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Why Medicare's PACT policy may cost you more than P4P

June 16, 2017

    Although the average hospital foregoes more revenue due to Medicare's Post-Acute Care Transfer (PACT) policy than its pay-for-performance programs, hospital finance teams rarely pay PACT the attention it deserves.

    PACT 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. The policy was introduced nearly two decades ago to constrain Medicare spending growth as hospitals shifted patient care to the post-acute space. Our analysis of the most recent Medicare data indicates that 6% of Medicare discharges trigger such a payment reduction.

    Revenue loss attributable to the PACT policy averages $700K annually per hospital, a sum far exceeding the average impact from the Readmissions Reduction, Hospital-Acquired Conditions, and Inpatient Value-Based Purchasing programs—combined.

    Many organizations are unaware of the financial impact of PACT, but interest among hospital finance executives is growing given that revenue losses are concentrated in services also affected by Medicare's recently announced bundled payment programs, namely CJR and the Episode Payment Models. PACT appears to offer hospitals a path to directly inflect episodic spending in these programs, thus avoiding penalties. Nonetheless, our analysis indicates that deliberately triggering PACT payment reductions will be almost certainly harmful to hospitals.

    Instead, given the risks that PACT poses to hospital margins, we recommend that hospitals develop a three-step strategy for minimizing PACT losses:

    1. Identify at-risk cases and estimate PACT revenue threat
    2. Establish care standards for PACT associated MS-DRGs that minimize post-acute utilization in cases where patients could be discharged to home instead
    3. Revise discharge coding to ensure that PACT payment reductions are not erroneously applied

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