Long-term care hospitals must upgrade payment model or close, researchers say

Although the U.S. spends more on healthcare than any other developed nation, it does not have better health outcomes. This reality has forced policymakers and researchers to look into the discrepancy and find solutions to drive out waste. One solution that wouldn't harm patient care is reworking the reimbursement structure or altogether eliminating long-term care hospitals, a working paper published Aug. 27 by researchers at the National Bureau of Economic Research suggests.

Long-term care hospitals, which typically serve very sick patients for an average of 25 days, are one of several facilities that provide post-acute care. While under the post-acute care umbrella, these facilities have a vastly different reimbursement structure, which was established nearly four decades ago. 

In 1982, Congress passed the Tax Equity and Fiscal Responsibility Act, which established a system to reimburse acute care hospitals a predetermined, fixed amount based on a patient's diagnosis, instead of on a fee-for-service basis. 

Afraid of the negative financial implications for hospitals caring for patients with chronic diseases or highly complex ailments, regulators excluded hospitals with average lengths of stay of at least 25 days from this new payment system. Those exempt hospitals were the 40 original long-term care facilities. Since then, the number of long-term care hospitals has grown exponentially, from a few dozen to more than 400, mainly run by two hospital chains. 

For years, analysts and policymakers have questioned the value of these long-term care hospitals — arguing that Medicare was vastly overpaying for their services. And, as a result of the criticism, CMS has changed some policies surrounding these facilities, including limiting the number of patients eligible for long-term care and placing a three-year moratorium on building long-term facilities.

For the working paper, researchers at the Cambridge-based Massachusetts Institute of Technology and University of Chicago examined patient outcomes as the number of long-term care facilities grew. Authors studied data on post-acute care patients from the Medicare Provider and Analysis review from 1998 to 2014. 

The researchers found that when a new long-term care facility opened in the region, very sick patients from acute-care hospitals were more likely to be discharged to  that new facility, which sharply increased the cost of care for Medicare and the patient. However, discharging to a long-term care provider revealed no patient outcome benefit, including a patients' chances of dying or going home within 90 days. 

Overall, the researchers suggested that Medicare could save about $4.6 billion a year by changing the reimbursement structure to the same way skilled nursing facilities, another type of post-acute care facility, are paid.  This would result in reducing healthcare spending in the U.S. by about 1 percent.

"By eliminating the administratively created concept of LTCHs [long-term care hospitals] as an institution with its own reimbursement schedule – and reimbursing them instead like SNFs [skilled nursing facilities] – Medicare could save $4.6 billion per year with no harm to patients," the authors write. "Moreover, despite accounting for only about 1 percent of Medicare spending, we estimate that eliminating LTCHs would reduce 10% of the unexplained geographic variation in Medicare spending."

While overhauling the payment structure for long-term care hospitals would result in just a 1 percent cost reduction of U.S. healthcare spending, the authors said  that targeting several smaller areas of waste could result in substantial changes over time. 

The long-term care industry disagrees with the paper's findings, according to theNew York Times.  Leaders in the industry dispute the notion that the extra money they are paid is wasteful and argue the paper harped on the negatives. In addition, the American Hospital Association noted that since the study ended, Congress and CMS worked to change the rules for long-term care hospitals. As a result, the authors may find a different conclusion if they used more up-to-date data., critics have said.

Read the full paper here.

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