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

Nursing Homes, Nov-Dec, 1997

"Meanwhile, there will be victims and people will be hurt. Those of us who have worked 30 years to bring nursing homes from the board and care level to modern centers for medical care will have to start all over again."

Karen Tucker, President and CEO, American College of Health Care Administrators: "Though we don't know the specifics as yet, it's pretty clear that administrators will need an in-depth understanding of case management and of new cost accounting methods to track ancillaries. They might want to look at bringing these services in-house or at least network more to find lower-cost suppliers, and they will definitely have to brush up on their negotiating skills as managed care contracting becomes a factor.

"As for the $9 billion savings, administrators have to know how to cut costs while providing the same or better level of care. Many will find ways to do so; some will go out of business.

"We found some heartening results in a study that was done recently of prospective payment implemented in Maine's Medicaid system. Though this is Medicaid and not Medicare, perhaps there will be parallels. Specifically, it was found that:

* nursing homes did make greater use of management controls to enhance efficiency;

* nursing homes did not avoid admitting Medicaid patients - in fact Medicaid census increased;

* nursing homes did respond to the built-in reimbursement incentives to become more cost-efficient;

* the study was unable to substantiate that nursing homes changed staffing patterns to reduce costs at the expense of quality of care, and in fact indicated that some facilities increased nursing staff at all levels;

* nursing homes did not reduce expenses by minimizing pay increases to employees.

"The one area of skepticism that we have found among members thus far concerns the timetable for phase-in of the Medicare PPS. Given the time it takes simply for HCFA's regulation-drafting and approval process, the thinking is that the current timetable is highly unrealistic."

Harriett S. Gill, Gill/Balsano Consulting: "Everyone is going to have a very steep learning curve with this. For some nursing homes and even more for hospitals, to have this incredibly complex reimbursement system imposed on a unit occupying a relatively small number of beds will create the greatest challenge. Nursing homes, especially, are going to feel the lack of adequate information systems technology. They've been working with the MDS, but they haven't paid a lot of attention to data accuracy and how to systematize data for patient categorization under a case mix approach. The most immediately pressing question regarding their information technology might be, can their software translate MDS data to a case mix, RUG-III-type grouper?

"I'm not sure that this legislation will necessarily tilt the postacute playing field more against hospitals. I suspect those that provide good subacute services that are valued by their physicians will do quite well under PPS. Those hospitals where the unit was principally the chief financial officer's idea, i.e., finish off patients' acute stays in SNF beds to avoid DRG losses, might have a problem. Decisions will have to be based on a variable cost analysis relating to potential DRG per diem losses under the new transfer rules.