Reflections on a town hall meeting.

Medicare's Prospective Payment System (PPS) has been under fire for some time now. Demands for change are intensifying not only from providers, but from congressmen and government commissions. The attack on PPS has its origins in a unique "town hall" meeting that was held last April. It was then that the depth of concern and confusion about PPS that exists in the long-term care industry today became manifestly clear to the Washington powers-that-be.

The federal Health Care Financing Administration (HCFA) called the meeting with more than 500 people in attendance in response to a request by Congressman Bill Thomas (R-TX). SNF topics were divided into four panels, each moderated by a HCFA senior staff person. Each representative of various professionals and consumer interest groups was given 10 minutes to speak.

In his opening comments, Tom Hoyer, director of HCFA's Division of Institutional Care Policy, expressed his sincere hope that this town hall meeting would be an opportunity for the various interests in the room to listen to all sides of the issues. HCFA viewed this as a time to listen to these outside perspectives, and thus did not react substantively to the remarks by the panelists.

The following themes were expressed poignantly and vividly throughout the day:

* Since the Medicare cuts have been far deeper than expected by the industry, some of this funding should be restored to the SNF industry as soon as possible.

* The outpatient therapy caps, particularly the combined cap on speech and physical therapy, are already causing access issues and should be eliminated or modified. Several speakers observed that patients are being forced to choose between "walking or talking" as a result of the combined cap.

* The methodology for incorporating non-therapy ancillaries, particularly medications, needs to be modified immediately. Access problems are already emerging for medically complex patients. The industry will not survive until October 2000 for the "perfect fix" on the timetable offered by HCFA.

* There is a need to return to a spirit of cooperation between the industry, the state survey agencies and HCFA. The stress of surviving under PPS and dealing with increasingly adversarial surveyors are driving out good staff at all levels of the industry at a time when the very best talent is needed.

There has always been a desire on the part of HCFA and the industry to work to ensure that PPS would achieve its intended goals. Indeed, two primary goals seemed attainable: matching payment to the resource needs of patients, and removing inconsistency from coverage decisions. Industry insiders had no doubt that the first year would be bumpy and that some providers might fail. All hoped, though, that a combination of factors, including the natural resourcefulness of long-term care providers and HCFA's long-standing history of working with the industry, would override these initial problems, at least until they could be fixed. But that was before it was learned that HCFA would not consider any major system fixes, choosing instead to focus on making its current programs Y2K-compliant.

As a result, many providers with significant participation in the Medicare program are struggling - whether for-profit or not-for-profit, whether hospital-based or freestanding. Although hard-core research findings do not yet exist, anecdotal reports of serious problems abound.

Clearly, a complex array of factors has contributed to this dismal state of affairs. I respectfully differ with comments recently attributed to HCFA Administrator Nancy Ann Min DeParle in a recent Associated Press report:

"What you're seeing is the failure of the industry to react quickly enough to what they knew was coming."

In other words, it is the long-term care industry's fault. In fact, HCFA and others can share the responsibility.

No doubt some providers did, in fact, keep their heads in the sand, hoping that PPS would just go away. But many providers diligently prepared for these changes as soon as the Balanced Budget Act (BBA) passed in August 1997. Everyone understood that SNF expenditures were expected to decline by $9 billion over five years. Fiscal reality only became apparent, however, when the interim final regulation was published on May 12, 1998.

All who work in the long-term care industry sincerely appreciated HCFA's hard work in seeing that at least an interim final regulation was published. It was not until then, however, that each SNF could estimate its own per-diem payment. In effect, SNFs that transitioned to the new system on July 1, 1998, had less than two months to reduce their operating costs to the level necessary to remain solvent under the new rates.

Furthermore, publication of that regulation left many unanswered questions for providers to grapple with. For example, we are often offered reassurance that since hospitals survived DRGs, SNFs will survive PPS. While it is true that, after a few turbulent years, hospitals did well under DRGs, the PPS system is different in many fundamental respects:

1. SNFs are paid on the basis of a bundled per-diem rate; hospitals are paid on the basis of a bundled case rate. Therefore, hospitals are better able to maintain and even increase profitability by reducing lengths of stay, as well as by increasing efficiency in care delivery. More importantly, a hospital might generate as much as 60% of its revenue from Medicare and, because of that volume, be able to average revenues. The average SNF, on the other hand, generates less than 10% of its revenues from Medicare, making it more difficult for the facility to absorb substantial losses on even a few patients.

2. SNFs are paid on the basis of rates that do not adequately reflect the current case mix or rate of inflation. Although this methodology was mandated by Congress and not developed by HCFA, it is appropriate to review how these provisions are impacting providers and determine if some funding should be restored.

3. Hospitals enjoyed a period of transition to full national DRG rates. It is a mistake, however, to suggest that SNFs had a similar period of "transition" because PPS rates are developed based upon historical costs that do not reflect current costs. There has been no transition - most SNFs have had to adjust immediately to lower revenues.

Another unresolved issue has been what constitutes covered SNF care. For example, consider the perspective of an admissions nurse who must make coverage decisions in the face of uncertainty about the definition of skilled care, in the process risking retroactive denials of payment by poorly trained fiscal intermediaries. Implementation of PPS has been extraordinarily challenging for facility staff, who must keep up with frequent policy clarifications while continuing to streamline operations. Most facility staff want to do the right thing - but they need timely information to do so.

All of these fears and uncertainties came poignantly to light at the April town hall meeting. Now that the points made there are starting to sink in, where do we go from here? The industry has accepted that PPS is here to stay, and that a properly designed PPS can have a positive impact on patient care. Many providers have adopted a renewed commitment to increasing the efficiency with which high-quality care is provided. Nevertheless, HCFA and Congress need to act expeditiously to fix existing problems, even if their decisions are based only upon reasonable anecdotal evidence. By the time that "anecdotes" translate into "research," patients will already have been harmed.

Provider interest groups are also challenged in new ways, however. They are all in the PPS boat together, and must find consensus around a common fix. It is my sincere hope that these interest groups, HCFA and the Congress can work together to put the Medicare SNF program back on the right cost-effective track.

Jade Gong, RN, MBA is a healthcare consultant in Arlington, Virginia, representing healthcare providers, national trade associations and other ancillary providers with interests in the SNF PPS. She is also the former director of Reimbursement and Finance for the American Health Care Association in Washington, DC.