What happens when hospital-based skilled nursing facilities close? A propensity score analysis

Health Services Research, Dec, 2005 by Chapin White, Susanne Seagrave

In recent decades, postacute care services, which include skilled nursing facility (SNF) care, inpatient rehabilitation, and home health care, have emerged as an important component of the Medicare program and the U.S. health care system as a whole. In 2002, Medicare's spending on SNFs, home health agencies, and other postacute facilities totaled nearly $36 billion, around one-fifth of total Medicare spending (Thaker 2004).

Medicare limits coverage of SNF services to short-term stays following a hospitalization. The most common diagnoses among Medicare-covered SNF users are hip fracture, stroke, pneumonia, and heart failure (White 2003). During the early and mid-1990s, a large number of acute care hospitals opened their own hospital-based SNFs (HBSNFs) (Dalton and Howard 2002). In 1997, after this period of rapid growth, 7.0 percent of all acute care hospital stays were followed by an HBSNF stay (authors' calculations).

The rapid growth in postacute utilization and spending during the 1990s attracted the attention of policymakers and prompted sweeping payment reforms in the Balanced Budget Act of 1997 (BBA). These payment reforms affected SNFs as well as home health agencies and other postacute providers. At that time, HBSNFs were viewed by some policymakers as exploiting Medicare's payment systems through "unbundling" (i.e., receiving both hospital and HBSNF payments for essentially the same stay).

The BBA resulted in sharp declines in payments for most HBSNFs, as intended by Congress. Researchers have shown that many HBSNFs, following these payment changes, exited the market (Dalton and Howard 2002) (freestanding SNFs generally fared better under the new payment system, and their Medicare participation increased over the same time period). Researchers have identified several facility characteristics associated with higher probability of HBSNF closure (urban, for-profit, recently opened, high-cost case mix) (Liu and Black 2003; Medicare Payment Advisory Commission 2004).

An important question for Medicare policy is how these closures affected Medicare beneficiaries and, in particular, whether beneficiaries received appropriate care in substitute settings. Congress, in setting Medicare's payment rates, attempts to balance federal budgetary concerns (which argue for lower payments) against concerns for beneficiary access to care (which argue for higher payments). A sharp decline in provider participation following payment cuts, as occurred among HBSNFs, might have led to declines in beneficiary access to care if substitute settings that provided a comparable level of care were not available. But, the impact of provider exits on beneficiaries depends both on the availability of substitute settings of care, and on whether these settings can provide comparable levels of care. In the context of Medicare payment cuts, substitutability of sites of care is a double-edged sword--it mitigates access concerns, but it can also undermine attempts to reduce Medicare spending.

Earlier research has shown that, among patients using various types of postacute care, a good deal of overlap exists in their clinical and demographic characteristics (Gage 1999). This suggests that the site of care has the potential to be influenced by payment incentives. MedPAC has recently documented the substitution of freestanding SNF beds for HBSNF beds, and the substitution of long-term care hospital utilization for other postacute settings (Medicare Payment Advisory Commission 2003, 2004). Beyond that, little is currently known about the extent to which acute care hospitals, freestanding SNFs, home health agencies, and other settings can substitute for HBSNFs. This research sheds light on substitutability by examining how HBSNF closures resulted in increased utilization of alternative sites of care.

Our specific research questions are the following: What happens to Medicare beneficiaries who would have been treated in the HBSNFs that closed, and what does this mean for the quality of their health care? How are hospitals, especially those that close their SNF units, affected by these closures? Finally, what happens to the utilization of health care resources and Medicare spending when HBSNFs close?

This study compares hospitals that did and did not close their HBSNFs, with the outcomes of interest being the length of hospital stays, the use of alternative postacute care settings, the level of Medicare spending, and health outcomes. The data for this study come entirely from Medicare's fee-for-service administrative data files, including the MEDPAR files, claims data, and provider of service files. This study builds on previous studies that have focused on the reasons for HBSNF closures by examining the effects of the closures.

METHODS

We perform a hospital-level difference-in-differences analysis, with the goal of estimating the effects of HBSNF closures on patterns of utilization and outcomes. We begin with claims-level data on individuals' utilization of health care services and outcomes over the period from 1997 to 2002. These claims-level data are grouped into episodes, where each episode begins with an acute care hospital admission and includes the beneficiary's subsequent postacute care and hospital readmissions. Episodes include the initial hospital admission and any subsequent utilization initiated within 90 days (including hospital stays). Episodes are assigned to the acute care hospital where the initiating stay occurred. Each episode includes information on the use of services, spending, and outcomes. We aggregate the episode-level data to the hospital level by calculating means. We calculate hospital-level means for episodes beginning in 1997 and, separately, 2001. We chose this time frame because of the large number of HBSNF closures that took place beginning in 1998. The key results compare changes (1997-2001) among hospitals that closed their SNF with changes among hospitals that kept their SNF open. An HBSNF was defined as being closed by 2001 if no Medicare claims were submitted in 2001.