Trends across institutional settings in cost and service intensity for Medicare SNF care 1997 – 2003 Kathleen Dalton, PhD, RTI International Co-authors

Trends across institutional Trends across institutional settings in cost and settings in cost and service intensity for service intensity for Medicare SNF care Medicare SNF care

1997 – 20031997 – 2003Kathleen Dalton, PhD , RTI InternationalKathleen Dalton, PhD , RTI International

Co-authorsCo-authorsJeongyoung Park, doctoral candidate, University of North Carolina School Jeongyoung Park, doctoral candidate, University of North Carolina School of Public Healthof Public Health

Rebecca T. Slifkin, PhD, University of North Carolina, Cecil G. Sheps Rebecca T. Slifkin, PhD, University of North Carolina, Cecil G. Sheps Center for Health Services ResearchCenter for Health Services Research

Funded through the federal Office or Rural Health Policy, under Funded through the federal Office or Rural Health Policy, under cooperative agreement with the N.C. Rural Health Research and Policy cooperative agreement with the N.C. Rural Health Research and Policy Analysis Center. Analysis Center. Working Paper available at: Working Paper available at: www.shepscenter.unc.edu/research_programs/rural_programwww.shepscenter.unc.edu/research_programs/rural_program

June 26, 2006 2Academy Health Annual Research Meeting

Study ObjectiveStudy Objective

To examine changes in average costs To examine changes in average costs and intensity of services, before and and intensity of services, before and after Medicare SNF Prospective after Medicare SNF Prospective Payment (PPS), across each of three Payment (PPS), across each of three institutional settingsinstitutional settings

Part of larger funded study of rural hospital Part of larger funded study of rural hospital participation in SNF careparticipation in SNF care

Part of author’s ongoing investigations of Part of author’s ongoing investigations of institutional responses to Medicare payment institutional responses to Medicare payment


BackgroundBackground

Medicare payments for inpatient Medicare payments for inpatient skilled nursing payable to:skilled nursing payable to: Freestanding facilitiesFreestanding facilities

(about 13,000)(about 13,000) Hospital-based units (distinct, certified)Hospital-based units (distinct, certified)

(about 1,500)(about 1,500) ““Swing-beds” – routine acute-care beds Swing-beds” – routine acute-care beds

in qualifying rural hospitals in qualifying rural hospitals (about 1,000)(about 1,000)


SNF services not SNF services not necessarily similar across necessarily similar across

settingssettings20022002

AdmissioAdmissionsns

(2.2 mill)(2.2 mill)

Covered Covered DaysDays

(54.6 (54.6 mill)mill)

Average Average Length Length of Stayof Stay

FreestandinFreestandingg

76%76% 87%87% 28.3 28.3 daysdays

Hospital-Hospital-basedbased

19%19% 11%11% 14.1 14.1 daysdays

Swing-bedsSwing-beds 6%6% 2%2% 8.9 days8.9 daysSource: CMS Statistical Supplement, 2004.Source: CMS Statistical Supplement, 2004.


Payment systemsPayment systems Freestanding and HB units: began Freestanding and HB units: began

phase-in to SNF PPS rates payments in phase-in to SNF PPS rates payments in July 1998.July 1998.

Swing-beds started SNF-PPS in 2003.Swing-beds started SNF-PPS in 2003. Swing beds in Critical Access Hospitals Swing beds in Critical Access Hospitals

exempt from PPSexempt from PPS Ancillary services continue as cost-basedAncillary services continue as cost-based Routine care had been under a fixed per-Routine care had been under a fixed per-

diem but became cost-based in 2002 (same diem but became cost-based in 2002 (same rates as acute routine)rates as acute routine)


Presumption: Presumption: Hoped-for responses to Hoped-for responses to

transition from cost-based to transition from cost-based to prospective payment:prospective payment:

Reduce unneeded services (improved Reduce unneeded services (improved care efficiency)care efficiency)

Reduce unit costs per service delivered Reduce unit costs per service delivered (improved production efficiency) (improved production efficiency)

Eliminate inefficient providers Eliminate inefficient providers (mergers, acquisitions or closures)(mergers, acquisitions or closures)

Retain / attract new efficient providersRetain / attract new efficient providers


Post-PPS changes in number of Post-PPS changes in number of certified skilled nursing facilitiescertified skilled nursing facilities

Percent changePercent change

1997 to 20041997 to 2004

Hospital-based: urbanHospital-based: urban -43%-43%

ruralrural -20%-20%

Freestanding: urbanFreestanding: urban +4%+4%

ruralrural +11%+11%

AllAll +6%+6%


Study DesignStudy Design DescriptiveDescriptive Population:Population:

all SNFs filing Medicare cost reports all SNFs filing Medicare cost reports 1996-20031996-2003

Outcomes: Outcomes: Medicare costs, payments and marginsMedicare costs, payments and margins Per diem costs:Per diem costs:

TherapyTherapy Non-therapy ancillary servicesNon-therapy ancillary services Routine nursing Routine nursing


Costs and Payments under SNF-Costs and Payments under SNF-PPS:PPS:

02

50

50

00

25

05

00

1998 2000 2002 2004

1998 2000 2002 2004

For-profit Non-profit

Public

SNFPPS cost per day SNFPPS payment per day

dolla

rs p

er

day

FREESTANDING FACILITIES


Costs and Payments under SNF-Costs and Payments under SNF-PPS:PPS:

02

50

50

00

25

05

00

1998 2000 2002 2004

1998 2000 2002 2004

For-profit Non-profit

Public

SNFPPS cost per day SNFPPS payment per day

dolla

rs p

er

day

HOSPITAL-BASED UNITS


PPS responses: Change in median ancillary costs per day

0.00

0.50

1.00

1.50

2.00

1997 1998 1999 2000 2001 2002 2003

ind

ex

Pt A&B Pt A only

hospital-based

swing

freestanding


05

01

00

150

una

dju

ste

d c

ost

pe

r d

ay Freestanding

05

01

00

150

una

dju

ste

d c

ost

pe

r d

ay Hospital-Based

05

01

00

150

una

dju

ste

d c

ost

pe

r d

ay Swing-bed

Median Part A rehab therapy costs per day


050

100

150

unadju

sted

cost

per

day

Freestanding

050

100

150

unadju

sted

cost

per

day

Hospital-Based0

50

100

150

unadju

sted

cost

per

day

Swing-bed

Median Part A non-therapy ancillary costs per day


Text text text

02

00

40

0u

na

dju

ste

d c

ost

pe

r d

ay Freestanding

02

00

40

0u

na

dju

ste

d c

ost

pe

r d

ay Hospital-based

02

00

40

0u

na

dju

ste

d c

ost

pe

r d

ay Swing-bed

(carve-out rates only)

Median Part A routine costs per day


What is going on?What is going on? Freestandings: Freestandings:

Immediate reduction in over-used servicesImmediate reduction in over-used services Control of unit costs elsewhere (reduction Control of unit costs elsewhere (reduction

in real dollars)in real dollars) Healthy PPS surplusHealthy PPS surplus

Hospital-based:Hospital-based: Immediate market exit (mostly urban), butImmediate market exit (mostly urban), but No apparent cost control among No apparent cost control among

remaining providersremaining providers SNF-PPS losses = business as usualSNF-PPS losses = business as usual


Swing-bedsSwing-beds Still the setting with shortest stays, but Still the setting with shortest stays, but

no longer least intensiveno longer least intensive Increase in services could reflect change Increase in services could reflect change

in patientsin patients Absorbing demand from closed HB units? Absorbing demand from closed HB units?

MaybeMaybe Needs a detailed study from SNF claims Needs a detailed study from SNF claims

and MDS dataand MDS data Costs could decline in future years with Costs could decline in future years with

PPS implementationPPS implementation Watch for trends in PPS vs. CAH swingWatch for trends in PPS vs. CAH swing


Surprisingly unrelated to type Surprisingly unrelated to type of ownershipof ownership

In freestanding settingsIn freestanding settings Immediate reduction in rehab services in Immediate reduction in rehab services in

for-profit and non-profit institutionsfor-profit and non-profit institutions In hospital-based settingsIn hospital-based settings

Closure was associated with for-profit Closure was associated with for-profit status and higher cost, higher Medicare status and higher cost, higher Medicare utilization utilization

But continued operations with severe SNF-But continued operations with severe SNF-PPS losses still common in profit and non-PPS losses still common in profit and non-profit; also in metro and micropolitan areasprofit; also in metro and micropolitan areas


Measurement limitations? Measurement limitations? “accounting costs” ≠ “true “accounting costs” ≠ “true

costs”costs” Routine cost per-diems are systematically Routine cost per-diems are systematically

understated due to averaging of skilled with understated due to averaging of skilled with unskilled patients in “dual” units. But…unskilled patients in “dual” units. But… Overstates profit in freestanding – HB units Overstates profit in freestanding – HB units

have fewer unskilled dayshave fewer unskilled days Hospital-based per diems include more fixed Hospital-based per diems include more fixed

overhead costs. But…overhead costs. But… Explains only part of the differenceExplains only part of the difference HB units truly have more and better paid nursesHB units truly have more and better paid nurses


Question: what is the business Question: what is the business objective of a hospital-based objective of a hospital-based

SNF?SNF? Meeting clinical demand for services at Meeting clinical demand for services at

more complex end of SNF care spectrummore complex end of SNF care spectrum If so, unclear why SNFPPS case-mix If so, unclear why SNFPPS case-mix

adjustment doesn’t adjust for thisadjustment doesn’t adjust for this

Discharge management for DRG patients?Discharge management for DRG patients? Accepted wisdom, but not borne out by length-Accepted wisdom, but not borne out by length-

of-stay differencesof-stay differences

Put unused beds & space to “productive” Put unused beds & space to “productive” use?use? (Well, not too productive given these losses…)(Well, not too productive given these losses…)


Interpreting apparently Interpreting apparently non-rational responsesnon-rational responses

Some of it explainable by accounting Some of it explainable by accounting artifact?artifact? In aggregate, do we know if marginal In aggregate, do we know if marginal

income from SNF services is greater than income from SNF services is greater than marginal costs?marginal costs?

Turning to organization theory to Turning to organization theory to generate alternative explanations/ generate alternative explanations/ models of strategic responsemodels of strategic response

Documents

Trends across institutional settings in cost and service intensity for Medicare SNF care 1997 – 2003 Kathleen Dalton, PhD, RTI International Co-authors