Home health care, once the province of small, community-based non-profit organizations, has grown rapidly over the last decade into a business accounting for more than $30 billion a year and one that is dominated by health care giants and hospitals.

Driven by cost-conscious managed care plans, new technologies, an aging population and an expansion of Medicare coverage, home care is now an integral part of health care for millions of Americans, especially here in Southern California, which has the highest proportion of managed care enrollees in the country.

"Home health care is one of the fastest-growing portions of the entire health care industry," said Phil Dalton, vice president of the Camden Group, an El Segundo consulting firm.

"The cost incentives now favor home health care," he said, referring to the practice by many managed care organizations of setting a fixed cost per patient, thus creating an incentive for providers to care for people at home rather than in the hospital.

The fastest growth of all has been in the Medicare area. In 1990, Medicare paid out about $3.7 billion in home health care reimbursements, accounting for about 20 percent of the entire home health care industry. Medicare payouts soared to nearly $20 billion for 1997 more than half of the total home health care industry, according to the federal Health Care Financing Administration, which administers Medicare.

But along with the explosive growth have come allegations of widespread fraud and abuse, especially in billing Medicare for reimbursement of services.

Department of Health and Human Services Inspector General June Gibbs Brown told Congress last July that as much as 40 percent of all Medicare home health care billings in California and four other states are fraudulent.

But representatives from the home health care industry say that figure is exaggerated and that about half of the claims initially rejected by Medicare are accepted on appeal.

For the last year, the nation's two largest home health care providers, Nashville, Tenn.-based Columbia/HCA Healthcare Corp. and Melville, N.Y.-based Olsten Corp., have been at the center of massive federal investigations of Medicare fraud and abuse. Numerous other home health care service providers have also been targeted by federal investigators as part of a massive two-year probe known as Operation Restore Trust.

As a result, the Clinton administration in September imposed a six-month moratorium on all new home health care providers entering the Medicare market, which accounts for about half of the entire home health care industry. The moratorium was designed to give federal regulators a chance to revamp the Medicare billing system, converting it from an essentially fee-for-service approach to one more closely resembling managed care, with caps on Medicare expenditures for certain types of chronic conditions.

The moratorium and anticipated regulatory changes are likely to accelerate a shakeout and consolidation already underway in the home health care industry, especially in California.

"What we're seeing now is a settling out after a long period of rapid growth," said Ken Smith, spokesman for the California Association for Health Services at Home.

The key driving force behind the consolidation is the need for economies of scale as managed care providers have tried to keep costs down, said Michelle Luderer, an editor with Home Care Magazine in Malibu, which covers the industry.

"Managed care providers recognize that treatment for several therapies that had been done in the hospital setting is cheaper at home," Luderer said. "It is also better for the patient, who prefers the comfort of the home setting.

Traditionally, home care had been community-based, provided by non-profit groups called visiting nurse associations, or VNAs. They provided care for those who did not have health insurance and could not afford the exorbitant costs of mainstream medical treatment.

Also, some non-profit hospitals, particularly those with religious affiliations, had long provided home health care services as part of their community care. Other hospital home care centers started up to provide follow-up care after hospital procedures.

But with the managed care trend of the late 1980s and 1990s, more hospitals, under pressure to cut their costs, got into the home health care business.

Their push into home health care coincided with the development of new technologies that made it possible to treat patients at home for conditions that previously could only be treated in hospitals. Among the new home health care treatments and devices: portable respirators, dialysis machines, drug infusion systems and even home-based chemotherapy treatments.

"Home health care is becoming much more high tech," said Sherry Mendoza, administrative director of home care services for Glendale Adventist Medical Center.

These treatments gave rise to the newest and most rapidly growing segment of the home health care industry: the equipment and infusion therapy providers, of which the largest in Southern California is Costa Mesa-based Apria Healthcare. Soon, specialists trained in these individual treatments began making regular visits to homes.

With giant managed care plans giving incentives to hospitals and physician groups to move people into home health care and a whole new class of providers, home health care is now a big business, with big dollars at stake.

"We're seeing lots of merger-and-acquisition activity now as companies expand by acquisition," said James Murray, deputy counsel for the National Association of Home Health Care.

For example, last year the Visiting Nurse Association of Los Angeles, one of the largest home health care agencies in Southern California, was purchased by Regency Health Services Inc., a Tustin-based nursing center operator. Just two months ago, Regency itself was purchased by Sun Healthcare Group Inc. of Albuquerque, N.M.

At the same time, hospitals themselves are undergoing consolidation. For example, Santa Barbara-based Tenet Healthcare Corp. has acquired several hospitals in Southern California, along with their home health care units. Tenet now has 11 home health care agencies in Los Angeles County, employing some 2,000 people.

"Home health care is one of the ways we can offer patients the full continuum of care that meets their needs in an effective and efficient manner," said Mike Firneno, vice president of alternative delivery systems for Tenet. "Home care services are more cost-effective than many alternatives, such as hospitalization and long-term care."

More recently, Tenet has been in talks with Cedars-Sinai Medical Center Group to manage its two hospitals, Cedars-Sinai Medical Center and Century City Hospital. The fate of Cedars-Sinai's home health care center, with its 70 employees and 4,000 annual patient visits, has yet to be negotiated.

In spite of the rapid rate of consolidation, there are still hundreds of small home health care agencies in Southern California. According to Murray of the National Association of Home Health Care, California has a disproportionate number of these small niche agencies.

"You have an extremely diversified population, and there are lots of small home health agencies that cater to specific ethnic groups," Murray said.

However, he said, some of these small agencies have borne much of the brunt of the government crackdown on fraud and abuse. More than 30 have been terminated from Medicare services by state or federal regulators in the last 18 months for allegedly failing to meet proper Medicare certification and sanitation standards, Murray said.

One of those agencies, Los Angeles-based CSM Home Health Services, successfully appealed a Medicare termination order, but not before it was forced to close its doors due to lack of funds.

Meanwhile, the federal investigation of home health care Medicare billing fraud and the resulting tightening of standards is likely to change the industry once again.

"You are going to see more acquisitions of existing home health care agencies instead of new ones opening up to serve new markets," Murray said. "This will ultimately mean that some people on Medicare will either have to pay more for their care outside of Medicare or simply go without care."

Glendale Adventist's Mendoza agreed. "There are already so many players. Now these per-patient caps will put a lid on growth on the Medicare side."

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