MedPAC

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Skilled Nursing Facilities

July 11, 2011 in Nursing Homes, Supply of Medical Services | 4 comments

Today I summarize recent trends in skilled nursing facilities (SNFs) as outlined in MedPAC’s 2011 Report to Congress.

SNFs furnish short-term skilled nursing and rehabilitation services to beneficiaries after a stay in an acute care hospital. These services include physical and occupational therapy and speech–language pathology services. Examples of SNF patients include those recovering from surgical procedures, such as hip and knee replacements, or from medical conditions, such as stroke and pneumonia.

Most SNFs are part of nursing homes that furnish long-term care, which Medicare does not cover. Medicaid finances mostly long-term care services provided in nursing homes but also covers copayments for dual-eligible beneficiaries who stay 21 or more days in a SNF. Medicare-covered SNF patients are typically a small share of a facility’s total patient population but a larger share of the facility’s payments.

In 2009, 15,068 SNFs furnished covered care to just under 5 percent of fee-for-service (FFS) beneficiaries (1.6 million). In fiscal year 2010, Medicare spent $26.4 billion on SNF care. Medicare covers up to 100 days of SNF care after a medically necessary hospital stay of at least three days

Three-quarters of beneficiaries live in a county with five or more SNFs, and less than 1 percent live in a county without one. Available SNF bed days increased 4 percent between 2008 and 2009. However, since 2004, the share of SNFs admitting medically complex patients decreased.

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New Legislation affecting Medicare Hospital Payments

July 7, 2011 in Hospitals, Medicare | No comments

Recent Legislation

  • CMS completed its implementation of Medicare severity–diagnosis related groups (MS–DRGs) and cost-based relative weights in FY 2009.
  • TMA, Abstinence Education, and QI Programs Extension Act of 2007 (TMA), the Congress mandated payment reductions of 0.6 percent in 2008 and an additional 0.9 percent in 2009 to offset the effects of documentation and coding improvements (DCI) projected by the CMS Office of the Actuary (actual hospitals’ DCI increased payments by 2.5 percent in 2008 and by a cumulative 5.4 percent by 2009)

PPACA (i.e., Health Reform) changes to Medicare’s inpatient prospective payment system (IPPS) for hospitals

Below are six key changes that the PPACA legislation made to hospital payments in the current and future fiscal years.

  • PPACA1: Congress mandated a 0.25 percentage point reduction in the payment update for the second half of FY 2010 and for all of FY 2011.
  • PPACA2: Congress temporarily expanded (through 2012) the policy providing additional payments to hospitals that have a low volume of Medicare (not all payers) inpatient discharges and are 15 miles or more from the nearest PPS hospital.
  • PPACA3: Instituted a new two-year program to provide additional payments to hospitals located in counties with relatively low levels of Medicare spending (age, sex, and gender adjusted, but not health status adjusted)
  • PPACA4: PPACA extended for all of FY 2010 the provision in Section 508 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which gave eligible hospitals an opportunity for a one-time reclassification to a different labor market and allowed this change to increase their payments.
  • PPACA5: The frontier wage index floor will guarentee that hospitals in Montana, North Dakota, Nevada, South Dakota, and Wyoming will maintain a wage index equal to no less than 1.0.
  • PPACA6: Beginning in FY 2011 a rural-floor budget-neutrality adjustment will be applied on a national level, rather than on a state level. CMS estimated that this policy change will increase payments for urban hospitals whose wage index is raised up to the state’s rural level and will decrease payments for other hospitals (including all rural hospitals), which pay for the floor through a budgetneutrality adjustment.

Outpatient

  • Rural hospitals with 100 or fewer beds receive hold-harmless outpatient payments through 2011.  Thus, the switch from a cost-based to OPPS payment system will not effect reimbursement negatively for these providers.  In January 2012, the OPPS system is set to be instituted for these providers.

Source: MedPAC’s March 2011 Report to Congress.

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MedPAC’s Home Health Recommendations

June 2, 2011 in Home Health, Medicare | 1 comment

  • The Secretary, with the Office of Inspector General, should conduct medical review activities in counties that have aberrant home health utilization.  The Secretary should implement the new authorities to suspend payment and the enrollment of new providers if they indicate significant fraud.
  • The Congress should direct the Secretary to begin a two-year rebasing of home health rates in 2013 and eliminate the market basket update for 2012.
  • The Secretary should revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services and should no longer use the number of therapy visits as a payment factor.
  • The Congress should direct the Secretary to establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use.

See this post to review MedPAC’s earlier home health recommendations.

High Margins and CMS Response
Home health agencies’ (HHAs’) have high Medicare margins, averaging 17.4 percent between 2001 and 2008 and averaging 17.7 percent in 2009.  Much of these high margins may be due to an increase in the reported number of visits per home-health visit (since more visits per episodes leads to higher Medicare payments per episode). Payments per episode increased 7 percent from 2008-2009.  MedPAC believes that Medicare is currently overpaying for home health services.  To reduce both the margins and the expansion of HHAs, the Patient Protection and Affordable Care Act of 2010 (PPACA) includes the following provisions:

  • 2011—The base rate for a home health episode is reduced by 2.5 percent, and the market basket update is reduced by 1 percent.
  • 2012 and 2013—The market basket update is reduced by 1 percent.
  • 2014 to 2017—A phased rebasing of an episode payment is implemented to lower payments to a level equal to the costs of the average episode. The Secretary may lower payments by no more than 3.5 percent a year, for a cumulative reduction in payments of 14 percent by 2016. These reductions will be offset by the payment update for each year (under PPACA, the update in 2015 and following years will be equal to the market basket adjusted for productivity).

Other PPACA provisions include:

  • The Secretary has authority to halt the enrollment of new HHAs in areas deemed at high risk of fraud.
  • The Secretary also has the authority to suspend payment when unusual patterns are observed for providers or geographic areas.
  • The Secretary now has the  authority to require additional background checks for new providers of services deemed to be at high risk of fraud.
  • Physician review: Beneficiaries will need to have an encounter with a physician or nurse practitioner through an office visit or “telehealth” session when receiving home health care
  • The law passed a 3 percent rural add-on for episodes delivered in rural counties.

Quality

Quality is measured using the Outcome-Based Quality Monitoring (OBQM) data set, collected via the Outcome and Assessment Information Set (OASIS). At the Commission’s direction, the University of Colorado is examining two areas for more clinically focused measures: the amount of improvement in walking for beneficiaries who receive home health care after a hip or knee replacement and the hospitalization rate for causes that are potentially preventable.

Including therapy visits as part of PPS

An analysis by the Urban Institute found that the current case-mix system predicted 55 percent of episode-level costs for all non outlier episodes, but the explanatory power dropped to 7.6 percent if the number of therapy visits received was excluded as a case-mix grouping.  The steep decline in explanatory power indicates that the case-mix adjuster is highly dependent on the inclusion of therapy visits provided and that patient characteristics are less important in the predictive power attained by the current case-mix system. This reliance on the amount of services provided is counter to the goals of prospective payment, as the number of therapy visits provided is not a prospective attribute of a patient, but a factor under the control of the provider…The current case-mix system predicted about77 percent of the variation in episode-level therapy costs but less than 1 percent of the variation in non-therapy costs.

Beneficiary Cost Sharing

Adding a beneficiary cost sharing for home health care could be an additional measure to encourage appropriate use of home health services. The health services literature has generally found that beneficiaries consume more services when cost sharing is limited or nonexistent, and some evidence suggests that these additional services do not always contribute to improved health outcomes. Cost sharing may be appropriate for home health care because there are no clear clinical standards for many uses of the benefit…Adding a cost sharing requirement would give beneficiaries some incentive to weigh the value of home health services before accepting them and would dissuade beneficiaries from using it when it has minimal value. Cost sharing would also mitigate incentives in the home health PPS that reward volume.  One drawback, however, is that copayments encourage beneficiaries to use higher cost post acute care settings, such as skilled nursing facilities or inpatient rehabilitation facilities.  Thus, limiting copayments to community-admitted beneficiaries seems more reasonable.

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Medicare Payment Adequacy

May 26, 2011 in Medicare, Public Policy | 2 comments

How do policymakers  determine if Medicare payment levels are adequate?  The Medicare Payment Advisory Commission (MedPAC) uses the following criteria:

  • Access to care determined by the number of providers and volume of services.
  • Quality of care
  • Provider access to capital
  • Provider margins.

Although these measures do provide valuable information, they are far from perfect.  Access to care basically means whether beneficiaries have the opportunity to use medical services should they need it.  This could be defined as the proximity of the closest provided or the length of time a beneficiary must wait to receive services.  If certain types of people use lots of services whereas others use few, overall volume of services will be an imprecise measure of access.  Further, the number of providers may obscure geographic variation where certain areas contain too many providers whereas others have too few.

Provider margins is also problematic.  Although aiming to set payments to produce moderate margins (i.e., not excessive, but sufficient to ensure continued provider operations) is reasonable, cost information comes directly from the providers.  Acute care hospitals, skilled nursing facilities (SNFs), home health agencies (HHAs), outpatient dialysis facilities, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs) and hospices all must submit cost reports.  However, these providers may decide to inflate their costs.  Reporting higher costs will decrease their margins and may cause Medicare to increase payment rates.  At the very least, these providers can argue for higher reimbursement because of artificially low margins.  Medicare must be sure to carefully audit these reports if it plans to continue using them for payment purposes.

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MedPAC’s Analysis of Inpatient Rehabilitation Facilities

May 23, 2011 in Medicare, Nursing Homes, Supply of Medical Services | No comments

Inpatient Rehabilitation Facilities (IRF) provide rehabilitation to invidiuals recovering from serious illnesses such as strokes or hip replacements.  Today I review MedPAC’s analysis of Medicare payment policies for IRFs.

In 2002, expenditures on IRF totaled nearly $5.7 billion. This figure grew at an annual rate of 6.7 percent to $6.4 billion in 2004. Between 2005 and 2009, however, fell to about $6.1 billion aggregate FFS expenditures for IRFs fell as more beneficiaries enrolled in Medicare Advantage plans and as facilities adjusted to comply with a “compliance threshold.” The compliance threshold aims to distinguish IRF from regular acute care hospitals. [Enforcement of compliance threshold in place from 1984-2004 was suspended between 2002-2003, but in 2004 CMS revamped the threshold by: 1) by increasing the number of conditions that count toward the threshold to 13; 2)mandating that only a subset of patients with major joint replacement would count toward the compliance threshold; and 3) consistently enforcing IRFs’ compliance with the threshold.]

MedPAC notes that payments per case have grown faster than costs per case since the implementation of PPS in 2002. In 2009, IRF margins were 8.4 percent.

To become an IRF, a facility must:

  • Have a preadmission screening process
  • Ensure patient receives various services (e.g., physical, occupational, rehab therapy; social services; prosthetic services)
  • Use interdisciplinary approach with nurse, social worker and/or therapist
  • Meet compliance threshold: no fewer than 60 percent of all patients admitted to the IRF must have at least 1 of 13 conditions,
  • Initiate therapy within 36 hours after admission

Eighty percent of IRFs are hospital-based and 20 percent are freestanding facilities.

Most IRF cases are for stroke, fracture of a lower extremity (e.g., hip), joint replacement, debility, neurological disorders, or brain, cardiac or spinal cord injuries.

There were approximately 360,000 Medicare fee-for-service (FFS) cases in IRFs in 2009.  Relatively few Medicare beneficiaries use IRF services because IRF patients must be able to tolerate and benefit from intensive rehabilitation therapy, which typically consists of three hours of therapy per day for at least five days per week.

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MedPAC’s 2011 Home Health Reform Recommendations

January 24, 2011 in Home Health, Medicare | 6 comments

In 2009, 3.3 million Medicare beneficiaries used home health.  In the past few years, the home health expenditure growth rate has outpaced Medicare spending in all other areas.  This finding is likely correlated with the 9.7% increase in the number of home health agencies between 2008 and 2009.  How should Medicare reform home health to improve outcomes and reduce spending.  A post by William Dombi of the National Association for Home Care & Hospice (NAHC) summarizes MedPAC’s recommendations.

Recommendations

  1. Eliminate any inflatinon update in 2012. In 2009, freestanding home health agency margins were 17.7% (although hospital-based home health agency margins were negative). Margins have average 17.1% since 2011.  With such large margins, MedPAC believes an inflation payment update is unnecessary.
  2. Eliminate the therapy utilization threshold. MedPAC staff belive that “the current case-mix system overpays for higher case-mix weighted services such as episodes with therapy care and underpays for many non-therapy related episodes.” Instead, the case-mix adjustment should rely on patient characteristics to set payment for both therapy and non-therapy services. The NAHC has long criticized using therapy thresholds for the purpose of case mix adjustment.
  3. Establish risk corridors. This recommendation would modify the payment system to included more of a mix of prospective and cost-based reimbursement. “The ‘corridors’ are effectively limits on profit and losses that come from an imprecise system or abusive clinical practices that define care needs based on a provider’s desired margin.” The GAO proposed this alternative a number of years ago.
  4. Beneficiary cost sharing. To reduce the rise in the number of home health episodes per beneficiary–many of which may be unnecessary–MedPAC recommends some form of cost sharing. In particular, since the growth in home health spending is primarily driven from community-admitted patients, the copayment would apply only to community-admitted patients rather than hospital-admitted patients. One suggestion for the copayment amount was $300 per episode. “..Medigap insurances would be prohibited from covering the cost of any home health copayment.”

The MedPAC commissioners will meet in January 2011 to vote on the recommendations and will issue a report to Congress in March 2011.
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Medicare Regional Variation in Service Use may be Exaggerated

February 3, 2010 in Medicaid/Medicare, Supply of Medical Services | 1 comment

Regional differences in the cost of health care are due to differences in both the price and volume of medical care.  Since, Medicare sets prices, there should be little variation in prices…right?

Actually, Medicare payments have geographic adjustments based on a number of factors.  For instances, the hospital wage index gives pay hospitals more in areas with higher labor costs.  Similarly, Medicare pays physicians more in high cost areas through the geographic practice cost index (GPCI).

In order to compare differences in volume across regions, one must also make the following adjustments

  • additional payments to hospitals above the standard rates in the inpatient prospective payment system including graduate medical education, indirect medical education, and disproportionate share payments.
  • additional payments to physicians above the standard rates in the physician fee schedule in provider scarcity areas and health provider shortage areas.
  • additional payments to rural hospitals above standard rates in the inpatient prospective payment system, including special payments for sole community hospitals, small rural Medicare-dependent hospitals, and critical access hospitals.
  • beneficiaries’ health status, as measured by the MSA’s average risk score from the CMS–hierarchical condition category (HCC) risk adjustment model.
  • the rate of beneficiaries’ enrollment in Part A and Part B of the Medicare program—in some areas, the percentage of beneficiaries with only Part A or Part B coverage differs significantly from the national average.

After taking these factors into account, a recent MedPAC report finds that although raw per capita spending is 55% higher for beneficiaries in the area at the 90th percentile than for beneficiaries in the area at the 10th percentile, medical utilization use in higher use areas (90th percentile) is only about 30% greater than in lower use areas (10th percentile).  Approximately, 45% of the FFS population lives in areas that have service use within 5 percent of the national average.

The metro area with the highest service use was Miami.  In fact, Miami’s medical service use was twice the level of the services provided in the metro area with the lowest utilization levels (non-metropolitan Hawaii).  One reason for this difference is that “per capita spending on durable medical equipment and home health care in Miami–Dade County were both more than seven times the national average and dramatically above spending in neighboring counties.”

A more recent MedPAC report that uses BASF and MedPAR data finds that that “…46 percent of FFS beneficiaries live in areas that have service use within 5 percent of thenational average. In contrast, only about 25 percent of FFS beneficiaries live in areas where rawspending is within 5 percent of the national average.”  These figures are comparable, but slightly less dispersed that the estimates from the 2009 report.  The ratio of MSAs in the 90th percentile are 1.55 times as high as those in the 10th percentile.  Service use in the 90th percentile, however, is only 1.30 times as high as service use in the 10th percentile MSAs. These results are similar when comparing spending and utilization among decendents and non-decendents.  The largest variation in spending actually comes from post acute care services (compared to acute inpatient and ambulatory services).  For instance, although McAllen, TX has serivce utilization that is 3.2 times as high as the national average, beneficiaries living in McAllen use 7 times as much home healht services as the national average.  Another study found that average home health cost in North Dakota was $2,396 versus $7,761 in Nevada.

Other findings include:

  • Variation in service use is similar across MSAs and nonmetropolitan areas
  • Level of service use has a slightly inverse relationship to growth in service use
  • There is variation in spending within MSAs as well as across MSAs

Source:  MedPAC. “Regional Variation in Medicare Service Use.” January 2011.

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Medicare Reimbursement Information III

September 2, 2009 in Medicaid/Medicare | No comments

Today, we will focus on hospital care outside of the traditional Inpatient hospital care setting. Again, this information is culled from MedPAC reports.

Outpatient Hospital Services

  • Outpatient hospital care, from injections to complex procedures, accounted for $19 billion of total Medicare spending in 2007
  • Originally, outpatient reimbursement was cost based and copayments amounted to about 50% of total payments. Now, Medicare uses the Outpatient prospective payment system (OPPS) and copyament rates have decreased to 28% of total payments. There are carve outs for three additional items that fall outside the OPPS system: i) pass-through payments for new technologies, ii) outlier payments for unusually costly services, and iii) hold-harmless payments for cancer and children’s hospitals and rural hospitals with 100 or fewer beds that are not sole community hospitals
  • Payments from Medicare to the hospital are based on the ambulatory payment classifications (APC). New technologies can be placed in a “new technology” classification for up to 3 years. Payments outside of the APC system include: CMS pays i) corneal tissue acquisition costs, ii) blood and blood products, and iii) many drugs.

Home Health Services

  • Beneficiaries of home health services receive visits from skilled professionals to provide the following services: skilled nursing care, physical, occupational, and speech therapy, medical social work, and home health aide services.
  • About 2.9 million beneficiaries used home health care in 2006. Medicare pays for home health care with both Part A and Part B funds; in 2006, total payments were $14.1 billion. Beneficiaries pay not copayments for these services.
  • Medicare pays home health agencies based on 60-day episodes. The exact value or cost of home health benefits is inherently difficult to define. Medicare uses one of 153 home health resource groups (HHRGs) to determine payment rates. The HHRGs are based on clinical (e.g., IV needed, wound present, ulcer present) functional (e.g., dressing, bathing, toileting needs) and the number of visits needed.
  • Outlier payments are available when costs exceed 167% of the base pay. Home health agencies receive 80% of the difference between the HHRG base rate and their reported cost.

Hospice Care

  • Hospice care is available for Medicare beneficiaries whose life expectancy is six months or less. However, by agreeing to hospice care, patients forego the right to curative treatment. Medicare will pay for medical care for illnesses that are unrelated to their terminal illness. Beneficiaries occasionally pay a $5 hospital copayment, but are largely protected form out-of-pocket expenses within the hospice setting.
  • Between 2000 and 2005, hospice use increased by 11% per year. In addition, as of December 2007, 51 percent of hospice agencies were for profit, compared to 27 percent in 2000. Medicare payment for hospice grew from $2.9 billion in 2000 to over $10 billion in 2007.
  • Benefits cover skilled nursing services, drugs, physical and occupational therapy, counseling and other services.
  • Hospice agencies receive a set daily rate for their services. The vast majority of hospice cases receive the routine home care (RHC) base payment, but five percent do receive higher daily rates for more complicated cases. This base payment is adjusted geographically to reflect wage differences between regions. Payments are also capped; total payments over total number of beneficiaries may not exceed $22,386.

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