Medicare's Prospective Payment System Research Articles

Preventable Hospital-Acquired Conditions

The changes to the Centers for Medicare & Medicaid Services (CMS) Inpatient Prospective Payment System published in the Federal Register (, Vol. 72, No. 162) on August 22, 2007, introduced the term preventable "hospital-acquired conditions" (HACs). These printed rules and regulations came about through a provision in the Deficit Reduction Act of 2005 (Pub. No. 109-171) and required the Secretary of the Department of Health and Human Services to track and report on conditions considered to be high cost, high volume (or both); assigned a higher paying "diagnosis related group" (DRG) when present as a secondary diagnosis; and were thought to be reasonably preventable when evidence-based guidelines were employed. In order to comply with this mandate, the CMS, a federal agency within Health and Human Services, was assigned the task of choosing "preventable" HACs, also referred to as "serious preventable events," for which reporting and tracking would be conducted; with the added opportunity of reporting and tracking data regarding a patient's "present on admission" condition. These preventable HACs become of particular interest to hospitals on October 1, 2008. That is the day CMS begins freeing itself from paying hospitals for the targeted preventable HACs that afflict Medicare patients during their hospital stay and which were not present at the time of the patients' admission to the hospital. It is a form of pay-for-performance.

From the Emergency Department to the General Hospital: Hospital Ownership and Market Factors in the Admission of the Seriously Mentally Ill

General hospitals are becoming the safety net provider for the seriously mentally ill (SMI) in the United States, but these patients are faced with a number of potential barriers when accessing these hospitals. Hospital ownership and market forces are two potential organizational and healthcare system barriers that may affect the SMI patient's access, because the psychiatric and medical services they need are unprofitable services. This study examines the relationship among hospital ownership, market forces, and admission of the SMI patient from the emergency department into the general hospital. This was a cross-sectional study of a large sample of SMI patients from the 2002 State Inpatient Datasets for five states. Multiple logistic regression was applied in the multivariable analysis. After controlling for patient, hospital, and county covariates and when compared with not-for-profit hospitals, public hospitals were more likely to admit while investor-owned hospitals were less likely to admit SMI patients. Hospitals in competitive markets were less likely to admit while hospitals with capitation revenues were slightly less likely to admit these patients. Policy options that can address this "market failure" include strengthening the public psychiatric inpatient care system, making private health insurance coverage of the SMI more equitable, revising Medicare prospective payment system to better reimburse the treatment of the SMI, and allowing not-for-profit hospitals to count care of the SMI as a community benefit. Results of this study will be useful to healthcare managers searching for ways to reduce unnecessary administrative costs while continuing to maintain the level of administrative activities required for the provision of safe, effective, and high-quality care.

New Medicare Payment Rules

In Brief On October 1 the Centers for Medicare and Medicaid Services (CMS) will eliminate additional Medicare payments for eight preventable hospital-acquired conditions. The new payment rule, known as CMS–1533–FC, is part of a broad effort to refine Medicare's prospective-payment system and improve care quality, and it also gives nurses a tool with which to alter their economic relationship to hospitals. This article describes the new CMS rule, spells out its potential impact, and recommends how nurses can use the rule change to demonstrate their economic value to hospitals. Come October, Medicare will stop making additional payments for the treatment of eight preventable, hospital-acquired conditions. It's a chance for nurses to further demonstrate their economic value.

Restructuring in response to case mix reimbursement in nursing homes

Resident-based case mix reimbursement has become the dominant mechanism for publicly funded nursing home care. In 1998 skilled nursing facility reimbursement changed from cost-based to case mix adjusted payments under the Medicare Prospective Payment System for the costs of all skilled nursing facility care provided to Medicare recipients. In addition, as of 2004, 35 state Medicaid programs had implemented some form of case mix reimbursement. The purpose of the study is to determine if the implementation of Medicare and Medicaid case mix reimbursement increased the administrative burden on nursing homes, as evidenced by increased levels of nurses in administrative functions. The primary data for this study come from the Centers for Medicare and Medicaid Services Online Survey Certification and Reporting database from 1997 through 2004, a national nursing home database containing aggregated facility-level information, including staffing, organizational characteristics and resident conditions, on all Medicare/Medicaid certified nursing facilities in the country. We conducted multivariate regression analyses using a facility fixed-effects model to examine the effects of the implementation of Medicaid case mix reimbursement and Medicare Prospective Payment System on changes in the level of total administrative nurse staffing in nursing homes. Both Medicaid case mix reimbursement and Medicare Prospective Payment System increased the level of administrative nurse staffing, on average by 5.5% and 4.0% respectively. However, lack of evidence for a substitution effect suggests that any decline in direct care staffing after the introduction of case mix reimbursement is not attributable to a shift from clinical nursing resources to administrative functions. Our findings indicate that the administrative burden posed by case mix reimbursement has resource implications for all freestanding facilities. At the margin, the increased administrative burden imposed by case mix may become a factor influencing a range of decisions, including resident admission and staff hiring.

Has the Medicare Prospective Payment System Led to Increased Nursing Home Efficiency?

To assess the impact of recent Medicare prospective payment system (PPS) changes on efficiency in skilled nursing homes. Medicare Cost Reports (MCR), On-line Survey Certification and Reporting System (OSCAR), Area Resource Files (ARF), a Centers for Medicare and Medicaid Services (CMS) hospital wage index website, a Consumer Price Index (CPI) database, and a survey of state Medicaid reimbursement rates. The sample was 8,361 nursing homes in the Medicare Cost Report databases from the years 1997 to 2003. Data-envelopment analyses (DEA) calculated efficiency scores for three separate DEA models: unadjusted, acuity-adjusted, and acuity-and-quality-adjusted efficiency. The efficiency scores from these models were regressed on the Medicare PPS changes (the Balanced Budget Act [BBA], the Balanced Budget Refinement Act [BBRA] and the Benefits Improvement and Protection Act) and other organizational and market explanatory variables using a panel-data truncated regression. Mean values for all efficiency measures decreased over time, the acuity-quality-adjusted efficiency measures decreasing the most. All policy variables were significantly negatively related to all efficiency measures. Higher nurse staffing was negatively related to efficiency in all but the acuity-quality-adjusted model. Other explanatory variables varied in their relationships to the efficiency variables. The results suggest that the reimbursement policy changes had a significantly negative impact on efficiency. Higher nurse staffing contributed to lower efficiency only when efficiency was not adjusted for quality. Various organizational and market factors also played significant roles in all efficiency models.

Medicare Prospective Payment Before and After Implementation

This retrospective case study examined whether the Medicare Prospective Payment System affected the number of visits and physical performance among Medicare home health patients after total knee replacements. Post-Prospective Payment System significant results included fewer visits, less improvement in knee extension range of motion, and increased ambulation distances at discharge.

The Effect of Medicare's Prospective Payment System on Patient Satisfaction

To examine the impact of Medicare's Prospective Payment System (PPS) on patient satisfaction at four inpatient rehabilitation hospitals. Prospective study using a satisfaction survey to examine the effects of Medicare's PPS for rehabilitation hospitals. Surveys were conducted at four affiliated rehabilitation hospitals in the Midwest. Patient characteristics varied only slightly pre- to post-PPS, and several characteristics were related to overall satisfaction, including motor functional gain, discharge to home, and respondent (patient or proxy). A 12-point increase on a 12-item motor function scale resulted in 1.13 greater odds (95% CI: 1.04, 1.24) of reporting excellent satisfaction. Patient respondents were 1.27 times more likely (95% CI: 1.07, 1.50) than proxies to report excellent satisfaction, and patients discharged home were 1.65 times more likely (95% CI: 1.31, 2.07) to report excellent satisfaction than patients discharged elsewhere. We found an increase in observed satisfaction from 60.3 to 63.4% (P < 0.05) after PPS implementation, despite a decrease in motor FIM gain. Patient characteristics such as motor FIM gain, discharge status, and respondent type were significantly associated, although only slightly, with patient satisfaction in inpatient rehabilitation. Percentage of excellent satisfaction improved at these four facilities after PPS implementation, despite declines in motor FIM gain. The improvement may be the result of numerous ongoing quality-improvement initiatives directed at improving patient satisfaction at these facilities.

How Can We Ground the “Frequent Fliers”?

How Can We Ground the “Frequent Fliers”?

The Centers for Medicare and Medicaid Services' Nursing Home Case-Mix and Quality Demonstration

This paper presents the first comprehensive account of a major national demonstration designed to integrate skilled nursing facilities (SNF) prospective case-mix payment and quality of care. It describes the Centers for Medicare and Medicaid Services' Nursing Home Case-Mix and Quality (NHCMQ) Demonstration—the template for Medicare's SNF Prospective Payment System (PPS) implemented July 1998. The NHCMQ Demonstration provided the basis for one of the most significant changes in SNF reimbursement and quality monitoring policies to date. Prospective reimbursement policies created positive incentive for providers to admit Medicare residents under more equitable payment rates. However, controversy regarding unanticipated perverse provider incentives remains. The quality management system designed under the NHCMQ Demonstration is currently used in over 17,000 nursing homes. Furthermore, under the NHCMQ Demonstration, one standardized assessment tool—the MDS—was used to assess a resident's clinical condition, to monitor quality, and to calculate provider reimbursement. Experiences from the NHCMQ Demonstration and continued evaluation of the current national PPS, along with state systems, provide a rich information source regarding prospective, case-mix reimbursement, and provider incentives.

THE THERAPY THRESHOLD Within the Medicare Prospective Payment System

This mixed-methods study of therapists and therapy managers from home health agencies in northeastern Pennsylvania found that the therapy threshold does affect practice patterns, although not negatively. It does not consistently put therapists in an ethical dilemma and does not negatively impact qua

Impact of Medicare's Prospective Payment System on Hospitals, Skilled Nursing Facilities, and Home Health Agencies

The prospective payment system is one of many changes in reimbursement that has affected the delivery of health care. Originally developed for the payment of inpatient hospital services, it has become a major factor in how all health insurance is reimbursed. The policy implications extend beyond the Medicare program and affect the entire health care delivery system. Initially implemented in 1982 for payments to hospitals, prospective payment system was extended to payments for skilled nursing facility and home health agency services by the Balanced Budget Act of 1997. The intent of the Balanced Budget Act was to bring into balance the federal budget through reductions in spending. The decisions that providers have made to mitigate the impact are a function of ownership type, organizational mission, and current level of Medicare participation. This article summarizes the findings of several initial studies on the Balanced Budget Act's impact and discusses how changes in Medicare reimbursement policy have influenced the delivery of health care for the general public and for Medicare beneficiaries.

Long-Term Care Information Systems: An Overview of the Selection Process

Under the current Medicare Prospective Payment System method and the ever-changing managed care environment, the long-term care information system is vital to providing quality care and to surviving in business. system selection process should be an interdisciplinary effort involving all necessary stakeholders for the proposed system. The system selection process can be modeled following the Systems Developmental Life Cycle: identifying problems, opportunities, and objectives; determining information requirements; analyzing system needs; designing the recommended system; and developing and documenting software.

Cost-Benefit Analysis of Double Balloon Enteroscopy Compared to Other Diagnostic Modalities for Obscure Gastrointestinal Hemorrhage

Background: Double balloon enteroscopy (DBE) is a new technology that allows for non-surgical exploration in patients with obscure bleeding. We created a decision analysis to determine the cost-effectiveness of initial DBE compared to capsule endoscopy (CE), push enteroscopy, intraoperative enteroscopy, or angiography for the diagnosis and management of small bowel arteriovenous malformations (AVMs). Methods: We created a decision tree (TreeAge Pro 2005, TreeAge, MA) to compare costs and outcomes for patients with transfusion-dependent obscure occult bleeding. The base case was no treatment. Competing alternative strategies included push enteroscopy, intraoperative enteroscopy, CE followed by DBE if a lesion was detected, angiography, and DBE. DBE was initiated using the oral approach, followed by the rectal approach if no lesion was found. Patients with unsuccessful treatment were assumed to have ongoing transfusion requirements of 4 units/month. We calculated that there would be a spontaneous cessation rate for AVM-related hemorrhage of 22% per year. We assumed that the probability of detecting an AVM on CE would be 67% (Triester Am J Gastro 2005) with a probability of finding an AVM on DBE of 60%. Procedural costs were obtained from the 2005 American Medical Association CPT website. Cost of CE was estimated at $1120, DBE oral approach $282, and DBE rectal approach $790. Costs of inpatient hospital services were obtained by using the 2004 Medicare Prospective Payment System DRG. The time horizon of the model was 1 year. Results: Baseline analysis results are shown in the Table. Initial oral DBE approach was the most effective strategy with an average cost-effectiveness ratio of $6000 per patient successfully treated compared to no therapy. Threshold values on sensitivity analysis that would lead to capsule-directed DBE as the preferred approach included a probability of AVM on oral DBE <59%, probability of AVM after capsule >66%, and probability of AVM on CE >69%. Intraoperative enteroscopy was preferred if the probability of success on oral DBE <54%. No other changes in probabilities or costs altered the model results. Conclusions: For patients with obscure occult bleeding from small bowel AVMs, initial DBE is a cost-effective approach.

Patient Casemix Classification for Medicare Psychiatric Prospective Payment

For a proposed Medicare prospective payment system for inpatient psychiatric facility treatment, the authors developed a casemix classification to capture differences in patients' real daily resource use. Primary data on patient characteristics and daily time spent in various activities were collected in a survey of 696 patients from 40 inpatient psychiatric facilities. Survey data were combined with Medicare claims data to estimate intensity-adjusted daily cost. Classification and Regression Trees (CART) analysis of average daily routine and ancillary costs yielded several hierarchical classification groupings. Regression analysis was used to control for facility and day-of-stay effects in order to compare hierarchical models with models based on the recently proposed payment system of the Centers for Medicare & Medicaid Services. CART analysis identified a small set of patient characteristics strongly associated with higher daily costs, including age, psychiatric diagnosis, deficits in daily living activities, and detox or ECT use. A parsimonious, 16-group, fully interactive model that used five major DSM-IV categories and stratified by age, illness severity, deficits in daily living activities, dangerousness, and use of ECT explained 40% (out of a possible 76%) of daily cost variation not attributable to idiosyncratic daily changes within patients. A noninteractive model based on diagnosis-related groups, age, and medical comorbidity had explanatory power of only 32%. A regression model with 16 casemix groups restricted to using "appropriate" payment variables (i.e., those with clinical face validity and low administrative burden that are easily validated and provide proper care incentives) produced more efficient and equitable payments than did a noninteractive system based on diagnosis-related groups.

Patient Casemix Classification for Medicare Psychiatric Prospective Payment

For a proposed Medicare prospective payment system for inpatient psychiatric facility treatment, the authors developed a casemix classification to capture differences in patients' real daily resource use. Primary data on patient characteristics and daily time spent in various activities were collected in a survey of 696 patients from 40 inpatient psychiatric facilities. Survey data were combined with Medicare claims data to estimate intensity-adjusted daily cost. Classification and Regression Trees (CART) analysis of average daily routine and ancillary costs yielded several hierarchical classification groupings. Regression analysis was used to control for facility and day-of-stay effects in order to compare hierarchical models with models based on the recently proposed payment system of the Centers for Medicare & Medicaid Services. CART analysis identified a small set of patient characteristics strongly associated with higher daily costs, including age, psychiatric diagnosis, deficits in daily living activities, and detox or ECT use. A parsimonious, 16-group, fully interactive model that used five major DSM-IV categories and stratified by age, illness severity, deficits in daily living activities, dangerousness, and use of ECT explained 40% (out of a possible 76%) of daily cost variation not attributable to idiosyncratic daily changes within patients. A noninteractive model based on diagnosis-related groups, age, and medical comorbidity had explanatory power of only 32%. A regression model with 16 casemix groups restricted to using "appropriate" payment variables (i.e., those with clinical face validity and low administrative burden that are easily validated and provide proper care incentives) produced more efficient and equitable payments than did a noninteractive system based on diagnosis-related groups.

Medicare Prospective Payment and Quality of Care for Long-Stay Nursing Facility Residents

The Balanced Budget Act of 1997 dramatically changed the way that Medicare pays skilled nursing facilities and also cut per-diem rates. Previous studies have found effects on facility-wide staffing but not on quality for short-stay residents. Because facilities may combine revenue streams to be used where needed, spillover effects on quality of care for long-stay residents are possible. We sought to investigate effects of financial pressures from Medicare payment changes on quality of care for long-stay residents. We investigated the effect of Medicare's Prospective Payment System for skilled nursing facilities on incidence of urinary tract infections and pressure sores among long-stay residents while controlling for resident severity. We conducted panel data analysis of nursing home residents in Ohio, Kansas, Maine, Mississippi, and South Dakota using Minimum Data Set data from 1995 to 2000. Each facility's Medicare dependence was used to separate effects of the policy from underlying industry trends. The probability of developing a urinary tract infection or pressure sore increased significantly among long-stay residents after Medicare's prospective payment system was implemented. Effects were roughly proportional to the percent of residents in a facility covered by Medicare. Although Medicare prospective payment and rate cuts were directly applicable only to Medicare (largely short-stay) residents in skilled nursing facilities, the resulting financial pressures lowered the quality of care experienced by long-stay residents, as measured by the likelihood of adverse outcomes. The observed quality decreases were likely due to decreases in nurse staffing prompted by the payment reductions.

The Origins, Development, and Passage of Medicare's Revolutionary Prospective Payment System

This article explains the origins, development, and passage of the single most influential postwar innovation in medical financing: Medicare's prospective payment system (PPS). Inexorably rising medical inflation and deep economic deterioration forced policymakers in the late 1970s to pursue radical reform of Medicare to keep the program from insolvency. Congress and the Reagan administration eventually turned to the one alternative reimbursement system that analysts and academics had studied more than any other and had even tested with apparent success in New Jersey: prospective payment with diagnosis-related groups (DRGs). Rather than simply reimbursing hospitals whatever costs they charged to treat Medicare patients, the new model paid hospitals a predetermined, set rate based on the patient's diagnosis. The most significant change in health policy since Medicare and Medicaid's passage in 1965 went virtually unnoticed by the general public. Nevertheless, the change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry. Medicare's new prospective payment system with DRGs triggered a shift in the balance of political and economic power between the providers of medical care (hospitals and physicians) and those who paid for it--power that providers had successfully accumulated for more than half a century.

The Future Of Medicare Hospital Payment

The combination of health care cost growth exceeding general inflation and the swelling of beneficiary rolls with baby boomers will create fiscal pressure for Medicare. Despite dramatic declines in the growth of hospital costs following the introduction of Medicare's prospective payment system (PPS), the growth in Medicare hospital spending per beneficiary has been close to three times the overall rate of inflation since 2000. This paper examines issues related to Medicare's using its pricing policies to more aggressively pursue hospital cost containment. I discuss the need to calibrate payments to reflect expected necessary costs to reduce potential effects on beneficiaries' access, quality of care, or technological improvements.

Medicare's Prospective Payment System for Skilled Nursing Facilities: Effects on Staffing and Quality of Care

In 1998, Medicare began phasing in a new prospective payment system (PPS) for skilled nursing facilities (SNFs). This paper measures facility-level changes in nurse staffing and quality at freestanding SNFs from 1997 (pre-PPS) to 2001 (post-PPS). Findings show a positive but small association between changes in payment levels and changes in nurse staffing. Among for-profits, the elimination of cost reimbursement is associated with a large drop in nurse staffing. Additionally, the elimination of cost reimbursement is associated with worsening in one of four measures of quality of care; however, the quality results are not statistically robust.

The Clinician???s Role in Medicare Prospective Payment

Pamela Teenier, RN, BSN, MBA, CHCE, COS-C, is Director of Medicare Operations, Gentiva Health Services, Corpus Christi, TX. Correspondence: [email protected]. Editor’s Note:This is the fourth in a series of articles discussing focus areas clinicians need to know when providing care for patients in the Medicare Prospective Payment System (PPS). The first article was an overview of the basic elements of Medicare’s Prospective Payment System, PPS (August 2004). Next, the focus was evaluating case mix weight to determine if assessments were completed appropriately (November 2004). The third addressed utilization management, exploring how to monitor visits per episode to contain costs (April 2005). Case mix weight evaluation and utilization monitoring begin at the start of care and work throughout the episode. In this you are at the end of the episode when adjustments are processed. Five events can occur that will create an adjustment to the established episode reimbursement amount (August 2004). This article discusses ways to evaluate adjustments that are occurring and provides suggestions for reducing the amount of revenue lost.