HCFA’s choice of PPS is on right track, but experts still railing about unknowns

Reimbursement methodology won’t be ironed out until late 1999

Sure, rehabilitation hospitals and units have more to celebrate about the prospective payment system (PPS) than do their colleagues in the home health and skilled nursing facility industries. After all, the Health Care Financing Administration (HCFA) actually listened to industry advocates and selected rehab providers’ preferred PPS methodology, a per-case or per-discharge system. But it’s too soon to say the storm has blown over, because no one knows what HCFA may put in the proposed rule that is expected to be published in December. [See HCFA’s letter to U.S. Rep. Bill Thomas (R-CA), p. 110.]

"Yes, this was a step in the right direction, but the devil is in the details, and there are a whole host of issues that must be resolved as HCFA works through and establishes the groupings so the reimbursements will be fair and proper," says Ken Aitchison, president and chief executive officer of Kessler Rehabilitation Corp. in West Orange, NJ. Aitchison is chairman of the Washington, DC-based American Medical Rehabilitation Providers Association (AMRPA) prospective payment task force.

Besides rehabilitation providers pushing for a per-discharge system, the Medicare Payment Advisory Commission (MedPAC) in Washing ton, DC, also recommended earlier this year that HCFA change its plans for a per diem payment system and use a discharged-based system. MedPAC also recommended that HCFA adapt the discharge-based Functional Improvement Measurement-Function Related Groups (FIM-FRG) system for classifying intensive rehabilitation patients.

MedPAC said the alternative payment system, called the Resource Utilization Groups (RUG), has too much potential for "gaming," meaning providers may manipulate patient assignments to RUG numbers that maximize reimbursement. The RUG system assigns rehabilitation patients partially according to the number of minutes they spend in therapy.

HCFA’s decision to base PPS on FRGs bodes well for rehabilitation facilities. "We were much more confident and comfortable with an FRG-based system than what we heard was being discussed by HCFA earlier," says Carolyn Zollar, JD, AMRPA vice president for government relations and policy development.

However, everyone will have to make software and data collection changes because the second part of HCFA’s decision was to use an entirely new data collection system, called the Minimum Data Set for Post Acute Care (MDS-PAC), instead of the FIM-FRG system, which has been widely used by rehabilitation providers, Zollar says.

The FIM-FRG classification system predicts a patient’s likely length of stay, using impairment type, age, and severity of disability on admission to a rehabilitation facility, says Carl V. Granger, MD, a professor and chairman of the department of rehabilitation medicine at the State University of New York at Buffalo and director of the Uni-form Data System for Medical Rehabilitation in Buffalo, NY.

One major difference between FIM and the MDS-PAC systems is that they use different rating scales, Granger says. The FIM rating system runs from 0 to 7; a rating of 7 means the patient is functioning the most independently. The MDS-PAC system does the opposite, he explains, where 0 indicates the most independent function.

Also, a number of questions have to be answered before PPS is implemented on Oct. 1, 2000. Here are some examples:

1. What base year will HCFA use in determining costs? HCFA will gather financial information from FRG studies that look at tens of thousands of case data. From that information, HCFA will determine a set price per case, probably adjusting for inflation. However, since the health care industry’s costs have changed so rapidly, it could make a huge difference in reimbursement, depending on what fiscal year HCFA uses as the base year.

Rehabilitation industry officials say providers will be better off if HCFA uses the most recent data, instead of going back a few years as the agency has with other industries.

"We have to have a timely base for the [payment] groupings," Aitchison says. "The skilled nursing facilities were based on 1995 [by law], and we have to be a whole lot closer than 1995, and preferably HCFA will use 1999 or 1998 data."

2. What methodology will be used to adjust for risk and case mix? Rehabilitation providers obviously want to be paid more money when patients have more physical problems that result in higher costs and higher levels of service. HCFA officials say there will be some risk and case mix adjustment included in their proposed rule. But a lot of money can be lost or gained, depending on what type of risk adjustment is used.

Some experts predict HCFA will use the risk adjustment methodology that was included in the rehab PPS designed by the RAND Corp., which has conducted many studies HCFA has been using. RAND designed a per-discharge payment system that is based on FRGs and includes risk adjustments based on a person’s age, number of comorbidities and complications, and level of impairment, says Sam Fleming, president of Fleming-AOD in Washington, DC. A subcontractor for AMRPA, Fleming is creating a model payment system for rehabilitation hospitals and units.

"If a patient is particularly expensive, the program would share some of the cost of that patient on a fixed-loss scenario, and if a patient is particularly cheap, the program would share in the profit," Fleming says. "And the more the program would share in the surplus on the cheap patients, the more of a pool of money would be available to cover the high-cost outliers on the other side."

AMRPA will offer for sale to rehabilitation providers a software package that takes their FRG cost data from last year and plugs it into a reimbursement system that may be very similar to what HCFA will use under PPS. That will give facility administrators a good idea of how much money they might have lost or made on rehabilitation services under PPS, Fleming says.

So if a rehabilitation facility administrator sees that under a PPS scenario the facility would have lost money on its orthopedic cases but would come out ahead on the stroke cases, the administrator could begin to adjust services and planned expansions accordingly.

3. How will "pass-throughs" be handled? Under the current payment system, certain items on a facility’s cost report are considered "pass-throughs." Those include expenses that are not directly related to patient services, including capital expenses, Aitchison explains. Under PPS, HCFA will pay facilities a set amount of money per case, and if that amount does not include enough reimbursement to cover a facility’s pass-through costs, rehabilitation hospitals and units quickly could sink financially. "We want to make sure the [payment] weights include a proper reimbursement for pass-throughs," he says.