Introduction
Good morning. My name is Barbara Wynn and I am the Acting Director of the
Bureau of Policy Development at the Health Care Financing Administration,
Department of Health and Human Services. I am pleased to be here today to speak
to you about proposals included in the President's budget for hospitals and
distinct-part hospital units that are excluded from the hospital inpatient
prospective payment system (PPS). I would like to start by providing some
background on the types of hospitals that are excluded from PPS, and how they
are paid. I will also discuss some of the shortcomings of the current payment
system for PPS excluded facilities, and how the Medicare proposals in the
Administration's budget would improve this payment methodology and control
spending growth. Finally, I will discuss HCFA's long- term plans for reforming
payments to rehabilitation and long-term care hospitals by developing an
integrated payment system for all post-acute care.
Background
Since October 1, 1983, most hospitals have been paid under the hospital
inpatient prospective payment system (PPS). However, certain types of specialty
hospitals and units are excluded from PPS because the PPS diagnosis related
groups do not accurately account for the resource costs for the types of
patients treated in those facilities. Facilities excluded from PPS include
rehabilitation, psychiatric, children's, cancer, and long term care hospitals,
rehabilitation and psychiatric hospital distinct part units, Christian Science
sanatoriums, and hospitals located outside the 50 states and Puerto Rico. These
providers continued to be paid according to Section 18 86(b) of the Social
Security Act, as amended by Section 101 of the Tax Equity and Fiscal
Responsibility Act (TEFRA) of 1982. They are frequently referred to as TEFRA
facilities.
TEFRA facilities are paid on the basis of Medicare reasonable costs per
case, limited by a hospital specific target amount per discharge. Each hospital
has a separate payment limit or target amount which was calculated based on the
hospital's cost per discharge in a base year. The base year target amount is
adjusted annually by an update factor Hospitals whose costs are below their
target amount are entitled to bonus payments equal to half of the difference
between costs and the target amount, up to a maximum of five percent of the
target amount. Medicare also makes additional payments to hospitals whose costs
exceed their target amounts. For these hospitals, Medicare pays bonus payments
equal to half of the amount by which the hospitals costs exceed the target
amount up to 10 percent of the target amount. Hospitals that experience
significant increase in patient acuity may also apply for additional Medicare
exceptions payments.
There are 3,462 TEFRA facilities, including 1,117 hospitals and 2,345 units.
Currently, the TEFRA facilities certified for Medicare include:
- 1,063 rehabilitation facilities, of which 191 are hospitals and 872 are
units;
- 2,112 psychiatric facilities, of which 639 are hospitals and 1,473 are
units;
- 186 long term care hospitals;
- 70 children's hospitals;
- 9 cancer hospitals;
- 17 Christian Science sanatoriums: and
- 5 hospitals located in U.S. territories, including the Virgin Islands,
American Samoa, Guam, and Saipan Mariana Island.
Total Medicare expenditures for TEFRA hospitals and units in FY 1994 were
$6.8 billion, which is 8.4 percent of Medicare expenditures for all inpatient
hospital care. Medicare expenditures for post acute care provided in TEFRA
facilities include $3.3 billion for rehabilitation hospitals and units and $473
million for long term hospitals. By comparison, Medicare FY 1994 expenditures
for skilled nursing home care were $6.97 billion and for home health agency
services $12.7 billion.
Strengths and Weaknesses of the TEFRA Payment System
Since the inception of TEFRA, there have been changes in practice patterns
that have weakened the effectiveness of TEFRA, and hindered its ability to
control costs. First, since the implementation of PPS, more patients are being
transferred to TEFRA hospitals and units. We believe this trend reflects a
response by providers to the incentives in the current system. This increase in
utilization of TEFRA facilities has fueled the rapid growth in TEFRA payments in
recent years. In addition, the number of discharges from TEFRA facilities to
other post-acute care settings has increased, while average length of stay in
TEFRA facilities has declined. This also suggests an attempt by providers to
maximize payments by discharging patients to other settings to avoid exceeding
their TEFRA cost limits.
As the number of TEFRA discharges has increased, so has the number of new
TEFRA facilities. The TEFRA per discharge target rate payment methodology
creates an incentive for newly established TEFRA hospitals to inflate base
period costs in order to create a higher target rate. Thus, base period costs
for new TEFRA hospitals and units may not reflect the costs of efficient
operations. In this way, the existing TEFRA payment methodology may give an
unfair advantage to newer hospitals and units with more recent base periods, in
comparison to older TEFRA providers.
The President's FY 1998 budget includes a variety of modifications that
would help alleviate the inequities and inappropriate incentives created by the
current TEFRA payment system, which I will discuss in more detail below.
Administration Legislative Proposals
We strongly believe that improvements must be made to the current TEFRA
payment system. The President's FY 1998 budget includes several legislative
proposals to strengthen the TEFRA payment system. These include:
- Encouraging efficient provision of services by
- Reducing the update factor for FY 1998 through FY 2002 to the
percentage increase in the excluded hospital market basket
minus 1.5 percentage points, and
- Reducing reasonable cost capital payments to PPS-exempt
providers by 15 percent;
- Reducing the disparities between costs and payments for certain
hospitals by rebasing every TEFRA hospital per case rate using
costs from the facility's two most recent cost reporting
periods, and then limiting the per case rates to not less than
70 percent but not more than 150 percent of a national mean
rate for each type of hospital (e.g., separate means for
psychiatric hospitals, rehabilitation hospitals, and the other
types of facilities).
- Reducing the incentive for new providers to maximize base year
costs, by limiting the cost based reimbursement for a new TEFRA
provider to 150 percent of the national mean for that type of
provider.
- Eliminating incentive payments for hospitals with costs below
their target amount and modifying the cost sharing formula for
hospitals with costs in excess of their target amount. Medicare
will not make additional cost-sharing payments to providers
whose costs are less than or equal to 110 percent of the target
amount. Medicare will pay half of the excess costs, up to 20
percent of the target amount, for hospitals with costs between
110 and 150 percent of the target amount.
- Providing a safety net for hospitals whose costs exceed 150
percent of their target amount by providing, after rebasing,
additional payments for significant changes in patient acuity.
In addition to these improvements to the current system, the President's
budget would help control payments to TEFRA hospitals, curtailing the rapid
increase in the establishment of new long term care hospitals by subjecting all
new long-term care hospitals to Medicare's inpatient PPS. Under current law, the
only characteristic long-term care hospitals have in common is an average length
of stay greater than 25 days. Patients that are currently using long-term care
hospitals are receiving services that are comparable to those provided by other
types of providers: rehabilitation hospitals, psychiatric hospitals, and skilled
nursing facilities that serve medically complex patients. As we modify our
payment systems for these provider types, we believe that newly certified
facilities should be classified by the nature of the services they provider
rather than their average length of stay. Otherwise, we will be establishing
different methodologies for similar services and allowing facilities to choose
the provider classification which will result in the most favorable payment. The
moratorium on exemption from the inpatient PPS would not affect any current
providers.
Finally, the President's budget includes a provision granting the Secretary
authority to collect patient assessment data from all providers of post-acute
care, including rehabilitation hospitals and units, and long term care
hospitals. HCFC intends to use this data to continue developing an integrated
payment system for post acute services.
Long Term Goal for Post Acute Services
Utilization of post-acute services has grown rapidly in recent years. As
average length of stay in acute care hospitals has declined with the
implementation of PPS, more and more patients are being discharged to post acute
settings. In addition, we have found an increase in the number of transfers from
one post acute setting to another. The current TEFRA payment system, which
establishes payment limits on a per discharge basis and provides bonus payment
to hospitals with costs below their target rate gives providers an incentive to
move patients out of these hospitals quickly. A recent HCFA study found that the
number of discharges from rehabilitation hospitals to SNFs increased by 48
percent from 1992 to 1994. In addition, average length of stay in rehabilitation
hospitals has been declining in recent years, from 22.2 days in 1992 to 18.5
days in 1996.
To address the rapid growth in post acute spending and eliminate the
financial incentive for providers to discharge patients from one post acute
setting to another based on financial considerations rather than an assessment
of patient needs, HCFA intends to develop a single, integrated payment system
for all post-acute care services Currently, the payment methodology for
post-acute care depends on the treatment setting. In the existing fragmented
system, payments for the same clinical services vary depending on the treatment
setting. This variation in payments across settings may create incentives that
inappropriately affect treatment decisions. HCFA's long term goal is to develop
an integrated, beneficiary-centered system of paying for post-acute services
that would avoid these inappropriate incentives.
To the extent our research confirms it is feasible and appropriate, the
integrated post-acute care payment system would encompass care provided in
rehabilitation hospitals and units, long- term care hospitals, skilled nursing
faciluld need legislative authority to implement an integrated payment
system that would apply to post-acute services in SNFs, HHAs, long term care
hospitals, rehabilitation hospitals and units, and other facilities. HCFA still
needs to undertake development and assessment of a core patient assessment
instrument with common elements that can be used across various treatment
settings. An equitable payment system based on a single prospective rate or
limit would have to allow for recognition of appropriate cost differences, due
for example to geographical price differences, practice pattern variations, and
other appropriate factors. Thus the cost data would be employed to determine a
basic rate or payment limit structure, and to establish appropriate adjustments
for cost variations within that structure and payment policies when multiple
providers furnish services within the same episode of care. Decisions would also
need to be made regarding recognition and payment for outlier cases. Thus,
although HCFA has already put substantial thought and effort into the
development of an integrated post-acute care payment system, implementation of
such a system would require, at a minimum, several years of additional work.
PPS for Rehabilitation
HCFA's long term goal of developing an integrated payment system for post
acute care represents a shift in thinking from previous years. For several
years, HCFA has been researching possible patient classification systems for
rehabilitation cases in ordeuld need legislative authority to implement an integrated payment
system that would apply to post-acute services in SNFs, HHAs, long term care
hospitals, rehabilitation hospitals and units, and other facilities. HCFA still
needs to undertake development and assessment of a core patient assessment
instrument with common elements that can be used across various treatment
settings. An equitable payment system based on a single prospective rate or
limit would have to allow for recognition of appropriate cost differences, due
for example to geographical price differences, practice pattern variations, and
other appropriate factors. Thus the cost data would be employed to determine a
basic rate or payment limit structure, and to establish appropriate adjustments
for cost variations within that structure and payment policies when multiple
providers furnish services within the same episode of care. Decisions would also
need to be made regarding recognition and payment for outlier cases. Thus,
although HCFA has already put substantial thought and effort into the
development of an integrated post-acute care payment system, implementation of
such a system would require, at a minimum, several years of additional work.
PPS for Rehabilitation
HCFA's long term goal of developing an integrated payment system for post
acute care represents a shift in thinking from previous years. For several
years, HCFA has been researching possible patient classification systems for
rehabilitation cases in order to implement a prospective payment system for
rehabilitation hospitals and units. The most promising system we found was the
Functional-Related Groups (FRGs) system developed by Margaret Stineman and
colleagues at the University of Pennsylvania and SUNY-Buffalo. This system is
based on a rehabilitation coding system known as the Functional Independence
Measure (FIM), a scoring system developed and owned by Uniform Data System for
Medical Rehabilitation (UDSMR) that measures the degree of functional
independence in rehabilitation patients. Over a year ago, we contracted with the
RAND Corporation to evaluate the FIM/FRG and the feasibility of a PPS-type
system based on these measures. RAND has prepared a draft report that finds, in
general, that this system provides a reasonable and feasible approach for
classification of hospital inpatient rehabilitation services. However,
considerable work would be needed before a PPS can be implemented.
For example, the Technical Advisory Panel on the project questioned the
reliability of the FIM and the breadth of the cognitive measures it includes.
Further analysis of the FIM would be needed before a system based on the FIM
could be implemented. In addition, RAND developed their model system based on
data from a limited sample of rehabilitation facilities, that significantly
under-represents rehabilitation units. In fact, Medicare pays for nearly twice
as many discharges from rehabilitation units as it does from freestanding
rehabilitation hospitals. In order to ensure that the system accurately predicts
costs across all facilities, HCFA would need to collect data from all
rehabilitation hospitals and units in order to determine appropriate payment
weights. RAND also identified potential coding problems that could undermine the
effectiveness of their PPS model at controlling costs. Uncorrected, these
problems could lead to case-mix "creep" after implementation of an FRG-based
PPS. RAND expanded the original FRGs to account for complications and
comorbidities (CCs). Although rehabilitation facilities are supposed to code CCs
on the Medicare bill, this information is not currently used for payment or any
other purpose; therefore, it is likely to be subject to error In fact, RAND
found that the rehabilitation units recorded CCs in approximately 26% of cases,
while freestanding facilities did in only 16% of cases. The high level of error
in coding could lead to case-mix creep, which would threaten the validity of the
payment system.
The limitations of the FRG-based system developed by RAND probably could be
resolved with careful analysis, additional data collection, refinement of the
FIM descriptors and training of coders. The question, then, is whether we
should devote significant resources toward refining this system rather than to
the task of developing an integrated payment approach. Our best estimate is that
we could be ready to implement a FRG-based PPS in 2 « years after enactment of
legislation. This time frame includes 6 months to develop the data elements and
2 years for data collection and development of the final system.
However, recent study findings have caused a shift In our thinking about
methods for reforming payments to rehabilitation facilities, and we no longer
believe that developing a separate PPS for rehabilitation hospitals is the best
approach. Rehabilitation patients are treated in several different settings with
similar outcomes. Therefore, we believe that an integrated post-acute payment
system offers the best approach. If we were to establish individual payment
systems for each type of setting, we are concerned that potentially different
incentives inherent in each of the payment systems would influence clinical
decisions about the appropriate treatment settings for some patients. For
example, if we were to implement an episodic PPS for rehabilitation facilities
(like the FIM/FRG system) and a per them system for SNFs (as we proposed in
the FY 1998 President's budget), rehabilitation facilities would have an
Incentive to discharge patients as quickly as possible to a SNF. In that way,
the rehabilitation hospital could collect the full Medicare payment, and the SNF
could continue to bill Medicare on a per day basis. The incentive for maximizing
Medicare payments in this way is even greater in cases where an acute care
hospital owns both the rehabilitation unit and the SNF. Moreover, we are
concerned that an episodic payment system for rehabilitation hospitals, by
creating incentives for early discharge, may not encourage optimum outcomes.
The RAND study for example, found a correlation between length of stay and
improvement in functional status.
In order to avoid creating these incentives, we would like to pay
rehabilitation facilities as part of an integrated payment system for non-acute
inpatient care, that is, a "service-specific" rather than a "provider-specific"
system. HCFA has already taken initial steps toward development of the
integrated payment system described above. For example, we have prospective
payment demonstrations underway for both SNFs and HHAs, and are proposing
national implementation of PPS for SNFs (in FY 1998) and HHAs (in FY 2000) in the
FY 1998 President's budget. Currently, we are modifying the patient assessment
instrument used in the SNF demonstration so it can also be applied to the
services furnished by rehabilitation facilities. A single patient assessment
instrument would give us a meaningful comparison of a patient's severity and
functional limitations across settings. This will allow for better coordination
of patient care as well as a consistent measure of case-mix.
If we continue to devote our effort to developing a system that can be used
across all post-acute settings, we could be ready for implementation as early as
2002, We believe that the benefit of having a more comprehensive system where
the incentives are to place the patient in the appropriate post-acute care
setting rather than where the payment is more advantageous is worth the
additional wait. Without such a comprehensive system, a per discharge FRG system
for rehabilitation facilities will further encourage short lengths of stay and
discharges to SNF facilities in order to maximize Medicare payment. In contrast,
the integrated post acute payment system will reduce transfers of patients from
one setting to another simply to maximize payments, and will ultimately, allow
us to gain control of the rapid growth in post-acute care.
Conclusion
In summary, our immediate goal is to improve the TEFRA payment system
through the reforms included in the President's budget. Our long-term goal is to
create a beneficiary-centered system of post- acute services that promotes
quality of care, access to care, and continuity of care while adequately
controlling costs. Our preference to seek legislation that allows us to
establish an integrated post acute care payment system with a single core data
assessment too and patient classification system, and a coordinated set of
payments that encourages appropriate care for patients regardless of the setting
in which they are treated.
