Should Long-Term Care Facilities be Considered Cost-Efficient in Future Medicare and Medicaid Financial Policies?

Introduction to Healthcare Spending and Post-Acute Care

Healthcare spending in the United States continues to be a hot topic of discussion.(1) Studies and analyses show that the United States spends the most on healthcare globally, but that does not translate to improved healthcare outcomes.(2) Healthcare spending in the United States continues to grow each year, accounting for about 19.5% of the nation’s GDP in 2017.(2) Figure 1 shows an increasing trend in Medicare expenditure from 1990 to 2020.(3) Studies and data show diminishing returns for healthcare outcomes despite increased healthcare spending in the United States each year, and an estimated 30% of healthcare spending is wasted.(4) This means that there is little improvement in clinical outcomes with increased spending. Studies show that patients will receive expensive care when cheaper alternatives would have provided similar benefits, indicating that healthcare spending could be more systematic and strategized.(4)

Figure 1. Medicare expenditure in millions of dollars, 1990-2020.

Different sources of uneconomical healthcare spending have been identified, one of which is failure of care coordination.(5) Failure of care coordination issues arise when the transfer of patients from one care setting to another is unsystematic and inefficient. Examples can be identified within both Medicare and Medicaid. Medicare and Medicaid are major contributors in American healthcare spending, accounting for almost 40% of the nation’s total healthcare expenditure.(2) Furthermore, a 2012 study also revealed that Medicare and Medicaid spending accounts for one-third of the wasteful spending.(5) Medicare spending is complex, with different key domains. One notable domain where we see the failure of care coordination is in post-acute care (PAC) facilities. In 2013, Medicare spent approximately $60 billion on PAC, roughly 20% higher than what was spent on the Medicare Part D program.(6) Figure 2 shows the increasing trend in Medicare spending on PACs from 2013 to 2018.(7) To fully analyze Medicare’s spending on PACs and improve Medicare cost efficiency, we must first step back and understand what post-acute care is.

Figure 2. Medicare spending on post-acute care, 2013-2018.

PAC is a business sector in healthcare that includes long-term care hospitals (LTCHs), skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), and services offered by home health agencies (HHAs). According to 2019 data from the CMS, there are 10,413 recognized PAC facilities, of which 404 are LTCHs.(7) Patients are discharged to a PAC after an acute care hospital stay when further rehabilitation or palliative care is needed. The levels of care offered within each facility differ in terms of intensity, with LTCHs offering the most intense levels of care.(8) Patients discharged to LTCHs often are in need of higher-acuity levels of care with physician observation on a daily basis, and often require mechanical ventilation.(9) From 2004 to 2006, 29.8% of patients staying within a LTCH required mechanical ventilation.(10) HHAs offer the least intensive care, and SNFs and IRFs are in the middle, providing intermediate levels of care.(8) A patient discharged to home with HHA, for example, would be assisted with less complex care, such as simple wound care, chronic medical management, or home rehab. Patients discharged to IRFs are in need of significant rehabilitation in functionality; these patients include post-stroke or post-burn patients. SNFs are for patients who require rehabilitation but cannot tolerate more than three hours of therapy per day, as well as those with complex medical management and prolonged intravenous infusions.(9)

Because the levels of care vary between the types of PAC facility, compensation from Medicare also varies within these different types of PACs. Figure 3 offers a visual representation of the differences in day-to-day cost among the types of PAC facilities. Based on Medicare spending in 2014, the average LTCH stay cost about $36,000 for a 26-day stay, which equates to $1,436 per day. In the same year, the average SNF stay was 25 days, with a cost of $12,000, which equates to $466 per day, whereas HHAs came out as the least expensive option, amounting to an estimated $73 per day.(8) In a practical application of these numbers, if a patient were to have a 30-day stay at a PAC facility, the total cost for a stay at a LTCH would equate to $43,080. In comparison, a stay of equal length at a SNF would cost $13,980, while HHA would add up to just $2,190. These numbers demonstrate that LTCH is three times more costly than the SNF alternative. In addition, LTCHs cost more money to patients in terms of out-of-pocket spending. The data show increased out-of-pocket spending of $2,420 for patients during a stay at a LTCH. The average cost of a patient being admitted to an acute care hospital and discharged to a PAC was $17,519. A discharge to an LTCH specifically represents an almost 169% increase in total spending when compared with the average discharge to a PAC. This total increase in spending comes out to be $29,583.(8)

Figure 3. Comparison of daily costs per post-acute care (PAC) setting. HHA, home health agency; LTCH, long-term care hospital; SNF, skilled-nursing facility.

History of Long-Term Care Hospitals and the Financial Implications

Despite the increased costs of LTCHs, there is no evidence of improved healthcare outcomes when compared with SNFs. The category “LTCH” is an administrative construct, and no medical qualifications are required to classify as a LTCH. PAC traditionally was provided at SNFs and by HHAs until LTCHs were created in the 1980s to protect hospitals from closing.(8) LTCHs have expanded rapidly since the category was created (Figure 4).(11) For a hospital to classify as an LTCH, patients’ average length of stay must be 25 days or more. These facilities are run primarily by large for-profit organizations, in addition to having the highest reimbursement rate out of all PACs. New policies to control the expenses spent on treating patients in a LTCH have been implemented to counter the increase in number of facilities. Nevertheless, this has been unsuccessful: LTCHs continue to find loopholes necessary to maximize profits at their institutions. The 1997 Balanced Budget Act and the 1999 Balanced Budget Refinement Act transitioned the pay system for LTCHs from a per-diem reimbursement to a prospective payment system, in which they are paid a fixed amount based on a patient’s diagnosis-related group, similar to acute care hospitals. However, because the purpose of LTCH is for longer hospital stays, the CMS established a threshold day to prevent LTCHs from discharging patients after a few days but still receiving large lump-sum payments meant for longer days.(8) Patient reimbursements before the threshold day were paid on a predetermined, fixed amount paid daily, with a lump sum to be received after the threshold day was met. In response, LTCHs quickly adapted and often kept patients up to the threshold day and then discharged them right after receiving the lump-sum payment.(8) A payment reform went into effect in 2018 that eliminated the jump in payments at threshold; however, the history of LTCH response to payment systems suggests LTCHs will find loopholes to maximize profits once more.(8)

Figure 4. Number of new long-term care hospitals (LTCHs) certified fiscal years 1990 to 2020.

Long-term Care Hospitals as a Source of Failure in Care Coordination

Despite the three-fold increase in compensation compared with SNFs, LTCHs do not seem to provide better patient outcomes when patient outcomes are defined as: (1) out-of-pocket spending; (2) discharge to home rate; and (3) mortality rate within 90 days from the date of admission to acute care hospital. There is no evidence that demonstrates patients discharged to LTCHs have better mortality or spend less time in institutions.(8) As stated previously, failure of care coordination is one of the main categories of waste in healthcare spending. LTCHs are a prime example of failure in care coordination, because they demonstrate a cost-inefficient transfer of care from acute care hospital stays to LTCHs without any improvement in patient outcomes.

Results from Einav et al.(8) indicate about four-fifths of patients discharged to an LTCH would have otherwise been discharged to a SNF, and the remaining one-fifth would have been discharged to home, with or without home care, hospice, or other facility care. This demonstrates that patients discharged to LTCHs could be discharged to SNFs or other PAC facilities without compromising their clinical outcome, which could potentially reduce Medicare expenditure. Furthermore, Einav et al.(8) suggest there is a slight decrease in the chance of being home within 90 days of beginning a LTCH stay when compared with the other means of PAC. Other studies also have shown there is no increase in long-term survival after discharge to an LTCH specifically over other forms of PAC, questioning their cost-effectiveness.(10)

Conclusion

Since the inception of the first LTCH, these facilities have been largely for-profit, privately run institutions that have found administrative loopholes necessary to maximize their profits.(8) The expansion of LTCHs within the United States appears to be largely financially driven, because there have been no studies suggesting they are superior to other forms of PAC in terms of healthcare outcomes.(10) The data suggest that reimbursing LTCHs the way SNFs are reimbursed could save Medicare $4.6 billion a year. Eliminating LTCHs entirely could shave 10% off the unexplained geographical variation seen in Medicare spending. Both types of facility would provide the same level of care to patients, because LTCHs have shown no clear benefit to patients over other forms of PAC.(8) The care provided by LTCHs could be replaced by SNFs or other PAC services, as supported by the data presented by Einav et al.,(8) showing that out of those that were discharged to a LTCH, four-fifths would have gone to a SNF, while the remaining one-fifth would have been discharged home with or without home care.(8) These data suggest that although LTCHs are an option, they are not necessary to provide quality patient care after an acute care hospital stay, reemphasizing their questionable efficacy.

To summarize:

• LTCHs are a part of the PAC sector of healthcare, which also includes skilled nursing facilities, inpatient rehabilitation facilities, and home health.

• Although LTCHs account for only 1% of all Medicare spending, the elimination of LTCHs would remove 10% of the unexplained geographical variance in Medicare spending.

• Medicare could potentially save an estimated $4.6 billion a year simply by not accepting acute care hospital discharges to an LTCH.

• LTCHs do not provide any unique benefit for patient health outcomes, and their removal from the post–acute care health sector will not negatively impact patient health.

References

1. Papanicolas I, Woskie LR, Jha AK. Health care spending in the United States and other high-income countries. JAMA. 2018;319):1024-1039. DOI: 10.1001/jama.2018.1150. Erratum in JAMA. 2018;319:1824.

2. Kumar S, Ghildayal NS, Shah RN. Examining quality and efficiency of the US healthcare system. Int J Health Care Qual Assur. 2011;24:366-388. DOI: 10.1108/09526861111139197.

3. Centers for Medicare and Medicaid Services. National health expenditures by type of service and source of funds, CY 1960-2020. www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical storical.

4. Cutler D. Analysis & commentary. How health care reform must bend the cost curve. Health Aff (Millwood), 2010;29(6):1131-1135.

5. Lallemand NC. Reducing waste in health care. Health Affairs. December 13, 2012. DOI: 10.1377/hpb20121213.959735

6. Einav L, Finkelstein A, Mahoney N. Provider incentives and healthcare costs: evidence from long_term care hospitals. Econometrica. 2018; 86:2161-2219.

7. Centers for Medicare and Medicaid Services. Medicare post-acute care and hospice—by provider and service. https://data.cms.gov/provider-summary-by-type-of-service/medicare-post-acute-care-hospice/medicare-post-acute-care-hospice-by-provider-and-service.

8. Einav L, Finkelstein A, Mahoney N. Long-term care hospitals: A case study in waste. 2018, National Bureau of Economic Research.

9. Kindred Health Care. Levels of care. www.kindredhealthcare.com/docs/default-source/default-document-library/levels-of-care-grid.pdf?sfvrsn=27798eea_6 . Accessed February 12, 2022.

10. Kahn JM, Benson NM, Appleby D, Carson SS, Iwashyna TJ. Long-term acute care hospital utilization after critical illness. JAMA. 2010; 303:2253-2259.

11. Centers for Medicare and Medicaid Services. Long-term care hospital general information. https://data.cms.gov/provider-data/topics/long-term-care-hospitals .