Does how much and how you pay matter? Evidence from the inpatient rehabilitation care prospective payment system

We use the implementation of a new prospective payment system (PPS) for inpatient rehabilitation facilities (IRFs) to investigate the effect of changes in marginal and average reimbursement on costs. The results show that the IRF PPS led to a significant decline in costs and length of stay. Changes in marginal reimbursement associated with the move from a cost-based system to a PPS led to a 7-11% reduction in costs. The elasticity of costs with respect to average reimbursement ranged from 0.26 to 0.34. Finally, the IRF PPS had little or no impact on mortality or the rate of return to community residence.     

The effect of prospective payment on admission and treatment policy: Evidence from inpatient rehabilitation facilities

We examine provider responses to the Medicare inpatient rehabilitation facility (IRF) prospective payment system (PPS), which simultaneously reduced marginal reimbursement and increased average reimbursement. IRFs could respond to the PPS by changing the number of patients admitted, admitting different types of patients, or changing the intensity of care. We use Medicare claims data to separately estimate each type of provider response. We also examine changes in patient outcomes and spillover effects on other post-acute care providers. We find that costs of care initially fell following the PPS, which we attribute to changes in treatment decisions rather than the characteristics of patients admitted to IRFs within the diagnostic categories we examine. However, the probability of admission to IRFs increased after the PPS due to the expanded admission policies of providers. We find modest spillover effects in other post-acute settings and negative health impacts for only one of three diagnostic groups studied.     

Effects of Payment Changes on Trends in Post-Acute Care

Objective. To test how the implementation of new Medicare post-acute payment systems affected the use of inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), and home health agencies.
Data Sources. Medicare acute hospital, IRF, and SNF claims; provider of services file; enrollment file; and Area Resource File data.
Study Design. We used multinomial logit models to measure realized access to post-acute care and to predict how access to alternative sites of care changed in response to prospective payment systems.
Data Extraction Methods. A file was constructed linking data for elderly Medicare patients discharged from acute care facilities between 1996 and 2003 with a diagnosis of hip fracture, stroke, or lower extremity joint replacement.
Principal Findings. Although the effects of the payment systems on the use of post-acute care varied, most reduced the use of the site of care they directly affected and boosted the use of alternative sites of care. Payment system changes do not appear to have differentially affected the severely ill.
Conclusions. Payment system incentives play a significant role in determining where Medicare beneficiaries receive their post-acute care. Changing these incentives results in shifting of patients between post-acute sites.     

Variation in 30-Day Readmission Rates from Inpatient Rehabilitation Facilities to Acute Care Hospitals

ObjectivesTo quantify the rate of readmission from inpatient rehabilitation facilities (IRFs) to acute care hospitals (ACHs) during the first 30 days of rehabilitation stay. To measure variation in 30-day readmission rate across IRFs, and the extent that patient and facility characteristics contribute to this variation.DesignRetrospective analysis of an administrative database.Setting and ParticipantsAdult IRF discharges from 944 US IRFs captured in the Uniform Data System for Medical Rehabilitation database between October 1, 2015 and December 31, 2017.MethodsMultilevel logistic regression was used to calculate adjusted rates of readmission within 30 days of IRF admission and examine variation in IRF readmission rates, using patient and facility-level variables as predictors.ResultsThere were a total of 104,303 ACH readmissions out of a total of 1,102,785 IRFs discharges. The range of 30-day readmission rates to ACHs was 0.0%‒28.9% (mean = 8.7%, standard deviation = 4.4%). The adjusted readmission rate variation narrowed to 2.8%‒17.5% (mean = 8.7%, standard deviation = 1.8%). Twelve patient-level and 3 facility-level factors were significantly associated with 30-day readmission from IRF to ACH. A total of 82.4% of the variance in 30-day readmission rate was attributable to the model predictors.Conclusions and ImplicationsFifteen patient and facility factors were significantly associated with 30-day readmission from IRF to ACH and explained the majority of readmission variance. Most of these factors are nonmodifiable from the IRF perspective. These findings highlight that adjusting for these factors is important when comparing readmission rates between IRFs.     

Measuring function for Medicare inpatient rehabilitation payment

We studied 186,766 Medicare discharges to the community in 1999 from 694 inpatient rehabilitation facilities (IRF). Statistical models were used to examine the relationship of functional items and scales to accounting cost within impairment categories. For most items, more independence leads to lower costs. However, two items are not associated with cost in the expected way. The probable causes of these anomalies are discussed along with implications for payment policy. We present the rules used to construct administratively simple, homogeneous, resource use groups that provide reasonable incentives for access and quality care and that determine payments under the new IRF prospective payment system (PPS).     

Physical rehabilitation following medicare prospective payment for skilled nursing facilities

OBJECTIVE: To examine the effect of the Medicare prospective payment system (PPS) for skilled nursing facilities (SNF) on the delivery of rehabilitation therapy to residents. DATA SOURCES: Resident-level data are based on the Resident Assessment Instrument Minimum Data Set for nursing facilities. All elderly residents admitted to SNFs in Michigan and Ohio in 1998 and 1999 form the study population (n=99,952). STUDY DESIGN: A differences-in-differences identification strategy is used to compare rehabilitation therapy for SNF residents before and after a change in Medicare SNF payment. Logistic and linear regression analyses are used to examine the effect of PPS on receipt of physical, occupational, or speech therapy and total therapy time. DATA EXTRACTION: Data for the present study were extracted from the University of Michigan Assessment Archive Project (UMAAP). One assessment was obtained for each resident admitted to nursing facilities during the study period. PRINCIPAL FINDINGS: The introduction of PPS for all U.S. Medicare residents in July of 1998 was associated with specific targeting of rehabilitation treatment time to the most profitable levels of therapy. The PPS was also associated with increased likelihood of therapy but less rehabilitation therapy time for Medicare residents. CONCLUSIONS: The present results indicate that rehabilitation therapy is sensitive to the specific payment incentives associated with PPS.     

Changes in the Use of Postacute Care during the Initial Medicare Payment Reforms

Objective. To examine changes in postacute care (PAC) use during the initial Medicare payment reforms enacted by the Balanced Budget Act of 1997.
Data Sources. We used claims data from the 5 percent Medicare beneficiary sample in 1996, 1998, and 2000. Linked data from the Denominator file, Provider of Service file, and Area Resource File provided additional patient, hospital, and market-area characteristics.
Study Design. Six disease groups with high PAC use were selected for analysis. We used multinomial logit regression to examine how PAC use differed by year of service, controlling for patient, hospital, and market-area characteristics.
Principal Findings. There were major changes in PAC use, and a portion of services shifted to settings where reimbursement remained cost-based. During the first reform, the home health agency interim payment system, home health use decreased consistently across disease groups. This decrease was accompanied by increased use in skilled nursing facilities (SNFs). Following the implementation of the prospective payment system for SNFs, the use of inpatient rehabilitation facilities increased.
Conclusions. The shift in usage among settings occurred in two stages that corresponded to the timing of payment reforms for home health agencies and SNFs. Evidence strongly suggests the substitutability between PAC settings. Financial incentives, in addition to clinical needs and individual preferences, play a major role in PAC use.     

The improving efficiency frontier of inpatient rehabilitation hospitals

This study uses a linear programming technique called data envelopment analysis to identify changes in the efficiency frontier of inpatient rehabilitation hospitals after implementation of the prospective payment system. The study provides a time series analysis of the efficiency frontier for inpatient rehabilitation hospitals in 2003 immediately after implementation of PPS and then again in 2006. Results indicate that the efficiency frontier of inpatient rehabilitation hospitals increased from 84% in 2003 to 85% in 2006. Similarly, an analysis of slack or inefficiency shows improvements in output efficiency over the study period. This clearly documents that efficiency in the inpatient rehabilitation hospital industry after implementation of PPS is improving. Hospital executives, health care policymakers, taxpayers, and other stakeholders benefit from studies that improve health care efficiency.     

The Role of Critical Access Hospital Status in Mitigating the Effects of New Prospective Payment Systems Under Medicare

This article examines rural hospitals that potentially qualify as critical access hospitals (CAH) and identifies facilities at substantial financial risk as a result of Medicare's expansion of prospective payment systems (PPS) to nonacute settings. Using Health Care Financing Administration (HCFA) cost reports from the federal year ending Sept. 30, 1996, combined with county-level sociodemographic data from the Area Resource File (ARF), characteristics of potential CAHs were identified and their finances analyzed to determine whether they could benefit from the cost-based reimbursement rules applicable to CAH status. Rural hospitals were identified as potential CAHs if they met a combination of federal and state criteria for necessary providers. Rural facilities were classified as "at risk" if they had poor financial ratios in conjunction with high levels of dependence on outpatient, home-care or skilled nursing services. Almost 30 percent of all rural hospitals were identified as potential CAHs. Ninety percent of potential CAH facilities were identified as "at risk" by at least one of five possible risk criteria, and one-third were identified by at least three. Of those classified "at risk," 48 percent might not benefit from conversion to CAH because their inpatient Medicare reimbursement would likely be less under CAH payment rules than under their current PPS payment rules. Many potential CAHs were doing well under inpatient PPS because they were sole community hospitals (SCH) and were therefore eligible for special adjustments to the PPS rates. The Rural Hospital Flexibility Act would be more beneficial to the population of isolated rural hospitals if those eligible for both CAH and SCH status were given the option of retaining their SCH inpatient payment arrangements while still qualifying for outpatient cost-based reimbursement.     

Organizational and market factors associated with Medicare dependence in inpatient rehabilitation hospitals.

Rehabilitation hospitals in the USA have been excluded from the Medicare Prospective Payment System (PPS) system since 1982, and have received cost-based reimbursement. However, the 1997 Balanced Budget Act mandated a PPS for inpatient rehabilitation, to be implemented by the end of 2002. This study assesses rehabilitation hospitals' dependency on Medicare. Findings show that not-for-profit hospitals, facilities with fewer services, facilities with lower staffing levels, and hospitals with lower operating expenses and profits, have a higher proportion of their inpatient revenue coming from Medicare. These facilities may be vulnerable to the new PPS payment system.     

Hospital and Medicare financial performance under PPS, 1985-90

Although an increasing number of hospitals are reporting net losses from the Medicare prospective payment system (PPS) for inpatient care, overall hospital facility profit rates remain stable. Hospitals that reported net profits in the Medicare inpatient PPS sector in PPS 7 (1990) had smaller increases in Medicare expenses than hospitals that reported PPS losses in PPS 7. Medicare PPS inpatient net losses in PPS 7 were more than offset by non-Medicare net profits. Even though Medicare PPS revenues grew more slowly than the gross domestic product from 1985 to 1990, other hospital revenues grew more rapidly.     

Developing a Medicare prospective payment system for inpatient psychiatric care

Under the Balanced Budget Refinement Act (BBRA) of 1999, the secretary of health and human services was mandated to implement a prospective payment system (PPS) for psychiatric inpatient facilities that were exempt from the Medicare inpatient PPS. This paper reviews the reason for the initial "distinct-part" exemption, describes research that has been conducted to inform the development of a psychiatric inpatient PPS, and examines some of the issues that must be addressed as a PPS is designed. In addition, some changes in the overall inpatient psychiatric hospital sector are discussed.     

How Much Is Postacute Care Use Affected by Its Availability?

OBJECTIVE: To assess the relative impact of clinical factors versus nonclinical factors-such as postacute care (PAC) supply-in determining whether patients receive care from skilled nursing facilities (SNFs) or inpatient rehabilitation facilities (IRFs) after discharge from acute care. DATA SOURCES AND STUDY SETTING: Medicare acute hospital, IRF, and SNF claims provided data on PAC choices; predictors of site of PAC chosen were generated from Medicare claims, provider of services, enrollment file, and Area Resource File data. STUDY DESIGN: We used multinomial logit models to predict PAC use by elderly patients after hospitalizations for stroke, hip fractures, or lower extremity joint replacements. DATA COLLECTION/EXTRACTION METHODS: A file was constructed linking acute and postacute utilization data for all medicare patients hospitalized in 1999. PRINCIPAL FINDINGS: PAC availability is a more powerful predictor of PAC use than the clinical characteristics in many of our models. The effects of distance to providers and supply of providers are particularly clear in the choice between IRF and SNF care. The farther away the nearest IRF is, and the closer the nearest SNF is, the less likely a patient is to go to an IRF. Similarly, the fewer IRFs, and the more SNFs, there are in the patient's area the less likely the patient is to go to an IRF. In addition, if the hospital from which the patient is discharged has a related IRF or a related SNF the patient is more likely to go there. CONCLUSIONS: We find that the availability of PAC is a major determinant of whether patients use such care and which type of PAC facility they use. Further research is needed in order to evaluate whether these findings indicate that a greater supply of PAC leads to both higher use of institutional care and better outcomes-or whether it leads to unwarranted expenditures of resources and delays in returning patients to their homes.     

An assessment tool translation study

Policymakers hoped to substitute a new, multi-purpose, functional assessment instrument, the minimum data set post-acute care (MDS-PAC), into the planned prospective payment system (PPS) for inpatient rehabilitation hospitals. PPS design requires a large database linking treatment costs with measures of the need for care, so the PPS was designed using the functional independence measure (FIM) database linked to Medicare hospital claims. An accurate translation from the MDS-PAC items to FIM--like items was needed to ensure payment equity under the substitution. This article describes the translation efforts and some of the problems that led policymakers to abandon the effort.     

Medicare prospective payment without separate urban and rural rates

The elimination of urban-rural differences in the Medicare prospective payment system (PPS) standard rates implies a need to re-examine all the PPS payment adjustments. Refinements for case mix, outliers, and the wage index can make a significant contribution to avoiding payment disparities in a single-rate system. However, changes in the adjustments for teaching and disproportionate-share (DSH) hospitals are also needed. The typically urban location of these hospitals makes it difficult to balance PPS payments and costs among major groups of urban and rural hospitals without some form of higher payment for all hospitals located in large urban areas.     

The Impact of the Prospective Payment System for Skilled Nursing Facilities on Therapy Service Provision: A Transaction Cost Approach

Objective. To examine skilled nursing facilities (SNFs) "make-or-buy" decisions with respect to rehabilitation therapy service provision in the 1990s, both before and after implementation of Medicare's Prospective Payment System (PPS) for SNFs.
Data Sources. Longitudinal On-line Survey Certification and Reporting (OSCAR) data (1992–2001) on a sample of 10,241 freestanding urban SNFs.
Study Design. We estimated a longitudinal multinomial logistic regression model derived from transaction cost economic theory to predict the probability of the outcome in each of four service provision categories (all employed staff, all contract, mixed, and no services provided).
Principal Findings. Transaction frequency, uncertainty, and complexity result in greater control over therapy services through employment as opposed to outside contracting. For-profit status and chain affiliation were associated with greater control over therapy services. Following PPS, nursing homes acted to limit transaction costs by either exiting the rehabilitation market or exerting greater control over therapy services by managing rehabilitation services in-house.
Conclusions. The financial incentives associated with changes in reimbursement methodology have implications that extend beyond the boundaries of the health care industry segment directly affected. Unintended quality and access consequences need to be carefully monitored by the Medicare program.     

Urban and rural hospitals: how do they differ?

When the Health Care Financing Administration implemented the Medicare prospective payment system (PPS), the payment rates for inpatient hospital operating costs were derived on an urban and rural basis within each region. The rates were also adjusted for area wage levels and other factors affecting hospital costs. The effect of PPS on rural hospitals is of widespread interest. This article provides data on rural and urban hospital facilities, utilization, and charges, as of April 1985. Almost 48 percent of the 5,821 short stay hospitals included in the PPS recalibration file for Federal fiscal year 1984 are located in rural areas. Rural and urban areas are designated by the Executive Office of Management and Budget or, in some instances by regulation.     

Effects of institutional services and characteristics on use of postacute care settings

Postacute care under Medicare may be provided in several institutional settings, some of which function as substitutes for each other, including rehabilitation care in either specialty hospitals and hospital units excluded from Medicare PPS or skilled nursing facility care. This study uses Medicare billing data to examine institution-based postacute care utilization for beneficiaries' hospital episodes occurring from February 1, 1992 through June 30, 1992. Data on inpatient and postacute Part A services used by Medicare inpatients receiving care in rehabilitation facilities or skilled nursing facilities are presented. The results indicate that, even after casemix is controlled for, inpatient stay treatment variables affect postacute care utilization patterns. Nonclinical factors such as age and sex also affect choice of postacute care site.     

The Role of Outpatient Facilities in Explaining Variations in Risk-Adjusted Readmission Rates between Hospitals

Objective. Validate risk-adjusted readmission rates as a measure of inpatient quality of care after accounting for outpatient facilities, using premature infants as a test case.
Study Setting. Surviving infants born between January 1, 1998 and December 12, 2001 at five Northern California Kaiser Permanente neonatal intensive care units (NICU) with 1-year follow-up at 32 outpatient facilities.
Study Design. Using a retrospective cohort of premature infants ( N =898), Poisson's regression models determined the risk-adjusted variation in unplanned readmissions between 0–1 month, 0–3 months, 3–6 months, and 3–12 months after discharge attributable to patient factors, NICUs, and outpatient facilities.
Data Collection. Prospectively collected maternal and infant hospital data were linked to inpatient, outpatient, and pharmacy databases.
Principal Results. Medical and sociodemographic factors explained the largest amount of variation in risk-adjusted readmission rates. NICU facilities were significantly associated with readmission rates up to 1 year after discharge, but the outpatient facility where patients received outpatient care can explain much of this variation. Characteristics of outpatient facilities, not the NICUs, were associated with variations in readmission rates.
Conclusion. Ignoring outpatient facilities leads to an overstatement of the effect of NICUs on readmissions and ignores a significant cause of variations in readmissions.