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Testimony on Home Health Care Payment Reform by Kathy Buto
Director, Center for Health Plans & Providers
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the Senate Permanent Subcommittee on Investigations
June 10, 1999

Chairman Collins, Senator Levin, distinguished Subcommittee members, thank you for inviting us to discuss the impact of home health care payment reforms. Home health is an essential benefit for millions of beneficiaries. Unfortunately, expenditures were growing at an unsustainable rate. Medicare home health spending more than tripled in the early to mid-1990s, while the number of beneficiaries receiving services doubled, and several studies documented widespread fraud, waste, and abuse.

The Balanced Budget Act addressed these concerns by closing loopholes, raising standards, and enacting incentives to deliver care efficiently. Aggressive efforts to fight fraud, waste and abuse are also having an effect. We are diligently monitoring the impact of these changes and, thus far, do not have evidence that access to care has been compromised.

There has been an expected market correction in the total number of home health agencies serving Medicare, along with an increase in mergers among agencies in order to improve efficiency. Most closures were in areas that had the sharpest growth in the number of providers and questionable billings before the BBA. Again, we have not seen objective evidence that closures have affected access.

We are proactively seeking information about the BBA impact on access, and have instructed our regional offices to gather extensive information so we can determine whether corrective action may be necessary. The HHS Inspector General has agreed to help by surveying hospital discharge planners to determine whether they are having problems in finding home health placements for patients leaving the hospital. This should help provide information in addition to a survey done for the Medicare Payment Advisory Commission of home health agencies which suggested that some might be avoiding or prematurely discharging high-cost beneficiaries, and two General Accounting Office reports which conclude that beneficiary access to care has not been affected.

We know some providers who have always been efficient continue to have concerns about the interim payment system despite changes Congress made last year. Both the interim and prospective payment systems include incentives for efficiency that require home health agencies to change the way they conduct business. We are taking steps to help agencies adjust to these changes. We are giving agencies up to a year to repay overpayments resulting from the interim payment system. We have limited prepayment medical reviews where appropriate. And we are ending a sequential billing policy which had raised cash flow concerns for some agencies.

At the same time, we are implementing the Outcome and Assessment Information Set (OASIS). We are required by law to monitor the quality of home health care with a "standardized, reproducible assessment instrument."OASIS will help home health agencies determine what patients need. It will help improve the quality of care. And it is essential for accurate payment under prospective payment.

Given the magnitude of the changes in home health, it is understandable that concerns remain. We are committed to giving providers as much flexibility as our authority and responsibility allow. We are committed to diligently monitoring the impact of these changes to ensure that beneficiary access is not compromised. And we are committed to working with providers and Congress to ensure fairness and protect access to appropriate home care services.


The Medicare home health benefit is crucial to millions of beneficiaries confined to their homes. Congress stipulated that care provided under this benefit be related to the treatment of a specific illness or injury. Beneficiaries must be confined to the home and need intermittent skilled nursing care, physical therapy, speech language pathology services, or have a continuing need for occupational therapy. If these requirements are met, Medicare will pay for: skilled nursing care on a part-time or intermittent basis; physical and occupational therapy; speech language pathology services; medical social services; home health aide services on a part-time or intermittent basis; and medical supplies and durable medical equipment.

Unfortunately, this important benefit has been subject to unsustainable growth and widespread fraud, waste, and abuse. Home health care accounted for just 2.9 percent of all Medicare benefit payments in 1990 but reached nearly 9 percent in 1997. Total home health spending rose from $4.7 billion (in 1997 dollars) in 1990 to $17.8 billion in 1997. During the same period, the number of beneficiaries receiving home health doubled from two million to four million, and the average number of visits per beneficiary jumped form 36 to 80. The number of agencies providing services to Medicare beneficiaries grew about 10 percent each year, from 5,656 in 1990 to 10,500 in 1997.

While some of this growth was due to changing demographics and medical advances, studies by the HHS Inspector General and the General Accounting Office document that a significant amount was due to waste, fraud and abuse.

  • A July 1997 Inspector General's report, Results of the Operation Restore Trust Audit of Medicare Home Health Services in California, Illinois, New York and Texas, found that 40 percent of home care in these states was not covered by Medicare.
  • Another July 1997 Inspector General's report, Home Health: Problem Providers and Their Impact on Medicare, found that one quarter of home health agencies in five states, accounting for 45 percent of spending in these states, were "problem" providers.
  • In a June 1997 report, Medicare: Need to Hold Home Health Agencies More Accountable for Inappropriate Billings, the General Accounting Office found that 43 percent of 80 high-dollar claims reviewed should have been partially or totally denied.

Because of the widespread nature of integrity problems, home health was included in the Administration's highly successful crackdown on fraud, waste, and abuse. These efforts are having a dramatic impact. The HHS Inspector General this year found that in the last two years the rate of erroneous Medicare home health payments declined by 50 percent. Program integrity efforts such as highly publicized investigations and prosecutions may also have discouraged inappropriate claims from being submitted in the first place.

BBA Reform

Congress and the Administration addressed these issues in the Balanced Budget Act by closing loopholes, reforming payment, and requiring surety bonds. The BBA closed loopholes that had invited fraud, waste and abuse. For example, it stopped the practice of billing for care delivered in low cost, rural areas for care from urban offices at high urban-area rates. It also tightened eligibility rules so patients who only need blood drawn no longer qualify for the entire range of home health services.

The BBA payment reforms feature incentives for efficiency. It called for a prospective payment system, much like what is used to pay for inpatient hospital care, and an interim payment system to be used until the prospective system is ready. One of the primary reasons for the unsustainable growth in home health spending was that cost-based payment lacks incentives to provide care efficiently. Before the BBA, home health agencies were reimbursed based on the costs they incurred in providing care, subject to a per visit limit, and this encouraged agencies to provide more visits and to increase costs up to their limit. The number of home health visits and spending per beneficiary varied widely by state and region across the country. The BBA imposed a new, aggregate per beneficiary limit designed to provide incentives for efficiency until the prospective payment system can be implemented. The interim payment system locked into place the vastly different payment amounts agencies had been receiving, and created a national limit that was applied to agencies that did not have a full 12-month cost reporting period in fiscal year 1994. These differences have made attempts to address interim payment system issues in a budget neutral fashion unworkable as it merely creates new sets of winners and losers.

Both the prospective and interim payment systems require agencies to change past behavior and eliminate unnecessary services. The incentive to supply virtually unlimited visits is gone. Instead, agencies must find the most efficient way to produce the best medical outcome. This should not mean that care is compromised for any patient. Agencies are bound by their participation agreement with Medicare to provide the appropriate level of care as prescribed by the physician.

Last year Congress raised the limits on costs somewhat in an effort to help agencies. We issued instructions to our claims processing contractors regarding the changes two weeks after they were enacted. Also last year, Congress postponed implementation of the prospective payment system so that it would not conflict with our essential Year 2000 computer work. We are proceeding with work to develop the prospective payment system, and expect to publish the proposed regulation this fall and implement it on schedule October 1, 2000.

We also expect to soon implement the BBA requirement that home health agencies obtain surety bonds. Until now, these agencies had to meet few standards, and we had no assurances that proper financial safeguards were in place. The BBA mandate has been on hold while we awaited a GAO report on how to best implement the requirement. That report is now out, and we expect to issue a proposed rule with comment period incorporating the GAO's recommendations, which should help agencies comply with the requirement. For example, agencies will be required to obtain bonds for no more than $50,000, and one bond will suffice for both Medicare and Medicaid.

Administrative Steps

Also, as mentioned above, we are taking administrative steps to address cash flow concerns and help home health agencies adjust to the BBA changes. We are granting agencies a full year to repay overpayments resulting from the interim payment system. The time frame for implementation that was laid out in the statute caused some large interim payments to be made which must be paid back. If a home health agency has an overpayment as a result of the interim payment system, the agency may have 12 months to repay the money without interest. If an agency can demonstrate a financial hardship and show that Medicare stands a reasonable chance of recovering the funds, an agency may obtain an extended repayment schedule. However, interest will be assessed for amounts not repaid within 12 months.

Also, as of July 1, 1999, we are discontinuing the sequential billing policy we had implemented to facilitate the transfer of payment for home health services not directly related to inpatient care from the Part A to Part B Medicare Trust Fund. Sequential billing requires claims to be paid in the same order in which services were provided. If a claim for any individual beneficiary is held for medical review, no further claims for that beneficiary can be paid until the claim being held is resolved. While we strongly encourage agencies to continue sequential billing, we are now able to allocate home health claims to the proper Trust Fund without this requirement.

And last July we instructed home health claims processing contractors to take several steps to limit the impact of medical review, which can delay payment on claims while documentation is analyzed to ensure that the claim is valid. We also told home health claims processing contractors to consider a constructive alternative, such as expedited review, for providers without a history of billing problems who may be having cash flow problems because of random medical review.


We are required by law to monitor the quality of home health care with a "standardized, reproducible assessment instrument."This is important, because home health patients are among the most vulnerable Medicare and Medicaid beneficiaries, and the fact that care is delivered in the home makes monitoring the quality of that care more challenging. To improve care and comply with the law, we will be using the Outcome and Assessment Information Set (OASIS). We also will use OASIS data to pay accurately under the prospective payment system.

OASIS helps home health agencies determine what patients need, develop the right plan for their care, assess that care over the course of treatment, and learn how to improve the quality of that care. It provides a standardized format for the patient assessments that home health agencies have been doing all along. It does not require additional effort for agencies that have been conducting the thorough patient assessments that are needed in order to provide appropriate care, as required by the home health conditions of participation.

The 79 data elements in OASIS were developed by clinicians and are valid, reliable, and risk adjusted, taking into account characteristics of patient populations. This ensures that assessments done by different health care professionals consistently yield the same results. It also ensures that quality measurement takes into account whether agencies are caring for sicker patients and therefore might have what otherwise would appear to be poorer care or outcomes.

OASIS is supported by the American Academy of Home Care Physicians, the National Alliance for the Mentally Ill, and many home health care providers who are voluntarily using OASIS because of its unprecedented value in promoting high quality care and comprehensive, accurate, clinical record-keeping. Home health care professionals using OASIS report that it is helping them to be more focused on the needs of individual patients, and to provide better care in fewer visits and with fewer subsequent hospitalizations.

We are taking great care to implement OASIS in a way that protects personal privacy. Steps we are taking in addition to Medicare's routine stringent privacy protections include:

  • careful drafting of a notice for Medicare and Medicaid patients explaining why OASIS data are collected and informing patients of their right to see and request corrections;
  • limiting "routine uses" of data under the Privacy Act so that personally identifiable data will only be used where statistical information is not sufficient;
  • masking personally identifiable information on non-Medicare and non-Medicaid patients so it is not transmitted to the States or Medicare in personally identifiable form;
  • eliminating transmission altogether for data on patient financial factors;
  • accelerating efforts to encrypt data during transmission to provide yet another level of protection; and
  • delaying the requirement to collect, encode, and transmit OASIS data on patients receiving only personal care services to evaluate issues pertaining to the content and periodicity of OASIS relative to other reporting requirements.

We are also making special efforts to help home health agencies learn how to use this valuable tool. Once providers learn how to use OASIS, it actually slightly reduces the total time it takes to conduct and document a thorough patient assessment. Because OASIS is structured in a checklist format, staff spend less time writing out a narrative of their findings and more time with the patient.

More than 8,000 of the approximately 9,500 home health agencies participating in Medicare across the country have now received official OASIS training. Efforts to help providers through the OASIS learning curve include:

  • a satellite broadcast last August to sites across the country reaching approximately 30,000 home health care professionals (tapes of this session are also available);
  • numerous presentations at industry trade association meetings;
  • distribution of a free, detailed manual on how to collect, process and report OASIS data;
  • manuals, software, updates, and other additional assistance that can be downloaded from the Internet at cms.hhs.gov/medicare/hsqb/oasis/oasishmp.htm;
  • answers to questions on installing OASIS software via a toll-free telephone line at 1-877-201-4721 and via E-mail haven_help"ifmc.org;
  • establishing OASIS Educational Coordinators in all States;
  • a week long conference last September to teach State personnel about OASIS; and
  • a "train the trainer" program last October for all State OASIS Educational Coordinators.

We will develop a performance report for each home health agency based on its OASIS reports, including a comparison of its performance to the State and national average. These performance reports will allow home health agencies to identify their own weaknesses and improve quality. They also will allow us to increase scrutiny for agencies that need more oversight and assistance in improving quality. Eventually, we will share these performance reports with the public so consumers can make informed choices among agencies based on the quality of care they provide.

OASIS data also are critical to the home health prospective payment system. The comprehensive information which accurately determines the appropriate amount of care also pinpoints the right amount of payment for that care. We need comprehensive national OASIS data as soon as possible to develop prospective payment rates and estimate their impact. Doing so based on the limited research data available to us now could jeopardize our ability to pay accurately and to understand in advance how different types of agencies across the country will be affected.

Using one instrument, such as OASIS, to both determine accurate payment and assess quality helps to minimize the burden on home health agencies. It also helps fight fraud and abuse because it balances incentives. While prospective payment creates an incentive to "upcode" and say patients are sicker in order to receive higher payment, doing so with OASIS could result in poor quality indicators. That could trigger an investigation and result in a competitive disadvantage when agency profiles based on OASIS data are shared with the public. Also, using OASIS to monitor quality is even more essential under a prospective payment system, where incentives to provide care efficiently must not be allowed to reduce appropriate care.

Spending Changes

Unsustainable home health spending growth has been turned around, but only partially as a result of the BBA reforms. Home health was one of the initial targets in our aggressive and highly successful fight against fraud, waste, and abuse, and these efforts are having an enormous impact. Also, some apparent home health savings are temporary effects of slower claims processing. For example, billing procedure changes such as the sequential billing rule and the heightened level of medical review slowed payments to providers, pushing part of last year's care into this year's spending and thus making total spending last year seem artificially low.

Factors such as these were not included in projections of BBA home health savings by us or the Congressional Budget Office The CBO agrees with our analysis. An April 1999 CBO report emphasizes that the "widely publicized efforts to clamp down on fraud and abuse in the program have resulted in greater compliance by providers with Medicare's payment rules." And a September 1998 CBO report concludes that program integrity efforts, demographic changes, lower-than-expected inflation, and other factors not related to the BBA account for the difference between savings projections when the BBA was enacted and total spending since.


BBA reforms and other changes in home health care have ended unsustainable growth, helped control what was widespread fraud, waste, and abuse, and put us in a position to better protect vulnerable beneficiaries and improve the quality of home health care. We to date do not have objective evidence that beneficiary access to care has been compromised. But we know we must continue to diligently monitor the impact of all these changes. We appreciate this Subcommittee's attention to this issue, and look forward to working with you as we continue to monitor the situation and work to ensure that beneficiaries who qualify for Medicare's home care benefit receive efficient, high quality care.

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