Commission delivered final report to Congress on June 28, 2002
Return to
Home Page
News Archive

Kincheloe Testimony

Testimony of Jeff Kincheloe
National Association for Home Care
March 11, 2002

Thank you for this opportunity to testify on meeting the future home care needs of our nation's senior citizens. I am Jeff Kincheloe, Deputy Director of Government Affairs for the National Association for Home Care (NAHC). I am here representing NAHC's President, Val J. Halamandaris. NAHC is the nation's largest organization representing home care and hospice providers and the patients they serve.

The US Bureau of the Census predicts the population age 85 and older will double between 1994 and 2025, from 3.5 million to 7 million, and to nearly quadruple by 2040. The Urban Institute predicts that persons with two or more limitations in activities of daily living (ADLs) will increase from 4 million in 1990 to nearly 6 million in 2010, and 9 million in 2030. Preserving and expanding access to home and community-based care in the 21st Century is vital if our nation hopes to help individuals maintain maximum functioning and remain in the least restrictive living environment.


The Balanced Budget Act of 1997 (BBA97) called for major cuts in the Medicare program. Overall, Congress voted to cut Medicare by $116 billion over five years, with $16 billion coming from the home health benefit. At the time, Congress' rationale was to slow the growth in home health spending, but not to make programmatic cuts. They also mandated that home health be transitioned to a prospective payment system (PPS) by October 1, 1999. Since such a system had yet to be worked out, Congress established an interim payment system (IPS) that imposed restrictive per beneficiary limits on home health agencies.

During deliberations on the BBA97, the Congressional Budget Office (CBO) advised the authorizing committees that the proposals developed to reduce growth in home health outlays would not yield $16 billion over FY97-2002, and that an additional 15% cut would be needed in 1999 in order to reach the targeted reductions. As a result, BBA97 included an additional 15% cut off the home health per visit and beneficiary cost limits to be imposed October 1, 1999. Subsequently Congress passed legislation delaying the 15% cut twice; it is now scheduled for implementation on October 1 of this year.

As a consequence of the BBA 97 and the imposition of IPS, the Medicare home health benefit has been seriously eroded. Cost-efficient home health agencies across the country have experienced acute financial difficulties and cash flow problems that have inhibited their ability to deliver much-needed care. Approximately 3,500 home health agencies nationwide have either closed or stopped serving Medicare patients. Home health has decreased as a percent of Medicare outlays from 9% in FY 97 to 4% in FY2001. In addition, the Centers for Medicare and Medicaid Services (CMS) estimates that nearly 900,000 fewer home health patients received services in 1999 than in 1997. CBO projected that home health outlays for FY98-FY2002 will be reduced by $72 billion, more than four times the $16 billion in savings contemplated by Congress in 1997. (See Appendix 2.)

The reductions in Medicare's home health benefit since enactment of the BBA97 are startling and unprecedented. Since fiscal year 1997 (FY97, the federal budget year that ended September 30, 1997), program expenditures decreased 48%, from $17.5 billion in FY97 to $9.1 billion in FY01. (See Appendix 2.) From 1997 to 1999, the average payment per patient declined by 38%. During the same period, the total number of Medicare home health visits delivered decreased by 56% and the average number of visits per patient declined by 42%. (HCIS, 2000.)

While other Medicare programs have seen reductions due to the BBA, no other decrease has been close to what the home health benefit has experienced. In fact, FY99 was the first year in the history of the home health benefit in which Medicare outlays for skilled nursing facility care exceeded those of home health. Of the total reductions in projected Medicare outlays for hospitals, skilled nursing facilities, and home health agencies between fiscal year 1997 and 1999, 60% of the total reductions in projected outlays came from home health. An additional 15% cut would be the death knell for home care providers who are currently struggling to hang on and would further reduce seniors' access to critical home care services


The home care industry has a history of periodic difficulties in recruiting and retaining qualified nurses, home care aides, and other direct care workers. However, in recent years, numerous factors have had the combined effect of transforming these cyclical difficulties into a crisis situation. Among these are: dramatic reductions in reimbursement for home health agencies resulting from the Balanced Budget Act of 1997 (BBA); a flood of new and costly regulatory requirements; low unemployment rates; the competitive disadvantage home care agencies have over employers that are able to offer higher wages, better benefits, and more attractive work schedules; an aging population and increasing longevity; the continuing trend on the part of hospitals to release patients quicker and sicker; technological developments that allow more complex treatments to be performed in the home; and the preference of most consumers to remain in their homes as long as possible.

Staffing levels at home health agencies decreased by over 173,000 full time equivalents (FTEs) between 1996 and 2000. In two surveys conducted by the National Association for Home Care (NAHC) in October 2000 and February 2001, home health agencies reported serious difficulty in recruiting and retaining personnel, particularly nursing and paraprofessional staff. In some areas of the country this problem has reached crisis proportions.

The employment reductions in Medicare are in sharp contrast to forecasts of continued growth in demand for home care personnel resulting from strong underlying demographic trends which include an aging population, increased availability of in-home medical technology, and consumer preference for avoiding institutionalization or delaying entrance to nursing homes. The Bureau of Labor Statistics forecasts an 82% increase in the demand for key home health personnel, including a 58% increase in demand for paraprofessionals, for the period 1998 to 2008. Home care staff of the future will have to be highly skilled and specialized, with sophisticated computer knowledge and the ability to use technology, such as telemedicine.

Due to the severity of the payment reductions under the BBA, agencies increasingly are unable to offer competitive wages and benefits to attract qualified staff and labor shortages are developing across the country as a result. A recent NAHC membership survey found that 82% of responding agencies are experiencing difficulty attracting nurses, 69% are having difficulty attracting home care aides, 64% reporting difficulty retaining nurses, and 60% reporting difficulty retaining home care aides (NAHC, February 2001).

In contrast with other providers, such as hospitals and skilled nursing facilities, the staff-to-patient ratio in home care is at a minimum one staff member per patient. Further, home health providers have been discouraged by the Medicare program from using telehomecare devices and other technological advances that might allow for more efficient use of staff. These factors help to exacerbate the problem of meeting staffing needs.

Staffing levels of home health agencies have decreased dramatically. From 1996 to 2000, over 173,000 full-time positions in Medicare-certified agencies were lost. This reduction in full-time equivalent (FTE) staffing includes 65,034 fewer nurses and 72,366 fewer home health aides available to care for patients in 2000 than were employed by agencies in 1996 (HCFA, Online Survey and Certification Reporting System, 1/1/2001 and 12/31/97, respectively).

The Homecare Salary and Benefits Report (2000-2001), published by the Hospital and Healthcare Compensation Service and the National Association for Home Care, found annual turnover rates of 21.01% for registered nurses, 23.69% for licensed practical nurses, and 27.79% for home care aides. Based on direct information from home care agencies throughout the nation, these figures appear to be low in comparison with what agencies are actually experiencing (see NAHC Survey below).

In an editorial, the New York Times recognized the growing shortage of paraprofessional health aides (February 4, 2000). "The shortage of workers willing to bathe, dress, feed, clean, and care for the elderly in their homes and in nursing homes," the editorial said, "has grown worse in the last two years as the economy has continued to soar, creating many other jobs that pay as well or better for much less demanding work. Fast-food restaurants and Target stores now may offer equal wages, steadier work and better benefits, and zookeepers, toll-takers and manicurists actually earn more." The Times concluded that their wages and benefits are held at such low levels in part because of cuts in Medicare, which pays for some home health care.

A comprehensive study of the long term care paraprofessional workforce was recently completed for the Pennsylvania Intra-Governmental Council on Long Term Care. The report, entitled "Pennsylvania's Frontline Workers in Long Term Care: The Provider Organization Perspective" (Polisher Research Institute at the Philadelphia Geriatric Center, February 2001), is part of a broad initiative to understand the extent of the problem of recruitment and retention of paraprofessional direct care workers, and to gather information that can lead to strategies to address this rapidly growing problem in Pennsylvania and throughout the nation.

The study found that the paraprofessional shortage is limiting the amount of long term care that the industry can provide and is having a negative effect on quality of care. Furthermore, the high turnover rates place a considerable financial burden on providers due to high recruitment and training costs.

Home health agencies that offered health insurance, particularly to part time workers, less frequently reported recruitment and retention problems. Providers that made additional contributions toward premiums for employees who elect family health coverage reported significantly less retention problems. This points up an additional dimension of the health insurance problem for caregivers -- the lack of health insurance for their families.


Several independent groups, including George Washington University and the Commonwealth Fund, found that Medicare beneficiaries were being denied access to home health under IPS and that the sickest patients -- those who require the most intensive services -- were most at risk ("An Examination of Medicare Home Health Services: A Descriptive Study of the Effects of the Balanced Budget Act Interim Payment System on Access to and Quality of Care, The George Washington University Medical Center, September 1999; "The Balanced Budget Act of 1997: Effects on Medicare's Home Health Benefit and Beneficiaries Who Need Long-Term Care," The Commonwealth Fund, 1998.) Reductions in utilization of the home health benefit have been dramatic. There were 840,535 fewer beneficiaries served by Medicare home health agencies in 1999 than were served in 1997.

In the NAHC staffing survey, 33.7% reported they had to refuse patient admissions due to insufficient staff. Sixty-one percent of agencies in Region II (NY, NJ) report they have had to refuse patient admissions. This is a significant indicator of access to care problems for consumers. The Pennsylvania Intra-Governmental Study showed that staff shortages reduced access, particularly among home health and home care agencies. Forty-six percent of home care agencies reported service cutbacks. The report concluded that, "Since home care is the fastest growing segment of the long term care industry both for the nation as well as for Pennsylvania, and the type of service most preferred by consumers, such cutbacks demand attention and must command a response."

Media reports have also identified access problems due to the BBA97. An editorial in the April 25, 2000, edition of The New York Times noted that spending on home care services had dropped by over 45% since 1997. The Times editorial concluded by calling for the restoration of the Medicare home health benefit stating that, "Congress had reason to rein in ballooning Medicare costs in 1997. But the nation's oldest and most fragile citizens should not have to suffer for good intentions gone awry."


A prospective payment system (PPS) for home care was implemented on October 1, 2000. The new system has the potential to better provide needed services to Medicare beneficiaries. However, the PPS will fall short of this goal if not properly implemented, and adequately funded. This will require legislative action.

Total expenditures for home health during the first year of PPS were required to be "budget neutral", that is, they were limited by the amount that was spent during the final year of IPS. This requirement has artificially lowered the base payment for each episode by hundreds of dollars. Even after case-mix and wage adjustments are calculated, agencies may be reimbursed significantly less than their actual costs of providing care. These individual case losses may not be made up by gains from other cases, and serious access to care problems could persist.

Home health agencies have approached the new payment system with guarded optimism. The early months of PPS have been characterized by a number of administrative problems, including difficulties with cash flow, intermediaries' processing of claims, and software glitches. A group of 212 home health agencies responded to an informal survey conducted by NAHC in early 2001 asking for comparisons of their experience during the first quarter of PPS with the fourth quarter of calendar year 1999. The findings indicate that most agencies are reserving judgement - or neutral -- about the new payment system. The study also found that, under PPS, more agencies had reduced the number of patients served, had reduced the number of employed staff, had experienced more billing problems with intermediaries, had more problems with vendor software, and had increased cash flow problems. While a significant number of agencies reported losses under Medicare for both quarters, more agencies reported greater losses in the final quarter of calendar year 1999 than in the first quarter under PPS (NAHC, Feb. 2001).


In their meeting on January 12, the Medicare Payment Advisory Commission (MedPAC), co-chaired by Robert Reischauer, former head of the Congressional Budget Office (CBO), voted unanimously to recommend that Congress eliminate the additional 15% cut in the Medicare home health benefit. The Commission also voted to recommend the extension of the 10% payment add-on for services to rural patients for two additional years (through April 1, 2003) and restoration of the full market basket payment update for the home health benefit for FY2003 (see MedPAC Report to Congress: Medicare Payment Policy, March 2002).

MedPAC members reasoned that there is no data to support the imposition of the 15% cut and that the 10% add-on to payments for rural patients should be extended until more is known about home health costs in rural areas. Commission members also concluded there was no rational basis for the 1.1% reduction to the home health market basket update scheduled for FY2003 under current law.


Members of the Leadership Council of Aging Organizations (LCAO) have sent two letters to Congress calling for elimination of the 15% cut. State governors and state Medicaid directors have reported a devastating impact on state Medicaid budgets that are struggling to pick up the slack as Medicare payments have been retrenched. A recent study on trends in Medicaid spending predicts that Medicaid home health care's double-digit growth rates are likely to continue. (Kaiser Family Foundation, Feb. 2001.)


While others have been hurt, there is a consensus in Congress that home care has been hurt far worse than what Congress intended. Rather than making a fight about asking Congress to put back the billions of "additional cuts" made beyond what Congress had mandated, NAHC has drawn the line at being cut any further.

Last year, a floor amendment to the FY 2002 Senate Budget Resolution calling for elimination of the 15% cut and earmarking $13.7 billion to offset the cost passed by a 99-1 recorded vote and was ultimately accepted by the House and included in the final Congressional budget resolution. After the September 11th tragedy, a letter signed by over two-thirds of the Senate was delivered to the Chair and Ranking Member of the Senate Finance Committee urging the elimination of the 15% cut. Because of the events of 9/11, action on the 15% cut was deferred until this session of Congress.


The President's FY2003 budget did not include a line item to eliminate the 15%. Centers of Medicare and Medicaid Services (CMS) Administrator Tom Scully has expressed concern about an alleged 40% growth rate in home health between 2001 and 2002.

We have done some analysis of the 40% growth figure. According to sources at the Office of the Actuary at CMS, about 15% relates purely to a cash flow change that occurred in late 2001 related to the shift from a 30-day billing cycle to a 60-day billing cycle when home health transitioned to PPS. In essence, FY2001 outlay figures were artificially lowered by this shift, resulting in artificially higher FY2002 numbers. Another 5% of the growth factor relates to projected changes in case-mix; these are projections that are based on historical data from other provider payment changes, not home health. An additional 5% relates to the application of the temporary 10% rural add-on for its first full year (the add-on is in effect from April 2001 through April 2003). The remaining 15% is accounted for as follows: 2.4% relates to the market basket inflation update; 1.1% relates to former HMO enrollees shifted to fee-for-service due primarily to closures; an unknown amount related to increased number of enrollees in Medicare; and a guess of what increased use of services will result from behavioral adjustments by providers.

In short, most of the growth projected for the home health program is based on guesses. Given the difficulty that both CBO and CMS have had over the last five years in accurately predicting Medicare outlays for home health, and their tendency to overstate expected outlays as part of their projections, the current data should be viewed as conjecture, at best. As an example, in February 2001, CMS projected home health outlays for FY2001 to be $10.3 billion. In July 2001, that estimate was reduced to $9.6 billion. The most recent numbers prepared for the President's FY2003 budget indicate outlays of $9.3 billion for FY2001.

NAHC does not dispute that some growth is projected in the Medicare home health benefit. CMS projects that home health spending in FY2002 will be $13.2 billion. CBO, on the other hand, projects spending of $11.4 billion, indicating just how uncertain the numbers are. In any event, either number would represent a cut of about 50% from the BBA97 targeted outlays of $25.2 billion for FY2002. (See Appendix 2.)

This growth reflects some of the effects of the change to a new payment system, the temporary 10% add-on for care provided to rural patients, and a modest recovery from the drastic cuts of BBA97 that has been long in coming. Yet, even with this projected growth, expected expenditures are far below what was spent for home care in the 1990s. Moreover, factors indicate that growth in the benefit will not keep pace with need. There are no indications that new providers are entering the program, that there is a decrease in patient care needs, or that unmet needs are now being addressed. For the first time in the history of Medicare, spending on nursing homes is outpacing home health spending. This despite the growing preference by patients for care in a non-institutional setting. The bottom line is that home care cannot withstand additional cuts of any magnitude.


Despite the challenges facing home care as it enters the 21st Century, the pursuit of expanded availability of home and community-based services for the disabled as the result of the Olmstead court decisions and home care's response to the disastrous events of September 11, 2001, underscore the vital role of home care and hospice in our nation's health care system. While the Congress passed legislation providing limited relief to the Medicare home health program in 1998, 1999, and 2000, additional steps must be taken to avoid further damage and to restore some of the residual, unintended effects of the BBA on the home health benefit. NAHC encourages legislative action in the following five areas:

  • Maintain the integrity of and stabilize the Medicare home health and hospice benefits by:
  • Eliminating the scheduled 15% cut in home health payments, extend the 10% add-on for services provided in rural areas, and restore the full annual market basket updates for home health and hospice; and

    Ensuring the viability of the home health prospective payment system (PPS).

  • Ease regulatory burdens and closely oversee HCFA administration of the home health and hospice benefits;
  • Promote recruitment and retention of qualified home care and hospice personnel.
  • Preserve and expand access to home and community-based care; and
  • Ensure the role of home care and hospice as part of an emergency preparedness and response strategy.

(See Appendix 1 for more specific legislative initiatives in these areas.)


Thank you again for inviting NAHC to testify at this important hearing. We look forward to working with you in your efforts to investigate and make recommendations to the United States Congress on how to meet the home care needs of seniors in the 21st Century.


Legislative Priorities 2002

Congress should promote the availability of an adequate cadre of home care and hospice personnel, particularly in rural and other underserved areas, by:

Diamond Bullet Providing sufficient home care and hospice payments in federal programs so that agencies can provide appropriate wages and benefits to clinical staff;
Diamond Bullet Fully reimbursing home health agencies for costs of implementing OASIS and limiting OASIS data collection and reporting requirements; and
Diamond Bullet Supporting proposals that provide affordable health insurance to uninsured, low-wage workers.

a. Stabilize the financing of the Medicare home health and hospice benefits.
Congress should:

Diamond Bullet Eliminate the mandatory 15% cut in home health reimbursement scheduled for October 1, 2002;
Diamond Bullet Permanently extend the 10% add-on for home health services delivered in rural areas; and
Diamond Bullet Restore the full market-basket updates for home health and hospice that were reduced under BBA and the fiscal year 1999 omnibus appropriations measure.

b. Ensure the viability of the home health prospective payment system (PPS).
Congress should safeguard the viability of the home health PPS by:

Diamond Bullet Ensuring an equitable PPS with an adequate case-mix adjustor by requiring ongoing, in-depth study and appropriate adjustments as necessary, and reimbursing agencies for costs incurred in complying with regulatory and legislative requirements that were not included in the initial calculation of the PPS rates;
Diamond Bullet Restricting the ability of CMS to modify payment rates, revising the PPS case-mix adjustment system so as to prohibit any adjustments without adequate advance notice, and requiring CMS to develop criteria for application of the Benefits Improvement and Protection Act of 2000 (BIPA) case-mix adjustment corrections through public rulemaking;
Diamond Bullet Ensuring continued care access for high-cost patients and for patients in medically underserved areas by monitoring the adequacy of payments, adjusting overall home health outlays as needed, and developing a more adequate system of "outlier" payments;
Diamond Bullet Establishing expedited payment schedules for Medicare home health services such that initial episode payments to agencies are equal to 90 percent of the anticipated episode reimbursement amount and exempting home health agencies from the 14-day payment floor;
Diamond Bullet Reforming the significant change in condition (SCIC) adjustment;
Diamond Bullet Addressing inequities regarding the home health wage index; and
Diamond Bullet Rejecting any proposed risk sharing under the home health PPS.

c. Update the Medicare hospice benefit.
Congress should update the hospice benefit by:

Diamond Bullet Mandating a hospice demonstration to collect data necessary to restructure the benefit to reflect care currently given;
Diamond Bullet Creating an outlier payment policy to cover high tech treatments; and
Diamond Bullet Establishing a hospice payment floor to ease the burden of short lengths of stay.

Congress should, to the extent practicable, ease regulatory burdens and provide greater flexibility to allow for maximum effectiveness and efficiencies in the delivery of care by:

Diamond Bullet Closely overseeing CMS administration of the home health and hospice benefits;
Diamond Bullet Limiting administrative burdens on home health agencies and on hospices;
Diamond Bullet Authorizing home health agencies to utilize PPS payments in a flexible manner (such as for use of nutritionists, respiratory therapists, telehomecare or other new technologies) in order to achieve quality of care and efficiencies without adverse consequences relative to payment, coverage, and compliance with the conditions of participation;
Diamond Bullet Allowing physicians assistants and nurse practitioners to certify Medicare home health plans of care; and
Diamond Bullet Enacting a homebound definition that ensures access and eligibility for needed home health services.

As part of any efforts to reform or expand federal health care programs, Congress should:

Diamond Bullet Ensure appropriate Medicaid rates for home care and hospice;
Diamond Bullet Reject Medicaid waivers that reduce benefits for current beneficiaries;
Diamond Bullet Oppose copayments for Medicare and Medicaid home health and hospice and proposals to bundle home health and hospice payments in with payments to other providers;
Diamond Bullet Ensure coverage of acute and long-term home care and hospice;
Diamond Bullet Establish meaningful standards for long-term care insurance;
Diamond Bullet Explore alternative methods of providing care for children and adults in the final phases of life by requiring demonstration projects to study special services and financing of end-of-life care for children and adults in home care and hospice settings; and
Diamond Bullet Enact a comprehensive, high-quality, home and community-based long-term care program for individuals of all ages.

Congress should promote an effective system of preparedness for and response to public health and safety disasters that includes the national home care network.

The page was last modified on March 18, 2002