices we had identified had all but disappeared and Medicare is now saving more than $104 million per year as a result. In addition, approximately $45 million has been recovered through seizures and restitutions from abusive incontinence suppliers. This type of concerted effort can eliminate some of the other abuses I have discussed in my testimony.
Page 51 PREV PAGE TOP OF DOC
Legislative Amendments.
Unfortunately, administrative action is not sufficient to address all the vulnerabilities associated with skilled nursing facilities. It is important to get at the underlying systems which leave Medicare so vulnerable to abuse. Therefore, we believe it is necessary restructure the way Medicare pays for these services.
A prospective payment system is a good approach to control costs for skilled nursing care. As the above examples show, however, it is important to simplify the categories of payment in order to prevent excessive costs as a result of unbundling services from the nursing home payment or avoiding payment limits that currently apply to the routine per diem expenses and Part B services.
We therefore recommend that any proposal for a prospective payment system capture as many of the services as possible into the prospective payment rate. Those for which this would be inappropriate should be consolidated into a single bill to be submitted by the nursing home. Other approaches are to pay no more for nursing home services than a prudent nursing home would pay through competitive bidding or bulk purchasing arrangement; or to make capitation payments to nursing homes for services provided to residents. Each of these strategies attempts to take advantage of the ability of nursing facilities to more economically provide services and supplies to their patients with the cost savings passed on to Medicare. Additionally, these payment mechanisms recognize the importance of the nursing facility in overseeing the quality of their residents' care. Since nursing facilities are significantly involved in the planning and provision of patient care, they arguably are the most appropriate entity to scrutinize providers and determine the most cost effective methods of obtaining and utilizing the services and supplies needed to meet the medical needs of their patients.
Page 52 PREV PAGE TOP OF DOC
Conclusion
I appreciate the opportunity to appear before you today and share with you some of our work and recommendations related to prospective payment systems for Medicare home health and skilled nursing facility services. I would be happy to make any of our reports available to the Subcommittee and to also respond to any questions you may have.
—————
Chairman THOMAS. Thank you, Mr. Grob.
Dr. Scanlon.
STATEMENT OF WILLIAM J. SCANLON, PH.D., DIRECTOR, HEALTH FINANCING AND SYSTEMS ISSUES, HEALTH, EDUCATION, AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY THOMAS DOWDAL, SENIOR ASSISTANT DIRECTOR, HEALTH FINANCING AND SYSTEMS ISSUES
Dr. SCANLON. Thank you very much, Mr. Chairman and Members of the Subcommittee. My colleague, Mr. Dowdal, and I are very happy to be here today as you discuss Medicare's skilled nursing facility and home health care benefits and the administration's proposals to reform each of them.
As has been noted, after modest growth in the eighties, Medicare's expenditures for these two services has skyrocketed, reaching double-digit levels every year since 1990.
Page 53 PREV PAGE TOP OF DOC
As the chart to my right indicates, for home health in a very dramatic way, there has been a number of legislative and programmatic changes over the years that directly or indirectly affected this benefit. And a similar graphic could be displayed for the skilled nursing facilities.
Despite all these changes, there were two that made the most difference. The reissuance of a coverage guidelines for SNFs in 1988 and for home health care in 1989 were the triggers that led to explosive growth.
It is also important that the causes of growth in these two benefits are different, and this is something that we need to keep in mind as we consider reforms.
In the case of SNFs, Medicare payments have grown primarily because a larger portion of beneficiaries used this benefit and because a large increase in the provision of ancillary services occurred. For home health care, both the number of beneficiaries and the number of services used by each beneficiary has more than doubled.
The administration is proposing the adoption of prospective payment systems for each service to gain better control over expenditures. While prospective payments encourage control of costs, it is important in designing such systems to be mindful of the incentives created regarding the quantity and quality of the services providers will deliver.
Selection of the unit of service for payment and taking account of the varying needs of patients for different types of services are important aspects of the design because of the incentives they create. Also important is the reliability of the cost and utilization data used to compute rates. A good design can be overwhelmed by bad data.
We understand the administration will develop an SNF prospective payment system, PPS, that would pay per diem rates covering all facility costs, an essential step given the substantial growth in ancillary service costs that has driven recent spending increases.
Payments would also be adjusted for differences in patient case mix. In contrast, the Balanced Budget Act of 1995 proposed development of a PPS based on an episode of care as the unit of service.
Page 54 PREV PAGE TOP OF DOC
Establishing appropriate per-episode payment rates could be very challenging. Substantial variations exist in the average resources needed on a daily basis to treat beneficiaries with similar conditions making case mix adjustments for per diem rates rather challenging. Even more variation and less predictability exists for entire episodes. Moreover, payment on an episode basis may result in some SNFs inappropriately reducing the number of covered days. Both factors, we believe, make a day of care seem the better candidate for the unit of service for SNF payment. Using days as the basis for payment, however, gives no incentives to control length of stay making essential continued investment in claims review to avoid inappropriate increases in days, as well as in overall caseloads.
As far as the adequacy of HCFA's SNF data for setting prospective rates, we have concerns. Cost report audits are the primary means available to ensure that SNF cost reports reflect only allowable costs. But the percentage of SNFs subjected to field audits has decreased, as has the thoroughness of the audits that have been conducted.
We think it would be prudent for HCFA to do a thorough audit of a projectable sample of SNF cost reports. The results could be then used to adjust cost report data bases to help ensure that unallowable costs are not the base for prospective rate setting.
Turning to the administration's proposal for home health prospective payment, the information we have available is very general saying only that a prospective payment system for an appropriate unit of service would be developed by 1999. Again, the choice of a unit of service is crucial and there is limited understanding of the need for and the content of home health services to guide that choice.
Paying per visit would allow agencies to gain by attempting to shorten the length of visits and to increase their number. The net result may be higher total costs for Medicare with increasing numbers of visits as the cause just as they are today.
Payment for an episode, such as care for a 30- or a 100-day period, creates the risk that incentives to control resources result in too few visits and lower quality of care. While paying for episodes may better control spending, HCFA would need a method to ensure that beneficiaries receive adequate services and that any reduction in services that can be accounted for by past overprovision does not result in windfall profits to agencies.
Page 55 PREV PAGE TOP OF DOC
In addition, HCFA would need to be vigilant to ensure that patients meet coverage requirements because agencies would be rewarded for increasing their caseloads. We have the same concerns about the quality of HCFA's home health care cost report data bases for prospective payment system rate setting purposes as we do for the SNF data base. Again, we suggest that a projectable sample be chosen and audited in order to establish a reasonable data base for the future.
We are also concerned about the appropriateness of using current Medicare data on the frequency of visits to establish prospective rates. As we reported last year, controls over the use of home health care are virtually nonexistent. We believe it would be prudent for HCFA to conduct thorough onsite medical reviews of a projectable sample of agencies to give it a basis to adjust utilization rates for purposes of establishing prospective payments.
Finally, the administration has also announced it will propose requiring SNFs to bill Medicare for all services provided to their beneficiary residents, except for physician and some practitioner services. We support this proposal, as we did in a September 1995 letter to you, Mr. Chairman. We and the HHS Inspector General have reported on the problems, such as overutilization of supplies that can arise when suppliers bill separately for services for SNF residents.
A consolidated billing requirement would make it easier for Medicare to identify all services furnished to residents which, in turn, would make it easier to control payments for those services.
In conclusion, it is clear that current payment systems for providers of skilled nursing and home health services to Medicare beneficiaries need to be revised. As more details concerning the administration's or other proposals emerge, we would be happy to work with the Subcommittee and others to help sort out the potential implications of suggested revisions.
I would be happy to answer any questions that you or Members of the Subcommittee may have.
Page 56 PREV PAGE TOP OF DOC
Thank you.
[The prepared statement and attachments follow:]
Statement of William J. Scanlon, Ph.D., Director, Health Financing and Systems Issues, Health, Education, and Human Services Division, U.S. General Accounting Office; Accompanied by Thomas Dowdal, Senior Assistant Director, Health Financing and Systems Issues
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss Medicare's skilled nursing facility (SNF) and home health care benefits and the administration's forthcoming legislative proposals related to them. After relatively modest growth during the 1980s, Medicare's expenditures for SNFs and home health care have grown rapidly in the 1990s. SNF payments increased from $2.8 billion in 1989 to $11.3 billion in 1996, while home health care costs grew from $2.4 billion to $17.7 billion over the same period. Over that period, annual growth averaged 22 percent for SNFs and 33 percent for home health care.
My comments today will specifically focus on the reasons for cost growth for SNFs and home health care and the administration's announced legislative proposals for these two Medicare benefits. The information presented today is based mainly on our previous work. We also examined recent data on the two benefits from the Health Care Financing Administration (HCFA), which manages Medicare. The detailed legislative proposals are not yet available from the administration, so we reviewed the summaries of them that have been publicly released and talked with HCFA officials about these summaries.
In brief, 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. For home health care costs, both the number of beneficiaries and the number of services used by each beneficiary have more than doubled. A combination of factors led to the increased use of both benefits:
Page 57 PREV PAGE TOP OF DOC
• legislation and coverage policy changes in response to court decisions liberalized coverage criteria for the benefits, enabling more beneficiaries to qualify for care;
• these changes also transformed the nature of home health care from primarily posthospital care to more long-term care for chronic conditions;
• 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
• 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.
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. However, what remains unclear about these proposals is whether an appropriate unit of service can be defined for calculating prospective payments and whether HCFA's databases are adequate for it to set reasonable rates. 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. This latter proposal has merit, because it would make control over the use of ancillary services significantly easier.
Background
Medicare covers up to 100 days of care in a SNF after a beneficiary has been hospitalized for at least 3 days. To qualify for the benefit, the patient must need skilled nursing or therapy on a daily basis. For the first 20 days of SNF care, Medicare pays all the costs, and for the 21st through the 100th day, the beneficiary is responsible for daily coinsurance of $95 in 1997.
Page 58 PREV PAGE TOP OF DOC
To qualify for home health care, a beneficiary must be confined to his or her residence (''homebound''); require part-time or intermittent skilled nursing, physical therapy, or speech therapy; be under the care of a physician; and have the services furnished under a plan of care prescribed and periodically reviewed by a physician. If these conditions are met, Medicare will pay for skilled nursing; physical, occupational, and speech therapy; medical social services; and home health aide visits. Beneficiaries are not liable for any coinsurance or deductibles for these home health services, and there is no limit on the number of visits for which Medicare will pay.
Medicare pays SNFs and home health agencies on the basis of their reasonable costs—those that are found to be necessary and related to patient care—up to specified cost limits. For SNFs, limits are imposed on the amount of routine costs—those for general nursing, room and board, and administrative overhead—that will be reimbursed. Separate limits are set for freestanding SNFs in urban and rural areas at 112 percent of mean routine costs. Hospital-based SNF limits are set midway between the freestanding limits and 112 percent of the mean routine costs of hospital-based SNFs in each area. Home health agency cost limits are established at 112 percent of the mean costs of freestanding agencies in urban and rural areas. Hospital-based agencies have the same limits. Separate limits are set for each type of visit (skilled nursing, physical therapy, and so on) but are applied in the aggregate; that is, an agency's costs over the limit for one type of visit can be offset by costs below the limit for another. Both SNF and home health cost limits are adjusted for differences in wage levels across geographic areas. Also, exemptions from and exceptions to the cost limits are available to SNFs and home health agencies that meet certain conditions.
While the cost-limit provisions of Medicare's cost reimbursement system for SNFs and home health agencies give some incentives for providers to control the affected costs, these incentives are considered by health financing experts to be relatively weak, especially for providers with costs considerably below their limit. On the other hand, it is generally agreed that prospective payment systems (PPS) give providers increased cost-control incentives. The administration proposes establishing PPSs for SNF and home health care and estimates that Medicare savings exceeding $10 billion would result over the next 5 fiscal years.
Page 59 PREV PAGE TOP OF DOC
SNF and Home Health Cost Growth
The Medicare SNF and home health benefits are two of the fastest growing components of Medicare spending. From 1989 to 1996, Medicare part A SNF expenditures increased over 300 percent from $2.8 billion to $11.3 billion. During the same period, part A expenditures for home health increased from $2.4 billion to $17.7 billion—an increase of over 600 percent. SNF and home health payments currently represent 8.6 percent and 13.5 percent of part A Medicare expenditures, respectively.
At Medicare's inception in 1966, the home health benefit under part A provided limited posthospital care of up to 100 visits per year after a hospitalization of at least 3 days. In addition, the services could only be provided within 1 year after the patient's discharge and had to be for the same illness. Part B coverage of home health was limited to 100 visits per year. These restrictions under part A and part B were eliminated by the Omnibus Reconciliation Act of 1980 (ORA, P.L. 96–499), but little immediate effect on Medicare costs occurred.
With the implementation of the Medicare inpatient PPS in 1983, the utilization of the SNF and home health benefits was expected to grow as patients were discharged from the hospital earlier in their recovery periods. However, HCFA's relatively stringent interpretation of coverage and eligibility criteria held growth in check for the next few years. As a result of court decisions in the late 1980s, HCFA issued guideline changes for the SNF and home health benefits that had the effect of liberalizing coverage criteria, thereby making it easier for beneficiaries to obtain SNF and home health coverage. Additionally, the changes prevent HCFA's claims processing contractors from denying physician-ordered SNF or home health services unless the contractors can supply specific clinical evidence that indicates which particular services should not be covered.
Page 60 PREV PAGE TOP OF DOC
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. (App. I contains figures that show growth in SNF and home health expenditures in relation to the legislative and policy changes.) For example, ORA 1980 and HCFA's 1989 home health guideline changes have essentially transformed the home health benefit from one focused on patients needing short-term care after hospitalization to one that serves chronic, long-term care patients as well. 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. During the same period, the average number of visits to home health beneficiaries also more than doubled, from 27 to 72. In a recent report on home health, we found that from 1989 to 1993, the proportion of home health users receiving more than 30 visits increased from 24 percent to 43 percent and those receiving more than 90 visits tripled, from 6 percent to 18 percent, indicating that the program is serving a larger proportion of longer-term patients. Moreover, about a third of beneficiaries receiving home health care did not have a prior hospitalization, another possible indication that chronic care is being provided.
Similarly, the number of people receiving care from SNFs has also almost doubled, from 636,000 in 1989 to 1.1 million in 1996. While the average length of a Medicare-covered SNF stay has not changed much during that time, the average Medicare payment per day has almost tripled—from $98 in 1990 to $292 in 1996. Use of ancillary services, such as physical and occupational therapy, has increased dramatically and accounts for most of the growth in per-day cost. For example, our analysis of 1992 through 1995 SNF cost reports shows that reported ancillary costs per day have increased 67 percent, from $75 per day to $125 per day, while reported routine costs per day have increased only 20 percent, from $123 to $148. Unlike routine costs, which are subject to limits, ancillary services are only subject to medical necessity criteria, and relatively little review of their use is done by Medicare. Moreover, SNFs can cite high ancillary service use to justify an exception to routine service cost limits, thereby increasing routine service payments.
Page 61 PREV PAGE TOP OF DOC
Between 1990 and 1996, the number of hospital-based SNFs increased over 80 percent, from 1,145 such agencies to 2,088. Hospitals can benefit from establishing a SNF unit in a number of ways. Hospitals receive a set fee for a patient's entire hospital stay, based on a patient's diagnosis related group (DRG). Therefore, the quicker that hospitals discharge a patient into a SNF, the lower that patient's inpatient hospital care costs are. We found that in 1994, patients with any of 12 DRGs commonly associated with posthospital SNF use had 4 to 21 percent shorter stays in hospitals with SNF units than patients with the same DRGs in hospitals without SNF units. Additionally, by owning a SNF, hospitals can increase their Medicare revenues through receipt of the full DRG payment for patients with shorter lengths of stay and a cost-based payment after the patients are transferred to the SNF.
Rapid growth in SNF and home health expenditures has been accompanied by decreased, rather than increased, funding for program safeguard activities. For example, our March 1996 report found that part A contractor funding for medical review had decreased by almost 50 percent between 1989 and 1995. As a result, while contractors had reviewed over 60 percent of home health claims in fiscal year 1987, their review target had been lowered by 1995 to 3.2 percent of all claims (or even, depending on available resources, to a required minimum of 1 percent). 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. Also, because of the small percentage of claims now selected for review, home health agencies that bill for noncovered services are less likely to be identified than was the case 10 years ago. Similarly, the low level of review of SNF services makes it difficult to know whether the recent increase in ancillary use is medically necessary (for example, because patient mix has shifted toward those who need more services) or simply a way for SNFs to get more revenues.
Page 62 PREV PAGE TOP OF DOC
Finally, because relatively few resources are available for auditing end-of-year provider cost reports, HCFA has little ability to identify whether home health agencies or SNFs are charging Medicare for costs unrelated to patient care or other unallowable costs. Because of the lack of adequate program controls, it is quite possible that some of the recent increase in home health and SNF expenditures stems from abusive practices. The Health Insurance Portability and Accountability Act of 1996 (P.L. 104–191), also known as the Kassebaum-Kennedy Act, has increased funding for program safeguards. However, per-claim expenditures will remain below the level in 1989, after adjusting for inflation. We project that, in 2003, payment safeguard spending as authorized by Kassebaum-Kennedy will be just over one-half of the 1989 per-claim level, after adjusting for inflation.
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. If payments are set too high, Medicare will not save money and cost-control incentives can be weak. If payments are set too low, access to and quality of care can suffer.
In designing a PPS, selection of the unit of service for payment purposes is important because the unit used has a strong effect on the incentives providers have for the quantity and quality of services they provide. Taking account of the varying needs of patients for different types of services—routine, ancillary, or all—is also important. A third important factor is the reliability of the cost and utilization data used to compute rates. Good choices for unit of service and cost coverage can be overwhelmed by bad data.
Page 63 PREV PAGE TOP OF DOC
Proposal for a SNF PPS
We understand that the administration will propose a SNF PPS that would pay per diem rates covering all facility cost types and that payments would be adjusted for differences in patient case mix. Such a system is expected to be similar to HCFA's ongoing SNF PPS