The Georgia Scroll
January 1998

New Era Begins for Post Acute Care

By: Frances J. Fowler

A new era for post acute care began with the Balanced Budget Act of 1997. Services including inpatient rehabilitation, skilled or subacute care, long-term acute care and home health will move from cost based reimbursement to a prospective payment system. Additionally, the new Medicare regulations will penalize acute care providers if patients are discharged too early — or before the geometric mean lengths of stay nationwide for patients whose diagnoses fall within the yet unnamed top 10 DRGs.

In effect, Medicare has plugged the gaps in reimbursement that have contributed to positive bottom lines. HCFA has not released the details that will let providers measure the potentially significant impact on their bottom line. However, the following is known:

• Established providers will have the luxury of a three to four-year period of transition to PPS. During the transition, payment will be based on a blended rate to include provider specific information and national PPS rates. Less established providers will move to PPS with no transition time.

• Reimbursement for skilled or subacute care will be the hardest hit service. Established providers begin the three-year transition to PPS for cost reporting periods after July 1, 1998. New providers in their three-year exemption phase will lose the cost based advantage and move to PPS with no transition period. HCFA has until May 1 to announce how PPS rates will be determined. Consequently, new providers have almost no time to determine how they will fare under the newer reimbursement.

• TEFRA capped services, including rehabilitation, long term care and psychiatry, will have national ceilings effective until transitioned to PPS. No longer will your costs solely determine the TEFRA cap.

• Established providers have 60 days before FY’98 to petition HCFA to rebase their cap or their low TEFRA rates remain through the transition to PPS (Oct. 1, 2000, for rehabilitation and Oct. 1, 1999 for long-term acute care). Additionally, incentive or relief payments will be markedly less under the new rules, reducing the additional dollars currently realized by providers.

• The four-year transition to PPS for home care begins Oct. 1, 1999. In the interim reimbursement will be a management nightmare. Payment pre-PPS will be based on: the lower of actual costs; per visit limitations reduced to 105 percent of the national median for freestanding home health providers; or a rate blending the beneficiary annual limit with regional costs. Shift between Part A and Part B financing will be implemented, compounding the fiscal management problems.

Providers must begin responding to these changes, including:

• Keep a time line of the changes and stay abreast of new information.

• Develop the clinical and financial strategies, aligning them with the time line.

• Put segments of the foundation in place. Start assessing patients using systems that parallel those HCFA is considering. Implement the RUG (resource utilization group) system for assessing skilled care patients and FRG (functional related groups) for rehabilitation.

• Reengineer post-acute services, ensuring that the clinical programs are aligned with the financial parameters. Develop case management systems across the acute and post acute care continuum.

• Avoid wishful thinking. Increasing lengths of stay for the top 10 acute care DRGs will not reduce post acute demand. And don’t think you can close these services because none of this will matter under Medicare managed care.

• Explore other options like medical day hospitals to compensate for patients needing post acute services.

For a free brochure about the changes in the Balanced Budget Act of 1997, contact: Fowler Healthcare Affiliates at 770-955-5957.

Frances Fowler is president of Fowler Healthcare Affiliate, Inc., a national healthcare consulting firm based in Atlanta.

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