Posts Tagged ‘discharge alternatives’

Post Acute Care – Driver of Variation in Healthcare Costs

Reporter and Curator: Larry H. Bernstein, MD, FCAP


Curator and Editor: Aviva Lev-Ari, PhD, RN

The following is a report summarizing the findings of two major articles in the New England J Med by Robert Mechanic, MBA, on the findings of the Institute of Medicine study of drivers of Medical Care cost variation.  This is a seminal piece of work that is already creating a roadmap for hospital cost reduction and hospital evaluation based on reduction of readmissions combined with appropriate discharges not exceeding expected length of stay.  This type of study is not new, but it has taken a new direction.  The studies 25 years ago directed at regional variation in physician practices contributed to the studies at the Yale School of Business Administration by Robert Fetter’s group that developed the Diagnosis Related Groups (DRG) model formulation, pioneering in the engineering design of healthcare management.  The study was the first of its kind, and it was implemented as a demonstration project in New Jersey and then became the current basis for reimbursement.  At the same time, there are numerous studies of practice variation and variation in hospital costs, most prominently carried out at Dartmouth, University of Pennsylvania, and at the Intermountain Healthcare System, which made huge and continuing contributions to improvements in healthcare quality and efficiency.

cost1  per capita costs and life expectancy across all 34 OECD member countries using OECD data from 2009.

hhs_medicare_docs   participating in and billing Medicare


1. Post-Acute Care — The Next Frontier for Controlling Medicare Spending

Robert Mechanic, M.B.A.

N Engl J Med 2014; 370:692-694 February 20, 2014 DOI: 10.1056/NEJMp1315607


2. Post-Acute Care Reform — Beyond the ACA

D. Clay Ackerly, M.D., and David C. Grabowski, Ph.D.

N Engl J Med 2014; 370:689-691 February 20, 2014 DOI: 10.1056/NEJMp1315350


Post-Acute Care — The Next Frontier for Controlling Medicare Spending


A striking conclusion from the Institute of Medicine’s recent report on geographic variation in Medicare spending is that post-acute care is the largest driver of overall variation.1 Medicare pays for post-acute care — short-term skilled nursing and therapy services for patients recovering from acute illness (typically after a hospitalization), provided by home health agencies, skilled nursing facilities (SNFs), inpatient rehabilitation hospitals, and long-term care hospitals. In 2012, Medicare spending for these services exceeded $62 billion. For patients who are hospitalized for exacerbations of chronic conditions such as congestive heart failure, Medicare spends nearly as much on post-acute care and readmissions in the first 30 days after a patient is discharged as it does for the initial hospital admission

(see graph in


30-day episodes

Medicare Acute and Post-Acute Care Payments for 30-Day Episodes That Began with a Hospitalization, 2008)

Post-acute care spending for surgical episodes is somewhat lower but still substantial. Medicare payments for post-acute care have grown faster than most other categories of spending. For example, total Medicare spending for patients hospitalized with myocardial infarction, congestive heart failure, or hip fracture grew by 1.5 to 2.0% annually between 1994 and 2009, while spending on post-acute care for those patients grew by 4.5 to 8.5% per year.2

Under fee-for-service reimbursement, acute care providers have had little financial incentive to invest in systems to ensure effective transitions to post-acute care or to support post-acute care providers when recently hospitalized patients have complications. Medicare’s recent readmission penalties have begun focusing hospitals’ attention on these issues. But Medicare’s new bundled-payment and shared-savings programs provide much stronger incentives to integrate acute and post-acute care.

Hospital and Post-Acute Care Facility Coordination

Hospitals and physicians participating in bundled-payment or shared-savings programs will need to establish meaningful partnerships with all types of post-acute care providers. Partnerships with SNFs are particularly important, since they account for about half of Medicare’s post-acute care spending. Apart from geographic location, hospitals will focus on three basic characteristics when considering SNF partners:

  • capacity to effectively care for Medicare patients with complex needs,
  • ability to provide high-quality care efficiently, and
  • willingness to actively collaborate on care coordination.

Hospitals will favor SNFs with a proven record of performance and should assess each nursing home in the context of the complexity of its cases. Under bundled payments, one relevant measure of both quality and efficiency is rehospitalization. In 2011, a quarter of nursing homes had risk-adjusted rehospitalization rates of 23% or greater for five potentially avoidable conditions, while a quarter had rates below 15%.4

Equally important for new partnerships is a willingness to actively collaborate on quality improvement and care coordination. Establishment of a clinical point person at both the hospital and the nursing homes would help facilitate rapid responses to unexpected changes in patient status. Finally, such partnerships will need to establish regular and transparent performance reporting.  In order to achieve the next level of performance, physician groups and hospitals will increasingly establish preferred networks of post-acute care providers. Although they cannot require patients to use these providers, they may be able to make a convincing case based on the quality, service level, and continuity of care that a strong partnership can offer.

It is ironic that an extended admission prior to discharge may be advantageous in the emerging bundled payment system.  Other steps hospitals can take to reduce post-acute care spending under a bundled-payment system don’t preclude those with extra bed capacity keeping some Medicare patients in the hospital longer and discharging them to home health care rather than a nursing home or rehabilitation facility; the extra cost of extending a hospital stay by an additional day or two is far less than the average cost of a nursing home admission. According to one study involving 12,000 patients, the incremental cost incurred on the last full day of hospitalization was just 2.4% of the average total cost per admission.5

Post-acute care providers need to make a compelling case for their value, and those that establish preferred relationships with major hospitals and physician groups will generate additional volume and thus be able to maintain revenue levels as they shorten lengths of stay.


  1. Newhouse JP, Garber AM. Geographic variation in Medicare services. N Engl J Med2013;368:1465-1468
  2. Chandra A, Dalton MA, Holmes J. Large increases in spending on postacute care in Medicare point to the potential for cost savings in these settings. Health Aff (Millwood)2013;32:864-872
  3. Gage B, Morley M, Ingber M, Smith L. Post-acute care episodes: expanded analytic file. Waltham, MA: RTI International, June 2011.
  4. Kramer A, Fish R, Min S. Community discharge and rehospitalization outcome measures (fiscal year 2011). A report by staff from Providigm, LLC, for the Medicare Payment Advisory Commission, April 2013


5.  Taheri PA, Butz DA, Greenfield LJ. Length of stay has minimal impact on the cost of hospital admission. J Am Coll Surg 2000;191:123-130

Post-Acute Care Reform — Beyond the ACA

 The Case of Mrs. T

Mrs. T. is an 88-year-old woman who lives alone, has a history of congestive heart failure and osteoarthritis. She was found lethargic and sent to the emergency department, where she was discovered to be in renal failure and was admitted to the hospital for fluids and monitoring. Her hospitalist concluded that she had accidentally overdosed on Lasix (furosemide). On hospital day 2, Mrs. T. was having difficulty ambulating, although her cognition and renal function had improved and she felt “back to her old self” and was eager to go home.

The hospitalist had two primary options. He could keep Mrs. T. in the hospital another night, although she was medically stable and had no further diagnostic or medical needs. That would cost the hospital money under Medicare’s system of fixed payments for diagnosis-related groups, but it would give Mrs. T. more time to recover her strength and extend her stay to the 3 days required to qualify her for a stay in a Medicare skilled nursing facility (SNF) if needed.1

Alternatively, the hospitalist could send Mrs. T. home, holding the Lasix to prevent a repetition of the cause of this admission and arranging for a follow-up evaluation by a visiting nurse. Home health agencies are expected to provide an admission visit within 48 hours after discharge, and they receive a fixed payment from Medicare for a 60-day episode of care.  This option presented a higher risk of falls and further medication errors, but it served the hospital’s interest in limiting lengths of stay and Mrs. T.’s desire to return home.

Both options presented a high likelihood of readmission, and neither one encouraged the provision of a high-quality, high-value mix of acute and post-acute care services. Why were there no better options?

This presents a conundrum because Medicare has paid hospitals and post-acute care providers separately, without regard to the quality and efficiency achieved across an entire episode of care. When patients’ discharge plans made without adequate factoring in of clinical reasons, it contributes to the inefficient use of post-acute care and the high rate of readmissions.2,3  A significant factor in this anomaly is that the decrease in length of hospital stay and the increase in use of post-acute care after the implementation of Medicare’s hospital inpatient prospective payment system (see graph


length of hospital stay and the increase in use of post-acute care

Use of Hospital Care and Post-Acute Care over Time.).

Demonstrations currently being evaluated under the Affordable Care Act (ACA) incentivize a more efficient mix of acute and post-acute care services. For example, under a bundled-payment system, hospitals and post-acute care providers are paid for a fixed “bundle” of services around a hospital episode, including post-hospitalization care. In an accountable care organization (ACO) with risk-based payment, networks of providers can share in savings if they reduce the total cost of care for a defined patient population and meet a series of quality metrics. Under both approaches, provider systems have incentives to deliver cost-effective acute and post-acute care services and prevent costly readmissions.

 Three issues may impede the delivery of high-value services over an entire episode of care.

First, the ACA reforms retain some burdensome payment regulations and rules that will hinder the delivery of the highest-value mix of services. ACOs cannot change most of Medicare’s fee-for-service payment regulations in purchasing post-acute care. These regulations include

  • the 3-day rule for qualifying for Medicare-covered SNF care;
  • fixed payment for a 60-day episode of home health care, which hinders flexibility in tailoring services to patients’ needs; and
  • a rule for inpatient rehabilitation facilities requiring that 75% of cases fall within 13 diagnostic categories, which limits the number and types of patients admitted to these facilities.4

Second, merely aligning financial incentives between providers of acute and post-acute care will not improve quality and reduce costs for episodes of care. True coordination of care — defined as the organization of services among the hospital, physicians, post-acute care provider, and patient to encourage the delivery of the highest-value services — is required to ensure the best possible outcomes. Potential models for coordinated acute and post-acute care might encompass team-based care and transition programs, cross-continuum case-management interventions, improved patient and family engagement, communication protocols for providers across settings to share both clinical and social information by means of interoperable health information technologies, and focused investments in clinical coverage in post-acute care settings (e.g., telemedicine or transitional medicine teams). Most of these on-the-ground activities, however, are in their infancy.

Third, even with payment changes and improved coordination, providers are often “flying blind” when attempting to tailor a care plan to a patient’s and family’s needs. Simply put, we have insufficient understanding about which post-acute care setting (e.g., home with or without services, SNF, or other care facility) benefits which types of patient — which makes it impossible to match patients to the setting that best suits their needs and maximizes the likelihood of the best outcomes. This lack of knowledge is attributable to both insufficient data and poor quality measures. Optimizing post-acute care delivery will require a common data instrument but also new quality measures for such care. For example, one important measure of quality would be the risk-adjusted rate of rehospitalization in a given post-acute care setting.5

 A look backward and forward

In the case described above, the hospitalist was left with our system’s only two discharge options. Imagine how Mrs. T.’s care might have been different. With her care covered under an ACO or as part of a bundled-payment program, her providers would have financial incentives to provide the right care, in the right place, at the right time. If the additional efforts we’ve described above had been successfully implemented, the hospitalist could have used evidence on the comparative value of alternative post-discharge options to choose the most suitable mix of inpatient and post-acute care services without worrying about payment rules and with the support of organizational tools for coordinated care.


  1. Lipsitz LA. The 3-night hospital stay and Medicare coverage for skilled nursing care. JAMA2013;310:1441-1442
  2. Jencks SF, Williams MV, Coleman EA. Rehospitalizations among patients in the Medicare fee-for-service program. N Engl J Med 2009;360:1418-1428[Erratum, N Engl J Med 2011;364:1582.]
  3. Institute of Medicine. Variation in health care spending: target decision making, not geography. Washington, DC: National Academies Press, 2013.
  4. Medicare Payment Advisory Commission. Medicare post-acute care reforms. Washington, DC: Statement of Mark E. Miller before the Subcommittee on Health, Committee on Ways and Means, U.S. House of Representatives June 14, 2013.
  5. Mor V, Intrator O, Feng Z, Grabowski DC. The revolving door of rehospitalization from skilled nursing facilities. Health Aff (Millwood) 2010;29:57-64

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