Lower Payment Rates May Help Curb Medicare Spending on Post-Acute Care

October 18, 2023 - As Medicare Part A is expected to become insolvent by 2033, Congress should reduce Medicare spending on post-acute care by lowering payment rates to skilled nursing facilities (SNFs), home healthcare providers, and inpatient rehabilitation facilities (IRFs), according to an Urban Institute brief.

Post-acute care utilization and spending vary across the four settings: SNFs, IRFs, long-term care hospitals (LTCHs), and patients’ homes through the home healthcare benefit.

In 2021, 1.2 million Medicare beneficiaries used SNFs and total spending was $28.5 billion. Three million beneficiaries used home health, with Medicare spending reaching $16.9 billion. IRF spending totaled $8.5 billion with 335,000 users, and LTCH spending was $3.4 billion for just $71,000 beneficiaries.

Post-acute care is paid for under the Medicare program’s Hospital Insurance (HI) component, or Part A. These payments come from the HI trust fund, which researchers predict will become insolvent between 2031 and 2033. If the trust fund becomes insolvent, Medicare can only pay $0.90 on the dollar for hospital services, likely disrupting patient care.

Reducing post-acute care spending could help extend the timeline that Medicare Part A is solvent.

The Medicare Payment Advisory Commission (MedPAC) has determined that payments to providers in SNFs, IRFs, and home healthcare are too high relative to the costs of providing care.

“If you need to reduce spending, it seems reasonable to start with places where the agency that advises Congress on these matters has already judged payments that are made to be too high,” Bowen Garrett, senior fellow at the Urban Institute, told RevCycleIntelligence.

MedPAC recommended Congress reduce SNF and IRF payments by 3 percent for 2024 and reduce home health payments by 7 percent. However, SNFs and IRFs received payment increases for next year, while home healthcare providers received a 1.8 percent reduction.

Reducing SNF, IRF, and home health payment rates by 5 percent would have saved $2.7 billion in 2021, the brief noted. The reduced spending for SNFs and IRFs would accrue directly to the HI trust fund, while less than half of lower home health spending would accrue to Part A.

Only a third of home health spending is paid for under Part A. Shifting all spending on this care to Part B would help reduce Part A spending but could lead to higher Part B premiums and more federal revenue needed for Part B.

Bundled payment policies for post-acute care could also help minimize spending and promote more efficient use of services. For example, bundling payment for post-acute care with a preceding inpatient stay would result in a single lump-sum payment to cover an initial hospital stay and any post-acute care that followed for 90 days. The Congressional Budget Office (CBO) estimated this would have saved $47 billion between 2014 and 2023.

Implementing cost-sharing for home healthcare services in traditional Medicare is another strategy that could help curb post-acute care spending. Currently, home health in Medicare does not require cost-sharing for beneficiaries.

“This has led to concern that home health services may be overconsumed, that is, used even when they provide beneficiaries with low or even no marginal value,” the brief stated. “Requiring some financial stake in the use of home health on the part of enrollees could also create a check on potentially fraudulent or abusive provision of services by providers, which has been a problem within the home health industry.”

Medicare beneficiaries who use post-acute care services incur higher costs than those who do not. Additionally, beneficiaries using SNF and home healthcare services are older and have lower incomes compared to other beneficiaries. These findings suggest that managing the overall care of beneficiaries using post-acute care could lead to savings and quality improvements.