Medicare:

Better Information Can Help Ensure That Refinements to BBA Reforms Lead to Appropriate Payments

T-HEHS-00-14: Published: Oct 1, 1999. Publicly Released: Oct 1, 1999.

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Pursuant to a congressional request, GAO discussed the effects of the Balanced Budget Act of 1997 (BBA) on the Medicare program, focusing on the effects on three providers of post-acute care services--home health agencies (HHA), skilled nursing facilities (SNF), and providers of outpatient rehabilitation therapy--and on the health plans participating in the Medicare Choice program.

GAO noted that: (1) some providers of post-acute care and health plans in the Medicare Choice program may have to rethink their business strategies as a result of BBA payment reforms, which seek to make Medicare a more efficient and prudent purchaser; (2) imperfections in the design of BBA-mandated payment systems require attention, and better information can help policymakers distinguish between desirable and undesirable consequences; (3) based on such knowledge, refinements can help ensure that payments are not only adequate in the aggregate but are also fairly targeted to protect individual beneficiaries and providers; (4) GAO's work indicates that: (a) the reductions in the number of HHAs and changes in utilization were consistent with the objectives of the interim payment system to control the rapid growth that had preceded BBA; and (b) appropriate access to Medicare's home health benefit has not been impaired; (5) however, the prospective payment system (PPS) is a more appropriate tool for the long term than the interim payment system, because it is intended to adjust payments for differences in beneficiary needs; (6) GAO's ongoing work suggests that factors in addition to the PPS have contributed to fiscal difficulties for some corporations operating SNFs; (7) nevertheless, certain modifications to the PPS may be appropriate to ensure that payments are targeted to patients who require more costly care; (8) in 1999, BBA established an annual $1,500 per-beneficiary cap on payments for outpatient physical therapy and speech/language pathology services combined and a separate $1,500 cap on outpatient occupational therapy; (9) a need-based payment system could better target payments toward beneficiaries who genuinely require more services than allowed under the dollar limits; (10) several BBA provisions address the long-recognized problem of excess payments to Medicare Choice plans; (11) some provisions have begun to be phased in, such as reducing the annual rate updates; others have not yet become effective, such as the use of a risk adjustment method based on beneficiary health status; (12) the net effect of the implemented revisions has been modest and, on average, has likely removed only a portion of excess payments built into the base rates; and (13) critical to making Medicare Choice payment modifications are the establishment of an appropriate base rate and of a risk adjustment method that pays more for serving beneficiaries with serious health problems and less for serving relatively healthy individuals.

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