CMS targets post-acute care spending

Payments to nursing homes, home health services and others providing care after patients leave the hospital are being scrutinized by the federal gove

After years of trying to clamp down on hospital spending, the federal government wants to get control over what Medicare spends on nursing homes, home health services and other medical care typically provided to patients after they have left the hospital.

Researchers have discovered huge discrepancies in how much is spent on these services in different areas around the country. In Connecticut, Medicare beneficiaries are more than twice as likely to end up in a nursing home as they are in Arizona. Medicare spends $8,800 on each Louisiana patient getting home health care, $5,000 more than it spends on the average New Jersey senior. In Chicago, one out of four Medicare beneficiaries receives additional services after leaving the hospital—three times the rate in Phoenix.

[See also: Skilled nursing facing pinched margins]

Medicare per capita spending on these services, collectively known as post-acute or post-hospital care, has grown at 5 percent a year or faster in 34 of the nation’s 50 most populous hospital markets in recent years, according to an analysis health care economist Chapin White conducted for Kaiser Health News.

Last year $62 billion—one out of every six dollars Medicare spent in the traditional fee-for-service program—went to nursing and therapy for patients in rehabilitation facilities, nursing homes, long-term care hospitals and in their own homes, according to a congressional advisory panel.  

Most of them got those services after coming out of the hospital. Some of these providers earn double-digit profits from Medicare through a hodgepodge of payment methods that health experts say encourages unnecessary and disjointed care, wastes taxpayer money and makes fraud easier. More than a quarter of Medicare spending in Louisiana, Texas, Mississippi, Oklahoma and Massachusetts was for post-acute care in 2011, Medicare records show.  

Hospitals are often the gatekeepers to this world. But analysts say they do not take costs—or sometimes patients' best interests—into account when discharging patients. "They have not had to think remotely about costs or quality or anything except where's a bed available," said Anne Tumlinson, a consultant at Avalere Health in Washington. "Often doctors have very little to do with the discharge decision. Largely it has to do with the supply of providers and type of providers in the area." 

Now, Medicare is experimenting with new payment methods in which hospitals and post-acute providers would be given a lump sum to take care of a patient, forcing them to become more efficient if they want to make money. In addition, President Barack Obama has proposed reducing payments for some conditions to post-acute providers and beginning to pay the same rates for similar patients.  

Stephen Parente, a health care economist at the University of Minnesota, says the changes are likely to upend much of the industry. "It's going to be a fairly ugly transition to get to a more efficient, streamlined system," Parente said. "It's going to be a consultant's bonanza."