Prospective Payment System

¶ … Prospective Payment System and how that system has impacted the nursing home industry. The writer explores how the system operates and explains its necessary elements. The writer than discusses the impact and significant elements that the system has on the nursing home industry. There were 10 sources used to complete this paper. One of the most pressing concerns facing the nation today is the health care system.

The medical community allows people to live longer than ever before, which means there is an increased need for nursing home facilities to accommodate the additional members of senior society. In addition to a longer life those who are entering nursing homes must deal with the need to pay for such care. The Prospective Payment System has been used to offset the cost of care and to alleviate the complications faced by those who enter the nursing homes as well as their family members.

The Prospective Payment System has undergone criticism and scrutiny since its inception, but is still considered the most viable plan for the financial responsibility of those entering nursing homes. When the Prospective Payment System was initially introduced it created major changes to the health care industry including the nursing home industry. When the system was first introduced it divided the financial gurus of the health care system into camps of for and against. When PPS was implemented, there were strongly held expectations among promoters and skeptics.

Promoters of the policy hoped that payment reduction would be matched by lower levels of spending through reduced lengths of stay (LOS), reduced intensity of care, and more efficient hospital operations (Gaumer, 1991). Promoters presumed this could occur without financial collapse or compromises in patient care, as large volumes of "slack" were used up (unproductive resources reallocated, unnecessary ancillaries and days eliminated, and so on) (Gaumer, 1991). So long as hospitals had been reimbursed their costs, they faced few incentives to provide efficient care.

PPS gave hospitals new incentives to operate economically (Gaumer, 1991). " While the above sounded promising and proved many of the concepts to be true, there were also those who were not sold on the idea of a prospective payment system being the best solution. A final and not insignificant caveat in this literature stems from the levels of the initial payment rates.

Widely conceded "overpayment" in the first year of PPS created a situation in which margins were increasing as expenses per case were dropping, due to large reductions in lengths of stay (Gaumer, 1991). This not only made the first year a somewhat aberrant intervention, but armed most hospitals with an unanticipated source of disposable funds, and probably altered expectations as well.

Consequently, the first-year windfall may itself be an intervention that generated a stream of effects that are confounded with the incentives of PPS (Gaumer, 1991)." The Prospective Payment System has changed the way the practice admissions in 70% of the nursing homes across the nation.

According to nursing home administrators the patient's medical history is scrutinized at a much more close range than they were before the implementation of the Prospective Payment System Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co). Most administrators state that they scrutinize patients' medical status to a greater extent than they did prior to the implementation of the prospective payment system. Medical condition has become more important in nursing home admissions decisions.

Seventy-four percent of nursing home administrators report that a patient's medical condition has become a more important factor in admissions decisions under the new reimbursement system Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities Nursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." full 53% of administrators surveyed admitted that they are less likely to admit patients that will require expensive supplies. They are also less likely to admit those who will need expensive services as well.

Intravenous medications, ventilators and feeding tubes are all examples of needs that may get the prospective patient turned down for admission to the nursing home facility and it is directly related to the advent of the prospective payment system according to nursing home administrators Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities Nursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co).

At the same time, 46% of administrators report that they are more likely to admit patients who require special rehabilitation services, such as physical, occupational, or speech therapy. It is important to note that while administrators say that they prefer to admit certain types of patients, Medicare data show no changes in nursing home placements, as noted in our companion report. Most support the concept of prospective payment Over 80% of nursing home administrators support the overall concept of the prospective payment system.

They agree that matching reimbursement with services rendered is generally a fair method of payment Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities Nursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." While many administrators are supportive of the Prospective Payment System they also relate a need to change the reimbursement structure that is currently in use.

Administration (HCFA) asked the Office of Inspector Generalto assess whether the new prospective payment system for skilled nursing facilities (SNFs)is causing access problems for Medicare beneficiaries. Concerns have been raised about the effect of the new system on patients and on nursing homes Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities Nursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." Studies have been conducted to examine these access problems that are directly related to the Prospective Payment System.

Early Effects on SNFs: Administrators' PerspectiveOEI-02-99-00401Medicare Part A payments for SNF care cover routine costs such as the room, dietary service, nursing service, minor medical supplies, and social service Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co).Payments also cover capital costs for the building and equipment, and ancillary care for specialized services such as therapy, laboratory tests, and transportation.

Until recently, SNFs were reimbursed on a retrospective, reasonable cost basis Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." The Balanced Budget Act of 1997 however changed the way this was handled. Beginning in 1998 the payments were made on a per diem basis with an adjusted case mix formula applied. The per diem payment is based on fiscal year 1995 Part A & B.

costs adjusted using the SNF market basket index (minus 1%), case-mixfrom resident assessments, and geographical wage variations. The market basket indexrepresents an inflation factor. The case-mix index recognizes that SNF residents require different levels of care and is based on an assessment that assigns each resident to 1 of 44 Resource Utilization Groups (RUGS-III).

This new payment system is being phased in over a 3-year transition period Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." One study examined the access to bed in facilities and then tied it to the Prospective Payment System to determine just how significant the impact is of the system on access. Experts differ on whether they believe the system negatively impacts access to nursing home beds.

Those individuals in the nursing home who are responsible for assessing patients' needs, the "minimum data set" coordinators also believe that the prospective payment system is not preventing access to nursing home care.

Ninety-four percent of them believe that their facility has not refused residents because of the new reimbursement system Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." In addition to the disagreement about access being impacted by the Prospective Payment System experts have also analyzed the quality of care received under the Prospective Payment System.

The more recent implementation of the Prospective Payment System with regards to the nursing home industry has created changes in the industry that experts believe will improve delivery of care to those in the nursing homes across the nation. There are regular studies done on the rates of payment that are received at the nursing homes that are constantly being reviewed and updated. Under the prospective payment system, payment rates to skilled nursing facilities cover the costs of furnishing most covered nursing home services.

These include allowable post hospital nursing home services provided under Medicare Part A and services covered under Part B before the prospective payment system began on July 1, 1998. Medicare Part A covers inpatient care, and Part B pays doctor bills, therapy and other services.

The prospective payment system now covers skilled nursing facility services, excluding payment for physician and certain other practitioner services Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." Under the prospective payment system each facility receives a base payment amount adjusted for local wages and the clinical characteristics of individual patients.

Covered costs include routine services such as room, board, nursing services, minor medical supplies; ancillary costs such as therapies, drugs and lab services; and capital costs including land, building and equipment Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." The system was created for the purpose of providing better patient care. It does this by relating payments to the condition of the patient.

In addition it is designed to recognize the fact that there will be some patients who need more care than others, even when they have the same or extremely similar conditions or problems. Under the previous system of basing payment on nursing home costs, the skilled nursing facility benefit was one of the fastest growing components of Medicare spending.

Hospitals have been paid under a prospective payment system since 1983 Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." The first several years of the Prospective Payment System bases the rate of payments on blending a federal rate with a facility specific rate of pay. In the first year, the facility percentage was 75% and the federal rate 25%. As facilities enter their second year under PPS, the mix becomes 50-50.

This began as early as July 1, 1999 for some nursing homes, depending on the individual facility's cost reporting period.

In the third year, the blend will be 25% facility and 75% federal, and in the fourth year all nursing facilities will be paid at the federal rate Early Effects of the Prospective Payment System on Access to Skilled Nursing FacilitiesNursing Home Administrators' Perspective (http://216.239.37.104/search?q=cache:gKv3_097ah0J:ptmanager.co)." In order to properly analyze the impact of Prospective Payment Systems it is important to have a grasp on how it operates.

The foundational objective of the Prospective Payment System was to reduce the rates of increase when it comes to Medicare inpatient payments. The Prospective Payment System had a significant impact on the nursing home industry. The central objectives of PPS were to reduce rates of increase in Medicare inpatient payments and in overall hospital cost inflation.

These aims were expected to be achieved through a combination of three key elements of the PPS programs: * By the marginal incentives of a per case rate-to-rate (Gaumer, 1991) payment system, which put hospitals at financial risk (Gaumer, 1991) for inefficiency and unnecessary intensity and allowed (Gaumer, 1991) hospitals to retain the gains from lower costs and more (Gaumer, 1991) efficient operations.

* By the financial stringency for higher cost hospitals of (Gaumer, 1991) program that controlled rates of increase in payment (Gaumer, 1991) amounts and that gradually shifted hospitals from their (Gaumer, 1991) own cost history to national rates. * By regulatory controls on admission rates by peer (Gaumer, 1991) review organizations (PROs) (Gaumer, 1991). " The system was developed through the examination of ten years of studies and incentive rate setting across the United States health care system. Nursing homes were also impacted by the advent of the Prospective Payment System.

Simple, unadjusted statistics for the early years of PPS show an increase in discharges to Medicare skilled nursing facility (SNF) care and in other measures of utilization (e.g., Gornick and Hall, 1988; Guterman et al., 1988; Latta and Keene, 1989; Morrisey, Sloan and Valvona, 1988b; Silverman, 1991) (Gaumer, 1991).

Some more complex analyses, controlling in various ways for such factors as severity of illness, agree with the simple statistics: They find PPS had a statistically significant effect on discharges to Medicare SNFs or to nursing homes generally (Fitzgerald et al., 1987; Fitzgerald, Moore, and Dittus, 1988; Gerety, Soderholm-Difatte, and Winograd, 1989; Mayer-Oakes et al., 1988; Morrisey, Sloan, and Valvona, 1988a). The RAND study of quality agrees, finding a significant increase (from 23 to 27%) in the proportion of patient admitted from home who are not discharged to home (Kahn et al., 1990a).

However, other studies reach a different conclusion (Gaumer, 1991): They find that there in fact was little, if any, increase in discharges to Medicare SNFs or to nursing homes generally (DesHarnais, Chesney, and Fleming, 1988, as adjusted by Russell, 1989; Liebson et al., 1990; Long et al., 1987; Manton and Liu, 1990; Palmer et al., 1989; Rich and Freedland, 1988). At most, these studies found very small increases (Gaumer, 1991). " Early on there was some disagreement about the effects of PPS on the nursing home industry.

There is clearly some conflict over the early effects of PPS on SNF and nursing home utilization by Medicare beneficiaries. After 1985, however, any effects of PPS on SNF utilization were increasingly overwhelmed by HCFA administrative changes and changes in Medicare coverage (Gaumer, 1991). Specifically, HCFA responded to the nominal increases in utilization in 1984-85 by instituting a series of administrative changes and intermediary reviews (Silverman 1991). By 1987, discharge rates and covered days of care per 1,000 enrollees were near or below historical lows (Gaumer, 1991).

Lawsuits and political complaints about the equity and consistency of these changes resulted in a liberalization of HCFA policy. Dramatic increases in utilization followed in 1988, back to the much higher discharge rates of the mid-1970s. Utilization then increased at truly unprecedented rates in 1989, under the expanded coverage provisions of the Medicare Catastrophic Coverage Act (Prospective Payment Assessment Commission, 1990a) (Gaumer, 1991). " There have been several changes to the Prospective Payment System since it was first introduced.

"The General Accounting Office (GAO) report on Medicare benefit changes references an earlier finding that in 1997, over 90% of the federal payments made for partial-hospitalization services in five states were inappropriate. Alabama was one of those states, and according to the president of the state chapter of the Association for Ambulatory Behavioral Healthcare (AABH), legitimate providers have suffered greatly as a result of the scrutiny (Report, 2000). " Most recently there have been additional changes to the system by which nursing home payments are made through Medicare (Szatala, 2000).

Managed nursing home care has slowed in recent years when it comes to long-term care. This may be due to the improved medical community being able to treat patients at home for a longer duration. In addition there have been many changes in the home health care profession and there are more home health care providers than ever before. Even given the changes there are still changes taking place in the Prospective Payment System when it comes to nursing home industries.

Even though managed care growth in long-term care has slowed, the managed care method of reimbursement is growing rapidly. There is,.