What Explains the Slowdown in Postacute Care Spending?


Over the past decade, growth in Medicare spending per person has reached historical lows. This is true even for postacute care — like rehabilitation services provided in skilled nursing facilities or home health care — formerly one of the fastest growing areas of Medicare spending.

In a new issue brief, Laura Keohane and colleagues with the Vanderbilt University School of Medicine show how the modest increase in postacute care spending per beneficiary between 2007 and 2015 reflected dramatic changes in annual spending and care utilization growth rates. Take spending on skilled nursing care: after rising by 7.4 percent between 2008 and 2011, it fell by 2.8 percent between 2012 and 2015. Postacute care spending growth, however, slowed less among Medicare beneficiaries who had been hospitalized, suggesting these beneficiaries may continue to use costly postacute care at elevated rates.

Initial results show that Medicare policies like the hospital readmission penalty and value-based payment models have had success in reducing postacute care costs. With inpatient and postacute services together accounting for nearly half of Medicare spending, it will be essential, the authors say, to strike “a balance between incentives to reduce unnecessary use of services and adequately compensating providers for providing needed care.”

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