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.     

Medicare Payment Reform and Provider Entry and Exit in the Post‐Acute Care Market

Objective

To understand the impacts of Medicare payment reform on the entry and exit of post-acute providers.

Data Sources

Medicare Provider of Services data, Cost Reports, and Census data from 1991 through 2010.

Study Design

We examined market-level changes in entry and exit after payment reforms relative to a preexisting time trend. We also compared changes in high Medicare share markets relative to lower Medicare share markets and for freestanding relative to hospital-based facilities.

Data Extraction Methods

We calculated market-level entry, exit, and total stock of home health agencies, skilled nursing facilities, and inpatient rehabilitation facilities from Provider of Services files between 1992 and 2010. We linked these measures with demographic information from the Census and American Community Survey, information on Certificate of Need laws, and Medicare share of facilities in each market drawn from Cost Report data.

Principal Findings

Payment reforms reducing average and marginal payments reduced entries and increased exits from the market. Entry effects were larger and more persistent than exit effects. Entry and exit rates fluctuated more for home health agencies than skilled nursing facilities. Effects on number of providers were consistent with entry and exit effects.

Conclusions

Payment reform affects market entry and exit, which in turn may affect market structure, access to care, quality and cost of care, and patient outcomes. Policy makers should consider potential impacts of payment reforms on post-acute care market structure when implementing these reforms.Provisions in the Affordable Care Act represent an important restructuring of payment for health care providers. Accountable care organizations and “bundled” payments for acute and post-acute care create incentives for coordinating and reorganizing the delivery of health care by changing provider payment for an episode of care, where care during an episode can be provided across multiple settings. These reforms affect both the average payment received by providers for an episode of care and the “marginal” or additional payment received for the provision of additional services during the episode. These latest policies are a continuation of earlier reforms implementing prospective payment systems for acute care (1983) and post-acute care (1997–2003) that replaced prior cost-based systems of payment. As now, the earlier reforms were conceived to reduce unnecessary utilization, and considerable research has studied how these policies affected health care costs and patient outcomes (e.g., McKnight 2006; Sood, Buntin, and Escarce 2008; Grabowski, Afendulis, and McGuire 2011).Payment reforms impact providers'' profitability and financial risks through changes in both the overall level of payment and the marginal payment for additional services. Consequently, payment reform may impact provider entry and exit, market concentration, and providers'' organizational structure (e.g., vertical integration). Such changes may have important consequences for provider competition, access to care, and patient choice. While prior research has considered the impact of specific reforms on entry and exit, there is limited evidence of how the design of payment systems more generally affects market structure. In this article, we use a series of Medicare payment reforms for post-acute care providers to investigate how payment system design affects provider entry and exit, and the implications for market structure.     

Health care service decision influences: an exploratory investigation of search and nonsearch criteria for professionals and patients

Despite numerous studies examining buying behavior, research on types of evaluative criteria for vendor selection involving consumers and health care professionals (functioning as market "intermediaries") has been lacking. Building on previous conceptualizations reported in marketing and health care literature, the author examines the relative influence of search and nonsearch evaluative criteria in the decision making of both patients and hospital-based health care providers. Decisions involving post-acute service vendors are analyzed to determine the relative impact of each attribute set in the selection of respiratory therapy services by patients and health care professionals. Data are presented that point to significant differences in decision-making styles between patients and health professionals, as well as among health care providers in different organizational, institutional, and professional roles. Key marketing implications are discussed.     

Bringing managed care incentives to Medicare's fee-for-service sector

The Health Care Financing Administration (HCFA) could work with eligible physician organizations to generate savings in total reimbursements for their Medicare patients. Medicare would continue to reimburse all providers according to standard payment policies and mechanisms, and beneficiaries would retain the freedom to choose providers. However, implementation of new financial incentives, based on meeting targets called Group-Specific Volume Performance Standards (GVPS), would encourage cost-effective service delivery patterns. HCFA could use new and existing data systems to monitor access, utilization patterns, cost outcomes and quality of care. In short, HCFA could manage providers, who, in turn, would manage their patients' care.     

Patterns and costs of post-acute care: a longitudinal study of people aged 60 and over in Dubbo

Abstract: Declining length of stay of older people in hospital has caused concern about shifting of costs from acute to community care services. Because the two types of care are funded through different programs and from different jurisdictions, the coordination of acute and post-acute care has become the major issue. There is, however, little information available on patterns of use and costs of post-acute care either in Australia or elsewhere. In an existing longitudinal community study of older people in Dubbo, New South Wales, data on use of services by people aged 60 years and over for 12 months of hospitalisations was collected by linkage to the records of Home and Community Care providers. Only a quarter of older people received any type of Home and Community Care service in the 12 weeks after discharge and two-thirds of these received only one type of service. While less than 5 per cent received a service from an occupational therapist, physiotherapist or speech therapist, 78 per cent visited a general practitioner after discharge. The average cost of all Home and Community Care services received after hospital discharge was around $12.50 per week per person discharged. The predictors of higher costs of service use were: living alone, and the interactions of high levels of disability with owning a house. Results on service coordination, the identification of post-acute services, cost consequences of program funding, assessment and discharge planning are related to debates emerging from the Commonwealth Heads of Government.     

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.     

The impact of PPS on hospital-sponsored post-acute services: a case study of Delaware Medicare providers

Hospitals were the first providers to experience the change in Medicare reimbursement from a cost basis to the prospective payment system (PPS). In the 1980s, this switch was accomplished through the development of diagnosis-related groups, a unique formula for Medicare reimbursement of inpatient hospital services. During that time, the concern was that, with the anticipated reduced payments to hospitals, adverse impacts on Medicare beneficiaries were likely, including premature release of patients from hospital care resulting in medical complications, increased readmissions, prolonged episodes of recuperation, and preventable mortality. The Balanced Budget Act of 1997 (BBA) mandated the implementation of the PPS for Medicare providers of skilled nursing home care and home health care. This change from cost-based reimbursement to PPS raised concerns that these providers would react as hospitals had done-that is, skilled nursing homes might limit their admission of Medicare patients and home health agencies might cut back on visits. As a result of that, hospitals might be faced with providing care for these post-acute patients without receiving additional reimbursement, and these changes in utilization patterns would be of critical importance to both providers and Medicare beneficiaries. This article examines the decisions that providers made in response to the perceived impact of the BBA. Qualitative data were derived from provider interviews. The article concludes with a discussion of how changes in Medicare reimbursement policy have influenced providers of post-acute care services to alter their level of participation in Medicare and the impact this may have on the general public as well as on Medicare beneficiaries.     

The promise and peril of accountable care for vulnerable populations: a framework for overcoming obstacles

Accountable care organizations (ACOs) are a promising payment model aimed at reducing costs while also improving the quality of care. However, there is a risk that vulnerable populations may not be fully incorporated into this new model. We define two distinct vulnerable populations, clinically at-risk and socially disadvantaged, and we discuss how ACOs may benefit each group. We provide a framework to use in considering challenges for both vulnerable patients and health systems on the path to accountable care. We identify policies that can help overcome these obstacles: strategies that support ACO formation in diverse settings and that monitor, measure, and reward the performance of providers that reach all patients, including vulnerable populations.     

Physician charges for surgical services under Medicare, by medical specialty: 1980 and 1985.

Since 1980, a number of Medicare practice and utilization patterns have changed as a result of payment reform, certification of new types of providers, and changes in technology. The shift in physician surgical charges by specialty and by setting is examined in this article.     

Post-acute home care and hospital readmission of elderly patients with congestive heart failure

After inpatient hospitalization, many elderly patients with congestive heart failure (CHF) are discharged home and receive post-acute home care from informal (family) caregivers and formal service providers. Hospital readmission rates are high among elderly patients with CHF, and it is thought that use of informal and formal services may reduce hospital readmission during the post-acute period. Using proportional Cox regression analysis, the authors examined the independent and joint effects of post-acute informal and formal services on hospital readmission. No evidence of service impact was found. Rather, hospital readmission was associated with a longer length of CHF history and noncompliance with medication regimes. Research, policy, and practice implications are discussed.     

The Minimum Sum Method: A Distribution-Free Sampling Procedure for Medicare Fraud Investigations

Random sampling of paid Medicare claims has been a legally acceptable approach for investigating suspicious billing practices by health care providers (e.g. physicians, hospitals, medical equipment and supplies providers, etc.) since 1986. A population of payments made to a given provider during a given time frame is isolated and a probability sample selected for investigation. For each claim or claim detail line, the overpayment is defined to be the amount paid minus the amount that should have been paid, given all evidence collected by the investigator. Current procedures stipulate that, using the probability sample’s observed overpayments, a 90% lower confidence bound for the total overpayment over the entire population is to be used as a recoupment demand to the provider. It is not unusual for these recoupment demands to exceed a million dollars. It is also not unusual for the statistical methods used in sampling and calculating the recoupment demand to be challenged in court.Though it is quite conservative in most settings, for certain types of overpayment populations the standard method for computing a lower confidence bound on the population total, based on the Central Limit Theorem, can fail badly even at relatively large sample sizes. Here, we develop “nonparametric sampling” inferential methods using simple random samples and the hypergeometric distribution, and study their performance on four real payment populations. These new methods are found to provide more than the nominal coverage probability for lower confidence bounds regardless of sample size, and to be surprisingly efficient relative to the Central Limit Theorem bounds in settings where overpayments are essentially all-or-nothing and where the payment population is relatively homogeneous and well separated from zero. The new methods are especially well-suited for sampling payment populations for providers of motorized wheelchairs, which at the time of this article’s submission was a national crisis. Extensions to stratified random samples and to settings where there are frequent partial overpayments are discussed.This article is dedicated to our colleague Dr. Fuming Wu, who has been comatose since a serious automobile accident in the summer of 2004.This revised version was published online in June 2005 with a corrected cover date.     

Assessment of systems for paying health care providers in Vietnam: Implications for equity,efficiency and expanding effective health coverage

Provider payment arrangements are currently a core concern for Vietnam's health sector and a key lever for expanding effective coverage and improving the efficiency and equity of the health system. This study describes how different provider payment systems are designed and implemented in practice across a sample of provinces and districts in Vietnam. Key informant interviews were conducted with over 100 health policy-makers, purchasers and providers using a structured interview guide. The results of the different payment methods were scored by respondents and assessed against a set of health system performance criteria. Overall, the public health insurance agency, Vietnam Social Security (VSS), is focused on managing expenditures through a complicated set of reimbursement policies and caps, but the incentives for providers are unclear and do not consistently support Vietnam's health system objectives. The results of this study are being used by the Ministry of Health and VSS to reform the provider payment systems to be more consistent with international definitions and good practices and to better support Vietnam's health system objectives.     

A Method for Identifying Places in Rural America at Risk of Not Being Able to Support Adequate Health Services

Abstract: Context : Public policymakers and their advisers struggle with the problem of specifying criteria by which health care providers in rural areas are eligible for special consideration in payment policies and for special grant programs. A means of designating places can provide a basis for assistance and can help target public resources for any providers who deliver services in those places. Purpose : This paper provides the details underlying a place‐based approach to identifying rural areas that are at risk for not being able to provide requisite health services. Methods : A population size criterion is utilized first to eliminate metropolitan areas and other large agglomerations from consideration. Any territory not included in a place of 3500 or more people, including a 25‐mile buffer around that place, is a priori considered to be at risk. All places, including buffers, that have populations between 3500 and 100 000 are further analyzed using population compositional data and principal components analysis. Findings : In 10 states and 24 bordering states selected for developing and testing the method, there were 1907 block groups outside the boundaries of any place with a population of at least 3500. In addition, the analysis suggested that 66 out of 236 places and buffers with populations between 3500 and 100 000 also should be classified as vulnerable. Conclusions : The results are discussed in regard to how a place‐based approach can advance the study of rural health needs. By focusing on the needs of the people residing in a defined area, as determined from the aggregate characteristics of the population, a model is generated that can be used to predict special circumstances confronting any service provider. The public policy implications of the findings are also considered. Special payment policies could be written on the basis of place instead of provider characteristics, and grant programs providing technical assistance could be targeted to places of greatest need     

Obtaining advance beneficiary notices for Medicare physician providers

Medicare has established medical necessity rules that define the medical conditions that make beneficiaries eligible for particular services. These rules are codified in local medical review policies (LMRPs) that are established by Medicare claims payment contractors. If a beneficiary's provider does not inform the patient that a service may not be covered, the provider cannot subsequently bill the beneficiary for the service if it is denied. This article discusses the application of these policies. It illustrates the circumstances in which advance beneficiary notices (ABN) are required to ensure that patients have been notified that services rendered will not be covered by Medicare and will become their financial responsibility. The author also presents special applications of the ABN regulations as they apply to the EMTALA rules, anti-kickback, and other statutes. Samples of the official ABN forms are illustrated.     

Flipped out over outpatient PPS

The adjustment to Medicare's new outpatient prospective payment system has been anything but calm and orderly. Hospital billing offices have had to totally redo their systems. Ill-prepared providers are seeing claims tossed out and reimbursement delayed, with a definite impact on their bottom lines. Now, insurers are poised to adopt similar payment policies. What's needed in many cases is training and a coders-wanted sign, observers say.     

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.     

Legislative and Policy Strategies for Supporting Rural Health Network Development: Lessons from the 103rd Congress

There was considerable support in most major health reform bills considered by the 103rd Congress for the development of rural integrated service networks. The demise of comprehensive health reform, together with the pace of current market-driven changes in the health care system, suggests the need to assess the impact of specific policy strategies considered in the last Congress on rural integrated service network development. Toward this end, this article evaluates the rural health policy strategies of the major bills in relation to three essential preconditions for the development of rural integrated service networks: (1) the need for a more stable financial base for rural providers; (2) the need for administrative, service and clinical capacity to mount a successful network; and finally, (3) the need for appropriate market areas to ensure fair competition among networks and plans. Key policy strategies for supporting rural network development include reform of insurance and payment policies, expansion of targeted support and technical assistance to the underserved, limited-capacity rural areas, and policies governing purchasing groups or alliances that will ensure appropriate treatment of rural providers and networks.     

New payment model for rural health services in Mongolia

This article describes experiences in Mongolia in designing and implementing a new method of payment for rural health services. The new method involves using a formula that allocates 65% of available funding on the basis of risk-adjusted capitation, 20% on the basis of asset costs, 10% on the basis of variations in distance-related costs, and 5% on the basis of satisfactory attainment of quality of care targets. Rural populations have inferior health services in most countries, whether rich or poor. Their situation has deteriorated in most transition economies, including Mongolia since 1990. One factor has been the use of inappropriate methods of payment of care providers. Changes in payment methods have therefore been made in most transition economies with mixed success. One factor has been a tendency to over-simplify, for example, to introduce capitation without risk adjustment or to make per case payments that ignored casemix. In 2002, the Mongolian government decided that its crude funding formula for rural health services should be replaced. It had two main components. The first was payment of an annual grant by the local government from its general revenue on the basis of estimated service population, number of inpatient beds, and number of clinical staff. The second was an output-based payment per inpatient day from the National Health Insurance Fund. The model was administratively complicated, and widely believed to be unfair. The two funding agencies were giving conflicting types of financial incentives. Most important, the funding methods gave few incentives or rewards for service improvement. In some respects, the incentives were perverse (such as the encouragement of hospital admission by the National Health Insurance Fund). A new funding model was developed through statistical analysis of data from routine service reports and opinions questionnaires. As noted above, there are components relating to per capita needs for care, capital assets, distance, and quality of care. The risk-adjusted capitation component determines needs classes by use of age, gender, and family income. The model was accepted by all concerned parties, and steps are now being taken to implement it under transitional arrangements. Many of the data used to parameterize the model are inaccurate and will need to be updated in the near future. However, the model is inherently valid, and procedures have been set in place that will ensure accuracy is improved on a continuing basis. An important reason why the government strongly supported implementation was its commitment to implement output-based budgeting across all government sectors. The new model provided a convenient way of applying output-based budgeting to one major component of the health sector.     

Service provision and quality outcomes in home health for rural Medicare beneficiaries at high risk for unplanned care

Multiple barriers exist to providing home health care in rural areas. This study examined relationships between service provision and quality outcomes among rural, fee-for-service Medicare beneficiaries who received home health care between 2011 and 2013 for conditions associated with high-risk for unplanned care. More skilled nursing visits, visits by more types of providers, more timely care, and shorter lengths of stay were associated with significantly higher odds of hospital readmission and emergency department use and significantly lower odds of community discharge. Results may indicate unmeasured clinical severity and care needs among this population. Additional research regarding the accuracy of current severity measures and adequacy of case-mix adjustment for quality metrics is warranted, especially given the continued focus on value-based payment policies.     

Hospitals, providers collaborate on transitions

Baystate Health, a three-hospital system with headquarters in Springfield, MA, is partnering with post-acute providers to improve transitions as patients move through the continuum of care. A multidisciplinary post-acute performance team partnered with post-acute providers to determine why patients are readmitted to the hospital and to work on ways to avoid readmissions. Facilities share information with the hospitals how they operate and what they need to ensure patients receive the care they need. The health system's director of post-acute services holds regular meetings with providers to brainstorm on improving patient care.