Medicare tries to tamp down on post-acute care

New payment models incent collaboration between hospitals, PAC providers

Medicare is looking to curb spending on post-acute care with new payment models that aim to alter the financial calculus for nursing homes, home health services, and other medical treatments that are provided to patients after they've left the hospital, Jordan Rau reports for Kaiser Health News and the Washington Post.

Medicare spending per capita on post-acute care has grown by at least 5% annually in 34 of the country's most populous hospital markets, according to a KHN analysis by health economist Chapin White. Last year alone, Medicare spent $62 billion on treatment for patients in rehab facilities, long-term care, and nursing homes, as well as those receiving care at home, according to a report from the Medicare Payment Advisory Commission (MedPAC).

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Meanwhile, uneven spending on post-acute care in different parts of the nation accounts for 73% of variation in Medicare spending, the KHN analysis noted.

Some post-acute providers reap double-digit profits from Medicare through a "hodgepodge of payment methods" that experts say encourages unnecessary spending and uncoordinated care, as well as fraud and abuse.

Too many options for care?

Rau writes that the growth of the post-acute care industry can be traced back to Medicare's efforts in the 1980s to discourage long inpatient hospital stays. The agency began paying hospitals set sums for each patient stay, which provided a financial incentive for hospitals to discharge patients earlier.

As a result, a wide variety of new business models were created to take on these patients, from less-intensive home health services to the more intense inpatient rehabilitation facilities and long-term care hospitals. Medicare pays each facility separate rates under the assumption that sicker patients would require treatment at facilities providing more thorough care.

However, researchers say that patients with similar conditions often end up at different types of facilities for no apparent medical reason. Moreover, hospital "gatekeepers" do not take cost factors into account when deciding where to discharge patients, they add.

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Aggressive marketing also plays a role on where patients get sent, says Jared Landis, a consultant at The Advisory Board Company. "Anecdotally, it is a market where post-acute discharge is heavily affected by personal relationships, traditional sales, and marketing—just building those personal relationships around those small gifts, those cookies," he notes.

Medicare's roadmap for reform

In a bid to curb spending, CMS is experimenting with new payment methods in which hospitals and post-acute providers would be required to work together to treat Medicare beneficiaries for a lump sum, rather than being paid separately.

The agency has received 178 "bundled payment" proposals for a program in which hospitals and post-acute providers share a fixed sum to provide patient care. Another 157 such bundled payments have been created by private companies solely for post-acute care providers.

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For example, NaviHealth has proposed bundled payment experiments with hospitals in New Jersey, New Mexico, Oklahoma, and Tennessee. The private company, created by former CMS Administrator Tom Scully, evaluates hospitalized patients to determine the most appropriate post-hospital setting.

"We catch patients in their second day in the hospital and come up with a very detailed evaluation of their functional status," Scully says. "Maybe you should be in the rehab hospital for 14 days, or nursing home for 10 days instead of 20 days," he adds. Otherwise, "the nursing home will keep you for the maximum days they can. It's nobody's fault, it's just the incentives."

Companies like NaviHealth expect demand for their services to increase if President Obama moves forward with his proposal to reduce payments for post-acute providers, pay rehab facilities and nursing homes the same rate, and penalize nursing homes when their patients are readmitted to the hospital (Rau, KHN/Post, 12/1).


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