According to a Wall Street Journal article, Medicare is experimenting with how it pays some 800 hospitals. The bundled payment initiative will hold hospitals accountable for the cost of hip replacements for 90 days after surgery. Complications or inefficient care will eat into hospitals’ bottom line.
At issue is the rising cost of post-acute care. Those are the costs Medicare pays for seniors to convalesce after an acute care hospital stay. For example, if a senior has a hip replacement and is admitted to a long term acute care hospital (like I used to work at), the total cost runs about $74,000 on average. If a Medicare beneficiary is sent to an inpatient rehab facility after hip replacement, the total cost is $41,000. A senior discharge to home with home care costs $20,000, while one sent home without home care costs $17,000.
As you can probably imagine, Medicare is organizing its bundled payments in a convoluted way. Medicare is not giving hospitals a lump sum to divvy up among the various providers of care. Rather, Medicare is paying the charges on a fee-for-service basis and going back at the end of the year and calculating whether the total 90-day cost of care exceeds a benchmark. If total payments are lower, the hospital gets the savings. If total costs exceeds the Medicare benchmark, the hospital owes Medicare the difference. (I have an idea: just tell the hospitals how much the benchmark is, let them control the dollars and keep the savings. It would work much better.)
Medicare wants to discourage the unnecessary use of post-acute care. Hospitals are paid a fixed diagnosis related group (DRG) payment based on a policy that began in the early 1980s. The idea was to reimburse hospitals for caring for the average patient, while also encouraging hospitals to discharge patients quickly rather than pay for long, unnecessary hospital stays. But rather than eat the cost for caring for the outliers, hospitals found another way to move seniors out of the hospital into another hospital-owned facility where care was reimbursed. On the one hand, post-acute care facilities are much cheaper than hospital stays. But on the other hand, they can be used as a loophole to pad the bill. The hospital where I worked 25 years ago opened one of the first long term acute care facilities. The idea was to take very sick patients out of the big parent hospital, where reimbursements had ceased (DRGed out as we called it) and admit them to a neighboring hospital (it was across the street) where the patient would be cost reimbursed due to a loophole in earlier payment rules.