BUILDING A HEALTHIER PITTSBURGH: Rethinking the way we pay for care

White House eyes control of after-hospital Medicare costs, such as nursing homes and home health

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After years of trying to clamp down on hospital spending, the federal government wants to get control over what Medicare spends on nursing homes, home health services and other medical care typically provided to patients after they have left the hospital.

Researchers have discovered huge discrepancies in how much is spent on these services in different areas around the country. In Connecticut, Medicare beneficiaries are more than twice as likely to end up in a nursing home as they are in Arizona. Medicare spends $8,800 on each Louisiana patient getting home health care, $5,000 more than it spends on the average New Jersey senior. In Chicago, 1 out of 4 Medicare beneficiaries receives additional services after leaving the hospital -- three times the rate in Phoenix.

Medicare per capita spending on these services, collectively known as post-acute or post-hospital care, has grown at 5 percent a year or faster in 34 of the nation's 50 most populous hospital markets in recent years, according to an analysis health care economist Chapin White conducted for Kaiser Health News.

In 2012, $62 billion -- 1 out of every 6 dollars Medicare spent in the traditional fee-for-service program -- went to nursing and therapy for patients in rehabilitation facilities, nursing homes, long-term care hospitals and in their own homes, according to a congressional advisory panel. Pennsylvania spends about 23 percent of its Medicare dollars on post-hospital care, putting it in the middle of the state-by-state range with Louisiana spending 31 percent on post-acute services while Hawaii spends 12 percent.

Most of the patients receive those services after coming out of the hospital. Some of these providers earn double-digit profits from Medicare through a hodgepodge of payment methods that health experts say encourages disjointed care, wastes taxpayer money and makes fraud easier. More than a quarter of Medicare spending in Louisiana, Texas, Mississippi, Oklahoma and Massachusetts was for post-acute care in 2011, Medicare records show.

Hospitals are often the gatekeepers to this world. But analysts say they do not take costs -- or sometimes patients' best interests -- into account when discharging patients. "They have not had to think remotely about costs or quality or anything except: Where's a bed available," said Anne Tumlinson, a consultant at Avalere Health in Washington. "Often doctors have very little to do with the discharge decision. Largely it has to do with the supply of providers and type of providers in the area."

Now, Medicare is experimenting with new payment methods in which hospitals and post-acute providers would be given a lump sum to take care of a patient, forcing them to become more efficient if they want to make money. In addition, President Barack Obama has proposed reducing payments for some conditions to post-acute providers and beginning to pay the same rates for similar patients.

Stephen Parente, a health care economist at the University of Minnesota, says the changes are likely to upend much of the industry. "It's going to be a fairly ugly transition to get to a more efficient, streamlined system," he said. "It's going to be a consultant's bonanza."

Many options for care

Ironically, the growth of the post-hospital industry can be traced back to actions Medicare took in the 1980s to clamp down on long inpatient hospital stays. Medicare started paying hospitals set sums for each patient stay, giving them a financial impetus to discharge patients as soon as possible. New services sprung up in response around the country to take these patients, often with business models that sought to maximize the money they could earn from Medicare.

The vagueness of the term "post-acute" reflects the wide array of ways Medicare patients can be treated after they leave the hospital. Those robust enough to return home can receive intermittent visits from nurses, physical therapists and aides who monitor their condition and assist in basic tasks. These services are known as home health.

Patients needing closer oversight can end up in nursing homes or the more intense inpatient rehabilitation facilities, where people suffering strokes, major joint replacements and fractures often end up. The sickest patients, such as those who need ventilators to breathe for weeks, may be admitted to long-term care hospitals, where the average stay is 26 days.

Medicare pays each type of facility different rates -- even when they are treating the same kinds of patients. Medicare's cost for treating stroke patients, including time in the hospital and three months of subsequent care, averages $40,000 if the patient is discharged to an inpatient rehabilitation facility, according to an analysis by Congress' Medicare Payment Advisory Commission (MedPAC). Medicare's cost averages $33,000 for stroke patients discharged instead to a nursing home -- and only $13,000 for those cared for at home with the assistance of health aides, the analysis found.

These varying payment rates were created under the assumption that many sicker patients would need to be in facilities that could provide more intensive care. But researchers have found evidence that the same types of patients can end up in different types of facilities, for no obvious medical reason.

Jim Prister, president of RLM Specialty Hospital in Chicago and Hinsdale, Ill., said that his long-term care hospitals turn down about half the patients hospitals refer because they do not meet Medicare's criteria. "We don't rely on what the [hospital's] care coordinator says," Mr. Prister said.

"We have a pretty large team of RNs that go out and see every patient."

An Institute of Medicine study released in July concluded that post-hospital services are the primary reason that Medicare spends much more in some parts of the nation than elsewhere. Uneven spending on post-acute care around the country accounts for 73 percent of the variation in Medicare spending.

In McAllen, Texas, doctors and hospitals have received most of the criticism for the region's high Medicare spending, which is greater than in any other part of the country except Miami. Medicare records, however, show inpatient hospital use and spending in 2011 was around the national average, and outpatient care was significantly below average.

Instead, McAllen's post-acute spending was the true outlier.

McAllen beneficiaries were more than 2½ times as likely to use home health services, long-term care hospitals and rehab facilities than were the average Medicare beneficiary in 2011. As a result, Medicare spent $4,752 per capita on post-acute services, while the national per capita spending average was $1,894.

Much post-hospital use is determined by which facilities are around. A third of all home health care cases took place in Florida, Louisiana, Mississippi, Oklahoma and Texas even though only 17 percent of Medicare beneficiaries live in those states, says MedPAC.

Aggressive marketing plays a role in where patients get sent, said Jared Landis, a consultant at The Advisory Board, a consulting company for health care providers. "Anecdotally, it is a market where post-acute discharge is heavily affected by personal relationships, traditional sales and marketing -- just building those personal relationships around those small gifts, those cookies," he said.

Substantial profits

For many companies, these patients translate into substantial profits. Nursing homes are expected to earn between 12 and 14 percent this year on their Medicare patients, MedPAC estimates. Home health margins are expected to average 12 percent, and intensive rehabilitation facilities margins are around 8.5 percent, MedPAC estimates. Long-term care hospitals, the laggard of the post-acute groups in profits, are earning almost 6 percent.

The post-acute care industry has defended these profit margins by saying that they counterbalance the losses their facilities receive from lower Medicaid payments in many states. (MedPAC calculates that, even including the Medicaid patients, nursing homes earned profits between 4 to 6 percent in 2011, the most recent year for which they have data.)

"If you start targeting the one healthy aspect of skilled nursing that pays for the services provided, that's going to pose real jeopardy to the entire profession," said Greg Crist, a spokesman for the American Health Care Association, which represents nursing homes.

Policy experts say providers tailor their approaches to wring the most money out of Medicare's payment methods. Nursing homes, for instance, are paid per day, encouraging homes to keep patients for as long as possible up to the 100-day limit Medicare set. Medicare picks up the entire tab for the first 20 days.

Home health agencies are paid set sums for 60 days with no regard for how many nursing and aide visits are made. The number of visits in the average 60-day period dropped from 32 in 1998 to 19 in 2011, while the number of patients being enrolled in home health soared, with the majority no longer coming straight from the hospital, according to MedPAC.

"The incentive is to sign up patients who need hardly anything and sign them up for as long as you can get them," said Judy Feder, a professor at the Georgetown Public Policy Institute.


This article was produced by Kaiser Health News with support from The SCAN Foundation, in collaboration with The Washington Post. Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communications organization not affiliated with the Kaiser Permanente health care company.


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