Funding Health Reform: Post-Acute Care Payment Bundling

For health care facilities, and those who invest in them or lend to them, the President’s budget underscored the emerging “shape of things to come” in the delivery system. In short, the Administration intends to compel delivery system modifications through aggressive payment policy changes.

What industry segments are immediately concerned? -- home health agencies, skilled nursing facilities, IRFs, LTCHs, and rehab facilities. In the name of “efficiency and accountability” the President proposes to bleed (Bleeding Edge redux?) $950M over 5 years and $17.8B over ten years from payments that would otherwise have gone to these facilities. We know this because the budget is echoing Director Orszag’s work at the CBO, finding savings from putting into the hands of hospitals financial responsibility, on an MS-DRG by MS-DRG basis, for the care Medicare otherwise would have paid these facilities for within 30 days after inpatient discharge.

In the CBO formulation, bundled payments would have been applied to 1/3 of discharges by 2013 and all discharges by 2015. The budget scores this proposal somewhat higher than CBO did so one might speculate that more rapid application is now on the Director’s mind. Somewhat comforting to investors in the affected facilities is that savings begin in 2013 and that over half of the ten year savings are not realized until 2018 and 2019.

Does this “reform” propel acquisitions of post-acute facilities by acute facilities? Alternatively, will acute facilities have the market power to negotiate favorable terms in purchasing post-acute services from such facilities? Does this require additional hospital and physician integration to produce the admission patterns that will allow hospitals not to lose their shirts in paying for the new care?

Will any state insurance departments want to see hospitals establish reserves against the possibility of the cost of their post-acute care payment responsibilities exceeding their financial wherewithal? The CBO write-up of this program also included take backs so that hospitals would only realize 20% of the savings that Medicare expects that they would produce. Of course there could be a big negative for acute care hospitals if Medicare’s take backs make the margins small and expected savings do not materialize because of case mix, physician ordering patterns, or a dozen other variables. What upheaval do you predict?