This policy brief presents the results of a follow-up study on the effects of the Balanced Budget Act (BBA) of 1997 on Medicare home health service use and beneficiary outcomes, building on the results of a previously published study. In this study, the authors found that the new payment systems have had a direct impact on the Medicare home health benefit, and that the federal government's goal of limiting utilization of the benefit while shifting services toward skilled care can be instituted through changes in the payment system.

Key Findings:

• Utilization of the Medicare home health benefit dropped substantially after 1997, and this decline was significant under the interim payment system (IPS) and continued under the prospective payment system (PPS).
• Aggregate spending decreased substantially under the IPS then increased slightly under the PPS, but despite this increase, the total was still half the amount of pre-BBA spending. Likewise, payments per visit decreased under the IPS then increased under the PPS.
• Though the mix of skilled and unskilled visits had been roughly even in 1997, by 2001 the majority of home health visits were skilled.
• Data showed that the mix of diagnoses changed under the new system as well—with payments for orthopedic and neurological cases on the rise and payments for home health users with diabetes on the decline.

The authors conclude by noting that it will be important to consider any possible unintended effects of changes to the BBA and close the brief with a list of questions that can be used to guide subsequent research.