NCPA - National Center for Policy Analysis

GAO Says Medicare Overpays For Home Health Care

May 8, 2002

Congress should let a 15 percent reduction in payments to home health providers go forward because the industry is being overpaid, according to a General Accounting Office (GAO) report.

Medicare allows certain beneficiaries to receive care in their homes, reducing demand for hospitalization and nursing home care. Home health agencies (HHAs) provide nursing and attendant care as well as meals and other household help.

  • The GAO study, which examined only the first six months of 2001, found that payments to HHAs were on average about 35 percent higher than the estimated costs of the care provided.
  • Investigators blamed a payment system that went into effect two years ago.
  • In 1997 as part of overall budget reductions, Congress required reduction in payments to home-care providers; however, it has delayed implementation of the cut every year, as providers claimed they could not provide the services for less.

The American Association for Homecare says that the GAO report used cost data from 1997 -- "two payment systems ago, before the Balanced Budget Act was implemented" --to determine that home health providers were being overpaid.

In a response published with the GAO report, Center for Medicare and Medicaid Services (CMS) administrator Tom Scully said that the cost report data for the first year of the prospective payment system (PPS) are not available, and that "without that data, it cannot be known with certainty what it costs the HHAs to render the services provided."

Furthermore, Scully said, "CMS has the statutory authority to make appropriate adjustments in PPS to avoid excessive profits, based on "complete outcome-based quality improvement data" which CMS is currently analyzing.

Source: Janelle Carter, "Report to Hill: Cut Home Health Cost," Associated Press, May 7, 2002; "Medicare Home Health Care: Payments to Home Health Agencies Are Considerably Higher Than Costs," GAO-02-663, May 6, 2002, General Accounting Office.

For GAO report


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