MedPAC to US Congress: Act Now to Reform Post-Acute Payments

The post-acute care (PAC) sector is a target for significant change. Facing criticism of excessive spending, the sector is facing an overhaul of the payment system that, when it finally arrives, could disrupt the healthcare landscape once again.

Too much of Medicare’s spending on post-acute care is wasteful, according to findings from the Medicare Payment Advisory Commission (MedPAC or the Commission).

$60 billion

Medicare spending on post-acute care* in 2015

*Includes fee-for-service payments to skilled nursing facilities (SNFs), home health agencies (HHAs), inpatient rehabilitation facilities (IRFs), and long-term care hospitals (LTCHs)

For years, MedPAC has recommended freezing or lowering payments to PAC providers, including revisions to the SNF and HHA payment system design. Last year, the Commission went even farther. It recommended replacing the four different payment systems with a unified payment system that would base payments on patient characteristics rather than volume of services provided.

Unified PAC Payment a Reality—Sooner Than You Think

MedPAC began investigating the need for and feasibility of a unified system at the direction of Congress—specifically the Improving Medicare Post-Acute Care Transformation Act of 2014.

Among its findings:

  • PAC payments remain high relative to the cost of treating beneficiaries. In 2013, Medicare payments to these providers were, on average, 19% higher than the costs.
  • Although payments to IRFs were almost always higher than payments to SNFs, outcomes were not consistently better.
  • Therapy care in SNFs and HHAs is reimbursed at a higher rate than medically complex care, providing incentive to focus on the more profitable therapy patients.

Not only is a unified payment system for PAC deemed feasible, the Commission found, but it could be implemented as soon as 2021, which is several years ahead of the legislated timetable. Models built to predict costs for individual stays produced estimates that aligned with actual PAC costs of those stays, indicating that the models could be used to reliably set payments under the unified system.

MedPAC Invokes Depleting Medicare Trust Fund

MedPAC’s March report reiterated and intensified its call for this unified PAC payment system—noting that PAC overpayments contribute to the expected insolvency of the Hospital Insurance Trust Fund. By adopting its payment recommendations, Medicare would reduce its PAC fee-for-service program spending by more than $30 billion over 10 years.

“The cost of inaction is high along many dimensions. The program is paying more for services than it needs to, and its payment systems unfairly advantage some providers over others. By sending the wrong price signals, current payments encourage providers to furnish unnecessary care and to prefer to treat some patients over others.”

(March 2017 Report to the Congress: Medicare Payment Policy, Chapter 7, p.11)

Given the momentum and weight of these repeated recommendations, PAC providers and integrated health systems should plan for future adjustments, although the timeline still is not clear.

This revised system would cause significant shifts in payments—for example, from providers that provide high levels of therapy care to those that treat medically complex patients—that will change the PAC landscape.

Those PAC providers on the losing end of the payment “rebalancing” will be wise to consider strategic alternatives that will allow them to leverage their infrastructure costs and improve efficiency while continuing to improve quality—such as through consolidation, strategic alliances, or participation in provider groups such as an ACO or clinically integrated network.


For a summary of MedPAC’s recommendations for post-acute care:

Download MedPAC Summary Chart

Topics: Fee-for-Service, Payment Models

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