Medicare postacute care payment reforms have potential to improve efficiency of care, but may need changes to cut costs

Abstract

The Affordable Care Act mandates changes in payment policies for Medicare postacute care services intended to contain spending in the long run and help ensure the program's financial sustainability. In addition to reducing annual payment increases to providers under the existing prospective payment systems, the act calls for demonstration projects of bundled payment, accountable care organizations, and other strategies to promote care coordination and reduce spending. Experience with the adoption of Medicare prospective payment systems in postacute care settings approximately a decade ago suggests that current reforms could, but need not necessarily, produce such undesirable effects as decreased access for less profitable patients, poorer patient outcomes, and only short-lived curbs on spending. Policy makers will need to be vigilant in monitoring the impact of the Affordable Care Act reforms and be prepared to amend policies as necessary to ensure that the reforms exert persistent controls on spending without compromising the delivery of patient-appropriate postacute services.

Exhibit 3

Average number of comorbidities for Medicare fee-For-Service patients using post-acute services 1996–2005 Notes: Figure shows average number of comorbidities at time of hospital dischrage for fee-for-service Medicare patients with primary diagnosis of stroke, hip fracture, or joint replacement and who subsequently use home health, skilled nursing, inpatient rehabilitation, or long term care hospital services. Comorbidities include those identified by Elixhauser (1998), omitting hypertension and cardiac arrhythmias. Hypertension is extremely prevalent in these populations and cardiac arrhythmias were removed from Elixhauser’s list based on concerns over reliability. Source: Authors’ calculations from 100 percent Medicare claims for acute hospitals and post-acute care, and Medicare denominator files.

Exhibit 4

Home Health costs and readmission rate (conditional on use of home health use), Medicare Fee-for-service patients 1996–1999 Notes: Figure plots 90-day readmission rates and average 90-day home health costs for all fee-for-service Medicare patients discharged from acute hospitals with a primary diagnosis of stroke by quarter of acute discharge who received any home health services. Source: Authors’ calculations from 100 percent Medicare claims for acute hospitals and home health agencies, and Medicare denominator files.