Medicare PPS: here at last - Prospective Payment System - Cover Story

Nursing Homes, Nov-Dec, 1997

A NURSING HOMES ROUNDUP

In a year of Federal legislation that directly impacts long-term care, the creation of a Prospective Payment System (PPS) for Medicare-funded postacute care stands out as the centerpiece. Some call it the positive flipside to Congress's repeal of the Boren Amendment, in that PPS allows nursing homes new opportunities for developing postacute services. Others contend quite the opposite - that the PPS legislation offers more bad news than good, including such potentially troublesome provisions as consolidated Part B billing, an (as yet) vaguely defined per diem reimbursement plan, a $1,500 cap on therapy courses and, overriding everything, a mandated $9 billion cut in Medicare's postacute budget over the next five years. Keeping in mind that "beauty is in the eye of the beholder," Nursing Homes Editor Richard L. Peck asked spokespersons from various points on the postacute spectrum to share their views on the plan, set for implementation beginning in July.

Rob Hartwell, Senior Lobbyist, American Health Care Association: "This legislation generally reflects AHCA's goals and is reasonably close to the model we developed in the late 1980s, with the exception that there is no pass-through for ancillary services. Suppliers are unhappy with the consolidated billing because there will be more competition for them on costs, and some nursing homes might move more toward in-house provision of these services. As for administering PPS, HCFA has advised us to study hospital payment systems, and we intend to help transfer many of those features to the nursing home setting.

"Even with the $9 billion cut in Medicare subacute outlays, there is still room for growth of about 5% a year, and even more after the initial five-year period. It's true that the first couple of years of the PPS will be pretty lean, but after facilities learn how to manage it, they'll be in a position similar to what hospitals experienced under DRGs: Before the Balanced Budget Act, hospital profitability was projected at 17%.

"As for hospital-based SNFs, they will have a tough time competing with us now because of the combination of reduced average reimbursement and the new postacute discharge notification rules. All of this has significantly reduced the hospital advantage. Payment now will be based on acuity rather than site of service."

Michael Rodgers, Senior Vice President, American Association of Homes and Services for the Aging: "We've had a mixed reaction so far from our members, but I think it's fair to say there is some skepticism and a healthy degree of concern regarding implementation. Clearly, there will be less money in the system, because this was a political decision to reduce the Federal deficit. Congress started by establishing a set amount of savings and worked backward to reimbursement. This legislation was not passed in the interest of the providers and, over time, might have a detrimental impact on beneficiaries.

"I think hospitals might have larger problems with this. Though the SNF rates are not defined as yet, under the new system there won't be the hospital differential, and the new transfer rules - treating referrals to postacute providers as transfers rather than discharges - will put more pressure on their DRG reimbursement. It might act as a disincentive from moving patients into postacute care.

"There remain many questions. What will the process be for determining per diem rates? How will severity be measured under the RUGS program? What will the impact be of caps on therapies? How will consolidated billing be implemented? Some facilities have been doing consolidated billing for years, but others have expressed reservations about this and questioned the role they would have in monitoring Part B suppliers for fraud and abuse. Who's responsible? Clearly, these changes will require providers to examine more closely their care plans and, ultimately, their cost per case. The importance of computerizing patient case and billing records will be enormous. This capability varies widely throughout the field. Enough time to implement these changes will be critical.

"We remain skeptical about the July 1 start-up and four-year phase-in."

Laurence F. Lane, President, National Association for the Support of Long-Term Care: "HCFA has said that it might not have all the answers - but that this is the provider's problem. Is PPS funded appropriately to ensure access to purchasers of Medicare? No. This was a punitive piece of legislation written simply to save Medicare dollars. The $9 billion cut is a prescription for disruption, and disruption saves money. The only real way to save $9 billion is to put half the providers out of business.

"With consolidated billing, as of July 1, vendors of supplies and services will be on fee schedules as yet to be determined. Are nursing homes ready for this? What will it take to get them ready? I really don't know. I only have a clear sense that it's 'the provider's problem.'

"For the per diem, 75% of it in the first year is based on the facility's 1995 costs trended forward annually at market basket minus 1%. That means that facilities that started to expand their programs after 1995 are stuck with those expenditures. The 'case mix' adjustment that figures into the remaining 25% is unclear at this point, but for facilities a lot depends on computerizing the MDS 2.0. Are facilities ready for this? Are the states? Presumably this will become mandatory this spring, and HCFA says they're going to have a fully designed PPS payment structure in place shortly thereafter. Who are they kidding?