Summary: The 48-percent reduction in Medicare home health care spending in the wake of passage of the Balanced Budget Act of 1997 was due to sharp declines in both the numbers of users and services used. Declines were the greatest for the agencies and patients who used the most services. States that had the highest levels of service use in 1996 saw larger declines than did other states, and declines in rural areas were larger than in cities. Changes in home health utilization occurred in part because of Medicare payment policies mandated by the act. The new prospective payment system (PPS) rates--based on the historically high 1998 utilization--will likely be generous compared with current use patterns. Some agencies may respond by increasing services to beneficiaries, while others may maintain their reduced service levels, resulting in overpayments relative to services delivered. This could cause total Medicare home health spending to rise. GAO recommends that HCFA adopt a risk-sharing arrangement with PPS, which would limit aggregate home health agency Medicare gains or losses.
