Implementing a Standardized
Post-Acute Reimbursement System
The cost of health care has been
ever-increasing during the 1970's and 1980's in spite of Medicare
establishment in the mid-1960's. The cost of health care had exceeded the
gross national product by two digits; therefore, steps were taken to
provide cost containment for healthcare diagnoses. The first attempt was
controlling the major cost, which was within the hospital as new
technologies allowed patients to recover from their acute illness.
However, the length of stays was quite long since there was no post-acute
continuum at that time.
In 1983, the DRG system became
operational, however to ensure that the patients were provided a
post-acute standard of care, multiple post-acute care settings were
established under different reimbursement models. These systems included
psych hospitals, rehab hospitals, long-term care hospitals or chronic
hospitals and skilled nursing facilities. The psychiatric hospitals and
rehabilitation hospitals operated under the TEFRA rate, which was
established on either the first, or third year average cost based on
length of stay and services that were provided for ten rehab diagnoses and
certain psych diagnoses.
The skilled nursing facility was
reimbursed on a cost basis without significant limitations as at that time
individualized therapy services were scarce in these settings. The
long-term care hospital provisions allowed for 100 days of reimbursement
based on chronic diagnoses with an average length of stay of 25 days.
These settings were to ensure that as cost containment was targeted for
the acute care hospital, patients with specialized needs were still
provided a continuum of services prior to being transitioned to an
outpatient setting or home.
The DRG system was based on defining
the patient characteristic by diagnosis and then adjusting the
reimbursement based on secondary co-morbidities or complications. The DRG
defined the patient upon admission for criteria that allowed a hospital
stay. Co- morbidities were factored in on admission as well as upon
discharge complications or variances were included to reimburse for the
services that were provided.
Additional provisions were made of
quality assurance to provide medical stability upon discharge such that
hospitals were not "dumping" the patients to maximize the reimbursement
system. These internal mechanics of quality assurance were monitored by
state and federal guidelines and oversight was provided by the joint
commission of accreditation of hospitals or JCAHO.
Although DRG was a dramatic shift in
physician practice as well as hospital practice, the hospitals were able
to survive this reimbursement model and continue to function without great
impact on services being provided or any significant staff reductions.
Throughout time, it was still evident that technology proceeded forward as
well as physicians practices became more specialized and adjusted to the
The post-acute continuum developed
very rapidly by entrepreneurs who were able to maximize the reimbursement
models to their benefit achieving great returns to their investment, The
rehabilitation model utilized TEFRA having to incorporate the ten most
common diagnoses for rehabilitation to represent, 75% of their population
served within the hospital.
The for-profit rehabilitation
systems were able to manipulate the reimbursement systems for optimal
revenue streams. This allowed for consolidation to the point of one major
player monopolizing the rehabilitation industry.
The psychiatric hospitals became one
of the fastest growing Fortune 500 companies. They were able to maximize
on the benefits provided for psychiatric patients as well as alcohol and
drug abuse patients. Unfortunately, these patients did not have outcomes
that were sustainable and frequent readmissions were burdening the cost of
health care insurance.
Additional abuses occurred with
recruiting inappropriate patients and manufacturing diagnoses, which were
difficult to monitor from an outside audit. The changes that were made to
the psychiatric industry subsequently caused a great shift from an
isolated hospital unit to incorporating a psychiatric unit within a
The long-term care hospitals are
chronic hospitals, which were primarily centered in the Northeast. They
were established initially for long-term patients for neuromuscular
diseases, respiratory diseases, ventilators and spinal cord and head
These hospitals were providing care
for the most complex patients and through their development were able to
recruit specialized physicians as well as specialized services and
laboratories within their institutions to be self-sufficient. Due to the
fact that they represented such a small minority of health care costs,
these entities were not a significant factor in the initial reengineering
The skilled nursing facility market
essentially was an expansion of the initial retirement home model dating
back to the 1950's. Through the 1960's, patients looked upon it as a place
of retirement and minimal assistance from one caretaker that would be
providing the needs within a facility.
As this population to grow and
medical needs increased through the 1970's and 1980's, steps were taken by
Congress to ensure that proper assessments as well as the appropriate
services were provided to meet the needs of these residents. In light of
very few physicians, therapists, respiratory and psychiatric personnel
participated in skilled nursing facilities, the reimbursement model
allowed for full reimbursement based on cost of services provided.
During the late 1980's and early
1990's, the psychiatric hospitals and rehab hospitals showed significant
growth as well as significant healthcare dollar utilization. The hospitals
were utilizing these centers as their post-acute continuum to manage their
DRG's appropriately. Unfortunately, the costs of the reimbursement models
became quite high, and with the volume of patients transitioning through
these centers, it added to the burden of health care cost containment.
Additional steps were taken within
these entities to reengineer underutilized or unprofitable units within
the hospital and convert them to individual licenses which would bring an
extra source of revenue to the entity as well as share revenue gains by
the before profit managing company of rehabilitation or psychiatric
In the early 1990's, managed care
became a prominent entity for healthcare revenue sources. As managed care
tried to find the most cost effective and efficient setting, many
healthcare providers felt that the skilled nursing facility license was
the most diverse and non-restricted to provide most of the post-acute
services and specialized services.
The routine medical post-surgical
services were easily added on to a skilled nursing facility with the
addition of specialized staffing, however with greater clinical expertise,
specialized programs such as ventilator, dialysis, telemetry, intravenous
medications, rehabilitation, head injury and spinal cord rehabilitation,
TPN therapy was incorporated into these skilled nursing facility licenses.
These skilled nursing facilities competed directly with the rehabilitation
hospitals, and during the early and mid 1990's became the most prominent
rehabilitation venue for post-acute settings.
In the mid 1990's, Medicare was
being strained through the volume of patients utilizing their part A
services. Congress established and enacted the Balanced Budget Act in 1995
directing for cost containment with a budget limit in July of 1998.
Capitation and Medicare HMO's were options that healthcare providers could
choose to manage Medicare dollars more effectively. This form of
management was termed capitation where care planning and cost containment
drove the healthcare resource models.
In 1998, the skilled nursing
facility which were at the time the fastest growing with the highest
revenue profits faced a changing reimbursement system in the form of RUG.
This model was developed dating back to the 1970's where healthcare
professionals monitored direct nursing times as well as therapy times for
services being provided within various resident characteristics. At the
time of implementation, this model seemed to hold the highest level of
validity for these services.
Unfortunately, there were many
undocumented and untracked resources that were being provided that were
not taken into account in the development of this reimbursement model. As
a result of this implementation, almost all of the for-profit had
undergone bankruptcy within a couple of years. The smaller non- profit
entities are functioning, only being able to provide minimal medical
services and rehabilitation services for their individual residents.
Additional changes have also
occurred in the rehabilitation hospital system. Instead of utilizing a
cost-based model, a reimbursement model based on functional outcome was
incorporated. Unfortunately, the model based on FIM measures has not
solved the problem of cost containment as well as identifying the
appropriate length of stay for service or services that are required for
each patient characteristic. The rehabilitation model does offer a new
tool, the FIM, which could be incorporated into other reimbursements
models as a definer of functional outcome and intensity of rehabilitation
staff that is needed.
With the restructuring of the
post-acute reimbursement systems in the skilled nursing facilities and the
rehabilitation hospitals, the long-term care hospitals were presented with
an opportunity to evaluate the patient characteristics and costs as they
relate to managing for the more chronic or long-term medically complex
patient. Unfortunately, as in all aspects of life given an opportunity
under a new 'license, this has created a significant growth in long-term
care hospital licenses as a substitution for the skilled nursing facility
licenses that were placed within freestanding hospitals.
The long-term care hospital
reimbursement is very lucrative if one is able to manage the length of
stay of greater than 25 days with appropriate diagnosis. Unfortunately in
the early 1990's, an attempt was made to have a DRG-based system of
reimbursement for long-term care hospitals, however the model was not
successful at that time.
The long-term care hospitals have
presented a case that they have daily physician visits which occurs in all
other post-acute settings, their nursing staffing acuity is at a much
higher level of 7.5 hours per patient day, and they have greater costs
related to specialized equipment and laboratory uses for monitoring the
patient's medical status. The long-term care hospitals as well as the
specialized skilled nursing facility units are essentially identical in
providing the care for the complex patient characteristics.
Unfortunately, the patients that are
leaving the acute care hospitals do not have specific defining
characteristics that allow placement of that patient to the most cost
efficient center. The additional problem of long-term care hospital is
that the reimbursement remains the same as the patient improves, however
as they transition to a level of medical stability or outcome, they do not
have a method of analyzing the service predictors for that level of care.
To summarize, the healthcare system
prior to DRG's operated such that medical stability for all medical
problems including rehabilitation and psychiatric were managed to the
point of transitioning home in the acute care hospital setting. The
skilled nursing facility was utilized more as a retirement assisted-living
center, and long-term care hospital setting was for specialized needs
within different regions for patients who had very poor prognosis but were
medically complex and could not be handled long term in a higher cost
environment as the acute care hospital.
The transition in 1983 with the
implementation of DRG's would have been an excellent time to establish a
standardized post-acute reimbursement model based on diagnosis.
Unfortunately, the post-acute market became more of a boutique entity with
various reimbursement models that over time have been learned and
maximized to the benefit of the provider. Although we have reengineered to
a degree, the post-acute license reimbursements, the goal of the unified
post-acute reimbursement system is still distant.
I had been the clinical medical
director of a for-profit entity in rehabilitation, skilled nursing
facilities, subacute units, long-term care hospitals, outpatient therapy
centers, respiratory therapy services and home health. I have been with
many companies at a corporate level and was able to learn and maximize the
reimbursement system based on the patients that were serviced within each
During the capitation, this was my
easiest challenge to provide resources that served the patient's needs and
maintained a viable outcome in a short length of stay for the physician
groups that undertook the HMO model of Medicare and capitation. As these
challenges became more complex and shorter length of stays, less
reimbursement while ensuring outcomes, I reviewed the patient
characteristic services that were provided and found many similarities
that would yield to a post-acute reimbursement system.
My last medical director, chief
medical officer position in a healthcare entity was Olympus Healthcare
Corp. in 1994-1998. We had managed and owned 47 skilled nursing
facilities, 15 of which were under RUG in Maine. Additionally, we had
three long-term care hospitals in New England and one long-term care
hospital unit within a combined licensing health center. Additional
components to our organization were a pharmacy, a rehabilitation company,
a respiratory therapy company as well as developing a home health entity.
At Olympus, the clinical team and I
saw that although the licensing and reimbursement systems differed, the
patient characteristics were homogeneous and for the majority of the
patients any setting in an inpatient post-acute license would be suitable
for that patient. The same characteristics and admission criteria provided
for various lengths of stays within the same outcomes.
The determining factor of lengths of
stays was the reimbursement models of capitation versus the traditional
Medicare reimbursement in skilled nursing facility or in long-term care
hospital. Those patients who were under capitation, consistently showed
greater than a 50% reduction in their length of stay without compromising
outcomes. It became obvious that physician practice could be modified to
achieve the same outcome in a shorter length of stay.
Anticipating significant growth and
adjustment, the goal of Olympus was to develop a predictive model of care
that would provide a care map for all the post-acute diagnoses which were
approximately 242 of the possible 495 DRG's. The goal was to keep it
simple, unified and not specific to one reimbursement system. The
financial model was provided in parallel to the clinical model. Costs
were monitored on direct and indirect basis to ensure that appropriate
real-time analysis could be done for our organization. Nursing staff was
monitored on a daily basis as well as units of rehabilitation therapy with
pharmaceutical cost based on unit cost and pharmaceutical durable medical
Outcomes were continually being
monitored for functional mobility transfers, self-care needs,
bowel/bladder, grooming as well as nutrition and communication. Primarily
these are all functional benchmarks that are incorporated in the FIM
model. Additionally, to ensure medical stability for the outcome, wounds,
respiratory status, psychological needs, education, clinical stability and
nutrition were monitored to ensure that upon discharge the goals were met
according to state and federal standards that were implemented in the
acute care setting.
The goal of these outcome measures
were to be consistent from the acute care hospital such that tracking
could be accurate as well as sustained should they require home health
services or outpatient services upon discharge from the inpatient setting.
This tracking of indicators that start from the acute care hospital to the
post-acute inpatient setting into home health give the best clinical
information of stability, progress and outcomes.
This consistent tracking of common
outcome measures should also be incorporated in a reimbursement model for
healthcare in a way to avoid under representing the abilities of the
patient in the transitions and then overemphasizing their progress to get
the greatest change needed in order to obtain the reimbursement for the
services that were provided in that setting.
The post-acute market for healthcare
delivery was identified within our analysis to four levels of nursing
staffing intensity. These staffing intensity levels were less than or
equal to three hours per patient day, 3.1-4.75 hours per patient day for
the second level, 4.76- 6.50 hours per patient day for the third highest
level and finally 6.51-10 hours per patient day for the highest level of
intensity. By categorizing these four intensity levels, we were able to
predict the cost of nursing staffing for this type of patient
In regards to rehabilitation therapy
services and physical occupational speech and respiratory services, it was
felt that the cost of these services was fairly equivalent with minimal
variations. It was also felt that outside of respiratory services the
traditional rehabilitation services can be divided into four categories,
those being 0.5 hours per day for the lowest level, 1.5 hours for the
medium level, 2.5 hours for the higher level and 3.5 hours for the highest
level. The highest level would be the severe strokes, head injury and
spinal cord injury patients that would require the three-level services.
At the present time, the RUG system
does not define the number and type of services based on ICD-9 coding
which would be more representative of the therapy needs of that patient's
Having identified the nursing
intensity level as well as the therapy level based on the ICD-9 code or
DRG code, this combination would have a cost-basis that would be
consistent as form of direct costs of therapy and nursing during that
patient's stay. As the patient's status improved through functional
improvement based on FIM, then both the nursing and therapy levels can be
decreased for a more appropriate reimbursement payment system.
One of the greatest difficulties in
post-acute DRG modeling is that the co-morbidities are not factored in
these DRG's. Significant co-morbidities of dementia or FIM scores less
than 85 are quite detrimental to the patient's progress and require
greater needs and intensity of services in spite of the ICD-9 or DRG code.
These aspects of dementia, incontinence, previous immobility in a
wheelchair or FIM less than 85 contribute greatly to the ancillary costs
as well as the durable medical equipment and lack of progress in
functional physical recovery measures.
To summarize a very complex problem
of co-morbidities and how they affected cost and length of stay, we found
that there are three levels of co-morbidities and variances that add to
these weights. The first DRG post-acute leveling would be a clean
ICD-9 without any co-morbidity or variance. The second level, which would
have significant co- morbidities defined on respiratory, cardiac, renal or
mobility, would have a factor of 20% increase in the length of stay and
The third level, or the highest
degree of complexity of co-morbidities, would have cognitive deficits
either preexisting or related to a new disease process, a preexisting
functional FIM score of less than 85 and other more severe medical
conditions that would add a 35% cost to the DRG reimbursement.
Additional weight was added by ancillary cost of medication and durable
medical equipment. Medication, as we owned a pharmacy, we were able
determine what the true average wholesale price was and made a slight
adjustment of 20% increase for processing and handling to ensure that our
costs had been covered without any losses.
To summarize a DRG system and
post-acute would be based on an ICD-9 primary diagnosis with secondary
diagnosis to be coded as they affect co-morbidities and then the third
level would be the variances or complications that occurred during
hospitalization to add an added weight to the primary DRG reimbursement
model. The ancillary cost of medications or pharmaceuticals and durable
medical equipment can be identified by their wholesale price with a 20%
adjustment based on physician and therapy recommendations.
It was important to our system that
we do not interfere with physician practice management of medications
other than to provide a more cost effective formula from which they were
able to choose a similar medication. Curiously enough, those physicians in
the model of capitation almost exclusively used all the formulary
medications without any overriding of the substitution by the formulary.
The Progressive Care Path that we had developed at Olympus Healthcare was
both a clinical mapping tool, a resource-tracking tool, a functional
measure progression tracking tool as well as a learning tool. We
identified eight areas of clinical monitoring and performance. Five of
these eight categories were consistent for all medical rehab DRG paths.
The first two were FIM-based based on self-care activities of daily living
and the second mobility as they correlated with this rehabilitation
functional measure tool.
The third was complication list,
which would be a common co-morbidity to the diagnosis or post-surgical
procedure. We had reviewed all of the medical literature including
Harrison's Internal Medicine and other resources that helped identify the
four to five most common complications for each of the diagnoses. The
fourth category was a psychosocial to identify family and patient's goals,
psychiatric needs and post-inpatient stay aftercare needs. The fifth
category that was common to all of the paths was education of the patient
and family of safety complications, medications, supplies and assistive
devices that were provided by staff.
This left us with three variables
that would be more specific to the DRG diagnosis. These were identified
as their primary concern based on the condition which would have included
skin integrity or wound management, pain, cardiac rehabilitation,
pulmonary rehabilitation, nutritional needs or bowel or bladder
restoration which again utilized the rehabilitation tool, FIM. Additional
tracking was done on medical stability indicators which included
laboratory tests X-Rays, vital signs and cardiac and respiratory vital
signs and measures.
Therapy services were leveled or
chosen of their intensity by the diagnoses. The FIM scores indicate the
level of function. For those patients that were severely impaired and
required total or maximal assistance in their activities of daily living,
the goal is to progress them to a functional ability of minimal assist.
This improvement of function allows therapy services to be adjusted
accordingly; whereas, with maximal assistance more services and with
minimal assistance less intense therapy service.
The endpoints of in-patient stay
were determined by functional ability of medical stability. When a
patient reached a level of minimal assist and had the availability of a
24-hour caregiver who was capable, this was the marker of outcome for
discharge. However, when a patient was without the availability of a
24-hour caretaker who could provide for assistance, then the level of
standby assistance with determinants of 150 feet with safety and some form
of continence of bowel or bladder were the benchmarks for the transition
to an out-patient setting.
Reviewing the literature, we found
that the skilled nursing facilities and rehabilitation hospitals had very
similar outcomes. In fact, the skilled nursing facilities or
units were much more cost effective than the rehabilitation hospitals.
The rehabilitation hospitals showed better clinical outcomes in bowel and
bladder management as well as swallowing for people with dysphasia.
Otherwise, the skilled nursing facilities were superior in their clinical
effectiveness and efficiencies when measured in the mid-1990's.
The optimal resource containment was
maintained by capitation systems, which showed similar outcomes in a very
short duration of length of stays while maintaining medical stability. In
capitation, physicians either made rounds daily or at least twice a day
and were allowed to discharge late in the evenings, which allowed for a
reduction of at least one-day length of stay.
In conjunction to the progressive
care path system, there was a quality monitoring system based on clinical
indicators. These clinical indicators were established based on the type
of setting whether it was chronic or long-term care hospital versus a
skilled nursing facility or a rehabilitation model. The state survey
process, the joint commission accreditation process as well as the
commission on accreditation of rehab facilities, indicators were utilized
within an indicator system. Literature was reviewed to establish national
statistics on incidents of certain outliers. These were used as thresholds
not to be exceeded by our own internal institutions.
This quality monitoring system can
be simplified to a post-acute system incorporating the entire medical,
surgical and rehabilitation measures of medical stability and quality
during the inpatient stay.
same indicators that were used to track the inpatient stays in the
hospital and the post-acute system can be translated into home health
system such that universal base of clinical indicators could be placed for
the duration of the DRG for each patient characteristic. In the future,
this tracking mechanism of keeping common indicators is much more viable
in data collection and review in order to provide efficiencies and
clinical effectiveness when streamlining the DRG timeline.
Should you have
any further questions regarding this article, please direct your questions
or comments to "Ask
the Doctor" section.
Copyright © 2004 - 2012Taras V.
Kochno, M.D. All Rights Reserved
Board Certified in
Physical Medicine and Rehabilitation