Trends across institutional settings
in cost and service intensity for
Medicare SNF care
1997 – 2003
Kathleen Dalton, PhD , RTI International
Co-authors
Jeongyoung Park, doctoral candidate, University of North Carolina School of Public Health
Rebecca T. Slifkin, PhD, University of North Carolina, Cecil G. Sheps Center for Health Services
Research
Funded through the federal Office or Rural Health Policy, under cooperative agreement with the
N.C. Rural Health Research and Policy Analysis Center.
Working Paper available at:
www.shepscenter.unc.edu/research_programs/rural_program
Study Objective

To examine changes in average costs and
intensity of services, before and after Medicare
SNF Prospective Payment (PPS), across each of
three institutional settings
Part of larger funded study of rural hospital
participation in SNF care
 Part of author’s ongoing investigations of
institutional responses to Medicare payment

June 26, 2006
Academy Health Annual Research
Meeting
2
Background

Medicare payments for inpatient skilled nursing
payable to:

Freestanding facilities
(about 13,000)

Hospital-based units (distinct, certified)
(about 1,500)

“Swing-beds” – routine acute-care beds in qualifying
rural hospitals
(about 1,000)
June 26, 2006
Academy Health Annual Research
Meeting
3
SNF services not
necessarily similar across settings
Freestanding
2002
Admissions
(2.2 mill)
76%
Covered
Days
(54.6 mill)
Average
Length of
Stay
87%
28.3 days
Hospital-based
19%
11%
14.1 days
Swing-beds
6%
2%
8.9 days
Source: CMS Statistical Supplement, 2004.
June 26, 2006
Academy Health Annual Research
Meeting
4
Payment systems



Freestanding and HB units: began phase-in to
SNF PPS rates payments in July 1998.
Swing-beds started SNF-PPS in 2003.
Swing beds in Critical Access Hospitals exempt
from PPS
Ancillary services continue as cost-based
 Routine care had been under a fixed per-diem but
became cost-based in 2002 (same rates as acute
routine)

June 26, 2006
Academy Health Annual Research
Meeting
5
Presumption:
Hoped-for responses to transition from
cost-based to prospective payment:




Reduce unneeded services (improved care
efficiency)
Reduce unit costs per service delivered
(improved production efficiency)
Eliminate inefficient providers (mergers,
acquisitions or closures)
Retain / attract new efficient providers
June 26, 2006
Academy Health Annual Research
Meeting
6
Post-PPS changes in number of certified
skilled nursing facilities
Hospital-based: urban
Freestanding:
rural
-20%
urban
+4%
rural
All
June 26, 2006
Percent change
1997 to 2004
-43%
+11%
+6%
Academy Health Annual Research
Meeting
7
Study Design


Descriptive
Population:


all SNFs filing Medicare cost reports 1996-2003
Outcomes:
Medicare costs, payments and margins
 Per diem costs:

Therapy
 Non-therapy ancillary services
 Routine nursing

June 26, 2006
Academy Health Annual Research
Meeting
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Costs and Payments under SNF-PPS:
FREESTANDING FACILITIES
Non-profit
0
250
500
For-profit
1998
2000
2002
2004
0
250
500
Public
1998
2000
2002
SNFPPS cost per day
June 26, 2006
2004
SNFPPS payment per day
Academy Health Annual Research
Meeting
9
Costs and Payments under SNF-PPS:
HOSPITAL-BASED UNITS
For-profit
0
250
500
Non-profit
1998
2000
2002
2004
0
250
500
Public
1998
2000
2002
SNFPPS cost per day
June 26, 2006
2004
SNFPPS payment per day
Academy Health Annual Research
Meeting
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PPS responses:
Change in median ancillary costs per day
2.00
swing
index
1.50
hospital-based
1.00
freestanding
0.50
0.00
1997
1998
1999
Pt A&B
June 26, 2006
2000
2001
2002
2003
Pt A only
Academy Health Annual Research
Meeting
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19
97
19
98
19
99
20
00
20
01
20
02
20
03
0
50
100
150
0
150
June 26, 2006
50
100
150
unadjusted cost per day
100
Freestanding
19
97
19
98
19
99
20
00
20
01
20
02
20
03
19
97
19
98
19
99
20
00
20
01
20
02
20
03
0
50
Median Part A rehab therapy costs per day
Hospital-Based
Swing-bed
Academy Health Annual Research
Meeting
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50
100
Hospital-Based
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
01
20
02
20
03
0
150
19
97
19
98
19
99
20
00
0
50
100
unadjusted cost per day
Freestanding
150
150
Median Part A non-therapy ancillary costs per day
June 26, 2006
20
01
20
02
20
03
19
97
19
98
19
99
20
00
0
50
100
Swing-bed
Academy Health Annual Research
Meeting
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200
Hospital-based
19
97
19
98
19
99
20
00
20
01
20
02
20
03
0
400
19
97
19
98
19
99
20
00
20
01
20
02
20
03
0
200
unadjusted cost per day
Freestanding
400
400
Median Part A routine costs per day
200
Swing-bed
(carve-out rates only)
19
97
19
98
19
99
20
00
20
01
20
02
20
03
0
Text text text
June 26, 2006
Academy Health Annual Research
Meeting
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What is going on?

Freestandings:
Immediate reduction in over-used services
 Control of unit costs elsewhere (reduction in real
dollars)
 Healthy PPS surplus


Hospital-based:
Immediate market exit (mostly urban), but
 No apparent cost control among remaining
providers
 SNF-PPS losses = business as usual

June 26, 2006
Academy Health Annual Research
Meeting
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
Swing-beds
Still the setting with shortest stays, but no longer
least intensive
 Increase in services could reflect change in patients


Absorbing demand from closed HB units? Maybe
Needs a detailed study from SNF claims and MDS
data
 Costs could decline in future years with PPS
implementation


June 26, 2006
Watch for trends in PPS vs. CAH swing
Academy Health Annual Research
Meeting
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Surprisingly unrelated to type of
ownership

In freestanding settings


Immediate reduction in rehab services in for-profit
and non-profit institutions
In hospital-based settings
Closure was associated with for-profit status and
higher cost, higher Medicare utilization
 But continued operations with severe SNF-PPS
losses still common in profit and non-profit; also in
metro and micropolitan areas

June 26, 2006
Academy Health Annual Research
Meeting
17
Measurement limitations?
“accounting costs” ≠ “true costs”

Routine cost per-diems are systematically
understated due to averaging of skilled with
unskilled patients in “dual” units. But…


Overstates profit in freestanding – HB units have
fewer unskilled days
Hospital-based per diems include more fixed
overhead costs. But…
Explains only part of the difference
 HB units truly have more and better paid nurses

June 26, 2006
Academy Health Annual Research
Meeting
18
Question: what is the business objective
of a hospital-based SNF?

Meeting clinical demand for services at more complex
end of SNF care spectrum


Discharge management for DRG patients?


If so, unclear why SNFPPS case-mix adjustment doesn’t
adjust for this
Accepted wisdom, but not borne out by length-of-stay
differences
Put unused beds & space to “productive” use?

(Well, not too productive given these losses…)
June 26, 2006
Academy Health Annual Research
Meeting
19
Interpreting apparently nonrational responses

Some of it explainable by accounting artifact?


In aggregate, do we know if marginal income from
SNF services is greater than marginal costs?
Turning to organization theory to generate
alternative explanations/ models of strategic
response
June 26, 2006
Academy Health Annual Research
Meeting
20