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June 23, 2020

Will Medicare’s New Patient-Driven Postacute Care Payment System Be a Step Forward?

Author Affiliations
  • 1Corporal Michael J. Cresencz VA Medical Center, Philadelphia, Pennsylvania
  • 2Department of Medical Ethics and Health Policy, Perelman School of Medicine, University of Pennsylvania, Philadelphia
  • 3Leonard Davis Institute of Health Economics, University of Pennsylvania, Philadelphia
  • 4Department of Health Care Policy, Harvard Medical School, Boston, Massachusetts
JAMA Health Forum. 2020;1(6):e200718. doi:10.1001/jamahealthforum.2020.0718

Skilled nursing facility (SNF) and home health agency (HHA) use and spending vary substantially across the US. However, higher spending on rehabilitation and nursing following a hospitalization has not necessarily led to better patient outcomes.1 In 2017, approximately 1.6 million patients receiving Medicare fee-for-service benefits were admitted to a SNF, with an estimated annual cost of $28.4 billion, and 3.4 million patients received HHA services at a cost of $17.7 billion.2 Consequently, SNFs and HHAs have become a major target of policy reform by Medicare.

Historically, SNFs and HHAs have been paid largely based on the amount of therapy provided, rather than the level of illness or special care needs of patients. These payments were constant across the entire duration of SNF or HHA care as long as the amount of therapy provided was the same, regardless of whether a patient’s functional status or other needs changed.

The historical system created strong incentives to maximize the number of SNF days or HHA episodes and also provide additional therapy to qualify for a higher payment. Recognizing this, the US Centers for Medicare & Medicaid Services recently implemented the Patient Driven Payment Model for SNFs and the Patient-Driven Groupings Model for HHAs.

Reforming Postacute Care Payments

Both the new SNF and HHA payment models share common goals. First, they use patient characteristics and clinical needs to determine payment rates. Second, they allow for flexibility in payment rates over a SNF stay or HHA episode.

The new SNF payment model, which began in October 2019, bases payment on a variety of patient characteristics, including the clinical condition requiring SNF care, functional status, speech and language pathology, need for specialized nursing care, and a general illness severity score. It retains per-diem payments, but they are higher for early days in the stay and adjusted downward later.

The new HHA payment model started in January 2020 and shifted the length of the HHA payment episode from 60 to 30 days. Payments are adjusted for patient characteristics, including whether HHA services were preceded by a hospitalization or SNF stay, the primary reason for HHA care, the patient’s functional status, and the presence of comorbid conditions. The first 30-day period is paid at a higher rate than subsequent 30-day periods, periods with low use receive a smaller payment, and exceptionally high-cost cases receive an outlier payment.

The rationale underlying the new payment designs was to disincentivize care that is unnecessary or of questionable health benefit. For example, SNFs and HHAs frequently delivered care right up to the therapy payment thresholds, with a large proportion of patients receiving the highest level of therapy, without regard for its clinical benefit or appropriateness.3 This was a key factor leading to high, unwarranted regional variation in SNF and HHA spending.4,5 Because the new SNF and HHA payment models base payments on patient characteristics rather than the delivery of therapy, the net outcome is that SNFs and HHAs that care for patients with more severe illness or clinical problems will receive more dollars and those that care for patients in better health who can tolerate high levels of therapy will receive fewer dollars.

Monitoring Progress

While the new payment systems are designed to reduce the delivery of inappropriate therapy services, they depend on self-reported assessments and quality data to incentivize the right intensity of services (ie, not too few services, either). In theory, this should work. But because both types of data have been unreliable to date, the Centers for Medicare & Medicaid Services should monitor data integrity and patient experience vigilantly.

First, it should carefully analyze the self-reported functional and cognitive assessments by SNFs and HHAs. Substantial prior work calls into question the reliability of these assessments. For example, when patients switch between settings of care, such as from SNF to HHA, the functional and cognitive assessments frequently do not match, suggesting that SNFs and HHAs code patients more intensively as a means to get higher payments.2 Medicare has recognized this; thus, the new HHA payment model includes a 4.36% downward adjustment in payments to account for these behaviors and avoid increases in overall HHA payments. Although progress has been made in harmonizing measures across postacute settings, analyzing their consistency as patients transfer settings will be a continually important litmus test of data accuracy.2

Second, Medicare should monitor for changes in the types of patients admitted to SNFs and HHAs, because both new payment models may incentivize them to avoid or underprovide therapy services to those who are less medically complex but require intensive therapy (eg, postsurgical rehabilitation). While quality measures would ideally help identify underprovision of therapy, it is unclear whether measures that are independent of SNF and HHA reporting, such as hospital readmissions, will be sensitive to the amount of therapy provided. This is a critical gap, because publicly reported quality measures on Nursing Home Compare or Home Health Compare are primarily collected from self-reported data by SNFs and HHAs, and the only measure in the SNF value-based purchasing program is a hospital readmission measure.

Consequently, close tracking of data for patients who were recently hospitalized is critical to identify whether particular types of patients are no longer able to access postacute care under the new payment models. Medicare should also review and audit cases to ensure that patients who are receiving therapy are getting enough of it.

In summary, Medicare’s SNF and HHA payment changes represent an important shift away from therapy-based payment to payments based on patient complexity. Although this is likely a step forward, Medicare should monitor carefully for unintended outcomes because of heavy reliance on self-reported clinical data and incentives to select patients with favorable characteristics or underprovide services.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License.

Corresponding Author: Amol S. Navathe, MD, PhD, Department of Medical Ethics and Health Policy, Perelman School of Medicine, University of Pennsylvania, 1108 Blockely Hall, 423 Guardian Dr, Philadelphia, PA, 19104 (amol@wharton.upenn.edu).

Disclosures: Dr Navathe reports grants from Hawaii Medical Services Association, Anthem Public Policy Institute, the Commonwealth Fund, Oscar Health, Cigna Corporation, the Robert Wood Johnson Foundation, the Donaghue Foundation, the Pennsylvania Department of Health, Ochsner Health System, United Healthcare, and Blue Cross Blue Shield of North Carolina; personal fees from Navvis Healthcare, Agathos Inc, Navahealth, University Health System–Singapore, Social Security Administration–France, Elsevier Press, the Medicare Payment Advisory Commission, the Cleveland Clinic; and other support from Embedded Healthcare and Integrated Services Inc outside the submitted work. Dr Grabowski reports grants from National Institute on Aging, the Agency for Healthcare Research & Quality, the Arnold Foundation, and the Warren Alpert Foundation and personal fees from NaviHealth, Vivacitas, Analysis Group, Compass Lexecon, Abt Associates, and Research Triangle Institute.

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