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Nursing Homes, Home Health Care Could Take a Hit in Budget Talks

By Emily Ethridge, CQ Roll Call

Editor’s Note: This is one in a series of reports on cuts in entitlements and other mandatory programs that budget negotiators might consider as potential common ground.

November 12, 2013 -- Post-acute care providers, including nursing homes, may find themselves a target of changed or reduced Medicare payments as lawmakers look to find savings and change their incentives to provide better-coordinated care.

Lawmakers of both parties have said the post-acute care system, which includes nursing homes and home health care, is in need of an overhaul. The Medicare Payment Advisory Commission (MedPAC) says the current system involves highly varied payment rates, high rates of fraud and incentives that discourage providers from taking the most medically complex patients.

During a House Ways and Means Health Subcommittee hearing in June, panel Chairman Kevin Brady, R-Texas, said the system “is in drastic need of reform.” Ranking Democrat Jim McDermott, R-Wash., agreed that it would be a good area in which to create savings through payment changes.

“Double-digit Medicare margins in several post-acute settings indicate that Medicare payments far exceed costs,” McDermott said.

Currently, Medicare payment rates vary for the care that beneficiaries can receive following a hospital stay in the four post-acute care settings: home health agencies; nursing homes, also known as skilled nursing facilities; inpatient rehabilitation facilities; and long-term care hospitals.

MedPAC, an independent body that advises Congress on Medicare policy, has recommended creating a unified assessment instrument for getting information on patients, regardless of what type of facility they are in. Currently, different facilities have different ways of determining patients’ conditions, so payments and outcomes can’t be compared across settings.

During budget negotiations in 2010 and 2011, lawmakers proposed reducing payments or increasing beneficiaries’ copayments for post-acute care services, to the tune of saving $50 billion over 10 years.

More recently, President Barack Obama in his fiscal 2014 budget proposal suggested five different payment policy changes for post-acute care services.

First, he called for reducing Medicare’s “market basket” payment updates for home health agencies, skilled nursing facilities, inpatient rehabilitation facilities and long-term care hospitals. The Congressional Budget Office (CBO) found his proposal to reduce annual updates by 1.1 percent beginning in 2014 through 2023 would save $43.6 billion over 10 years.

Obama’s budget also called for creating site-neutral payments between inpatient rehabilitation facilities and skilled nursing facilities for some procedures. Experts say many services provided in skilled nursing facilities could be provided at inpatient rehabilitation facilities at equal quality but for less cost. The CBO estimated that would save $1.3 billion over 10 years.

Third, Obama proposed modifying the criteria required for a facility to qualify as an inpatient rehabilitation facility, which the CBO found would save $1 billion over 10 years.

The president’s budget plan also proposed creating a penalty program for skilled nursing facilities if too many beneficiaries with certain conditions are readmitted to the hospital after receiving care at a skilled nursing facility. The CBO said it would save $1.3 billion over 10 years.

Finally, the president’s budget would create bundled payments for post-acute care services, saving $5.5 billion over 10 years, according to the CBO. MedPAC has suggested bundling the reimbursement for a number of services into one payment, so that providers have an incentive to coordinate care and provide only clinically necessary services.

The Centers for Medicare and Medicaid Services is currently implementing two bundled payment models that focus on changing payments for post-acute care services.

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