Home Health Agencies Challenge Implementation of Medicare Reforms
by Phyllis Lipka Skupien^*

The U.S. District Court for the District of Columbia is considering whether the Health Care Financing Administration (HCFA) has violated the Regulatory Flexibility Act (RFA) and the Administrative Procedure Act (APA) in its implementation of the Medicare reforms contained in the Balanced Budget Act of 1997 (BBA). According to the National Association for Home Care (NAHC), the agency has failed to analyze the negative impact the reforms have on home health agencies (HHAs) as required by the RFA or to provide for the APA=s notice and comment period prior to instituting the changes. National Association for Home Care v. Donna Shalala, Secretary, U.S. Department of Health and Human Services, No. 1:98CV00908.

Medicare payments for home health care have grown dramatically in the 1990s due to managed care shortening of hospital stays and the need for follow-up care in the home. Nevertheless, home health care is recognized as a more economical and convenient alternative to institutional care. Prior to the BBA, HHAs were paid the lesser of their Areasonable@ costs or a per-visit cost limit. In an attempt to control escalating Medicare expenditures, the BBA limited reimbursement to the lower of an HHA=s actual costs, the per-visit cost limit, or a new Aper-beneficiary annual limitation (PBL),@ which capped the amount an HHA could receive for an individual patient in a year.

On March 31, 1998, HCFA published a final rule with an after-the-fact comment period setting the schedule of per beneficiary limitations on HHA costs under the new Interim Payment System (IPS). On Aug. 11, 1998, HCFA published a notice in which the only substantive modification related to the standards for determining when an HHA was considered a Anew provider.@

Five specific rulemaking decisions are being challenged by NAHC, including HCFA=s use of a national median limit for a new provider=s PBL rather than a regional based median. NAHC argues that the statutory language does not specifically mention a national median or preclude the use of a regional one. The per beneficiary limit, by definition, is adjusted for regional differences, says NAHC, and those regional variations should not be ignored for new providers. According to NAHC, HCFA=s treatment has created inequities among HHAs located in the same geographic area. For example, a new HHA no matter where it is located operates under the cap of the national median of $3,356.69, whereas older providers operate under caps as low as $2,548.69 in the Mid-Atlantic states to as high as $5,910.55 in the Southeast.

Congress enacted the RFA in 1980 to require agencies to evaluate the potential impact of federal regulations on small businesses. NAHC argues that the defendant failed to fulfill its RFA responsibilities to evaluate whether any alternative interpretations of the BBA exist which could ameliorate the adverse and inequitable impact of the reforms on HHAs. In its memorandum in support of its motion for summary judgment, NAHC states that over 60% of all HHAs have incurred patient-related costs estimated at 10% over the amount the HHAs are reimbursed from Medicare.

Although HCFA conceded the application of the RFA, it stated:

We have examined the options for lessening the burden on small entities, however, the statute does not allow for any exceptions to the aggregate per beneficiary limitation based on size of entity.[sic] Therefore, we are unable to provide any regulatory relief for small entities.

HCFA contends its mandate did not necessitate an RFA initial or final analysis of the reform=s effect on small businesses because the administration was given Avery limited discretion to consider alternatives@ in implementing the statute. Moreover, HCFA says that the legislative history of the RFA demonstrates that Congress did not intend the RFA to apply where the legislature made the rules and the agency merely implemented its directives. According to HCFA, the March 31 rules should be upheld because the statutory language enacted by Congress is Aclear, detailed, and unambiguous, allowing no room for interpretation.@ HCFA cites Chevron, U.S.A. v. Natural Resources Defense Council in support of its interpretation that the rule Aprimarily restates@ the statutorily created formulae for the per-beneficiary limit.

HCFA also cites Greater Dallas Home Care Alliance v. U.S. No. 3:98CV0821H (ND TX, Feb. 8, 1999) in which the Texas court agreed that Congress did not intend for the RFA to apply when the administration is not granted discretion in creating particular rules. The court proceeded to rule the BBA requires the use of a national median for new HHAs and the RFA was not violated by HCFA.

Nevertheless, NAHC continues to argue that the government cannot claim the BBA constrained HCFA to Aministerially implement a gapless statutory scheme@ as one page of statutory text spawned forty-seven Federal Register pages of agency interpretations and implementing regulations. In a June 18, 1998, letter from the Small Business Administration=s (SBA) Office of Advocacy to HCFA, the SBA stated,

The issue for HCFA should be whether there is latitude in interpreting the provisions of a statute to reduce the burden on small entities consistent with stated regulatory objectives or applicable statutory requirement. HCFA=s so called Aregulatory flexibility analysis@ is limited to a discussion of anticipated costs resulting from implementation of the final rule. No significant alternatives are discussed. ... In spite of HCFA=s claims to the contrary, the agency did have a number of choices in implementing the IPS regulations.

NAHC also contends the administration was not justified in promulgating either the March 31 rule or August 11 notice without the pre-publication notice and comment period required by the APA.

HCFA asserts compliance with the requirement was Aimpracticable@ given the seven months it had to complete the data collection needed to calculating the new limits prior to its Congressionally-mandated deadline to publish the new regulations. Therefore, good cause existed to waive the pre-publication period under 5 U.S.C. Sec. 553(b)(B). The March 31 rule was instead issued as a final rule with comment period, says HCFA, and the August 11 publication addressed any responses received. It is more accurate, HCFA maintains, to state that the comment period was deferred, not denied.

According to NAHC, HCFA=s implementation of the mandated changes Ahas gone well beyond Congressional intent.@ The Association claims the Medicare reforms were intended to slow the growth in Medicare home health costs rather than close numerous HHAs.

NAHC recently surveyed state health departments and found that since the reimbursement changes in the Interim Payment System (IPS) became effective on Oct. 1, 1997, 1,067 parent HHAs - not including branches - have closed in 23 states. In Texas, 522 parent HHAs have closed, says NAHC, and the availability of home health care services for Medicare recipients in the state has been drastically curtailed by these closures. With so many HHAs already out of business, the issue the court is addressing may be moot for many of the affected HHAs. But the survival of the remaining HHAs under IPS and the new Prospective Payment System (PPS) may be at stake. The PPS, currently scheduled to be implemented by Oct. 1, 2000, is expected to cut Medicare expenditures for home health care by an additional 15%. What remains to be seen is whether the legislative protections of small businesses and public comment may be circumvented by the Clinton administration claim that the rules and regulations are solely the responsibility of Congress.