Medicare Home Health Care: Payments to Home Health Agencies Are Considerably Higher than Costs (GAO-02-663) 

The Balanced Budget Act of 1997 enacted major changes in Medicare's home health care payments to provides home health agencies (HHAs) with incentives to operate more efficiently. Under a prospective payment system (PPS), HHAs are paid a fixed amount, adjusted for beneficiary care needs, for providing up to 60 days of care---termed a home health episode. The Act also imposed new interim payment limits to moderate spending until the PPS could be implemented. The PPS was designed to lower Medicare spending below what it was under the interim system. However, Medicare's payments for full home health care episodes were 35 percent higher than estimated in the first six months of 2001. These disparities indicate that Medicare's PPS, designed to ensure that HHAs operate efficiently, overpays for services actually provided, although some HHAs facing extraordinary costs not accounted for by the payment system may be financially disadvantaged.