Academic journal article Health Care Financing Review

Measuring Function for Medicare Inpatient Rehabilitation Payment

Academic journal article Health Care Financing Review

Measuring Function for Medicare Inpatient Rehabilitation Payment

Article excerpt


The ability of patients to perform various functions is currently recorded in administrative data related to several types of health services in Canada and the U. S. Functional status information is used for care planning, to measure quality of care, and to adjust payments for case mix under various Medicare PPSs. The functional independence measure (FIM[TM]) has historically been used for care planning and quality measurement in many U.S. IRFs (Fiedler, Granger, and Russel, 1998). Since January 1, 2002, items from the FIM[TM] are recorded in the IRF patient assessment instrument (PAI) and, in combination with information on impairment, age, and comorbidities, used to assign Medicare patients to case-mix groups that determine the amount of payment under the IRF PPS. A different instrument, also including the FIM[TM], is recorded in Canadian inpatient rehabilitation. The minimum data set (MDS) (Hawes et al., 1995) is used for care planning and quality of care in U.S. skilled nursing facilities and in Canadian chronic care. Either MDS or the Medicare PPS assessment form can be used for payment purposes under the skilled nursing facility PPS. The Standardized Outcome and Assessment Information Set for Home Health Care (OASIS) is used for home care in the U.S. (Shaughnessey, Crisler, and Schlenker, 1997).

In this article, we focus on the role of functional status in classifying patients and, thereby, determining payment amounts in Medicare's IRF PPS. The assumption behind the inclusion of functional status in determination of payment amounts is that patients with lower function require additional resources. They will likely require a longer period of rehabilitation and/or more intensive therapy before they can return to the community. They likely require more nursing care each day they are in the hospital. If we provided the same payment independent of function, hospitals would have an incentive to discriminate against admitting patients with lower function. If admitted, the hospital might not have the resources to provide these patients with all needed treatment.

We present analyses that show the relationship of the use of inpatient rehabilitation resources to level of functioning. In particular, we will show how the distribution of functional status varies with impairment. We will show that not all FIM[TM] items have the expected correlation with costs. Further, we will demonstrate the relationship between scales constructed from FIM[TM] items and cost and show that such scales can be used to construct groups that are homogeneous in resource use and suitable for case-mix adjustment for payment. The out-of-sample predictive validity and stability of these groups is covered elsewhere (Relles, Ridgeway, and Carter, forthcoming). Relles and colleagues used 4 years of data to show that groups constructed on each year's data predict quite well on the other 3 years of data, and explain approximately 90 percent of all variation in costs that can be explained using the FIM[TM] items.

We examine how incentives, administrative simplicity, and the potential for gaming affected the creation of case-mix groups for the IRF PPS. Administrative costs are another important consideration in using functional status for payment purposes. One of the driving factors in the development of the IRF PAI was to place only a reasonable administrative burden on hospitals for the collection and processing of data. The original versions of MDS and OASIS were criticized because of the required administrative burden. Less burdensome versions of each of these instruments are being implemented. (1)


Rehabilitation hospitals and exempt units were excluded from the inpatient hospital PPS, which is based on diagnosis-related groups. The Tax Equity and Fiscal Responsibility Act continued to be the payment system for inpatient rehabilitation facilities because diagnoses alone inadequately captured resource use for these patients (Hosek et al. …

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