Physical rehabilitation following Medicare prospective payment for skilled nursing facilities

Health Services Research, Oct, 2004 by Walter P. Wodchis

Payment for nursing home care is an important policy concern for federal and state governments. Total government expenditures for nursing home care in the United States amounted to $58.2 billion in 1999 (Centers for Medicare and Medicaid Services 2002). The federal government paid for more than half of these expenditures through the Medicare program and through matching contributions to state Medicaid programs. While Medicaid expenditures are nearly four times higher than Medicare expenditures, the Medicaid proportion has declined through the 1990s and Medicare expenditures have tripled, both in magnitude and as a proportion of government nursing home expenditures. To restrain cost growth, Medicare introduced a prospective payment system (PPS) for Part A skilled nursing facility (SNF) benefits in July of 1998. The PPS increases control over government expenditures by transferring the financial risk for Medicare residents to nursing home facilities (Grimaldi 1999, 2002). The change may affect nursing home resident treatments because PPS changes the factors that drive reimbursement rates. To date, there has been no research on the effect of PPS on treatment patterns for residents.

The purpose of the present research is to identify the effect of PPS on the delivery of rehabilitation therapy treatment. Rehabilitation therapy is an important focus for study because this treatment (1) is an expensive component of care and hence sensitive to payment; (2) is measurable at the individual resident level; (3) is provided to between one-third and one-half of all nursing home residents (Murray et al. 1999); and (4) is an important component of care that may have substantial effects on resident outcomes such as functional health and return to the community (Joseph and Wanlass 1993).

While past research has examined overall effects of various payment methods at the facility level, the present research contributes to the literature by examining resident-level treatment within the nursing home. Past studies may have been constrained by data limitations. Sin (1998) suggests that new data from the Minimum Data Set Resident Assessment Instrument (MDS) is a valuable source of information for examining provider behavior within the nursing home. The results from this study demonstrate a marked change in nursing home rehabilitation therapy following the implementation of PPS.

POLICY GOALS AND LEVERS

A prime concern to government long-term care program administrators and policymakers is the need to control expenditures. Payment methods used by government programs are an important policy lever used to control expenditures. Payment methods affect expenditures because the payment method determines the reimbursement rate and marginal revenue for care provided to residents. The effect of government payment on provider behavior is a particular concern to policymakers because providers determine the type and amount of care that is delivered to nursing home residents. While some payment methods may lead to excessive utilization, other payment methods may put too much pressure on cost containment and potentially lead to under-provision of resident care (Cobum et al. 1993; Cohen and Spector 1996; Murtaugh et al. 1988).

RESIDENTS

The present study uses data from Medicare-certified SNFs. Medicare, Medicaid, or private sources may finance care for residents in these facilities, with each payer employing a different payment method. Medicare Part A is the first-payer and primary payment source for rehabilitation in nursing homes. To qualify for Medicare Part A SNF payment, Medicare beneficiaries must be admitted to nursing home within 30 days following an acute hospital stay of at least 3 days and must require skilled-level nursing and other services. The Part A benefit provides up to 100 days of post-acute care and a daily resident copayment of about $100 is required after 20 days of care. Medicaid and private-pay residents are not eligible for Medicare benefits either because they have used up their Medicare benefit, or they did not have a qualifying acute hospital stay, or the services that they require do not meet the conditions for skilled-level care. Rehabilitation for the latter residents is paid for first by (limited) Medicare Part B benefits, then by private or Medicaid sources. Rehabilitation for each type of resident may differ because of differences in clinical conditions that necessitate nursing home care. This study suggests that rehabilitation is also affected by payment.

Cost-based Payment

Before July of 1998, Medicare Part A reimbursed SNFs using retrospective reasonable-cost-based payment. Although Medicare imposed limits on routine service payments, ancillary services such as rehabilitation were not limited. Under this regime, providers are reimbursed for virtually all costs, do not bear the risk for marginal costs of care, and thus have little incentive to minimize costs or behave as efficient producers (Grimaldi 1999, 2002). Because price is determined only by production costs, cost-based payment offers no control over the price of nursing home care. Moreover, the marginal revenue for rehabilitation care under cost-based payment is directly related to treatment costs because all reasonable costs, including a return on investment, are reimbursed. Cost-based payment provides no financial restriction on rehabilitation treatments, allows the highest level of rehabilitation treatment, and may lead to overuse of services.