The 75 percent solution.

Healthcare financing policies in the United States divide providers into competitive predators, scrapping and snarling over the increasingly scarce healthcare dollars available. Occasionally, the competition becomes highly political, as in the three-year battle between hospitals and SNFs over the 75 percent rule.

The 75 percent rule attempts to apply clinical criteria to distinguish between Medicare patients who should undergo rehabilitation in SNFs and those who would benefit from more expensive rehabilitation in hospital-based inpatient rehabilitation facilities (IRFs). The rule dates back to 1984, when Medicare established a separate payment system for rehabilitation facilities that reflects the cost of providing a comprehensive range of medical rehabilitation services not found in an acute care hospital. To qualify as an IRF, at least 75% of a unit's patients must be receiving treatment for one of ten specified conditions: stroke, spinal cord injury, congenital deformity, amputation, major multiple trauma, hip fracture, brain injury, "polyarthritis," neurologic disorders, and burns.

The 75 percent rule developed significant problems by 2001. The list of ten "defining" conditions was not revised for 20 years, despite significant changes in rehabilitation care and the case mix typically seen in rehabilitation facilities. The rule failed to use standard International Classification of Diseases (ICD) codes to define the list of conditions. Hospital administrators stretched the definition of conditions such as "polyarthritis" to cover patients receiving rehabilitation services following joint replacements. Finally, many Medicare audits did not examine compliance with the 75 percent rule. As a result of these problems, hospital-based facilities were improperly qualified as IRFs and provided care for patients who could have received rehabilitation services at a lower cost in SNFs.

This state of affairs ended when Medicare's fiscal intermediary in New Jersey chose to strongly enforce the 75 percent rule. Two hospital-based facilities threatened with loss of IRF status complained to the Centers for Medicare & Medicaid Services (CMS). CMS, in turn, acknowledged disparity in how the rule was applied in various states. In June 2001, the agency placed a one-year moratorium on enforcement of the 75 percent rule.

Since the moratorium, hospital and nursing home lobbyists have manned the battlements trying to influence the federal government into making a final decision on the 75 percent rule that will send the most patients to their respective constituents' facilities. The hospital lobbyists want the rule eliminated, or at least drastically modified, so that more hospital units can be legitimately classified as IRFs. Washington's long-term care warriors have countered by insisting that the rule be retained and strictly enforced.

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At first, nursing homes had the upper hand. CMS tends to be a conservative institution, intent on defending its existing practices. There should have been little surprise when the agency issued a proposed rule on May 16, 2002, that required auditors to enforce the 75 percent rule. The "reforms" proposed were to assign specific ICD-9 codes to each of the ten conditions and require the primary diagnostic code on the IRF Patient Assessment Instrument for compliance. Under the proposed CMS rule, rehabilitation following joint replacement could no longer be described as care for polyarthritis. Patients recovering from this form of surgery could not be admitted to hospital-based facilities to enable the facility to qualify for IRF status.

The hospital lobbyists countered with a massive assault on the CMS proposal. They estimated that fewer than one-fifth of hospital-based IRFs would qualify for the IRF Medicare payment under the reform. Armed with this information, they flooded CMS with comments critical of the proposed rule. At a minimum, the hospital lobbyists insisted that the 75 percent rule become a 50 percent rule, allowing units to maintain IRF status if only half of the patients were diagnosed with the defined conditions. The lobbyists also insisted that CMS expand the list to include as many as 20 defined conditions.

CMS responded by proposing another reform on September 9, 2003. In this proposal, the obsolete term "polyarthritis" would be replaced by three ICD codes, effectively expanding the list of eligible conditions for IRF status from 10 to 12. In addition, CMS would temporarily reduce the qualifying threshold of patients with these conditions to 65% while it studied the effect of the change on care. However, CMS added a provision that patients must first try an "appropriate, aggressive, and sustained course of outpatient therapy services or services in other less-intensive rehabilitation settings" before gaining access to an inpatient rehabilitation program. The 2003 proposed rule also indicated that many patients with joint replacement who no longer have access to inpatient rehabilitation would be sent to SNFs. CMS estimated that with these provisions, Medicare could save more than $5,500 per case.

The proposed compromise failed. Hospital lobbyists enlisted dozens of disability and patients' rights organizations to protest the September 2003 proposal. In a joint letter to CMS, the heads of these organizations wrote:

    CMS has chosen to continue to rely on an outdated rule that will
  ultimately result in wholesale disruption of vital rehabilitation
  services for people with disabilities and chronic conditions who rely
  on such services to assist them in becoming functional and
  independent. Rather than establishing a reasonable rule and allowing
  rehabilitation hospitals and units to move toward compliance, CMS has
  chosen a highly controversial approach that will prolong this debate
  for at least another three-year period, breeding continued uncertainty
  and unreliability for both Medicare and non-Medicare patients
  requiring rehabilitation care.

Behind the rhetoric, however, were more pragmatic concerns for the hospitals. Only a small number of hospital-based facilities would benefit from the temporary reduction of the patient threshold to 65%. In addition, IRFs wanted to retain Medicare payments for rehabilitation from hip and knee replacements, even if such patients could receive similar care in outpatient or SNF settings.

When CMS refused to make these concessions, the hospital lobbyists chose to outflank the agency. Approaching congressional allies, they proposed that the omnibus appropriations bill for the current fiscal year include a provision requiring suspending implementation of the 75 percent rule. The provision also scuttled a proposed three-year CMS effort to gather clinical studies and data, conduct literature reviews, and seek information from rehabilitation experts to determine whether further changes to the rehabilitation criteria are justified. Instead, the lobbyists proposed an Institute of Medicine study by a panel that likely would have been weighted heavily with hospital-affiliated providers. The hospital-backed provision actually appeared in this past fall's draft of the omnibus appropriations bill, and it appeared that the long-term care field had lost another legislative battle.

At the eleventh hour, however, a joint House and Senate conference committee responded to a flurry of action by the Washington representatives of nursing homes. The key to the victory was an estimate that enforcement of the 75 percent rule could save Medicare as much as $370 million per year. Currently, Medicare pays an average rate of $320 per day for rehabilitation services provided in SNFs compared with an average of $850 per day for services provided in IRFs. Sen. Charles Grassley (R-Iowa) championed removal of the hospital-backed provision from the omnibus appropriations act. In its place, Congress passed compromise language requiring CMS to delay enforcement of the 75 percent rule for only 60 days following a quick review of the rule by the congressional Government Accountability Office.

American Health Care Association President Hal Daub stated in a press release following passage of the bill that "In the end, it's patients who are the winners because they will be able to get the right care in the right setting, and I am pleased that Congress appropriately determined these decisions should be based on the medical criteria identified by CMS."

His optimism might have been premature, however, because that session of Congress held neither hearings nor debates on the 75 percent rule and, at press time, none had been scheduled by the new Congress. The complicated issue of rehabilitation care financing just might continue sending lobbyists to the battlements for years, with no resolution through the conventional legislative process.

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