Reflections on a town hall meeting - demands for changes to Medicare's prospective payment system arose from a meeting arranged by the Health Care Financing Administration

Nursing Homes, August, 1999 by Jade Gong

1. SNFs are paid on the basis of a bundled per-diem rate; hospitals are paid on the basis of a bundled case rate. Therefore, hospitals are better able to maintain and even increase profitability by reducing lengths of stay, as well as by increasing efficiency in care delivery. More importantly, a hospital might generate as much as 60% of its revenue from Medicare and, because of that volume, be able to average revenues. The average SNF, on the other hand, generates less than 10% of its revenues from Medicare, making it more difficult for the facility to absorb substantial losses on even a few patients.

2. SNFs are paid on the basis of rates that do not adequately reflect the current case mix or rate of inflation. Although this methodology was mandated by Congress and not developed by HCFA, it is appropriate to review how these provisions are impacting providers and determine if some funding should be restored.

3. Hospitals enjoyed a period of transition to full national DRG rates. It is a mistake, however, to suggest that SNFs had a similar period of "transition" because PPS rates are developed based upon historical costs that do not reflect current costs. There has been no transition - most SNFs have had to adjust immediately to lower revenues.

Another unresolved issue has been what constitutes covered SNF care. For example, consider the perspective of an admissions nurse who must make coverage decisions in the face of uncertainty about the definition of skilled care, in the process risking retroactive denials of payment by poorly trained fiscal intermediaries. Implementation of PPS has been extraordinarily challenging for facility staff, who must keep up with frequent policy clarifications while continuing to streamline operations. Most facility staff want to do the right thing - but they need timely information to do so.

All of these fears and uncertainties came poignantly to light at the April town hall meeting. Now that the points made there are starting to sink in, where do we go from here? The industry has accepted that PPS is here to stay, and that a properly designed PPS can have a positive impact on patient care. Many providers have adopted a renewed commitment to increasing the efficiency with which high-quality care is provided. Nevertheless, HCFA and Congress need to act expeditiously to fix existing problems, even if their decisions are based only upon reasonable anecdotal evidence. By the time that "anecdotes" translate into "research," patients will already have been harmed.

Provider interest groups are also challenged in new ways, however. They are all in the PPS boat together, and must find consensus around a common fix. It is my sincere hope that these interest groups, HCFA and the Congress can work together to put the Medicare SNF program back on the right cost-effective track.

Jade Gong, RN, MBA is a healthcare consultant in Arlington, Virginia, representing healthcare providers, national trade associations and other ancillary providers with interests in the SNF PPS. She is also the former director of Reimbursement and Finance for the American Health Care Association in Washington, DC.