Long-Term Acute Care Hospitals: Bracing for Change

Mandy Asgeirsson and Greg Russo write about Medicare spending for care rendered in long-term care hospitals (LTCH) and the change in the manner in which it pays for care rendered by LTCHs through the Pathway for SGR Reform Act of 2013, which aims to reduce the payment rate for certain discharges.

Between 2004 and 2013, Medicare spending for care rendered in long-term care hospitals (LTCH) increased from $3.7 billion to $5.5 billion. Medicare beneficiaries constitute the majority of patients being served by these providers. With this increase in spending, Medicare sought to implement a change in the manner in which it pays for care rendered by LTCHs through the Pathway for SGR Reform Act of 2013. This change, implemented in fiscal year 2016, aims to reduce the payment rate for certain discharges and will impact the LTCHs and the industry. We explore this impact in this paper.

LTCHs are acute care hospitals that typically treat chronically, critically ill patients who have a length of stay greater than 25 days. Before the recent changes, Medicare reimbursed these providers under the LTCH prospective payment system (PPS). In this methodology, Medicare prospectively defines reimbursement for groupings of patients with similar characteristics and requiring similar amounts of resources. Under the Pathway for SGR Reform Act of 2013, Medicare is required to pay these providers using a “site-neutral” rate if a patient’s characteristics do not meet certain criteria. The site-neutral payment is similar to what Medicare pays in the acute care hospital setting and is calculated as the lesser of two rates: the inpatient PPS (IPPS) comparable per diem amount or the estimated costs of the case.