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Medicare PPS: here at last.


In a year of Federal legislation that directly impacts long-term care, the creation of a Prospective Payment System (PPS) for Medicare-funded postacute care stands out as the centerpiece. Some call it the positive flipside to Congress's repeal of the Boren Amendment, in that PPS allows nursing homes new opportunities for developing postacute services. Others contend quite the opposite - that the PPS legislation offers more bad news than good, including such potentially troublesome provisions as consolidated Part B billing, an (as yet) vaguely defined per diem reimbursement plan, a $1,500 cap on therapy courses and, overriding everything, a mandated $9 billion cut in Medicare's postacute budget over the next five years. Keeping in mind that "beauty is in the eye of the beholder," Nursing Homes Editor Richard L. Peck asked spokespersons from various points on the postacute spectrum to share their views on the plan, set for implementation beginning in July.

Rob Hartwell, Senior Lobbyist, American Health Care Association: "This legislation generally reflects AHCA's goals and is reasonably close to the model we developed in the late 1980s, with the exception that there is no pass-through for ancillary services. Suppliers are unhappy with the consolidated billing because there will be more competition for them on costs, and some nursing homes might move more toward in-house provision of these services. As for administering PPS, HCFA has advised us to study hospital payment systems, and we intend to help transfer many of those features to the nursing home setting.

"Even with the $9 billion cut in Medicare subacute outlays, there is still room for growth of about 5% a year, and even more after the initial five-year period. It's true that the first couple of years of the PPS will be pretty lean, but after facilities learn how to manage it, they'll be in a position similar to what hospitals experienced under DRGs: Before the Balanced Budget Act, hospital profitability was projected at 17%.

"As for hospital-based SNFs, they will have a tough time competing with us now because of the combination of reduced average reimbursement and the new postacute discharge notification rules. All of this has significantly reduced the hospital advantage. Payment now will be based on acuity rather than site of service."

Michael Rodgers, Senior Vice President, American Association of Homes and Services for the Aging: "We've had a mixed reaction so far from our members, but I think it's fair to say there is some skepticism and a healthy degree of concern regarding implementation. Clearly, there will be less money in the system, because this was a political decision to reduce the Federal deficit. Congress started by establishing a set amount of savings and worked backward to reimbursement. This legislation was not passed in the interest of the providers and, over time, might have a detrimental impact on beneficiaries.

"I think hospitals might have larger problems with this. Though the SNF rates are not defined as yet, under the new system there won't be the hospital differential, and the new transfer rules - treating referrals to postacute providers as transfers rather than discharges - will put more pressure on their DRG reimbursement. It might act as a disincentive from moving patients into postacute care.

"There remain many questions. What will the process be for determining per diem rates? How will severity be measured under the RUGS program? What will the impact be of caps on therapies? How will consolidated billing be implemented? Some facilities have been doing consolidated billing for years, but others have expressed reservations about this and questioned the role they would have in monitoring Part B suppliers for fraud and abuse. Who's responsible? Clearly, these changes will require providers to examine more closely their care plans and, ultimately, their cost per case. The importance of computerizing patient case and billing records will be enormous. This capability varies widely throughout the field. Enough time to implement these changes will be critical.

"We remain skeptical about the July 1 start-up and four-year phase-in."

Laurence F. Lane, President, National Association for the Support of Long-Term Care: "HCFA has said that it might not have all the answers - but that this is the provider's problem. Is PPS funded appropriately to ensure access to purchasers of Medicare? No. This was a punitive piece of legislation written simply to save Medicare dollars. The $9 billion cut is a prescription for disruption, and disruption saves money. The only real way to save $9 billion is to put half the providers out of business.

"With consolidated billing, as of July 1, vendors of supplies and services will be on fee schedules as yet to be determined. Are nursing homes ready for this? What will it take to get them ready? I really don't know. I only have a clear sense that it's 'the provider's problem.'

"For the per diem, 75% of it in the first year is based on the facility's 1995 costs trended forward annually at market basket minus 1%. That means that facilities that started to expand their programs after 1995 are stuck with those expenditures. The 'case mix' adjustment that figures into the remaining 25% is unclear at this point, but for facilities a lot depends on computerizing the MDS 2.0. Are facilities ready for this? Are the states? Presumably this will become mandatory this spring, and HCFA says they're going to have a fully designed PPS payment structure in place shortly thereafter. Who are they kidding?

"Meanwhile, there will be victims and people will be hurt. Those of us who have worked 30 years to bring nursing homes from the board and care level to modern centers for medical care will have to start all over again."

Karen Tucker, President and CEO, American College of Health Care Administrators: "Though we don't know the specifics as yet, it's pretty clear that administrators will need an in-depth understanding of case management and of new cost accounting methods to track ancillaries. They might want to look at bringing these services in-house or at least network more to find lower-cost suppliers, and they will definitely have to brush up on their negotiating skills as managed care contracting becomes a factor.

"As for the $9 billion savings, administrators have to know how to cut costs while providing the same or better level of care. Many will find ways to do so; some will go out of business.

"We found some heartening results in a study that was done recently of prospective payment implemented in Maine's Medicaid system. Though this is Medicaid and not Medicare, perhaps there will be parallels. Specifically, it was found that:

* nursing homes did make greater use of management controls to enhance efficiency;

* nursing homes did not avoid admitting Medicaid patients - in fact Medicaid census increased;

* nursing homes did respond to the built-in reimbursement incentives to become more cost-efficient;

* the study was unable to substantiate that nursing homes changed staffing patterns to reduce costs at the expense of quality of care, and in fact indicated that some facilities increased nursing staff at all levels;

* nursing homes did not reduce expenses by minimizing pay increases to employees.

"The one area of skepticism that we have found among members thus far concerns the timetable for phase-in of the Medicare PPS. Given the time it takes simply for HCFA's regulation-drafting and approval process, the thinking is that the current timetable is highly unrealistic."

Harriett S. Gill, Gill/Balsano Consulting: "Everyone is going to have a very steep learning curve with this. For some nursing homes and even more for hospitals, to have this incredibly complex reimbursement system imposed on a unit occupying a relatively small number of beds will create the greatest challenge. Nursing homes, especially, are going to feel the lack of adequate information systems technology. They've been working with the MDS, but they haven't paid a lot of attention to data accuracy and how to systematize data for patient categorization under a case mix approach. The most immediately pressing question regarding their information technology might be, can their software translate MDS data to a case mix, RUG-III-type grouper?

"I'm not sure that this legislation will necessarily tilt the postacute playing field more against hospitals. I suspect those that provide good subacute services that are valued by their physicians will do quite well under PPS. Those hospitals where the unit was principally the chief financial officer's idea, i.e., finish off patients' acute stays in SNF beds to avoid DRG losses, might have a problem. Decisions will have to be based on a variable cost analysis relating to potential DRG per diem losses under the new transfer rules.

"As for consolidated Part B billing, hospitals are, of course, more up-to-speed than many nursing homes on this. This might be an excellent incentive for nursing homes to work more closely with hospitals to make use of their expertise and information system infrastructure in order to develop their own case mix and cost scenarios."

Laura Hyatt, President, Hyatt & Associates: "I'm not sure that the Balanced Budget Act, including PPS, will work to providers' advantage. Initially, supporters of PPS intended it as a way to get HCFA to better understand the costs and resources involved in taking care of higher-acuity patients and to reimburse appropriately. It hasn't quite worked out that way, for a variety of reasons.

"For one thing, I don't think that PPS 'levels the playing field' for hospitals and nursing homes. Using 1995 cost reports as the basis for 75% of the initial rate maintains a hospital advantage, because they have much higher cost reports. Even if the 25% 'Federal rate' is aimed at capturing nursing home costs, this will likely include cost reports from small nursing homes that provide only basic distinct part Medicare units and not subacute services, per se. Data indicate that most of the 10,000-plus Medicare-certified nursing homes are doing just that. This means that the 'little guys' will drag the Federal rates down. In other words, there isn't even a level playing field among nursing homes.

"We'll have to wait and see about consolidated Part B billing, but I would think there is an incredible learning curve here for many facilities, and substantial costs for information management technology, staffing and training. Perhaps a good result of all this will be the encouragement of providers to work more closely together and, for example, establish common billing services.

"But the biggest problem I see is with the new postacute transfer provisions that are part of the same legislation as the PPS. These will reinterpret discharges of the top 10 DRGs to lower levels of care - i.e., if a patient is discharged to skilled nursing care before completing the hospital length-of-stay, it will be viewed as a transfer rather than a discharge. Such a 'transfer' might result in a reduction of the hospital's DRG reimbursement. The Clinton Administration believes that this will save $1.3 billion from institutional providers. As a result, though, hospitals will no longer have as much incentive to discharge postacute patients to SNFs, and SNFs' postacute census and level of patient acuity are bound to suffer initially. By the time they get these patients, they might no longer even be qualified for higher reimbursement.

"In short, there's an old Chinese proverb that applies here to those organizations that campaigned for PPS: 'Beware of what you ask for, because you might get it.'"
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Title Annotation:Prospective Payment System
Publication:Nursing Homes
Article Type:Cover Story
Date:Nov 1, 1997
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