Comparison of Medicaid nursing home payment systems

This article summarizes the main findings of a study comparing three generic Medicaid nursing home payment systems: case-mix, facility-specific, and class-rate. The major comparative analyses examined patient-level case mix and quality, facility-level costs, Medicaid payment rates, and profitability. The study also analyzed case-mix payment systems in greater detail, emphasizing the earlier systems. The results suggest advantages and disadvantages for all system types and highlight important considerations for policyplanners, particularly in States considering case-mix systems. The article concludes with a discussion of issues important to further research on nursing home payment.     

Medicaid payment and risk-adjusted nursing home quality measures

Various studies have observed low quality in the nursing home industry. Although Medicaid is the dominant payer of U.S. nursing home services, the association of Medicaid payment rates and quality is not entirely clear, in part because resident-level, risk-adjusted information on quality is lacking. This study examined the relationship between Medicaid payment rates and three risk-adjusted quality measures, controlling for market and facility characteristics. Higher payment was associated with lower incidence of pressure ulcers and physical restraints but not daily pain. Quality of nursing home care may suffer if budget shortfalls force state legislatures to freeze or reduce Medicaid rates.     

Does prospective payment encourage nursing home efficiency?

The health-care field is increasingly sensitive to the effect of third-party reimbursement policies on health-care organization performance. The ability to attain low costs and high net income, for example, is particularly affected by prospective reimbursement. Theoretically, prospective payments should provide an incentive to health-care organizations to implement better control over performance. These ideas are examined in a study of nursing homes. Results of this analysis indicate that management control practices contribute to efficient performance. The association of this finding with prospective reimbursement is discussed from the perspective of implications for health-care organizations.     

Effect of Medicaid payment on rehabilitation care for nursing home residents

There is considerable interest in examining how Medicaid payment affects nursing home care. This study examines the effect of Medicaid payment methods and reimbursement rates on the delivery of rehabilitation therapy to Medicaid nursing home residents in six States from 1992-1995. In States that changed payment from prospective facility-specific to prospective case-mix adjusted payment methods, Medicaid residents received more rehabilitation therapy after the change. While residents in States using case-mix adjusted payment rates for Medicaid payment were more likely to receive rehabilitation than residents in States using prospective facility-specific Medicaid payment, the differences were general and not specific to Medicaid residents. Retrospective payment for Medicaid resident care was associated with greater use of therapy for Medicaid residents.     

Medicaid payment policies for nursing home care: a national survey

This research gives a comprehensive overview of the nursing home payment methodologies used by each State Medicaid program. To present this comprehensive overview, 1988 data were collected by survey from 49 States and the District of Columbia. The literature was reviewed and integrated into the study to provide a theoretical framework to analyze the collected data. The data are organized and presented as follows: payment levels, payment methods, payment of capital-related costs, and incentives in nursing home payment. We conclude with a discussion of the impact these different methodologies have on program cost containment, quality, and recipient access.     

Medicaid prospective payment: case-mix increase

South Carolina Medicaid implemented prospective payment by diagnosis-related group (DRG) for inpatient care. The rate of complications among newborns and deliveries doubled immediately. The case-mix index for newborns increased 66.6 percent, which increased the total Medicaid hospital expenditure 5.5 percent. Outlier payments increased total expenditure further. DRG distribution change among newborns has a large impact on spending because newborn complication DRGs have high weights. States adopting a DRG-based payment system for Medicaid should anticipate a greater increase in case mix than Medicare experienced.     

Hospitalization of nursing home residents: the effects of states' Medicaid payment and bed-hold policies

OBJECTIVE: Hospitalizations of nursing home residents are costly and expose residents to iatrogenic disease and social and psychological harm. Economic constraints imposed by payers of care, predominantly Medicaid policies, are hypothesized to impact hospitalizations. DATA SOURCES/STUDY SETTING: Federally mandated resident assessments were merged with Medicare claims and eligibility files to determine hospitalizations and death within 150 days of baseline assessment. Nursing home and market characteristics were obtained from the Online Survey Certification and Reporting, and the Area Resource File, respectively. States' average daily Medicaid nursing home payments and bed-hold policies were obtained independently. STUDY DESIGN: Prospective cohort study of 570,614 older (> or =65-year-old), non-MCO (Medicare Managed Care), long-stay (> or =90 days) residents in 8,997 urban, freestanding nursing homes assessed between April and June 2000, using multilevel models to test the impact of state policies on hospitalizations controlling for resident, nursing home, and market characteristics. PRINCIPAL FINDINGS: Overall, 99,379 (17.4 percent) residents were hospitalized with rates varying from 8.4 percent in Utah to 24.9 percent in Louisiana. Higher Medicaid per diem was associated with lower odds of hospitalizations (5 percent lower for each $10 above average $103.5, confidence intervals [CI] 0.91-0.99). Hospitalization odds were higher by 36 percent in states with bed-hold policies (CI: 1.12-1.63). CONCLUSIONS: State Medicaid bed-hold policy and per-diem payment have important implications for nursing home hospitalizations, which are predominantly financed by Medicare. This study emphasizes the importance of properly aligning state Medicaid and federal Medicare policies in regards to the subsidy of acute, maintenance, and preventive care in the nursing home setting.     

The initial effects of the prospective payment system on nursing home patients.

We examined the discharge outcomes and admission characteristics of patients admitted to Southern California skilled nursing facilities (SNFs) for the first time following an episode of hospitalization in 1980, 1982-83 (all pre-prospective payment system), and all admissions during July through September 1984 (post-prospective payment). The proportion of patients covered by Medicare on admission was 18 per cent in 1980, 36 per cent in 1982-83, and 57 per cent in 1984. For patients discharged within 30-60 days to SNFs, in all three time periods more Medicare than non-Medicare patients were bed-bound, had indwelling catheters, and were comatose. There were only modest case-mix differences between the groups and no changes over time in discharge outcomes, including the proportion dying in the SNF, or being returned to a hospital. The time-related changes that were found preceded the implementation of the diagnosis related group (DRG) based prospective payment system.     

Institutional responses to Medicare's prospective payment system

The introduction of Medicare's prospective payment system (PPS) meant an important change in the environment of US hospitals. The new payment system was expected to improve clinical and non-clinical efficiency in hospitals. A case study in a non-profit Pennsylvania hospital was performed to analyse the impact of PPS on hospital services. The hospital responded to PPS by a twofold strategy. First, attempts were made to achieve effective cost containment by improving the efficiency of intermediate and final outputs. Here special attention is paid to the activities of the DRG coordinator and the Utilization Review Committee and to the activities of nurses in their role as case manager. The second strategy was directed at revenue enhancement, initially mainly by shifting more costs to non-Medicare patients and later by trying to strengthen the position of the hospital in the local health care market. This second strategy was considered more important than the strategy of cost containment. With respect to organizational structure and policy-making, the following changes can be observed: a growing importance of strategic management; more integrated hospital-physician relationships; and the development of an adequate medical information system and a medical records department.     

Explaining state Medicaid nursing home reimbursement

Medicaid nursing home reimbursement methods and per diem rates affect costs, quality, equity, and access. State rate-setting is a laboratory of policymaking, which can inform state and federal Medicaid reform initiatives. This paper explains state Medicaid nursing facility rates in 1979-1994. Findings suggest that prospective facility-specific methods constrained rates in some but not all periods, particularly when older cost-reports were employed in rate-setting. Analysis failed to show that prospective class rate-setting methods constrained rate increases. Findings suggest that the efficacy of reimbursement methodology to control rates depends upon wider health care policy trends and that future facility-level analyses should consider policy contexts as between states.     

Initial home health outcomes under prospective payment

OBJECTIVE: To assess initial changes in home health patient outcomes under Medicare's home health Prospective Payment System (PPS), implemented by the Centers for Medicare and Medicaid Services (CMS) in October 2000. DATA SOURCES/STUDY SETTING: Pre-PPS and early PPS data were obtained from CMS Outcome and Assessment Information Set (OASIS) and Medicare claims files. STUDY DESIGN: Regression analysis was applied to national random samples (n=164,810) to estimate pre-PPS/PPS outcome and visit-per-episode changes. DATA COLLECTION/EXTRACTION METHODS: Outcome episodes were constructed from OASIS data and linked with Medicare claims data on visits. PRINCIPAL FINDINGS: Outcome changes (risk adjusted) were mixed and generally modest. Favorable changes included higher improvement rates under PPS for functioning and dyspnea, higher community discharge rates, and lower hospitalization and emergent care rates. Most stabilization (nonworsening) outcome rates also increased. However, improvement rates were lower under PPS for wounds, incontinence, and cognitive and emotional/behavioral outcomes. Total visits per episode (case-mix adjusted) declined 16.6 percent although therapy visits increased by 8.4 percent. CONCLUSIONS: The outcome and visit results suggest improved system efficiency under PPS (fewer visits, similar outcomes). However, declines in several improvement rates merit ongoing monitoring, as do subsequent (posthome health) hospitalization and emergent care use. Since only the early PPS period was examined, longer-term analyses are needed.     

Hospital responses to price shocks under the prospective payment system

Under the prospective payment system (PPS), hospitals receive a bundled payment for an entire episode of treatment based on diagnosis‐related groups (DRG). Although there is ample evidence regarding the impact of the introduction of the PPS, there is little research on the effects of the ensuing changes in payment levels under the PPS. In 2005, the Medicare PPS changed its definition of payment areas from the Metropolitan Statistical Areas to the Core‐Based Statistical Areas, generating substantial area‐specific price shocks. Using these exogenous price variations, this study examines hospital responses to price changes under the PPS. The results demonstrate that, while the average payment amount significantly increases in the affected areas, no parallel trend is observed in admission volume, treatment intensity, and quality of services. Conversely, hospitals facing a price increase are more liable to the perverse incentives that the PPS is known to encourage, namely, selecting or shifting patients into higher‐paying DRGs. These results suggest that paying a higher price for a given service may not induce hospitals to offer services of better quality, but can rather prompt even higher payments through other behavioral responses.     

Selection of treatment under prospective payment systems in the hospital sector

A model of contracting for hospital treatments is presented. For a given diagnosis of the patient, two treatments are available: a high-intensity (surgical) treatment and a low-intensity (medical) treatment. A purchaser (the National Health Service, public or private insurer) offers a contract to the provider (the hospital) to maximise the patients' benefit net of costs. We show that if the average severity of the patient is private information known only by the provider, the hospital has an incentive to over-provide the surgical treatment to the low-severity patients. The optimal contract with asymmetric information is such that hospitals that provide a higher share of surgical treatments receive a higher price for the surgical treatment and a lower price for the medical treatment. This situation differs from current remuneration systems in which the price for each type of treatment is uniform. A related result is that with asymmetric information the optimal contract involves a higher transfer than with symmetric information.     

Current marketing practices in the nursing home sector

Marketing is widely recognized as an essential business function across all industries, including healthcare. While many long-term care facilities adopted basic healthcare marketing practices and hired marketing staff by the early 1990s, a paucity of research on nursing home marketing exists in the literature. This study examines the extent to which nursing homes have developed more formulated marketing and related communication and promotional strategies as market competition has increased in this sector during the past two decades. In addition, we explored managers' perceptions of their control over marketing decision making, the impact of competition on the use of marketing practices, and areas for enhanced competitive positioning. Administrators from 230 nursing homes in 18 Southeastern Michigan counties were surveyed regarding (1) the adoption level of approximately 40 literature-based, best-practice marketing strategies; (2) the types of staff involved with the marketing function; and (3) their perception of their level of control over marketing functions and of local competition. Results from 101 (44 percent) survey participants revealed that although respondents viewed their markets as highly competitive, their marketing practices remained focused on traditional and relatively constrained practices. In relation to the importance of customer relationship management, the majority of the administrators reported intensive efforts being focused on residents and their families, referrers, and staff, with minimal efforts being extended to insurers and other types of payers. A significant positive relation was found between the intensity of marketing initiatives and the size of the facility (number of beds), whereas significant negative correlations were revealed in relation to occupancy and the perceived level of control over the function.     

Medicaid case-mix nursing home reimbursement in three states

Case-mix nursing facility payment raises issues of access, quality, equity, and cost. Case-mix should better match payment to costs, improve access, and provide incentives to increased staffing and quality of care; but it may also increase costs. This paper reports analysis of Medicaid cost-report data from three case-mix states. Case-mix did not discourage capacity building and was more equitable for providers. Medicaid access declined in one state but increased in another. There were shifts toward greater skilled care in two states, with evidence of greater focus of resources on patient care. Case-mix showed no evidence of cost-constraint and some signs of increased costs. Whether such mixed outcomes are viable in the current era remains to be seen.     

Comparing case-mix systems for nursing home payment

Case-mix systems for nursing homes use resident characteristics to predict the relative use of resources. Seven systems are compared in structure, accuracy in explaining resource use, group homogeneity, and ability to identify residents receiving heavy care. Resource utilization groups, version II (RUG-II), was almost uniformly the best system, although management minutes and the Minnesota case-mix system were also highly effective. Relative weights for case-mix groups were sensitive to cost differences and should be recomputed for new applications. Multiple criteria should be used in choosing a case-mix system, including consideration of inherent incentives and how residents' characteristics are defined.     

Nursing home costs, Medicaid rates, and profits under alternative Medicaid payment systems.

This analysis compares nursing home costs, Medicaid payment rates, and profits under three Medicaid nursing home payment systems: case-mix, facility-specific, and class-rate systems. Data used were collected from 135 nursing homes in seven states. The association of case mix with costs, rates, and profits under the three payment systems was of particular interest. Case mix was more strongly associated (positively) with patient care cost and the Medicaid rate for the case-mix systems than for the other systems, particularly the class-rate systems. In contrast, case mix and profits were not associated in the case-mix or facility-specific systems, but were negatively associated in the class rate systems. Overall, the results suggest that case-mix systems have some important advantages over other payment systems, but further research is needed on larger samples and involving the newer case-mix systems.