Executive Summary

In 1997, CMS implemented the PACT policy to reduce hospital payment for certain inpatient stays in which a patient is rapidly discharged to a qualifying post-acute setting. Qualifying post-acute settings include: long-term acute care hospitals, inpatient rehabilitation facilities, psychiatric facilities, skilled nursing facilities, home health care (when the patient receives clinically related care that begins within three days after the hospital stay), rehabilitation distinct part (DP) units located in an acute care hospital or critical access hospital, psychiatric DP units located in an acute-care hospital of a critical access hospital, cancer hospitals, children’s hospitals, and, starting October 1, 2018, hospice.

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Payments Under the PACT Policy

The PACT policy reduces Medicare inpatient reimbursement whenever patients assigned to any of 280 separate MS-DRGs are discharged to qualifying post-acute care settings more than one day earlier than the national average length of stay (LOS). For these cases, Medicare pays hospitals a per diem rate for each day of the inpatient stay, with the total payment not to exceed the normal MS-DRG payment. The per diem rate is determined by dividing the full payment for the discharge MS-DRG by the geometric mean length of stay (GMLOS) for the condition. The first day of the admission is paid at twice the per diem rate, and subsequent days are paid at the single per diem rate.

Implications for Health Care Systems

Revenue loss attributable to the PACT policy averaged $845,293 annually per hospital in 2017. This sum exceeds the average annual combined impact from the Readmissions Reduction (HRRP), Hospital-Acquired Conditions (HAC), and Inpatient Value-Based Purchasing (VBP) programs. Given the risks that the PACT policy poses to hospitals, it is important for hospitals to identify at-risk cases and ameliorate PACT revenue threat.

Implications for Post-Acute Providers

While this policy does not change PAC providers’ payments, it creates a need for hospitals to develop stronger relationships with PAC partners, and to develop the right strategies for discharge planning. To understand how to better navigate relationships between acute and post-acute providers, access The Playbook for Hospital/Post-Acute Care Collaboration.

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