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Tuesday, March 19, 2013

Medicare Home Health Benefit Primer: Benefit Basics and Issues

Scott R. Talaga
Analyst in Health Care Financing

The Medicare home health benefit provides coverage for home visits by skilled health care professionals. To be eligible for the home health benefit, a beneficiary must meet three different criteria. The beneficiary must (1) be homebound, (2) require intermittent skilled nursing care and/or skilled rehabilitation services, and (3) be under the care of a physician who has established that the home health visits are medically necessary in a 60-day plan of care. A beneficiary who meets these requirements is entitled to a 60-day episode of Medicare coverage for home health visits, and is then entitled to an unlimited number of 60-day episodes so long as he or she continues to meet the eligibility requirements. There is no cost-sharing requirement for home health services. Roughly 9.6% of Medicare fee-for-service (FFS) beneficiaries (or 3.4 million individuals) used home health services in 2010.

Home health services are provided through home health agencies (HHAs), most of which are (90%) freestanding—HHAs not affiliated with an institution such as a hospital or a nursing facility. The number of HHAs participating in Medicare grew by 57% between 2000 and 2010 (from 7,528 to roughly 11,800), with a vast majority of the increase in for-profit freestanding HHAs.

Similar to most Medicare payment methods, Medicare reimburses HHAs using a prospective payment system (PPS). A PPS reimburses providers with payments that are predetermined by a formula that adjusts payments for beneficiaries’ expected care needs and location, among other factors. The home health PPS (HH PPS) was implemented for services beginning on or after October 1, 2000. Generally, the HH PPS provides a single payment for a 60-day episode to HHAs for the estimated costs of home health services. The 60-day episode payment is in contrast to the prior home health payment system that reimbursed HHAs retrospectively on a per visit basis.

While total Medicare FFS expenditures have grown at an average annual rate of 5.9% between 2001 and 2011, Medicare FFS expenditures on home health services have increased at an average annual rate of 8.0% over the same time period. In 2011, Medicare FFS expenditures on covered home health services totaled $18.4 billion. In addition to the high growth rate in Medicare home health payments, the home health benefit has drawn attention due to the consistently high Medicare margins (percentage of Medicare revenue that exceeds costs of services) of participating HHAs. Between 2003 and 2010, aggregate Medicare margins for freestanding HHAs steadily increased from 13.6% to 19.4%.

As deficit reduction pressures increase, the 113
th Congress may debate whether to include beneficiary cost-sharing for home health services (a proposal recommended by the Medicare Payment Advisory Commission and various other groups). Congress may also consider proposals to implement a value-based purchasing program for HHAs that would adjust Medicare payments based upon certain HHA quality measures. Similar proposals are currently being implemented in other Medicare payment systems. Congress may also choose to monitor the implementation of the settlement agreement of a recent class-action lawsuit between the Department of Health and Human Services (HHS) and the Center for Medicare Advocacy regarding the so-called “improvement standard”—a sub-regulatory rule-of-thumb used by some Medicare claims contractors which required that beneficiaries show a likelihood of medical or functional improvement before Medicare provided payment for services in a home or institutional setting.

Date of Report: March 14, 2013
Number of Pages: 33
Order Number: R42998
Price: $29.95

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