The influence of Medicare reimbursement policy on health care: How the Balanced Budget Act of 1997 impacted medical services in Delaware

Medicare is the largest medical insurance program provided by the federal government and a substantial source of revenue for healthcare providers. Adjustments to the program's reimbursement policy affect program beneficiaries, as well as other consumers of health care. The Balanced Budget Act (BBA) of 1997 mandated major changes in how Medicare would reimburse healthcare providers while targeting {dollar}112 billion in decreased program spending over a five-year period. This case study evaluates the impact of these payment reductions on hospitals, nursing homes and home health agencies in Delaware. An interrupted time series analysis was conducted on aggregate data from the Center for Medicare and Medicaid Services (CMS) that described the levels of utilization by program beneficiaries, and the amount of payments made by CMS to providers. Semi-structured interviews were conducted with a sample of Delaware healthcare providers. Collectively, the interviewees receive over 80 percent of the Medicare payments in that state.; Findings indicate that the BBA did have an impact on providers. All providers experienced decreases in Medicare payments. Hospital respondents made no adjustments in hospital care and indicated difficulty in placing patients in nursing homes. Hospital-owned nursing homes reduced their Medicare capacity and proprietary facilities increased their capacity, within their present number of licensed beds. Development of additional nursing homes and beds were postponed. Nursing homes selectively admitted patients based upon the adequacy of payments to cover their costs of providing care. Home health agencies (HHAs) reduced the number of visits per patient. One-third of the HHAs in the state closed. Although Delaware providers did not always follow national or regional trends, the case study contributes to our understanding of the potential effects of changes in Medicare policy, and demonstrates the need for micro-level analyses.