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^ 0iA-~e^^TJt<i^T'^^^" tl^ ContractNo.: 500-94-0062 MATHEMATICA MPRReferenceNo.: 8246-127 PolicyResearch,Inc, TheFinalEvaluation ReportontheNational HomeHealthProspective PaymentDemonstration: AgenciesReduceVisits WhilePreservingQuality April30,2001 ValerieCheh Submittedto: Submittedby: HealthCareFinancingAdministration MathematicaPolicyResearch,Inc. 7500SecurityBlvd,(C-3-21-06) P.O.Box2393 Baltimore,MD 21244-1850 Princeton,NJ 08543-2393 (609)799-3535 ProjectOfficer: ProjectDirector: AnnMeadow ValerieCheh .. CONTENTS Chapter Page I THEDEMONSTRATION 1 A. POLICYCONTEXT 1 B. STRUCTUREOFTHEPHASEIIDEMONSTRATION 2 1 HowthePaymentSystemWorks 4 2. MonitoringtheQuaHtyofCare 6 3. DemonstrationParticipantsVersusAgenciesNationwide 6 C. ANALYTICMETHODSANDDATA 9 1 AnalyticMethods 9 2. Data 10 II HOWDIDPROSPECTIVEPAYMENTAFFECTTHEUSEOF SERVICES? 12 III HOWDIDTHEDECLINEINSERVICEUSEAFFECTPATIENTS? 17 A. WHATHAPPENEDTOTHEQUALITYOFCARE? 17 B. DIDPROSPECTIVEPAYMENTAFFECTTHEUSEOF OTHERSERVICES? 21 IV WERETHERESULTSCONSISTENTFORDIFFERENTTYPES OFAGENCIESANDPATIENTS? 26 A. AGENCYSUBGROUPS 26 B. PATIENTSUBGROUPS 28 V HOWDIDPROSPECTIVEPAYMENTAFFECTAGENCYFINANCES? ..30 A. AGENCYPROFITSANDCOSTS 30 B. MEDICAREREVENUES 34 n VI DISCUSSION 35 A. LIMITATIONS 35 B. POLICYIMPLICATIONS 36 REFERENCES 38 HI TABLES Table Page 1.1 CHARACTERISTICSOFDEMONSTRATIONPARTICIPANTSAND ALLOTHERELIGIBLENONPARTICIPANTSNATIONWIDE 8 1.2 EVALUATIONISSUESANDANALYSISLEVEL 9 111.1 SUMMARYOFQUALITY-OF-CAREMEASURES 18 111.2 SELECTEDIMPACTSONTHEUSEOFMEDICARESERVICES 22 V.l SELECTEDIMPACTSONAGENCYFINANCIALMEASURES 32 IV FIGURES Figure Page I.l POLICYCONTEXT 3 n.1 AVERAGEVISITSPERPATIENTINTHEYEARAFTER ADMISSION,BYTREATMENTANDCONTROLSTATUS 14 V.1 PROSPECTIVELYPAIDAGENCIES'MEDICAREPROFIT RATESASAPERCENTAGEOFTOTALMEDICAREVISIT REVENUES,YEAR1ANDYEAR3 31 THEDEMONSTRATION I. A. POLICYCONTEXT TheNationalHomeHealthProspectivePaymentDemonstrationwasdesignedtotestwhether analternativepaymentsystemcouldreducepublicexpendituresbypromotingefficiencyinthe deliveryofhomehealthcare. Thefirstphaseofthedemonstration,whichranfi^om1990to1993, testedtheeffectsofapredeterminedper-visitpaymentratefortheMedicareprogram. Theresults fromthatdemonstrationshowedthat,toachievesubstantialcostsavings,thepaymentsystemfor homehealthhadtoprovideincentivestoreducethevolumeofservices(Phillipsetal.1994). Phase IIofthedemonstration,whichranfrom1995to1998,testedtheeffectsofapredeterminedper- episodepaymentrate. Thisreportdiscussesthefindingsfi-omPhaseII. TheMedicarehomehealthbenefitgrewatadramaticratebetween1987and1995. Medicare paymentsforhomehealthcarerosefi^om$2.4billionin1989to$16.8billionin1997,morethan triplingtheshareoftotalMedicarespendingonhomehealth{HealthCareFinancingReview1998). Nearlyallthisgrowthwasduetoanincreaseintheprovisionofservices,whichcoincidedwitha dramaticexpansioninindustrysize. Between1989and1997,thenumberofhomehealthusers annuallyper1,000beneficiariesrosefi-om51to109,andtheaveragenumberofvisitsperuserper yearrosefrom27to73{HealthCareFinancingReview1998;andU.S.GeneralAccountingOffice 2000).' Coincidingwiththisgrowth,thenumberofMedicare-certifiedhomehealthagenciesrose from5,700tomorethan10,000(U.S.GeneralAccountingOffice1998). Congresshadbeenconcernedaboutthegrowthinhomehealthexpendituresbeforethisperiod. However,thedramaticincreaseintheMedicarehomehealthbenefit,combinedwithmarked 'ThesefiguresreferonlytoMedicarebeneficiariesinfee-for-service. 1 regionalvariationsinserviceuseandrecentinvestigationsintoindustryfraudandabuse,prompted CongresstolegislatechangestothebenefitaspartoftheBalancedBudgetActof1997(BBA97). Changesincludedreducingtheper-visitcostlimits,eliminatingcoverageforpatientswhoseonly skilledservicewasvenipuncture,andredefining"parttime"and"intermittent"care. Thebiggest changewasthat,forthefirsttime.Congresslimitedtheper-beneficiaryexpenditureonhomehealth servicesforwhichMedicarewouldpay. BBA97definedthemaximumpaymentforanagencyby usinganewalgorithm,commonlyreferredtoastheInterimPaymentSystem(IPS).^ MedicarehomehealthservicesdecreaseddramaticallyinresponsetotheBBA97changes. As Figure1.1shows,theaverageannualnumberofvisitsperhomehealthuserfell43percentfrom1997 to1999. Thenumberofhomehealthagenciesfell25percentduringthesameperiod(Officeof EvaluationandInspections2000). Thus,PhaseIIofthedemonstrationtookplaceduringatimeof unprecedenteddeclineintheuseofMedicarehomehealthservices. B. STRUCTUREOFTHEPHASEIIDEMONSTRATION Ninety-oneMedicare-certifiedhomehealthagenciesinfivestates—California,Florida,Illinois, Massachusetts,andTexas—enrolledinthethree-year(PhaseII)per-episodedemonstration. Forty- sevenwererandomlyassignedtothetreatmentgroupandreceivedper-episodepayment. The remaining44wereassignedtotheconfrolgroupandcontinuedtooperateundercostreimbursement. One control agency subsequently transferred into the treatment group nearthe start ofthe demonstration,leadingtoarevisedtotalof48treatmentagenciesand43controlagencies.-' Each ^ThistermreferstothefactthattheIPSlastedonlyuntilthemandatedprospectivepayment systemwasimplemented,inOctober2000. ^Theswitchwasmadeattherequestofanagencythathadestablishedanetworkwithtwoother agenciesassignedtothetreatmentgroup. Thethreeagenciesplannedtomergefullyattheendof thedemonstration. FIGURE 1.1 POLICYCONTEXT Demonstration BBA97and IPS Starts 80 60 Number of Visits per 40 - Home Health U) User 20 - 1989 1991 1993 1995 1997 1999 Source: Health Care Financing Administration (1999). ORT= Operation Restore Trust. agencyenteredthedemonstrationandbeganimplementingprospectivepaymentatthestartofits fiscalyear. ThefirstentrantstothedemonstrationbeganimplementingprospectivepaymentinJune 1995;thelatestentrantsbeganinJanuary1996. Demonstrationoperationswereplannedtocontinue throughDecember1998. (Thedemonstrationwasextendedfortreatmentgroupagenciesuntil MedicareprospectivepaymentwasimplementednationallyinOctober2000.) 1. HowthePaymentSystemWorks Agenciesselectedforthetreatmentgroupreceivedalump-sumpaymentforthefirst120days ofhomehealthcare,regardlessofthenumberorcostofvisitsprovided.'* Theagencieswerethus "atrisk"forthecostsofcareincurredduringthisperiod. Onlyafterthe120-dayat-riskperiodand asubsequent45-daygapinserviceshadelapsedcouldanagencyreceiveanewper-episodepayment foragivenMedicarebeneficiary. Foreachvisitbeyond120daysthatdidnotbeginanewepisode (referredtoasthe"outUerperiod"),treatmentagenciesreceivedafixedpaymentratethatvariedby thetypeofvisit. Atreatmentagencyalsowaspaidonaper-visitbasisforvisitstopatientsadmitted beforetheagencybegandemonstrationoperations("phase-in"visits),andtopatientsadmittedwithin 120daysoftheendofdemonstrationoperationsinthatagency("phase-out"visits). Agenciesselectedforthecontrolgroupreceivedpaymentsbasedonthecost-basedsystemin placeatthestartofthedemonstration. Specifically,controlagencieswerereimbursedfortheir actualper-visitcosts,upto112percentofthemeancostincurredbyallagencies(fortheagency's mixofvisits)inthesamegeographicarea. ''Durablemedicalequipment,nonroutinemedicalsupplies,andPartBambulatoryhomehealth servicescontinuedtobereimbursedatcostthroughoutthedemonstration, hiaddition,ifanagency didnotprovideoneormoreofthesixMedicareservices(skillednursing;physical,occupational, andspeechtherapy;homehealthaides;andmedicalsocialworker)duringthebaseyearbutbegan todo soduringthedemonstration,thenthosevisitsalsowerereimbursedatcostduringthe demonstration,aswerethecostsofcareforwhichMedicarewasasecondarypayer. Prospective(per-episode)ratesfortheat-riskperiodwerebasedonatreatmentagency'scosts andepisodeprofileinthefiscalyearprecedingitsentryintothedemonstration(thebaseyear), adjustedforinflationandchangesincasemixineachevaluationyear.^ Theepisodeprofilewasthe averagenumberofvisitsprovidedbytheagencyduringthe120-dayperiod,calculatedforeachof thesixtypesofvisitscoveredbyMedicare.Paymentsforoutlier,phase-in,andphase-outvisitswere alsobasedontheagency'sbase-yearper-visitcosts(adjustedforinflation).^HCFA'smarketbasket wasusedtoadjustboththeper-visitratesandper-episoderatesforinflation. Bothratesweresubject toHCFA'sstatutoryhomehealthcostlimits. Thecase-mixadjusterclassifiedeachpatientinto1of18groupsonthebasisof12variablesthat describedthepatient'spreadmissioncharacteristicsandhospitalstayhistory.Fromthisinformation, anaggregate case-mix indexwas created foreach agency. Atthe endofeachyearofthe demonstration,anagency'scase-mixindexforthatyearwascomparedwithitscase-mixindexfor thebasequarter(thelastquarterofthebaseyear). Iftheagency'scasemixdifferedfi'omitsbase- quartercasemix,thenitsaggregatepaymentwasretrospectivelyadjusted. HCFAprovidedaloss-sharingarrangementtoencourageparticipationinthedemonstration. Itreimbursedtreatmentagenciesfor99percentoflossesoccurringduringthefirstdemonstration year,andfor98percentand97percentoflossesduringthesecondandthirddemonstrationyears, respectively,aslongastotalpaymentsremainedwithinthedemonstrationcostlimits. Thekeyincentiveunderthispaymentsystemwasthatagenciescouldearnprofits,whichthey couldnotdoundercostreimbursement. Agenciescouldcamprofitsintwoways. Theycouldlower ^Formoreinformationonpaymentratesunderthedemonstration,seePhillipsetal.(1995). ^Becausecompletedataforepisodeprofilesandsettledcostreportswerenotavailablefora givenyearimtilsomemonthsafterthatyearhadended,theinitiallump-sumandper-visitratesused inthedemonstrationwerepreliminaryandwererevisedafterfinalbase-yeardatabecameavailable.