Large Discrepancies in Medicare Spending on Post-Hospital Care

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 leave a hospital.
Researchers have discovered huge discrepancies in how much is spent on these services in different areas nationwide.

Medicare spends $8,800 on each Louisiana patient receiving home health care, $5,000 more than it spends on the average New Jersey senior. In Chicago, one in four Medicare beneficiaries receives additional services after leaving the hospital — three times the rate in Phoenix. In Connecticut, Medicare beneficiaries are more than twice as likely to end up in a nursing home as they are in Arizona.

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

Last year, $62 billion — $1 in every $6 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 received those services after leaving the hospital. Some of these providers earn double-digit profits from Medicare through payment methods that health experts say encourage unnecessary and disjointed care, waste taxpayer money and make fraud easier. More than a quarter of Medicare spending in Louisiana,
Massachusetts, Mississippi, Oklahoma and Texas was for post-acute care in 2011, Medicare records show.

Hospitals are often the gatekeepers to this world. But analysts say they do not consider costs — or sometimes patients' best interests — 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 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, said 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," he said. "It's going to be a consultant's bonanza."

Many options for care

The vagueness of the term "post-acute" reflects the wide array of ways Medicare patients can be treated after they leave the hospital. Those who are able to return home can receive intermittent visits from nurses, physical therapists and aides who monitor their condition and help with basic tasks. These services are known as home health care. Patients needing closer oversight can end up in nursing homes or inpatient rehabilitation facilities, where people who have had strokes, fractures or major joint replacements often go. The sickest patients, such as those who need ventilators for weeks, may be admitted to long-term-care hospitals, where the average stay is 26 days.

Medicare pays each type of facility different rates — even when they are treating the same kinds of patients. Medicare's cost for treating stroke patients, including time in the hospital and three months of subsequent care, averages $40,000 if the patient is discharged to an inpatient rehabilitation facility, according to an analysis by Congress's Medicare Payment Advisory Commission (MedPAC). Medicare's cost averages $33,000 for stroke patients discharged instead to a nursing home, and $13,000 for those cared for at home with the assistance of health aides, the analysis found.

These varying payment rates were created under the assumption that many sicker patients would need to be in facilities that provide more intensive care. But researchers have found that the same types of patients can end up in different types of facilities for no apparent medical reason.

An Institute of Medicine study released in July concluded that post-hospital services are the primary reason Medicare spends much more in some parts of the nation than elsewhere. Uneven spending on post-acute care around the country accounts for 73 percent of the variation in Medicare spending.

White's analysis of Medicare records for Kaiser Health News found that home health-care spending in 2011 accounted for a quarter of the reason some areas were more costly than others.

Much post-hospital use is determined by which facilities are around. A third of all home health-care cases took place in Florida, Louisiana, Mississippi, Oklahoma and Texas even though only 17 percent of Medicare beneficiaries live in those states, according to MedPAC.

Substantial profits

For many companies, these patients translate into substantial profits. Nursing homes are expected to earn 12 percent to 14 percent this year on their Medicare patients, MedPAC estimated. Home health-care margins are expected to average 12 percent, and intensive-rehabilitation facility margins are about 8.5 percent, MedPAC said. Long-term care hospitals, the laggard of the post-acute groups in profits, are earning almost 6 percent.

The post-acute-care industry has defended these profit margins by saying that they counterbalance the losses their facilities face from lower Medicaid payments in many states.

"If you start targeting the one healthy aspect of skilled nursing that pays for the services provided, that's going to pose real jeopardy to the entire profession," said Greg Crist, a spokesman for the American Health Care Association, which represents nursing homes.

Policy experts say providers tailor their approaches to wring the most money out of Medicare's payment methods. Nursing homes, for instance, are paid per day, encouraging them to keep patients for as long as possible up to the 100-day limit Medicare set. Medicare picks up the entire tab for the first 20 days. MedPAC calculates that even including money-losing Medicaid patients, nursing homes earned profits between 4 percent and 6 percent in 2011, the most recent year for which data are available.

Home health-care agencies are paid set sums for 60 days with no regard for how many nursing and aide visits are made. The number of visits in the average 60-day period dropped from 32 in 1998 to 19 in 2011, while the number of patients being enrolled in home health care soared, with a majority no longer coming straight from the hospital, according to MedPAC.

"The incentive is to sign up patients who need hardly anything and sign them up for as long as you can get them," said Judy Feder, a professor at the Georgetown Public Policy Institute.

By Jordan Rau, Published: November 28

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.