Academic journal article Health Care Financing Review

Assessing Medicare Reimbursement Options for Skilled Nursing Facility Care

Academic journal article Health Care Financing Review

Assessing Medicare Reimbursement Options for Skilled Nursing Facility Care

Article excerpt

In this article, a broad array of Medicare payment options for skilled nursing home care are examined, ranging from cost-based retrospective systems to various prospective arrangements. Each system contains different incentives to meet four policy goals: provide access for Medicare patients; increase access for patients requiring resource-intensive care; contain growth in program costs,- and assure the delivery of high-quality care. The financial impacts of alternative policy options on nursing homes are presented through the use of a simulation model. Facility-specific payment systems are shown to most effectively incorporate incentives to contain costs and promote beneficiary access to care. Introduction The Medicare-certified skilled nursing facility (SNF) benefit is small, in relation both to Medicare expenditures (.8 percent in 1985) and to the national nursing home expenditures (1.7 percent in 1985). In addition, use of Medicare-certified SNF's has grown very little (2.2 percent growth in patient days from 1983 through 1985) since the adoption of the Medicare prospective payment system (PPS) for hospitals. This slow growth may seem surprising, given the strong incentives under PPS for hospitals to discharge patients earlier.

It would be a mistake, however, to take the small scale and slow growth of the Medicare-certified SNF market as evidence that Medicare policy with respect to SNF reimbursement is not a major issue in the post-PPS era. On the contrary, the potential remains for Medicare expenditures on covered SNF care to expand rapidly for two major reasons.

The first is increased demand for care. The Medicare program pays for short-term SNF care (maximum of 100 days) to beneficiaries whose need for skilled nursing or rehabilitative care meets the strict requirements necessary to qualify for coverage. Because of these constraints, the average covered length of stay was only about 26.6 days in 1984. As pressure grows from PPS for hospitals to discharge patients earlier, the average level of care needed by discharged patients can be expected to increase. This may qualify more Medicare beneficiaries for SNF care; it may also increase the days of care that beneficiaries will require and that will be paid for by Medicare. (Relaxation of Medicare coverage requirements should also increase the demand for care.)

The second is the high cost of Medicare-covered SNF care relative to other nursing home care. The rate of inflation in the prices nursing homes must pay for nurses and other inputs increased by 17.5 percent from 1981 through 1983. The per diem costs of care in Medicare-certified facilities during the same period rose by 24.4 percent. Routine operating costs and capital costs grew by just 18-20 percent. Ancillary costs, however-which are not subject to any Medicare reimbursement controls-rose almost 50 percent (Holahan and Sulvetta, 1987). (In 1983, routine operating expenses accounted for 74.7 percent of Medicare-covered SNF costs, ancillary costs for 19.2 percent, and capital costs for 6.1 percent.) As hospital PPS stimulates increased demand for SNF care, costs per day are likely to increase even more, increasing policy pressure to control costs. At the same time, however, with increased demand for care SNF's will be confronted with higher cost Medicare patients, whom they may be increasingly unwilling (or unable) to serve unless the reimbursement system enables them to cover their costs. The conflict between cost and access can be expected to increase, highlighting the need for careful analysis of reimbursement system options. In this article, we provide a guide to the issues facing Medicare in establishing prospective payment policy for skilled nursing care. We begin by reviewing the recent history of Medicare-certified SNF reimbursement policy. We then discuss a range of alternatives that might be employed, and we establish a set of criteria for judging existing and alternative policies. …

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