The Balanced Budget Act of 1997: Effects on Medicare's Home Health Benefit and Beneficiaries Who Need Long-Term Care

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Changes in Medicare payments for home health care could have the unintended consequence of reducing access to services for frail elders. In an effort to curb the rapid growth in home health expenditures, the Balanced Budget Act of 1997 (BBA) capped payments per beneficiary to home health agencies and will replace cost-based reimbursement for services with a prospective payment system (PPS).

In The Balanced Budget Act of 1997: Effects on Medicare's Home Health Benefit and Beneficiares Who Need Long-Term Care, Harriet Komisar and Judith Feder of Georgetown University's Institute for Health Care research and Policy maintain that these changes must be implemented with caution and continually monitored. Otherwise, access to care may be restricted for the people who need and use Medicare's home benefit the most; frail elders who often require a complex mix of acute and long-term care services.

The changes in payments are intended to slow home health spending, which has risen rapidly. The authors attribute most of this growth in home care to changes in coverage criteria. Other important contributing factors are a loosening of regulatory oversight, changing medical practices, and payment incentives that encourage agencies to make numerous visits.

Komisar and Fedar note that from 1991 to 1994, the most frequent users of home health care "the 10 percent of beneficiaries who had 200 or more home health visits per year" accounted for 60 percent of the growth in costs. More than nine in ten of these high users have long-term care needs.

The need for long-term care, however, does not by itself explain home health use. More than half of beneficiaries with long-term care needs who are not in nursing homes do not use home health care, and only about 16 percent of those who have severe limitations and use home health care are high users of the benefit.

Placing caps on agencies' home health payments per user is intended to improve agencies' incentives to deliver care more efficiently. The authors point out, however, that the caps make no allowance for changes over time in agencies' patient mix. Thus, for many agencies, the caps create an incentive to reduce services per user or avoid high users. In addition, although the PPS is intended to vary payments by patients' needs, developing the information needed to do so appropriately may be difficult before the PPS is scheduled for implementation beginning on October 1, 1999.

Facts and Figures

  • From 1990 to 1996, Medicare spending for home health grew an average of 29 percent a year, from $3.9 billion to $18.3 billion.
  • Compared with elderly beneficiaries, a greater proportion of those under age 65 and disabled (about 13 percent of total beneficiaries in 1997) have long-term care needs.
  • Among high home health users, 70 percent reported fair or poor health status, 80 percent had incomes of less than $15,000, and 79 percent had functional limitations in three or more activities of daily living.

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Publication Details

Publication Date: December 1, 1997
Authors: Harriet Komisar, Judith Feder, Institute for Health Care Research and Policy, Georgetown University
Citation:

The Balanced Budget Act of 1997: Effects on Medicare's Home Health Benefit and Beneficiaries Who Need Long-Term Care, Harriet Komisar and Judith Feder, Institute for Health Care Research and Policy, Georgetown University, The Commonwealth Fund, December 1997

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