The National Home Health Prospective Payment Demonstration: Valuable Lessons for Medicare

In the past, the Medicare program paid for home health services by reimbursing agencies for the costs of providing care, which gave agencies little incentive to deliver services efficiently. Would a new type of payment system encourage efficiency? The answer seems to be yes, according to the results of our evaluation of the per-episode home health prospective payment demonstration conducted for the U.S. Department of Health and Human Services, Centers for Medicare & Medicaid Services.

In the demonstration, agencies received a per-episode payment that covered the first 120 days of care. If per-episode costs were below this payment, an agency was allowed to keep the profit; however, if costs were higher, the agency had to bear the loss. Rates in the demonstration were based on the individual agency’s cost history and were adjusted for patient severity. To encourage agencies to participate, loss-sharing provisions limited their financial risk. Ninety-one Medicare-certified home health agencies in California, Florida, Illinois, Massachusetts, and Texas were randomly assigned to the new prospective payment system or to the cost-reimbursement system.

The evaluation found that the new payment method led to:

• Sharp reductions in home health service use
• No apparent effect on quality of care
• No increase in the use of other Medicare-reimbursed services (such as hospital stays)
• No increase in the use of informal care or other care
• Considerable savings in the cost of care
  

Selected Reports

More than a dozen reports are available in print. Click here to search our database. In addition, the final summary report is available electronically as is an issue brief based on this final report.

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