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History of Medicare Home Health Payments

Written By: Jason Shafrin - Feb• 04•14

Medicare pays home health agencies (HHAs) to care for patients who cannot care for themselves in their own homes.  HHAs, however, have experienced significant changes in the way Medicare pays them over the past 30 years.  A recent paper by Huckfeldt et al. (2014) summarizes these changes:

  • 1983: Medicare switches to an inpatient prospective payment system for hospitals.  HHAs, however, are still paid on a cost basis (subject to a maximum cap).  The number of patients using home health services and the number of visits per patients increased dramatically in the late 1980s and early 1990s.
  • 1997: The Balanced Budget Amendment (BBA of 1997), however, made a number of changes to HA reimbursement.  The BBA adopted an Interim Payment System (IPS), which “reduced average payments per visit, instituted an annual per-patient payment cap, and effectively eliminated marginal reimbursement above these limits.”  Specifically, home health agencies were reimbursed based on the lower of their actual costs, a per-visit cost limit, or additionally, a per beneficiary cost limit.
  • 2000: The Home Health Prospective Payment System (HHPPS) is instituted, which increase average payments to HHAs, but causes a slight decrease in marginal payments.  HHPPS pays HHAs using a 60-day prospective episode payments.  The amount of the payment depends on the “home health resource group,” which is determined as a function of clinical and functional status and expected service utilization. For more information, see here.
  • Today: The Affordable Care Act mandates that Medicare explore bundled payment options which would pay hospital a fixed amount not only for the inpatient services received but also for any post-acute services (e.g., home health care, or skilled nursing facility care) as well.


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