Does prospective payment really contain nursing home costs? - Policy Impact - Statistical Data Included

Health Services Research, April, 2002 by Li-Wu Chen, Dennis G. Shea

To contain nursing home costs, there has been an increasing industry trend, regardless of payer source, toward a capitation payment system. Since 1998, Medicare has also implemented PPS for the care of its beneficiaries (those who need postacute care) in nursing homes. Most state Medicaid programs right now adopt either a prospective or a mixed system, which combines PPS and retrospective methods for the nursing home care of their recipients. With the increasing penetration of managed care in the market of nursing home care, the prospective payment method is expected to dominate this industry further. However, although the original intent of prospective payments was to drive nursing homes toward greater efficiency, the lack of adjusting for quality in payments may lead to reductions in quality of patient care. To contain nursing home costs effectively, it is important for policymakers and legislators to take quality into account when designing prospective payments for nursing home care.

Although the adjustments of Medicare/Medicaid nursing home payments by provider quality may still challenge health services researchers and policymakers because of the great difficulties in accurately measuring nursing home quality, outcomes research in recent years may provide some rich insights into this issue. Promoting quality of care and controlling costs have been two of the most critical goals of long-term care policies in the United States. The design of PPS clearly serves the purpose of cost containment. However, as we have discussed, prospective payments may not effectively contain nursing home costs in that the cost savings may result from the compromise in quality of care and life of nursing home patients. These negative consequences are certainly beyond the initial expectation of policymakers and legislators. Therefore, we need to be very careful in designing any regulatory initiative that serves public goals. Public goals, like the case discussed here, could sometimes be compromised instead of a ccomplished by regulation.