Reimbursement options other than PPS - Prospective Payment System

Nursing Homes, April, 1998 by Laura Hyatt

Pick up any recent healthcare trade publication and chances are you will find something written about the "Balanced Budget Act" (BBA), including the Medicare Prospective Payment System (PPS) soon to be implemented. The dreaded PPS is causing quite a stir - everybody seems to be talking about it, articles are being written, computer programs are being developed, and companies that organize conferences are doing "land office business" because of all the confusion surrounding the issue.

Suffice it to say that PPS will require a great deal of energy and resources in the form of staff education, refocusing, staffing up and other adjustments in providing care. It is important to remember, though, that PPS applies only to Medicare-and, in most skilled nursing facilities (SNFs), Medicare represents only about 8 to 20% of total census.

This means that approximately 80% of those served by SNFs have other forms of reimbursement: private-pay, Medicaid, HMOs and other health plans, as well as worker's compensation, accident or auto insurance, victim's compensation and other special state or regional programs. And a growing number of post-acute patients are being reimbursed by some of these alternatives. Over the past decade a growing number of private insurers have become interested in and begun paying for post-acute care. Even Medicaid has become a potential resource, as managed care slowly takes hold - and PPS, as currently proposed, makes managed care (dare I say) appealing by comparison.

This may be a good time for post-acute care providers to consider increasing their population of patients who are reimbursed through managed care organizations (MCOs), or health plans, as they prefer to be called. These plans take many forms - not just HMOs, but preferred provider organizations (PPOs), independent practice associations (IPAs), networks, third-party administrators (TPAs) and self-insured large employers. Although these entities differ by how they are legally organized, operationally structured and taxed, they have one thing in common: All require providers to share risk in one way or another (whether accepting discounted fees in return for volume or sharing in a fixed payment capitation).

Providers should look (albeit carefully) for health plans that will best serve as referral sources. For instance, the local hospital may have a large medical group or its own HMO, possibly an ideal starting point because these organizations almost certainly have patients in need of post-acute services and are most assuredly interested in reducing costs.

Exercise care in choosing MCO partners. Evaluate factors such as rates, timeliness of payment, accessibility, ease of utilization, type and volume of enrollees or client population, exclusions, preferred vendors, quality of services, risk management policies and general policies and procedures. A local HMO may have a high number of enrollees, but closer examination reveals that a vast majority of them are under age 40 and have relatively few health problems - not the ideal partner for a long-term care organization. It is important, too, that the proposed relationship is equitable and appears likely to satisfy the goals of clinically effective service and a strengthening of the partners' financial position.

As I've mentioned, managed Medicaid is starting to grow as states look for alternatives in order to meet the growing demands and costs of caring for this population. Several states have already awarded contracts to MCOs to manage significant numbers of - and in some cases, most - Medicaid-qualified recipients; this is particularly true in states that have many urban areas with large Medicaid populations. Since, nationally, the greatest number of SNF residents are reimbursed for by Medicaid, it stands to reason that as states extend their managed care initiatives to this population, the providers who have already established relationships with MCOs are most likely to benefit.

Another potential resource may be large employers in the community that have particular healthcare needs - worker's compensation programs, for example - that post-acute care organizations with an interdisciplinary rehabilitation component could provide. Or a construction company may have a high incidence of orthopedic injuries requiring surgical procedures, thus providing the post-acute organization with an opportunity to consult with the employer in developing a rehabilitation program aimed at assisting with recovery and speeding return to work.

In general, there are still "company towns" in America, but over the years the types of companies have changed, as have many of the health problems encountered by their employees. It is up to providers to be watchful and flexible in tailoring their services to these evolving needs.

Developing these alternative post-acute care referral sources will take time and effort - and, unless yours is a very large organization, perhaps more time and effort than your current staff has available. In such situations, I recommend that you consider retaining an expert in healthcare contracting to consult with your organization. This individual should be familiar with the type of services you provide and have experience in your area of the country (an important factor, no matter what anybody says!). This consultant shouldn't cost you an "arm and a leg." Ask around or, if you'd like, please write me at the address below for assistance in your search.