Acute care or hospital-based, case management really took a foothold in hospitals following the introduction of the Inpatient Prospective Payment System (IPPS) in the mid-1980s. Prior to that time, hospitals were reimbursed under a fee-for-service methodology. This meant that hospitals billed, and were paid, for services provided with few questions asked. It has been fairly well-established that this payment methodology resulted in abuse and overuse of healthcare resources. It was during the late 1960s and 1970s that healthcare costs skyrocketed with seemingly no end in sight.

It was based on these skyrocketing costs that the Centers for Medicare & Medicaid Services (CMS) introduced a significant change to the way hospitals were reimbursed under the fee-for-service system. CMS, known at that time as the Health Care Financing Administration (HCFA), determined to introduce a payment system that would control costs and manage or reduce length of stay.

Diagnosis-Related Groups

The IPPS and diagnosis-related groups (DRGs) were probably the strongest catalysts for the movement of case management from the community to the acute care setting. Under fee-for-service (FFS) plans there were no financial incentives for hospitals to reduce cost and length of stay. In the 1960s and 1970s, public policy was focused on improving access to services. Medicare, Medicaid, and other programs were designed to make services available to the poor, the disabled, and the elderly.

By the early 1980s, cost containment had become the driving issue. Healthcare policy had begun to shift from the issues of access and entitlements to quality, cost, and fiscal monitoring. The IPPS was initiated to control hospital costs by providing a price-per-case reimbursement. The onus of responsibility was shifted to the provider to manage resource utilization as a set reimbursement would be allotted. The tool designed to determine the amount of reimbursement was the DRG. It was believed that the DRG would encourage physicians, nurses, ancillary departments, and administrators to work together to provide the most efficient care and to manage the patient through the system as efficiently as possible. It was also believed that the IPPS would help standardize care and improve the efficiency of the care process. In reality, though the DRG controlled the payment rate the hospital was to receive, it did not control the cost of care. Therefore, despite these rather dramatic and strict reimbursement schemes, hospital costs continued to escalate. This resulted in the resurgence of the managed care reimbursement systems in the 1990s, especially capitation.

Acute Care Case Management Emerges

In 1985, the IPPS was advanced to allow some states to designate reimbursement rates for Medicaid and all other third-party payers. Based on hospitals’ experiences with the Medicare DRGs and the advent of the system at the state level, strong incentives appeared for the control of hospital resources. Regardless of the cost incurred for caring for a particular case type, the hospital would still be reimbursed a fixed amount of money based on the coded DRG.

It was recognized rather quickly that RNs could play a vital role in managing these dwindling healthcare dollars. The RN’s role became increasingly important in terms of the following:

  • coordination of tests, treatments, and procedures,
  • confirmation of physician orders,
  • accurate documentation,
  • timely admissions,
  • necessary patient and family teaching, and
  • timely discharges.

In the past, much of the care process had a life of its own, running its course to completion. There were few financial incentives to control the healthcare process; in fact, there were disincentives. In an FFS environment, longer lengths of stay and greater use of product resources translated into greater revenue and financial success for the hospital. The IPPS changed all that. It became important to maximize the patient’s hospital stay by coordinating the flow of patient care activities. This meant coordination of the patient’s tests, treatments, and procedures so that delays could be avoided. Additional strategies included the confirmation of physician orders and/or questioning of their appropriateness when necessary. Getting the patient into and out of the hospital on time were other strategies for maximization.

The introduction of effective case management programs was slow to take hold. Costs continued to rise and employers continued to seek solutions to the high cost of purchasing healthcare insurance for their employees. This opened the door for the managed care industry to enter. By offering purchasers healthcare insurance products at lower cost, they began to shift the structure away from indemnity plans to managed care plans such as HMOs (health maintenance organizations) and PPOs (preferred provider organizations), just to name two.

These shifts resulted in the IPPS system for government payers and the managed care system for commercial plan purchasers. These systems needed even greater emphasis on case management as a tool to manage cost and length of stay.

Although case management initially addressed the changes necessary for organizations to survive prospective payment, it was even more effective in its management of cases under a managed care system. In both reimbursement systems, patient care must be managed and controlled with a tight rein on the use of resources, the length of stay, and continuing care needs.

The majority of the models of the 1980s did little in terms of changing the role functions of the other members of the healthcare team. Whereas nursing provided the driving force for the movement toward hospital-based case management, the other disciplines were slower in recognizing the value of such a system. Additionally, serious downsizing was only just beginning in the industry. Corporate America had already begun its massive layoffs and downsizing initiatives. Thousands of people lost their jobs. Healthcare had not yet begun to feel the economic pinch as it was being felt in other businesses; the incentive for merging and downsizing departments was not yet there.

Shortly after these early models, case management began to mature as more and more hospitals began to implement case management models. One could see a direct correlation between the degree of managed care infiltration and the use of case management. In nursing case management, the nurse essentially functions as the leader of the team, similar to the team nursing approach. The difference was that the team did not consist of nurses only. Now the team was an interdisciplinary one, and each healthcare provider had a say in terms of how a patient’s care would be delivered and monitored.

Healthcare Reform

Both the prospective payment system and managed care infiltration necessitated a reassessment of the industry’s work, how it was organized, and how it was evaluated. Healthcare reform has now added the need for reassessment of healthcare business. The process of getting reform in healthcare was a long one, taking more than 20 years. Reform was a major issue for the presidency of Bill Clinton. The first program of reform, introduced by Hillary Clinton in 1993, was not enacted into law. During the Bush administration, several acts introduced were aimed at reducing the overall growth of healthcare costs. Other programs looked at proposals to guarantee access to coverage in the individual health insurance market and a for improving the quality and safety of the U.S. healthcare system. These programs continued to be debated through the 2008 presidential election by candidates Sen. John McCain and then-Sen. Barack Obama.

The game changer came in 2009 when the Congressional Budget Office (CBO) issued a preliminary analysis of the Affordable Care Act. The CBO estimated the 10-year cost to the federal government of the major insurance-related provisions of the bill to be approximately $1 trillion (Congressional Budget Office, June 15, 2009). It also provided for a reduction in the number of uninsured by about 16 million people. After President Obama was inaugurated, he announced his intent to work with Congress to construct a plan for healthcare reform. The Senate developed its own proposals while the House of Representatives worked on the Affordable Care Act. After debate in both the Senate and the House, and after many versions of the bill, it was finally voted into law on March 23, 2010. The amended bill was titled The Health Care and Education Reconciliation Act.

The Health Care and Education Reconciliation Act ensures that all Americans have access to quality, affordable health insurance and puts students ahead of private banks. The Congressional Budget Office has determined that together, these two bills are fully paid for and will ensure more than 94% of Americans have access to quality, affordable healthcare, will bend the healthcare cost curve, and will reduce the deficit by $143 billion over 10 years with further deficit reduction in the following decade.

Why is this History Important?

The early models of acute care case management addressed the healthcare environment such as it was at that time. During the 1980s, CMS had not yet introduced payment penalties associated with quality and other outcomes of care. The movement of case management from a community-based model into the acute care setting was strictly aimed at reducing length of stay — and, therefore, the associated costs as length of stay dropped. The focus was on streamlining discharge planning as the primary way in which to reduce hospital length of stay. Very little consideration was given for cost reduction in terms of day-to-day resource consumption or improving patient throughput at that time. Cost of care and patient flow issues had not yet risen to the forefront because they were not yet linked to reimbursement penalties.

Then CMS instituted linkages between cost and quality through value-based purchasing and other cost-saving measures such as payment penalties for high readmission rates. These changes created the first links between the cost and quality of healthcare. It was at this juncture that the face of case management needed to begin to change. The early case management models no longer meet the needs of the changing healthcare landscape. It is for this main reason that hospitals and healthcare systems must look thoughtfully and carefully at the design, roles and functions, and expected outcomes of their case management departments.

Redesigning Your CM Department for the Future

No hospital can afford to remain stagnant in an environment that seems to be changing at a lightning pace. While the Medicare programs remained fairly constant for many years, CMS now routinely changes the penalty and reimbursement structure in addition to adding new expectations such as the Two-Midnight Rule and other similar rules and measures. Nevertheless, it seems that the case management department is often the last department to be updated or enhanced to meet the new challenges imposed by the Affordable Care Act and value-based purchasing. This seems quite counterintuitive, as it is the case management department that is best positioned to meet the needs of these new expectations that are before us.

The Case Management Model

When looking at your department, you must start with the basic foundation of the department. The foundation upon which the department sits is the case management model used or planned to be used.

What is a model of care? A model is a description used to help visualize something that cannot be directly observed. Because care delivery models such as case management models cannot be seen, we use descriptors to provide a picture of the model in terms of its structure and processes. Roles are the set of key categories that case managers perform. Roles provide the context in which we work and can be applied differently in different settings. Within each role are a set of functions. Functions are the series of activities or tasks that are conducted within each role. They are the specific actions taken by a case manager in the performance of the specific role and are needed to complete each role. Functions may vary from model to model and from one care delivery setting to the next.

Clearly, the most effective models are those that provide a mechanism for managing patients across the continuum of care, thereby providing a seamless, integrated care process. In a managed care environment, this is most easily done because of the integrated services inherent in a managed care system. However, due to the many changes in healthcare reimbursement, case management is now being applied more readily in medical homes, health homes, and accountable care organizations. The notion of managing patients in a variety of care settings is more difficult in payer systems in which there are no incentives for various settings to communicate and/or share resources. With the advent of the medical home and health home concepts, as well as the accountable care organization, Medicare has provided new incentives that reach beyond commercial payers and deeply into the government payer arena. While managed care had traditionally been viewed as the system that provided the generalized structure and focus when managing the use, cost, quality, and effectiveness of healthcare services, it is no longer the only payer interested in managing cost.

Many healthcare organizations have opted to first implement case management in the acute care setting. This accomplishes a number of things. First, it allows the organization to design, implement, and perfect its case management system in a more easily controlled environment: the hospital. Although it provides greater challenges in terms of the clinical management of patients in the acute care setting, it is still a place where team members are part of a team that is within the walls. In fact, the term “within the walls” has been used to aggregate those case management models that manage patients’ care during the acute care portion of the illness. Among the many applications of the within-the-walls models are a host of types using the members of the team in various role functions. In most cases, the RN is used as the case manager. It is the placement of the RN in the organizational structure and the associated role functions that differentiate the various models.

Case management is difficult to encapsulate because it describes many different approaches, including a patient care delivery system, a professional practice model — a defined group of activities performed by healthcare providers in a particular setting — and services provided by private practitioners.

Whether introduced in the inpatient, outpatient, or any other setting across the continuum of care, case management models can be adapted to meet the goals of quality patient care in a fiscally responsible manner. Selection of the most appropriate model will depend on the needs of the organization, the available resources, and the expected goals and outcomes.


This month, we have begun our discussion of the reasons why this is a very good time for hospitals to review and re-engineer their case management models and departments, including the Affordable Care Act and value-based purchasing, among others. Next time, we will discuss the elements you need to review when re-enigneering your own case management department.