MedPAC Targets Post-Acute Care for Healthcare Payment Reform

March 21, 2017 - In its March 2017 report to Congress, the Medicare Payment Advisory Commission (MedPAC) pinpointed post-acute care for healthcare payment reform after Congressional and CMS inaction resulted in as much as $11 billion in lost savings since 2009.

MedPAC previously submitted healthcare payment reform suggestions for post-acute care, such as skipping annual payment updates, lowering Medicare reimbursement rates by a fixed percentage, and implementing value-based purchasing programs for each post-acute care setting.

“While there has been some progress on the quality and value-based purchasing fronts, there have been few corrections to the known shortcomings of the SNF [skilled nursing facility] and HHA [home health agency] prospective payment systems (PPSs), and payments remain high relative to the costs of treating beneficiaries,” wrote the commission. “As a result, the inequities in payment continue to encourage patient selection and to advantage some providers over others.”

Medicare spending on post-acute care services reached $60 billion in 2015 partly because aligning Medicare reimbursement rates with actual post-acute care costs is a challenge for all healthcare stakeholders, the commission stated.

“Perhaps most vexing is that, for any given patient, the need for post-acute care is not clear, and there is limited evidence on which setting would be best and what mix of services would achieve the best outcomes,” the report stated.

READ MORE: Post-Acute Care Can Help Accountable Care Organizations Save

Post-acute care utilization and costs also significantly vary by market, causing Medicare spending to widely differ by geographic locations. The commission reported that areas with the highest and lowest per capita Medicare fee-for-service spending varied by 200 percent for post-acute services compared to just 22 percent for acute inpatient services and 24 percent for ambulatory services.

The cost variations indicated that patients do not select a post-acute care provider based on care quality. Instead, they go to a certain post-acute care setting because of convenience, location, preference, and the financial relationship between the referring hospital and post-acute care setting.

In addition, misaligned Medicare reimbursement structures also exacerbated the program’s post-acute care spending challenges. The fee-for-service payment model does not promote efficient care and Medicare reimbursement is greater than actual care costs for treating beneficiaries, MedPAC contended.

For example, home health agencies are paid per day under the skilled nursing facility prospective payment system. Therefore, the agencies are financially motivated to keep patients longer.

Medicare also requires providers in the four post-acute care settings to use different patient assessment tools, making it more challenging to compare post-acute care crossing settings. The tools may make it seem like some providers have higher costs or worse patient outcomes when in reality they see more medically complex patients.

READ MORE: Key Ways to Improve Claims Management and Reimbursement in the Healthcare Revenue Cycle

In response to post-acute care payment obstacles, MedPAC recommended the following healthcare payment reforms since 1999:

• Collect uniform patient assessment information (suggested in 1999, 2005, and 2010)

• Report outcome-based quality measures in payment adequacy work and implement outcome-based measures for inpatient rehabilitation facility and home health agency payment models (suggested in 2011 and 2012)

• Expand Nursing Home Compare website to include key post-acute care measures (suggested in 2007)

• Implement a value-based purchasing program for skilled nursing facilities (suggested in 2008 and 2012)

READ MORE: Payment Reform, Value-Based Care Top 2017 Medicaid Priorities

CMS and Congress have made limited progress in implementing the recommendations, the report showed.

Since 2008, the commission has also advised Congress and CMS to reduce post-acute care Medicare reimbursement by decreasing payments by a fixed percentage or stopping annual payment updates, or both.

Medicare margins for three of the settings remained at about 10 percent for almost a decade and the margins increased after CMS implemented the respective prospective payment systems. Therefore, MedPAC concluded that base payment rates under the Medicare reimbursement systems were too high and providers simply adjusted to the new payment rules.

Home health agency and skilled nursing facility Medicare margins have remained particularly high with margins averaging 15.6 percent, the commission pointed out.

Inpatient rehabilitation facilities were close behind with an average 10.9 percent Medicare margin.

However, long-term care hospitals maintained far lower Medicare margins around 5 percent for the past ten years.

“These margins indicate that many providers can exert control over their costs when there is fiscal pressure to do so and can generate payments that robustly exceed costs,” the report stated.

Despite the evidence, CMS still increased Medicare reimbursement rates for most of the care settings and offset payment reductions with reimbursement updates.

To make Medicare reimbursement more equitable for post-acute care settings, MedPAC also suggested in 2008 and 2011 that CMS and Congress base skilled nursing facility and home health agency payments on patient clinical, functional, and demographic characteristics rather than the amount of therapy provided.

Since then, the commission also recommended similar payment reforms for the other post-acute care settings.

In 2016, MedPAC advised Congress to develop a unified post-acute care payment system that covers all four settings.

“Underpinning this work is the recognition that many similar patients are treated across the four settings,” wrote the commission. “Like the recommended designs for SNF and HHA PPSs, the unified PAC payment system bases payments on patient characteristics, not services furnished, and would redirect program payments toward medically complex patients and away from patients who receive therapy services unrelated to their care needs.”

MedPAC suggested that CMS revise skilled nursing facility and home health agency payment systems as soon as possible to prepare them for a unified system, which should be ready to implement by 2021.

CMS and lawmakers should also continue developing post-acute care value-based purchasing programs as well as lower Medicare reimbursement rates.

If Congress and CMS implement this year’s recommendations, MedPAC projected Medicare spending on fee-for-service post-acute care services to go down by over $30 billion in the next decade.