Home Health Services

Throughout the nineteenth century in the western world, home health care (HHC) existed to care for new mothers and those with infectious diseases. In the mid-twentieth century, HHC began to transform, as the proportion of older people in the general population steadily increased and with it the need for care for chronic degenerative diseases. The emergence of new medical innovation allowed the shift from facilities to the patient’s residence and demographic trends such as a decrease in the size of families and a decline in families’ colocation changed the social attitudes toward formal care. Finally, rising hospital costs led government to favor lower cost settings.

Although the trends described above are shared by most developed countries, the size of the home health sector as well as the way in which it is delivered, financed, and regulated varies across countries. Spending on home care accounts for a large proportion of resources spent on long-term care. According to 2009 data published by the Organization for Economic Co-operation and Development (OECD), spending on long-term care as a percent of gross domestic product (GDP) was as high as 2.72% in Denmark and as low as 0.84% in Spain. The US spends 0.98% of GDP on long-term nursing care, and approximately 40% of that on HHC.

Home health services are provided by agencies that are primarily engaged in providing skilled nursing or medical care in the home, under the supervision of a physician. The services provided can range from assisting with basic ‘activities of daily living’ (bathing, dressing, getting out of bed, and feeding oneself) to providing complex care. Skilled care can include audiology and speech pathology, dietary and nutritional services, drug services, home health aide, laboratory, medical social services, nursing, occupational therapy, and physical therapy.

Unlike the US, where a mix of public and private home health agencies (HHAs) provides both skilled nursing as well as home aide services, the organization of home health services is different in Europe. In some countries there is a divide, where skilled services are provided by the health care sector, whereas home aide services are provided by social services (e.g., Norway, Finland, and Sweden). In other countries, both skilled and nonskilled care are provided by either municipalities (e.g., UK, France, Italy, and Spain) or covered under social insurance and provided by a mix of governmental and private agencies (e.g., Germany and the Netherlands).

This article will both discuss the salient features of the home health industry, with a focus on the institutional structure in the US. The authors emphasize how these features pose challenges for economic analysis of competition, regulation, and integration. The typical way economists analyze hospital or nursing home markets to not always apply for HHC markets. In particular, the location in which services are rendered – the patient residence – changes the nature of competition, the ability to engage in effective monitoring, and the benefits of organizing services along the health care continuum.

Home Health Care Industry

Freestanding home care services of all types accounted for US$68.3 billion in annual expenditures in 2009, approximately 3% of all personal health care spending. The largest payer of HHC services is Medicare, accounting for 41%. The total coverage from all government sources is 80% because Medicaid covers 24% and other government sources cover 15%. Private insurance accounts for only 8% and most of the remainder is paid from out-of-pocket expenditure.

The Bureau of Labor Statistics estimated that 1 071 960 persons were employed in home health service sector in 2012. The central figure within home care agencies is the registered nurse. The RNs comprise approximately 15% of total home care employment and receive an annual median salary of US$63 850. Approximately 59% of jobs in this segment are in low-income service occupations, mostly home health aides and personal and home care aides. Home health aides, comprising the largest fraction of employees at 35%, receive an annual median salary of $20 560. Nursing and therapist jobs also account for substantial shares of employment in this segment. It should be noted that formal home health is just a fraction of home caregiving; more than one in three US households (an estimated 48.9 million caregivers more than age 18) are informal caregivers for a person older than age 18, with an additional 16.8 million caring for children or both children and adults, for a total of 65.7 million individual caregivers.

From an organizational perspective, there are 10 422 Medicare-certified HHAs. Approximately 85% of them are freestanding; the remainder are predominantly affiliated with hospitals. Approximately 70% of the freestanding HHAs were classified as proprietary or for-profit and the remaining freestanding HHAs were nonprofit agencies, including Visiting Nursing Associations, government or voluntary agencies, public agencies (typically run by the state or local government) and private nonprofits. There are HHAs that do not certify with Medicare but data on these facilities are sparse. HHC agencies are distinct from other home care organizations such as hospices where the focus is on care of terminally ill patients and their families, home care aide agencies where the focus is on assistance with activities of daily living, and home care equipment providers. Home-hospice, home infusion therapy, and home dialysis are outside the scope of this article. HHC agencies are also a distinct from other organized settings for postacute care. These other settings include skilled nursing facilities (SNFs), long-term care hospitals, and inpatient rehabilitation facilities.

The service lines of these HHAs are separated into personal care services (care provided by home health aids or personal care for the elderly such as bathing, dressing when there is no concurrent need for skilled care, and homemaking), which are more likely to be covered by Medicaid and services to treat an illness or injury to regain independence which are covered by Medicare. Medicare home health services consist of skilled nursing care by a registered nurse or licensed practical nurse with supporting services by home health aides; therapy services including physical therapy, occupational therapy, and speech–language therapy; medical social services; and medical supplies. Home health visits typically last approximately 45 min. A typical clinical episode of care may be approximately a month, but payment is fixed as long as the clinical episode does not exceed 60 days. If the clinical episode needs to be extended beyond 60 days, there can be sequential 60-day payment episodes through recertification. Although there is great variation, there are approximately 12 visits on average during a typical clinical episode. Most of this article focuses on the Medicare service line, which is the largest segment of HHC services. However, Medicaid’s role in home health has been growing rapidly as long-term nursing care is moving away from institutional settings and into community-based settings.

The Value Proposition For Home Health Services

Given that care in the home is less expensive to Medicare than care in a hospital or a SNF – in 2009, the average Medicare charges on a per day basis for hospital came to US$6 200, SNF was US$622, and home health Medicare charges averaged US$135/day – there are great opportunities for value in home health. Value is derived when home health can cost-effectively substitute for these more intensive locations of care or when home health services can play an important role in avoiding rehospitalizations during postacute care or hospitalizations for chronically ill patients. However, because standards for what constitutes appropriate or necessary care do not exist, the value of what gets delivered in home health on the margin is often questioned.

Empirically, value in home health is typically shown for select conditions where the evidence for home health is strongest (i.e., diabetes, chronic obstructive pulmonary disease, and congestive heart failure patients). Measured in 1995, savings accrued when home health was successfully substituted for more intensive sites of care in cases of pediatric AIDS (US$2263 per hospital per day vs. US$531 at home per day), respiratory care (US$188 909 per year at hospital vs. US$109 836 per year at home), and hip-fracture (savings of US$2300 per incident if home health used in conjunction with hospital care). For the majority of conditions, however, there are few studies that even attempt to demonstrate value. As a result, great geographic variations exist in home health.

Holding HHAs accountable for outcomes may be an avenue to improve both the quality of home health services and patient outcomes in general, but the measurement and assessment of outcomes in home health is a challenge. Although outcomes can be measured from the Outcome and Assessment Information Set (OASIS), there is no consensus regarding the outcomes that capture the effectiveness of home health. And more importantly, because outcomes are typically measured within HHC, home health outcomes are not compared to the alternative of reduced access to home care. This makes it difficult to assess whether improvements in staffing or increasing the number or coverage of agencies would, in fact, spillover to other services, for example, through reduced hospitalization rates.

Reimbursement Under Medicare

Reimbursement Mechanism

To be eligible for Medicare’s home health benefit, beneficiaries must need part-time (fewer than 8 h per day) or intermittent (temporary but not indefinite) skilled care to treat their illnesses or injuries and must be unable to leave their homes without considerable effort. Medicare does not require beneficiaries to pay copayments or a deductible for home health services. In the Balanced Budget Amendment of 1997, Medicare changed from paying a fee per home health visit to a Prospective Payment System (PPS). Under the PPS system, which began in 2000 after a 3-year interim system, Medicare pays a fixed amount for HHC in 60-day episodes. These Medicare payment episodes begin when patients are admitted to HHC. Patients who complete their course of care before 60 days have passed are discharged. If they do not complete their care within 60 days, another episode starts and Medicare makes another episode payment. As long as they meet the eligibility standards for the benefit, beneficiaries may receive an unlimited number of consecutive home health episodes. Medicare adjusts the payment based on several factors including measures of patients’ clinical and functional severity and the use of therapy during the home health episode. This case-mix adjusted payment rate is similar to the Medicare SNF and inpatient hospital PPS’s. However, a major difference among the systems is the unit of payment. SNFs are paid by the day, whereas the home health PPS pays by the 60-day episode. In 2009, the Medicare payment per user of home health was US$5748. This was up from US$3803 in 2002.

Yet the system will continue to be changed as savings are sought within Medicare. One reason for this is that HHAs continued to be paid by Medicare significantly above cost, with margins of 16.6% in 2007 though there have been recent changes that include a payment-rate update that represents a 5% decrease and caps on outlier payments. Several changes were part of health care reform that have expanded the role of the physician so that a physician face-to-face encounter is now a requirement for certification of eligibility for home health services, the final rule provided that the encounter must occur with the 90 days before start of care, or within the 30 days after. This is a means of increasing physician accountability and providing an additional check on beneficiaries’ eligibility for home health benefits.

Incentives Created By Reimbursement Mechanism

The shift from per-visit payment to prospective payment shifted incentives from rewarding the number of visits, which can lead to a more intensive pattern of visits, to rewarding a limited number of visits within an episode, but encouraging expansion through the number of episodes. Care patterns appear to be very sensitive to the payment system. For example, during the interim period (Interim Payment System (IPS)) between the end of per-visit payment and the beginning of PPS, there was an annual reduction of 1.3 million HHC episodes with a 30% decline in the number of Medicare certified HHAs. However, PPS did not have the same disincentive for visits as the IPS as the PPS scheme includes lower payments if 5 visits are not achieved and enhanced payments when therapy visits exceed 10 visits. As a result the transition from IPS to PPS has resulted in an increase in both episodes and agencies.

Various changes to reimbursement design illustrate the influence of incentives in determining where Medicare beneficiaries receive postacute care. The results of switching from fee-for-service (FFS) to PPS were profound, suggesting highly elastic patterns based on reimbursement design. When the Balanced Budget Act (BBA) was passed and the IPS was implemented after years of FFS, the industry changed rapidly. In addition to heavily cutting reimbursement rates, the IPS ended a period in which providers had no little incentive to control the amount of service per user. After the IPS’s enactment, a trend emerged in which patients were shifted from HHAs and SNFs to having no formal care. Also, because reimbursement was not case-mix adjusted, the IPS created backward incentives for HHAs to cut service to high-cost patients. HHAs that did not use strategic admission of low-cost patients suffered the risk of insolvency. Furthermore, the scale of the industry responded quickly and intensely: The number of active agencies decreased by 20% after IPS. Between 1996 and 1999, the number of new agencies declined by a drastic 86%, and the number of terminated agencies increased by 523%. In 1996, the ratio of terminated HHAs to new HHAs was less than 1, but 1997 after the IPS, terminated HHA’s outnumbered new HHA’s 9 to 1. The industry is highly reactive to reimbursement changes, and the roughly 30% of the decline in HHAs between 1997 and 2001 has been attributed to changes in Medicare home health coverage and reimbursement enacted as part of the BBA.

The PPS, introduced in October 2000, continued prospective payment but adjusted for case-mix when determining reimbursement payments. By replacing the IPS with the PPS’s risk-adjusted episode system, Medicare alleviated HHAs’ financial risk of treating patients. The PPS reversed some of the IPS’s impacts: From 1999 to 2002, the number of new HHAs increased 78% and the number of HHA termination fell by 88%. By 2002, the PPS had stopped the contraction of HHAs providers, and more agencies were added than terminated. However, throughout both the IPS and PPS, proprietary and freestanding HHAs experienced greater volatility. Not until 2009, with 10 581 agencies, did the number of HHAs surpass that of 1997. With respect to quality, the Office of Inspector General found that the change in the reimbursement system did not lead to increased use of hospital and ER services. Recently MedPAC has responded to the HHC industry’s high margins (16.6% in 2007), which it feels undermine the efficiency goals of a PPS. Consequently, it has recommended cuts in reimbursement rates.

Even before the BBA there was strong evidence of drastic industry responses to incentive changes. A 1987 court case, Duggen versus Bowen, resulted in changes in reimbursement and incentive changes. Before 1986, Medicare suffered from excessive administrative complexity and unreliable reimbursements. The lawsuit’s success contributed to increased annual Medicare home health outlays and a doubling of the number of Medicare-Certified HHAs between 1989 and 1996. Additionally, growth of the HHC services industry was 18%, whereas it was 7.2% for the total US health care services.

Managed Care In Home Health

After the passage of the Medicare Modernization Act, Medicare Advantage enrollment has increased rapidly. As of February 2010, 25.2% of Medicare beneficiaries were enrolled in Medicare Advantage.

Incentivized by the increasingly competitive nature of the health care industry, HHAs have entered into managed care provider networks. However, the extent to which HHAs participate in managed care is largely unstudied. An early study by Center for Medicare and Medicaid Services (CMS’s) predecessor, Health Care Financing Administration, found that managed care patients used less home health resources but also had worse outcomes when compared with FFS patients. Further research is needed on the effect of managed care plans on outcomes in HHC.

The Nature Of Competition

The most salient distinctive feature of HHC is the site of care. With services delivered in the home rather than in a centralized facility, the nature of competition is different. For hospitals and physician offices, location provides a degree of market power that does not exist for HHAs because the consumers do not face travel costs when receiving home health services. Travel costs, in both emergencies and nonemergencies, lead most consumers to prefer a closer provider and similarly for admitting and referring physicians. Without location as a natural barrier to competition, home health markets are expected to be highly competitive.

Quality of care in home health may be more important for agency choice because consumers do not need to tradeoff quality off against distance, as is the case for hospitals, nursing homes, ambulatory surgery centers, and other facilities. Studies of hospitals and other health care facilities have shown distance to be an important factor in the choice of health care provider. For example, the effect of distance to provider for mental health institutions was found to overshadow other incentives to initiate treatment. Similarly, patients often prefer to receive care at a near hospital, even if it has higher mortality rates and less experience with certain procedures. Distance to nearest hospital was shown to significantly impact utilization of preventative care, psychiatric, geriatric, and elective surgery and had a much stronger effect on the probability of hospital choice than waiting time. Moreover, physicians typically mention in surveys that the hospital’s location strongly influences their decision on where to admit patients. Geographic proximity was found to be a strong predictor of whether or not a physician utilizes a hospital.

In classic spatial models of competition each firm chooses a location such that it attracts the profit maximizing amount of consumers. In markets for services such as HHC or home repair the site of exchange is the consumer’s home and although proximity to consumers remains the source of market power, it is the firms who engages in travel. Under fixed prospective payments, the firm bears the costs of travel. When firms choose a price schedule, discriminatory pricing occurs if the firm bears the transportation cost. More importantly, the notion of a marginal consumer (a consumer that is indifferent between traveling to the closest firm to her right and the closest firm to her left), is different than the one in Salop (1979). Here the marginal consumer is the one that makes the firm indifferent between serving her or not, and as such does not directly defines the boundaries of the demand for the firm (unless the firm is a local monopoly). Therefore, multiple firms may compete for the same consumers in equilibrium.

Because provision of care takes place in patients’ homes, service delivery in this industry is both labor-intensive and decentralized. These two features have a potentially important effect on the nature of competition in HHC markets. The fact that there are few capital requirements lowers the barriers to entry. In the next section the authors discuss the fact that states have imposed an artificial barrier to competition by restricting the creation of new HHAs through Certificate of Need (CON) regulation. The decentralized nature of service delivery has two important effects: First, because patients are ‘matched’ to a home aide, nurse, or therapist by agencies, switching costs within and across agencies may be similar. Secondly, monitoring quality of care is difficult for both agencies and regulatory bodies.

Nature, Roles, And Impacts Of Regulation

Entry Regulation Through Certificate-Of-Need Laws

Although states universally adopted CON for hospitals in the 1970s, 38 states also applied CON regulation to the HHC sector. When the federal mandate was repealed in 1987, only 18 states continued active CON regulations for HHC. Interestingly, the lessons from hospitals will not necessarily apply to home health. Unlike hospitals, SNFs, or physician offices, where location provides a degree of market power, HHAs deliver services at the patient residence. Without location as a natural barrier to competition, one might expect home health markets to be a highly competitive. Similarly, unlike hospitals and other facilities that require major capital investments in order to become operational, HHC is labor intensive and is expected to be highly competitive absent of entry regulation.

CON for hospitals, nursing homes, and rehabilitation centers were designed to give state governments the authority to restrict the construction of new and expansions to existing facilities, as well as the purchase of expensive technology. These restrictions were designed to prevent overutilization and duplication of services and ensure quality by centralizing medical services to high-volume facilities. Although acquisition or expansion of hospitals requires large capital investments, home health is a labor intensive industry with little capital investment and no evidence of a volume-outcome relationship. Therefore, there is no reason to expect an effect of CON on expenditures, costs, procedure volume, or mortality. Moreover, CON for home health, operates as a mechanism for restricting entry of new agencies. Most states with CON regulations follow specific policies and guidelines for the approval of additional HHAs in a given market, but in practice new agencies are rarely approved, leaving markets in CON regulated states uncontested by potential entrants. CON laws serve as an artificial barrier on the number of competitors in a given market. Unlike in the case of hospitals, it is nearly impossible for a potential entrant to demonstrate ‘need,’ as incumbent agencies are not constrained by capacity and have no hurdles when it comes to expansion of services. Not surprisingly, CON states have almost half the number of Medicare-certified agencies compared to non-CON states although Medicare expenditures are similar in CON and non-CON states.

An alternative rationale for CON programs in home health is that they can improve quality of care through enhanced ability to monitor agencies. With fewer agencies, state regulators may be more effective at having a positive influence on the quality of care delivered by the HHAs in their state. However, although HHC in CON states was found to be less intensive (lower frequency of visits and lower skill mix), to date there is no evidence to suggest CON in HHC is quality enhancing. This may not be surprising, as the number of evidence-based standards of care in home health on which effective quality regulation can be based is limited.

Price Regulation

As discussed in Section Reimbursement under Medicare, the price of a 60-day home health episode is fixed and set at admission according to the severity of the patient’s condition. Because prices are regulated, providers can no longer compete for patients based on price of services and instead compete for patients on the quality of their services. Economic theory suggests that market competition in the presence of regulated prices can drive up quality. Indeed, most empirical studies of the relationship between competition and quality under regulated prices in the case of dialysis centers and hospitals found more competition to result in higher quality (as measured by lower mortality).

Although the effect of market concentration on quality has been studied extensively in the hospital sector, this relationship has received little attention in the HHC industry. Some studies focused on the effect that Medicare PPS for home health services had on market concentration. One study has found that reimbursement cuts under IPS and PPS led to massive closure of HHAs, which found it difficult to remain fiscally viable. Moreover, states with higher barriers to entry through CON laws showed relatively lower rates of agency termination.

The Role Of Integration

Vertical integration of acute care sites (i.e., hospitals) into postacute care (e.g., SNFs, rehabilitation centers, and HHAs) is common and has the potential to influence the nature of health interventions. Vertical integration increased dramatically during the 1990s, with three-quarters of hospitals integrated with postacute care in 2001. Although patient care is produced along a care continuum, which includes both acute and postacute care entities, reimbursement for entities along the same continuum does not incorporate the fact that patient outcomes depend on the entire patient experience, including the transition between facilities. Vertical integration has the potential to correct such distortions, and is a key feature of the Accountable Care Organization concept.

Environmental changes in health care in the form of PPS’s, managed care, and aging of the population have resulted in greater interdependence among acute and postacute providers. Although postacute care has been described as highly fragmented and with much redundancy, the increase in the level of interdependence among contracting parties increases the costs of external market exchange and favors integration. From an efficiency perspective, vertical integration in the health care sector can reduce transaction costs, and raise quality of care due to greater coordination and continuity of care.

Another study looked at vertical integration of hospitals and SNFs before and after the introduction of PPS for hospitals. PPS produced strong incentives to reduce costs per admission by shortening the average length of patient stays, which in turn created a new dependency of hospitals on nursing homes. The price paid to the nursing home to accept a hospital patient is established unilaterally by Medicare and therefore cannot be negotiated between the hospital and the nursing home. Hence, vertical integration becomes the only feasible route to affect the implicit transfer prices governing patient flows between the hospital and its own nursing home division. Hospitals with larger fractions of their patients covered by Medicare were significantly more likely to integrate vertically into nursing home services than were hospitals with proportionately fewer Medicare patients. A similar argument was put forth in another study, which concludes that financial pressure was the key driver leading to vertical integration of hospitals and HHAs in the mid-80s. As environmental pressures increase, hospitals benefited from tighter linkages with home health providers. Furthermore, an even earlier study compared the medical process at two hospitals, one with and one without a home nursing department. Regression analysis showed that home nursing care significantly reduced both the length of hospital stays and the number of follow-up visits to outpatient clinics. After accounting for the cost of the home nursing program, however, the program did not significantly reduce overall hospital expenditures.

Consistent with these findings, in a recent paper the authors introduce a theoretical framework, in which vertical integration allows hospitals to shift patient recovery tasks downstream to lower cost delivery entities (e.g., SNFs or HHAs) by discharging patients earlier. Because integrated hospitals fully control the postacute tier, they can ensure that patients discharged earlier and in poorer health receive greater posthospitalization service intensity. Although integration facilitates a change in the timing of hospital discharge, health outcomes are no worse when patients receive care from an integrated provider. It is shown that vertically integrated hospitals tend to discharge patients to their own HHAs sooner, with poorer health at the time of transition out of the hospital, yet with similar overall health outcomes. The authors used rehospitalization rate within 60 days of hospital discharge as the outcome variable. According to a recent report to Congress, ‘‘Hospital readmissions are sometimes indicators of poor care or missed opportunities to better coordinate care. Research shows that specific hospital-based initiatives to improve communication with beneficiaries and their other caregivers, coordinate care after discharge, and improve the quality of care during the initial admission can avert many readmissions.’’ The Hospital Readmissions Reduction Program is a new Medicare program that establishes a financial incentive for hospitals to lower readmission rates. Under the program, Medicare’s base operating diagnosis-related group payment amounts will be reduced for hospitals with excess readmissions.

The Use Of Technology In Home Health Care

Telemedicine is a term used to cover a broad category of services, defined by the Institute of Medicine as ‘‘the use of electronic information and communications technologies to provide and support health care when distance separates the participants.’’ The term is also applied more narrowly to medical care that uses interactive video, generally for consultations with specialists. However, telemedicine (or more generally, telehealth) is also comprised of the transmission of still images, e-health including patient portals, remote monitoring, medical education, and nursing call centers.

In the 1960s, the first uses of electronic telemedicine were to support neurologic and psychiatric services in Nebraska. With the exception of teleradiology, its adoption by physicians since then has been slow. Some of the main difficulties are licensing providers across state lines, liability concerns, reimbursement concerns, and physician awareness. From the 1960s through the 1990s, telemedicine consisted mostly of specialty consultations though videoconference technology. The millennium, however, saw more attention focused on noninteractive data storage and transmission. The thawing of Medicare’s and other insurers’ collective reluctance to cover telemedicine helped contribute to the 2000s’ expansion. Both interactive and noninteractive technologies are increasingly used for remote monitoring of health status in homes.

Remote patient monitoring (RPM), or ‘home telehealth,’ is a subset of telemedicine that includes technology in a patient’s home that records biometric data and transmits it to a central monitoring facility for interpretation. Consequently, patients can receive monitoring that might otherwise require physical nurse visits or trips to outpatient or inpatient facilities. Currently, Medicare spending on telemedicine is tracked as a whole, but not by class. Teleradiology has the largest expenditures, but the total amount is not documented, nor is it for RPM. Medicare reimburses for remote cardiac monitoring technologies and remote screening. Videoconference technology for rural patients has seen rapid growth, but it is still underutilized with less than US$1 million in expected reimbursements for 2011. Home telemedicine (and delivery for it) is paid for under the prospective payment reimbursement system.

An early and successful application of RPM was in heart monitoring, which culminated in greater safety for at-risk, rural-dwelling patients. RPM has rendered home health more likely to be substitutable for medical treatment in a more intensive location. By lifting the burden of face-to-face contact between providers and patients, telemedicine in theory should be access expanding, cost-effective, and quality improving. There is evidence that access has improved as technology enabled rural patients now receive care that was once too costly and impractical to provide, but there are no well-controlled studies that demonstrate cost-effectiveness or quality improvement with these technologies.

RPM is characterized by large, up-front costs to acquire the capital, the need for highly trained labor to operate it, and the integration of care with response teams and specialists. An important potential limitation of delivering RPM in a cost-effective system is related to the way care is reimbursed in Medicare. If home health providers cannot recover the added capital expense of RPM, they may underinvest. But if home health providers are reimbursed for RPM at a higher rate there may not be sufficient controls to only use this technology in those patients who would gain the most from it. The challenge is for hospitals to work more effectively with providers and technology developers. When determining reimbursement for RPM, it is important to consider the true costs of the alternative form of care and to align incentives such that those making decisions about the course of treatment are not penalized for selecting treatment patterns that may save the system money. The ideas behind Accountable Care Organizations where savings to Medicare are shared among providers may create the environment for a more cost-effective use of telehealth.

The Nature, Role, And Impact Of Quality Initiatives In Home Health Care

Quality in health care is significant because it greatly impacts an individual’s well-being and is more influential on wellbeing than quality of most other goods and services. Prompted by consumers, providers, and the growing body of evidence about the poor quality of health care, policymakers developed a strong interest in designing and implementing system-wide, market-based reforms to promote quality in health care. CMS implemented quality reporting in HHC in 2003 and has a demonstration project testing pay for performance in home health.

Public Reporting In Home Health: Home Health Compare

The public reporting initiative in home health started in October of 2003 when CMS launched a website called Home Health Compare. This website posts quality performance information for HHAs that serve a particular zip code. The quality measures generally measure how well the patients of an HHA regain or maintain their ability to function. There are 10 quality measures posted on HHC which come from a subset of larger set of 41 OASIS outcome measures that are well known to the HHAs, including improvements in ambulation, bathing, transferring, management of oral medication, pain interfering with activity, dyspnea (shortness of breath), and urinary incontinence, as well as measures of acute care hospitalization, emergent care, and discharge to community. The emphasis of this initiative was to give consumers information regarding the quality of care provided by HHAs. Other similar initiatives, such as Hospital and Nursing Home Quality Initiatives, suggest that measured quality improves in response with these two initiatives.

In HHC, there are two pathways for which quality to be improved. The first is ‘selection,’ which is that knowledge about performance leads patients, their payers, and agents engaged in referrals to be more likely to select higher quality providers. This will raise average quality in a market because a greater share of patients receives care from high performers. The second pathway is ‘change’ which is that more information in the hands of stakeholders creates motivation for organizations and their providers to improve quality and that more feedback about performance within an organization can also lead to positive change.

There is limited research on the environments in which HHC will be most effective. Although competition’s effect on quality has been studied extensively in the hospital sector, it has not yet been in home health. HHC should be studied separately because with services delivered in the home rather than in the facility of the provider – the nature of competition is different. Theoretically, patients in more competitive markets will have higher quality based on conduct measures (visits per admission) and performance measures (improved functional outcomes and fewer adverse events). Furthermore, HHC should result in quality improvement, and competitive markets should have greater quality improvement in outcomes. The only evidence currently available comes from the initial demonstration project for HHC which did show some improvement in quality.

Pay-For-Performance

In 2003, MedPAC recommended that Medicare reward providers who provide ‘high-quality care or improve the quality of care for their patients.’ Pay-for-performance ties a direct financial payment to performance on selected quality measures and creates incentives for individual providers to improve the quality of care. The program aims to reward quality where it is possible to measure. In home health, the measures based on currently mandatory patient evaluations met the proposed criteria. MedPAC seeks to make sure that measure sets are not fixed and that they progress to integrate new measures and to eliminate any obsolete or ineffective measures.

Readmissions reduction payments have been considered as well. With respect to lowering readmissions, hospitals are the most obvious focus, but in a 2007 report, MedPAC focused on aligning incentives across all with influence on outcomes. However, there is disagreement over the best way to reward reductions in hospital readmissions. It can be done by directly penalizing or rewarding hospitals or secondary means of reduction, such as RPM and HHC improvements.

In 2007, a P4P pilot was implemented in seven states been 2008 and 2009. The ‘incentive pool’ used to fund the program was generated from savings due to less utilization of costly Medicare services. The payout structure was setup such that 75% of the pool went to agencies in the top 20% of the highest level of patient care and 25% of the pool went to the top 20% of those making the biggest improvements in patient care. If there were no savings, there would be no compensation. Results: for 2008, aggregate Medicare savings were US$15.4 million for three of four regions, with the Midwest region not achieving any savings. The demonstration is still under evaluation.

References:

1. Anderson, K. B. and Kass D. I. (1986). Certiciate of need regulation of entry into home health care, a multi-product cost function analysis, an economic policy analysis. Bureau of Economics Staff Report to the Federal Trade Commission. Washington, DC: The Federal Trade Commission.
2. Avalere Health, LLC (2009). Medicare spending and rehospitalization for chronically ill medicare beneficiaries: Home health use compared to other post-acute care settings. Washington, DC: Avalere Health LLC.
3. Banks, D., Parker, E. and Wendel, J. (2001). Strategic interaction among hospitals and nursing facilities: The efficiency effects of payment systems and vertical integration. Health Economics 10(2), 119–134, Article first published online: March 2001. doi:10.1002/hec.585.
4. Choi, S. and Joan, D. (2009). Changes in the medicare home health care market, the impact of reimbursement policy. Medical Care 47(3), 302–309.
5. Dansky, K. H., Milliron, M. and Gramm, L. (1996). Understanding hospital referrals to home health agencies. Hospital & Health Administration 41(3), 331–342.
6. David, G., Rawley, E. and Polsky, D. (2013). Integration and task allocation: Evidence from patient care. Journal of Economics and Management Strategy 22(3), 617–639.
7. Dranove, D. (1985). An empirical study of a hospital-based home nursing care program. Inquiry 22(1), 59–66.
8. Field, M. J. and Grigsby, J. (2002). Telemedicine and remote patient monitoring. Journal of the American Medical Association 288(4), 423–425. doi: 10.1001/jama.288.4.423.
9. Goldsmith, J. (2004). Technology and the boundaries of the hospital: Three emerging technologies. Health Affairs 23(6), 149–156.
10. Kenney, G. and Dubay, L. (1992). Explaining area variation in the use of medicare home health services. Medical Care 30(1), 43–57.
11. Martin, A., Lassman, D., Whittle, L., Catlin, A. and National Health Expenditure Accounts Team (2011). Recession contributes to slowest annual rate of increase in health spending in five decades. Health Affairs (Millwood) 30(l), 11–22.
12. Medicare Payment Advisory Commission (MedPAC) (2006). Adding quality measures in home health. Report to the Congress: Medicare Payment Policy, Home Health Services, Section 4b 103–113. June 2006.
13. Medicare Payment Advisory Commission (MedPAC) (2009). Home health services: Section 2E. Report to the Congress: Medicare Payment Policy, Home Health Services, Section E 193–203. Washington, DC: MedPac.
14. Polsky, D., David G., Yang, J., Kinosian, B. and Werner, R. (in press). The effect of entry regulation: The case of home health. Journal of Public Economics.
15. The National Association for Home Care & Hospice (NAHC) (2010). Basic statistics about home care.