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 8 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 10 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 11 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 12 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 13 200 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 14 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 15 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 16 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