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Reducing the Need to Hospitalize Nursing Home Residents

It may not come as a surprise that long-stay nursing homes residents are frequently hospitalized for various illnesses and complications from chronic conditions. What you may not know, however, is that many of these hospitalizations, together with their associated costs, are entirely avoidable. Often the problem is a lack of resources in nursing facilities—on-site pharmacies, radiology, well-trained staff. But also at play are conflicting financial incentives between Medicaid, the main payer of nursing homes, and Medicare, the major payer of hospital services. In 2005, researchers at the New York State Department of Health (Nancy Barhydt, Principal Investigator) and Harvard Medical School teamed up to begin developing a new method for paying nursing homes that encourages facilities to improve the quality of care they provide to residents and reduce the need for hospital stays. We talked to David Grabowski, Ph.D., associate professor in Harvard's Department of Health Care Policy, about resident hospitalizations and their costs, as well as the prospects for a change in payment policy.

So how often are nursing home residents hospitalized?
David Grabowski: In 1999, 24 percent of all long-stay [more than 120 days] residents were hospitalized. By 2003, this rate had increased to 29 percent. However, the goal is not to eliminate all hospitalizations—after all, this is a chronically ill population and some hospitalization is to be expected. Thus, we also examined hospitalizations for ambulatory care sensitive conditions [ACSCs], which are conditions such as pneumonia or kidney/urinary tract infections that potentially could have been prevented or treated in the nursing home. In 1999, 10 percent of the long-stay population was hospitalized for one of these conditions. By 2003, this rate had grown to 11.5 percent.

Why so many hospitalizations?
Grabowski: Payment incentives create an inherent tension between Medicaid, the dominant payer of chronic nursing home services for the elderly, and Medicare, the dominant payer of hospital services, regarding the subsidy of acute care provided in the nursing home setting. Nursing homes that invest in the staff and clinical resources necessary to reduce the likelihood of hospitalization predominantly generate savings for Medicare, while Medicaid often must pay for the increased cost of care in the nursing home.

But what accounts for the growth in hospitalizations since 1999?
Grabowski: There are a number of potential reasons for this growth. First, because there are now many more community alternatives to nursing homes, the typical nursing home resident is sicker than five years ago. Another explanation is the ongoing nursing workforce shortage. Additionally, we have seen a growth in litigation over the past decade: from a liability perspective, it is safer for nursing homes to send residents to the hospital rather than care for them on site. And finally, although Medicaid nursing home payment rates have generally increased over the period in question, there is the possibility that nursing home cost growth has outpaced the growth in payment rates, leaving nursing homes without the resources to care for an increasingly sicker population. This may be especially relevant in the context of recent cuts to Medicare post-acute nursing home payment rates, which have been found to cross-subsidize the care of long-stay nursing home residents.

What are the costs of nursing home hospitalizations?
Grabowski: The costs are really quite staggering. In 1999, the aggregate cost in New York State of nursing home hospitalizations was $752 million, in 2004 dollars; this increased to $972 million by 2004. For ACSCs, hospitalization costs increased from $209 million in 1999 to $224 million in 2004. This represents a 29 percent increase in total costs, and a 7 percent increase in ACSC costs. In 2004, for ACSCs, $188 million was paid for by Medicare; $26 million by Medicaid, and $9 million fell into the "other" category. Given these figures, we believe there is the potential for substantial savings.

When you looked at hospitalization rates across New York, what kind of variations did you find?
Grabowski: We split the state into 8 hospital service areas and looked at the overall hospitalization rates over the period 1999 through 2003. The highest hospitalization rate was for the Nassau/Suffolk County area [a suburb of New York City], at 29 percent. The second highest rate was New York City at 28 percent. The New York/Pennsylvania border area had the lowest hospitalization rate at 11 percent—it's a bit of an outlier. The second-lowest was the Finger Lakes area [in upstate New York], at 20 percent. So there's quite a bit of variation.

What other findings have come out of your study?
Grabowski: One thing I think is really fascinating is the clustering of expenditures within particular health conditions. Focusing on ACSC costs, pneumonia ranked as the number-one condition over the period 1999 through 2004. There were 40,580 hospitalizations in New York State related to pneumonia, accounting for almost $457 million in spending. That's 37 percent of total spending on hospitalizations for ACSCs. The five top ACSCs—pneumonia, kidney and urinary tract infections, congestive heart failure, dehydration, and chronic obstructive pulmonary disease—account for 85 percent of total ACSC costs. The high concentration of expenditures in relatively few conditions suggests prevention and treatment interventions targeting these particular conditions within the nursing home setting could be particularly fruitful.

New York State has very detailed data on hospitalization—the Statewide Planning and Research Cooperative System (SPARCS). How did access to this data enrich the study?
Grabowski: Our study is a partnership with the New York State Department of Health. Through this relationship, we were able to link the SPARCS data with the nursing home minimum data set. This is the first time that these two datasets have been linked for the purposes of studying this issue. It gave us rich data on the nursing home experience but also incredibly detailed data on the hospitalization side. We spent significant effort linking the data sets and determining where every nursing home resident in New York State was on any given day between 1998 and 2004. It was a painstaking process, but it really resulted in an ideal database for studying this issue.

You're in the process of designing a new provider payment model that would reward nursing homes for better management of at-risk or acutely ill patients. How would such a model work?
Grabowski: That's still an open question. It could potentially involve a pay-for-performance type mechanism. Obviously, you don't want to simply reward nursing homes for decreasing hospitalizations without also maintaining other measures of quality—or you could create perverse incentives. Thus, one potential payment option would be to offer payment incentives to nursing homes that both decrease potentially avoidable hospitalizations and also maintain high quality of care.

Is it realistic to think that the Centers for Medicare and Medicaid Services would modify its method for paying nursing homes based on this project's findings?

Grabowski: CMS is currently embarking on a pay-for-performance demonstration—separate from anything ongoing in New York. They're trying a similar model to reward nursing homes for decreasing hospitalizations, among other quality indicators. So, there is definitely interest in this issue at CMS.

How would New York and other states benefit from nursing home payment reform?

Grabowski: First, the quality of care within the nursing home population would be greatly improved. Hospitalizations put nursing home residents at risk for iatrogenic disease and delirium. Second, Medicare could realize savings that could be shared back with the state. One of our hopes is that any payment reforms in New York would be a potential model for other states.

March 2007