The rehab cap: an exercise in futility?

THE $1,500 LIMIT ON POST-ACUTE REHAB SERVICES SHOULD BE STARTING TO SAVE MEDICARE MONEY - BUT IS IT?

The $1,500 cap on rehabilitation therapy will not save taxpayers the dollars that the authors of the Balanced Budget Act (BBA) had intended it to do. So says a study that our company, Muse and Associates, conducted in response to a request from NovaCare.

The study, fourth in a series of publications analyzing the impact of the cap, is titled A Budget and Policy Evaluation of the $1500 Medicare Beneficiary Coverage Limit for Rehabilitation Care Services in the 1997 Balanced Budget Act. It is an objective review of available data from 1994 and 1996, based on payment, utilization and population trends from a 5% sample of Medicare beneficiaries. We concluded from our review that the BBA's budgetary goal is unlikely to be achieved and that the coverage limit is ill advised for this and other reasons.

The trends shown by these data indicate a dramatic shift in the flow of rehab patients across the healthcare continuum between 1994 and 1996, and that rehab services were increasingly being delivered in the most cost-effective settings. During the same period, when overall Medicare program payments grew 22.9%, rehab service payments grew only 10.4%. Although the number of persons receiving rehab services increased by 14.8% in those two years in correlation with normal growth in the size of the Medicare population, the actual pricing of therapy services dropped 7.5% - this at a time when overall Medicare pricing increased by 11.9%. In addition, the study determined that patient acuity, age and access to services are the primary determinants of where beneficiaries receive therapy services and that more beneficiaries now have access to medically necessary services than before.

Clearly, post-acute rehab providers must have been doing something right.

All of this is subject to change with the impact of the Medicare reimbursement cap that went into effect this January. Overall, our study predicts that the cap is likely to be ineffective in limiting the number of Medicare beneficiaries because its most direct impact is on beneficiaries who have already sought services. Beginning in 1999, current Medicare beneficiaries whose rehab therapy has reached the cap will be faced with three options: to forego therapy beyond the cap, to seek rehab services in hospital outpatient settings not bound by a cap or to pay for services out of pocket.

Our study suggests it is unlikely that the BBA's rehab cap will realize any budgetary savings, particularly given the second option: shifting the delivery of service from a nonhospital setting with limited spending to a hospital-based rehab setting with an unlimited budget. This shift would create volume increases in utilization of rehabilitation services for Medicare beneficiaries, whose payments in other settings would have been far less than the $1,500 per beneficiary spending limit. The upshot: an increase in federal government spending, as payments from increased utilization exceed savings from reduced rehab care.

Healthcare providers are expected to make recognized, predictable - and costly - behavioral changes as a result of the cap, changes that are especially likely given the initiation of a fee schedule for outpatient rehab services provided by hospital outpatient departments. Indeed, the MedPAC report to Congress on the matter reflects this when it states that "past experience with implementing prospectively determined payment systems suggests that volume increases will offset some of the savings typically associated with predetermined pay rates."

These findings should not come as a surprise anymore. Indeed, our first three studies of the BBA rehab cap had similar findings. Our July 1997 study, conducted for the National Association for the Support of Long Term Care (NASL), assessed the potential changes in costs and patient types in various provider settings and quantified the potential impact of a proposed $900 cap on rehab service payments. This cap was later changed to $1,500. A November 1997 study for NASL focused on the flow of patients through rehab, while a July 1998 study we did for NovaCare examined utilization patterns and investigated the number of beneficiaries who would exceed the cap.

Overall, our studies found it virtually impossible to predict how the individual beneficiary will flow through the lattice-like rehab system. They do predict, however, that about 13% of beneficiaries will exceed the rehabilitation cap in 1999. More recently, HCFA appears to have interpreted the law in such a manner that the cap will apply to each provider of service to individuals so no one provider can put more than $1,500 on the tab (see "Who's Minding the Store?" below).

Don Muse, PhD, is the CEO of Muse and Associates, a research and consultation organization based in Washington, DC. For more Information, phone [phone].

Repeal: Wait and See

Since the rehab cap was not repealed, it went into effect January 1. No decisions have been made by the industry-at-large regarding a renewed attempt to repeal the cap in 1999. I anticipate that providers will make appropriate accommodations to provide therapy more efficiently to keep most patients from exceeding the cap, but for those who have multiple episodes or conditions that require extensive rehab, that might not be possible. In such cases, I anticipate that most providers will probably still perform the therapy and either bill the patient directly or provide some degree of free care. It is possible that patients will complain to their congressional representatives if they're denied care or have difficulty accessing therapy after they reach the cap. If this situation becomes more frequent in 1999, the chances of Congress paying more attention to the cap are heightened.

All of the arguments that were made in 1998 regarding the repeal of the cap were presented in a prospective manner in anticipation of beneficiaries being denied access to care. It remains to be seen whether those arguments will come to fruition in 1999, if patient access to therapy becomes limited by the cap. Practitioners and providers, it is hoped, are now jointly formulating policies to deal with the cap and with how continued care will be affected once the cap has been reached.

Larry Fronheiser, PT, is president of the National Association of Rehabilitation Agencies.

Who's Minding the Store?

A great deal of confusion exists over the $1,500 annual Medicare rehab cap. The statute says that it is a $1,500 cap per beneficiary, but a recent HCFA memorandum treats it as a provider-based cap, in which each facility can bill Medicare only $1,500 that year for treating a particular beneficiary. This change stems from the much-publicized Y2K information management problem; HCFA's information management system is unable to track a beneficiary through the system to discern when the cap has been reached.

According to HCFA, the onus is on each provider facility not to bill Medicare more than the $1,500 amount (which is actually more like $1,200 when you figure in the co-payment). The agency warns that, although it is theoretically possible for a beneficiary to go from provider to provider to use services beyond that $1,500 cap, this practice would not be in keeping with the intent of the ruling. HCFA also warns that it will keep close scrutiny on the situation, so the National Association for the Support of Long Term Care (NASL) is counseling members not to advise beneficiaries to just "go down the street" to a new facility to receive services.

Unfortunately, this policy (as did the previous one) will exert a disproportionately negative effect on the sickest and frailest patients, such as those with strokes or hip fractures. It will create a hardship for nursing homes, as well, whose residents do not have the option of going outside the facility to other providers if their cap is reached.

NASL is working with a wide mix of other industry groups and consumers to find other ways to overcome this problem. A meeting was held in January to whittle down the list to the most reasonable alternatives. It is said that there is some interest in the matter on Capitol Hill, so 1999 may bring about further discussion - as well as further confusion - about the cap.

Barbara Morehouse is director of government relations at the National Association for the Support of Long Term Care (NASL).