Clinton targets post-acute services as sacrificial lamb for Medicare system

Projected $80 billion from providers included in 1998 budget cuts

President Bill Clinton’s proposed 1998 budget includes $80 billion in Medicare savings to help fund the floundering federal program over five years by reducing payments to hospitals, physicians, nursing homes, and other providers. Also, two independent commissions are recommending to Congress that payments to post-acute providers be linked to services provided in the acute care setting.

The proposal for linking payments was suggested in late January while Clinton was simultaneously proposing strategies for keeping Medicare solvent. Clinton’s proposed 1998 budget includes $20 billion in Medicare cuts through reduced payments to health maintenance organizations, including preferred provider organizations (PPOs). A majority — $80 billion in cuts — would come from reduced payments to hospitals, physicians, nursing homes, and other providers, according to administration reports.

Subacute providers sharing Medicare payments with hospitals and home health agencies could become business as usual if the Washington, DC-based Prospective Payment Assessment Commission (ProPAC) has any say in the matter. ProPAC recommended a linked payment demonstration project as one of 40 recommendations for Congress, notes Laura Dummit, deputy executive director for the commission, which advises Congress on Medicare Part A and Part B facility payment-related issues. The Physician Payment Review Commission, which advises Congress on Medicare Part B physician payment issues, also supports the ProPAC bundled payment recommendation.

In fact, ProPAC approved the recommendation for a demonstration project to study how linked payments could best be provided at its January 1997 meeting, says Dummit. The political hot potato now is to determine who should receive the payments and how they should be subdivided among providers, she adds.

Could affect subacute units in acute hospitals

In an unprecedented recommendation, ProPAC also suggests that Congress freeze Medicare rates to hospitals in 1998. That means subacute units in acute hospitals also could be affected. ProPAC’s "zero update," or no change, is due to hospitals effectively controlling costs, so increases are not necessary, the commission argues.

"A preferred provider organization was neither recommended nor suggested as the entity which Congress should designate to receive the payments; it was just put forward as one approach. The payments could go to a hospital," says Dummit.

ProPAC’s recommendations are an attempt to control spiralling costs for a broader range of services provided in the post-acute setting. Payments to skilled nursing facilities, for example, rose to more than $10 billion in 1995 from $2.5 billion in 1990, according to data from the Baltimore-based Health Care Financing Administration (HCFA). (To see how Medicare payments compare among providers, see the Estimated Medicare Part A Program Payments chart, p. 15.)

According to ProPAC data, more than 25% of patients receiving care in a hospital were transferred to a post-acute provider in 1994. (To see where patients received post-acute care following a hospital stay, see the Use of Post-acute Care Providers After PPS Hospital Stay chart, p. 15.)

In addition to the linked payment recommendation, a prospective payment system (PPS) still looms on the drawing board as a possibility for subacute services. In fact, a per diem PPS could become reality in 1998, says Susan Bailis, a commissioner on ProPAC and president and CEO with ADS Group, a skilled nursing and subacute care consulting firm n Newton, MA.

Although Bailis is a proponent of an episodic PPS constructed similarly to the diagnosis related groups used by hospitals, she says a per diem PPS is more likely to be implemented because data needed for an episodic system just aren’t available.

Bailis points out that the joint study between the Washington, DC-based American Health Care Association and the Bethesda, MD-based National Subacute Care Association has encountered difficulties. The oversight committee, in conjunction with the Washington, DC-based Price Waterhouse Health Economics Group, is drafting a PPS model to present to Congress based on an episodic methodology.

ProPAC shares the view that an episodic system would allow HCFA to place tighter controls on escalating costs and volume associated with post-acute services, notes Bailis. (To see where Medicare expenditures are increasing and which diagnoses are requiring post-acute care, see the charts, p. 16.)

Equal representation important

Ensuring that post-acute providers are equally represented during reimbursement negotiation with hospitals is the most important concern for subacute providers, says Robert Peirce, president and chief executive officer of Guardian Health Group. The Corte Madera-based company owns 15 and manages 10 freestanding subacute hospitals and skilled nursing facilities throughout California.

"As long as we have an equal place at the table, I don’t have a problem [with bundled payments]. But the incentives have to be aligned for who provides the most cost-effective care, and now that’s not in the acute care hospitals," Peirce adds.

For subacute providers, the proposed changes mean assuming greater risk in caring for Medicare patients and greater scrutiny in monitoring costs. One way for subacute providers to prepare for such a system is to coordinate cross-continuum care plans and develop contractual relationships with other providers or payers, says Dummit. "Any kind of linked system would depend on the relationship established among the providers. The relationships could be contractual, through ownership, or through a third party, such as a PPO," says Dummit.

Other issues related to linked payments would need to be resolved by the Department of Health and Human Services before changes in reimbursement could be adopted, notes Dummit. "Our recommendations aren’t that specific, but issues like how long a patient should remain in one setting would have to be clarified."

Establishing a contractual relationship is just what Peirce’s company did late last year when it reached an agreement with San Francisco-based Fullerton Medical Group to provide on-site physician care in its subacute facilities.

"This is not something we did overnight, and we’re not in a big rush to complete it, but the goal is to get physicians in all of our 15 freestanding facilities," explains Peirce. (For more information on the Guardian on-site physician agreement, see story, below.)

Although Guardian currently only has physicians in three facilities, payers are receptive to the concept. "Having the physician in the facility allows us to receive sicker patients sooner, and the managed care companies are discovering that we can do anything that’s done in a hospital-based setting," adds Peirce.