Reimbursement changes on the drawing board for rehab providers

HCFA, Congress consider proposals

Keep your eyes on Washington. Congress and government agencies are considering several measures that could ultimately affect how you are reimbursed for your Medicare patients.

Because Medicare patients make up a significant portion of the caseload for most rehab providers, a change in the reimbursement system could have a dramatic, and most likely damaging, effect on the bottom line for providers.

The 105th Congress and the Clinton Administration have both said they want to slash Medicare costs. Although it’s difficult to know at this point what specific actions they will take, one thing is certain: Health care providers are likely to get less money in the future.

Subcommittee hearings examined proposed changes

In April, the House Ways and Means Subcommittee on Health opened hearings on proposed changes to Medicare reimbursement. Some of the proposals include the following:

A prospective payment system (PPS) for rehabilitation providers based on function related groups (FRGs). This system, similar to the diagnosis related group reimbursement for acute care, would replace the Tax Equity and Fiscal Responsibility Act (TEFRA), established as a "temporary" reimbursement measure in 1984. This provision is included in HR585 which is pending before Congress.

A proposal in President Clinton’s budget to refigure the TEFRA limits for all PPS-exempt providers who were in business before 1991. The TEFRA rates would be changed based on average costs incurred by rehab hospitals and units in fiscal 1992 and 1993.

A provision in the Clinton budget that would establish a floor of 70% of the national average and a ceiling of 150% of the national average on TEFRA limits.

A proposal to eliminate incentive payments for facilities that keep costs below their TEFRA rate. Currently, if a hospital falls below its TEFRA rate, the Health Care Financing Administration (HCFA) gives the facility half of the difference, or 5% of the target rate, whichever is lower.

A proposal by the Washington DC-based Prospective Payment Assessment Commission (ProPAC) to eliminate the automatic exemption from TEFRA limits for new providers during their first two years of business. Instead, new providers would receive the national average target amount for their facility type during their base year.

To add even more confusion to the reimbursement picture, in March HCFA proposed new Medicare salary guidelines for contract therapists. Although hospital-based rehab providers are not covered by the proposed regulations, they could have an effect on your facility if you operate a home health agency or a skilled nursing facility or provide therapists on contract to either. (See related story, p. 75.)

Sharply rising Medicare costs are among the reasons for the proposed changes to reimbursement.

Medicare payments for rehab doubled

According to a ProPAC study, Medicare payments to rehabilitation hospitals and units more than doubled in just four years, increasing from $1.9 billion in 1990 to $3.9 billion in 1994.

In addition, there has been a push from many in the rehabilitation field to move to a prospective payment system to eliminate the inequities in the TEFRA reimbursement method.

TEFRA reimbursement is based on a hospital’s costs for all patients during its base year or first year in business. Hospitals already established in 1984 must use that as their base year. HCFA has allowed increases in the TEFRA target amount, but the increases have not kept up with the rising costs of health care.

The system gives the edge to newer hospitals, which have more recent base years. In fact, according to 1994 data in HCFA’s Medicare cost reports, TEFRA targets are as low as $5,000 per discharge for some providers and as high as $50,000 for others.

HCFA has commissioned Santa Monica, CA-based RAND Corp. to establish a patient classification and reimbursement system based on rehab impairment categories, motor and cognitive functional status, and age.

The system being researched by RAND would base reimbursement on FRGs. A final report from RAND is still pending. (For more details on FRG reimbursement issues, see Hospital Rehab September 1996, pp. 114-118 and December 1996, pp. 157-161.)

In a recent hearing before the subcommittee on health, Kathleen Yosko, president and CEO of Chicago-based Schwab Rehabilitation Hospital and Care Network, urged Congress to move to a PPS instead of adopting the Clinton administration’s FY 1998 Medicare proposals.

Yosko, who is chairwoman of the Reston, VA-based American Rehabilitation Association, an organization of rehab providers, told the subcommittee that TEFRA provides an incentive to treat short-stay, less complex cases because it does not adjust for a change in case mix.

TEFRA outdated?

The system inhibits development of new programs for severely disabled patients because any change in service that increases average length of stay or intensifies use of services will raise a hospital’s costs above its TEFRA limits, she explained.

"There may be other ways to structure a rehabilitation PPS (aside from the proposal using FRGs). The important point is that the current TEFRA system is inequitable, outdated, and discriminatory and should be replaced with a rehab PPS that adjusts for case mix," Yosko told the committee.

In his testimony before the committee, Patrick A. Foster, senior vice president for inpatient operations of Birmingham, AL- based HEALTHSOUTH Corp. had strong words for the President’s proposals.

The plan to re-base TEFRA limits for providers whose base year comes before 1991 is "chief among the wrong direction approaches," said Foster, who testified on behalf of the Federation of American Health Systems, an association of investor-owned and managed health care organizations, based in Washington, DC.

Re-basing would penalize hospitals that have constrained their costs by paying them less and reward facilities that were not as efficient with higher payments, Foster said.

The proposal to establish floors and ceilings on TEFRA limits "disregards critically important factors such as patient type and acuity level" and will discourage providers from treating more complex patients, he said.

Foster told the committee that his organization has strong reservations about the RAND-researched PPS system because it does not account for co-morbidities or the length of time a patient has been in an acute care hospital before admission to rehab.

Modifications for TEFRA?

The TEFRA payment system has failed to curb rising Medicare expenditures and has led to payment disparities among providers," said ProPAC chairman Joseph P. Newhouse, PhD, to the committee. Newhouse recommended that a PPS for rehab facilities and long-term care hospitals be implemented as soon as possible.

In the meantime, ProPAC recommends that Congress consider modifying the TEFRA payment method to eliminate the disparities between old and new providers.

The President’s plan to re-base the TEFRA target amounts would reflect more recent costs and could account for a difference in patient acuity between a facility’s base year and the current year, he said. The method, however, could penalize hospitals that had kept their costs low, he added.

Applying floor and ceiling limits will narrow the payment gap by bringing hospitals at either end of the range closer to the average but could hurt hospitals that have higher costs because they treat a sicker population, Newhouse said.

[For more information, contact the American Rehabilitation Association, 1910 Association Drive, Reston, VA 22091. Telephone: (703) 648-9300. Or contact the Federation of American Health Systems, 1111 19th Street NW, Suite 402, Washington, DC 20036. Telephone: (202) 833-3090.]