Apr 25th 2017

The Rapid Rise of Post-Acute Care

Until the mid-1980s, post-acute care expenditures accounted for a very small percentage of Medicare spending. These facilities were seen as a less-intensive care option for individuals who were able to avoid the more acute-care hospital setting. Then in 1984, Medicare's acute-care hospital prospective payment system (PPS) was implemented.

This change in reimbursement methodology caused a dramatic shift in patient care. Prior to this time, hospitals submitted bills to Medicare, which in turn would pay the facility in the classic fee-for-service (FFS) methodology. Translation: hospitals provided a medical service, and Medicare paid for it. Under this system, hospitals had little incentive to control costs because the longer the patient stayed in the hospital, the higher the cost, which meant higher levels of reimbursement.

The new goal of Medicare's PPS was to control the costs in hospital care without sacrificing the quality of patient care. Hospitals were now paid a single flat-rate per type of discharge, as determined by the classification of each case into a diagnosis-related group (DRG)1. Any costs above that amount meant that hospital lost money. After this change to the payment system, hospitals quickly sought the option of using a 'step down' facility in order to discharge patents from hospitals sooner.

It may come as no surprise that following this change, Medicare spending for post-acute care services began to grow rapidly. Because the post-acute care facilities were still paid on the FFS model, they had incentive to take patients from the hospitals as early as possible. According to a report from the U.S. Department of Health and Human Services, Medicare payments for skilled nursing facilities and home health care, for example, shot up from $2.5 billion in 1986 to 12 times that much in 1996. Not surprisingly, the supply of each type of post-acute care also grew commensurately to meet the need for patients being discharged from the hospital sooner, but still unable to be discharged directly home.

Of course, the rapid rise of the post-acute care sector also brought some challenges, and some persist to this day. The variability and inconsistency in cost, quality, and kinds of services offered among the various types of post-acute care providers has raised concerns with many policymakers2. In addition, concerns remain about provider incentives to discharge patients for financial reasons rather than quality-of-care reasons have also been addressed.

Over the course of the last decade, the integration of post-acute care services with America's skilled nursing and rehabilitation facilities has changed the healthcare delivery system. For example, the nature of post-acute care in nursing facilities is clearly evolving, as skilled nursing facilities now have the capabilities to treat more short-stay patients and provide intensive medical care for patients requiring a greater variety of complex care services.

Providers are motivated to solve the financial incentive problem without sacrificing the quality of care offered to the patient. This has led to some substantial improvements in post-acute care offerings. Unlike nursing homes of the past that served primarily as long-term care settings, the 21st-century nursing home provides patients with a myriad of services including medical, rehabilitative, and therapeutic care. In previous years, patients would have to remain in the hospital following life-saving surgery, medical complications, or a serious accident. Today, patients increasingly are turning to free-standing nursing and rehabilitation facilities to receive the multifaceted post-acute care they require.

In the years ahead, eviCore's role in the delivery of post-acute care will continue to evolve, and likely expand. Trends suggest that post-acute care facilities will admit more and more patients following a hospital visit, provide them with specialized care, and send them home—and we are prepared to go beyond standard utilization review and prior authorization processes to coordinate the post-acute recovery process.

1 Guterman S, Dobson A. Impact of the Medicare prospective payment system for hospitals. Health Care Financing Review. 1986;7(3):97-114.

2Liu, Korbin, Barbara Gage, Jennie Harvell, David Stevenson, and Niall Brennan. MEDICARE'S POST-ACUTE CARE BENEFIT: BACKGROUND, TRENDS, AND ISSUES TO BE FACED. Rep. N.p.: US Department of Health and Human Services, n.d. ASPE. The Urban Institute, 21 Feb. 2017. Web. 20 Apr. 2017.