By Robert A. Book and Doug Holtz-Eakin, Forbes
The budget that President Obama submitted to Congress last week contains a call for, among other things, an increase of $1.4 billion in discretionary spending for the administrative expenses related to implementation of the Affordable Care Act (Obamacare). In a budget that claims to reduce the deficit, where is all this money coming from?
Some of it – $730 million – is supposed to come from instituting $100 co-payments for Medicare patients who use home health care. Home health care is primarily for patients who need frequent care that requires the attention of a physical, occupational, or speech therapist, or a nurse on a part-time basis, but does not require the patient to be hospitalized. The patients are homebound, and have difficulty accessing outpatient care in the usual settings. In fact, home health care is a significant factor in keeping patients out of the hospital.
The co-payment would apply to “episodes of care” requiring five or more visits over a period of 60 days or less, and is not immediately preceded by a hospital stay. In 2008, this would have applied to about 63 percent of episodes. One might think the goal to save tax dollars by replacing government spending with patient spending. But that’s not the case, as the average spending in a home health “episode” is $3,000, so the co-payment would represent only about 3 percent of total spending. Instead, the primary goal is, in the words of the Medicare Payment Advisory Commission (MedPAC), “ensuring appropriate use of home health care.”
In other words, the President’s budget doesn’t target the 3 percent that would become the patient’s copayment; it’s targeting the 97 percent that won’t be spent if patients can’t, or won’t, come up with the copayment. The administration predicts that “savings” from the non-use of home health services will add up to $730 million. This is consistent with MedPAC’s belief that a significant fraction of home health care is used by patients who could replace it with standard outpatient care, and that they are getting care at home only because it’s “free.”
The problem is, this fails to take into account that a significant fraction is also used by patients who would otherwise be using standard inpatient care – that is, they would be in the hospital instead of at home. If patients do indeed forgo care as the administration intends, many would see their condition deteriorate, and they would end up requiring hospital care to fix a problem that could have been prevented in the first place. In fact, data since 2002 shows that as home health has grown as a percentage of total per-beneficiary spending, hospital inpatient spending has fallen, and by a greater amount. It might be that spending more on home health saves money overall. (See chart.)
This is analogous to the relationship between outpatient office visits and hospitalizations. A study in the New England Journal of Medicine found that seniors who faced higher copays for office visits did indeed have fewer offices visits – but more, and longer, hospitalizations. The study compared privately-run Medicare Advantage plans, finding that plans that increased their copays for outpatient care lost more money on increased hospitalization costs than they gained from reduced inpatient care.
There is every reason to be concerned that the same phenomenon would occur with home health. In fact, Medicare home health copays were eliminated in 1972 for just this reason – the increased hospital spending more than offset the government’s savings on home health, and beneficiaries’ health status was worse as well.
And of course, hospital care is far more expensive that home health care. While hospital care does carry significant copays and deductibles, the vast majority of beneficiaries (about 88 percent of fee-for-service Medicare beneficiaries) have supplemental coverage of some kind (mainly Medigap, retiree plans, or Medicaid) to cover hospital copayments. So from their standpoint, hospital care appears as “free” as home health care does now.
Another justification cited for the change is the high rate of suspected fraudulent billing for home health care in certain geographic regions – regions which have levels of spending far out of proportion to the number of Medicare beneficiaries, even after accounting for their health status. But this raises a more fundamental question of priorities. Before using a co-pay to attempt do discriminate among the many uses of home health services, it makes more sense to undertake anti-fraud, program integrity efforts to eliminate the bad actors – and save the same money.
There may be a time and place for a debate over the desirability of a home health co-pay. But outright fraud is clearly a bigger priority, and a co-payment is not an anti-fraud measure – quite the contrary, a co-payment would reduce legitimate use of home health care without affecting the level of fraud at all.
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Robert A. Book, Ph.D., is Senior Research Director of Health System Innovation Network LLC. You can follow him on Twitter at @robertbook.
Douglas Holtz-Eakin, the co-author of this article, is President of the American Action Forum. He served as director of the Congressional Budget Office from 2003 to 2005, and as chief economic policy adviser to John McCain in 2008. You can follow him on Twitter at @djheakin.