Co-authors

1. Trends across institutional settings in cost and service intensity for Medicare SNF care 1997 – 2003Kathleen 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

2. 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 Academy Health Annual Research Meeting

3. 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) Academy Health Annual Research Meeting

4. SNF services not necessarily similar across settings Source: CMS Statistical Supplement, 2004. Academy Health Annual Research Meeting

5. 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) Academy Health Annual Research Meeting

6. 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 Academy Health Annual Research Meeting

7. Post-PPS changes in number of certified skilled nursing facilities Academy Health Annual Research Meeting

8. 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 Academy Health Annual Research Meeting

9. Costs and Payments under SNF-PPS: Academy Health Annual Research Meeting

10. Costs and Payments under SNF-PPS: Academy Health Annual Research Meeting

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15. 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 Academy Health Annual Research Meeting

16. 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 • Watch for trends in PPS vs. CAH swing Academy Health Annual Research Meeting

17. 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 Academy Health Annual Research Meeting

18. 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 Academy Health Annual Research Meeting

19. Question: what is the business objective of a hospital-based SNF? • Meeting clinical demand for services at more complex end of SNF care spectrum • If so, unclear why SNFPPS case-mix adjustment doesn’t adjust for this • Discharge management for DRG patients? • 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…) Academy Health Annual Research Meeting

20. Interpreting apparently non-rational 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 Academy Health Annual Research Meeting