Does the average cost of home health care vary with case mix?

The relationship between the average cost of home health care and the case mix of patients served by the home health agency is investigated using 1983 data from Wisconsin's home health care agencies. In contrast to previous work, case mix is shown to have a significant effect on the home health agency's average costs. The methods used in the previous work are evaluated, and differences between the earlier study and the present study are discussed to explain the divergent results. Also, average costs are shown to decrease with output, to increase with the proportion of private patients served by the agency, and to be higher if the home health agency is located in an urban area or if it has a proprietary charter. The implications of this research for the design of an appropriate home health reimbursement policy are discussed. Primarily, it is argued that, although future research might confirm the relationship between average costs and case mix for home health agencies, we cannot necessarily conclude that reimbursement rates must be adjusted to account for differences in case mix as many States are now doing for nursing home reimbursement. Policies must take into account the fundamental differences between home health agencies and nursing homes, and their respective markets, in order to be effective.