Analyses for the Initial Implementation of the Inpatient Rehabilitation Facility Prospective Payment System

Analyses for the Initial Implementation of the Inpatient Rehabilitation Facility Prospective Payment System

Grace M. Carter
Melinda Beeuwkes Buntin
Orla Hayden
Jennifer Kawata
Susan M. Paddock
Daniel A. Relles
Gregory K. Ridgeway
Mark E. Totten
Barbara O. Wynn
Copyright Date: 2002
Published by: RAND Corporation
Pages: 360
https://www.jstor.org/stable/10.7249/mr1500cms
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  • Book Info
    Analyses for the Initial Implementation of the Inpatient Rehabilitation Facility Prospective Payment System
    Book Description:

    In the Balanced Budget Act of 1997, Congress mandated that Health Care Financing Administration (HCFA) implement a Prospective Payment System (PPS) for inpatient rehabilitation. The Centers for Medicare and Medicaid Services (CMS, the successor agency to HCFA) issued the final rule governing such a PPS on August 7, 2001 and the system went into effect on January 1, 2002. This report details the analyses that RAND performed to support HCFA's efforts to design, develop, and implement the PPS. It describes RAND's research on new function-related groups, comorbidities, unusual cases, facility-level adjustments, outlier payments, facility-level adjustments, and assessment instruments. In addition, it presents RAND's recommendations concerning the payment system and discusses the researchers' plans for further research on the monitoring and refinement of the PPS.

    eISBN: 978-0-8330-5663-4
    Subjects: Health Sciences

Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. PREFACE
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-viii)
  4. FIGURES
    (pp. ix-x)
  5. TABLES
    (pp. xi-xvi)
  6. ACKNOWLEDGMENTS
    (pp. xvii-xviii)
  7. Members of Technical Expert Panel on Inpatient Rehabilitation Facility Prospective Payment System
    (pp. xix-xx)
  8. ACRONYMS
    (pp. xxi-xxii)
  9. 1. INTRODUCTION
    (pp. 1-8)

    In the Balanced Budget Act of 1997, Congress mandated that the Health Care Financing Administration (HCFA) implement a Prospective Payment System (PPS) for inpatient rehabilitation under Medicare. This new PPS was implemented beginning on January 1, 2002. The Centers for Medicare and Medicaid Services (CMS, the successor agency to HCFA) issued the final rule governing the PPS on August 7, 2001. This report describes the research that RAND performed to support HCFA’s efforts to design, develop, and implement this PPS. It presents recommendations concerning the payment system and discusses our plans for further research on the monitoring and refinement of...

  10. 2. DATA AND METHODS
    (pp. 9-32)

    In the first subsection below, we describe the various data files that we used in our analyses. These files are all updates of those used in our interim report. Our primary data file provides case mix and cost data on Medicare discharges from facilities that were paid under TEFRA as rehabilitation facilities. We also used annual cost reports from the Hospital Cost Report Information System (HCRIS) and a file constructed by the Office of the Actuary that projects the HCRIS data into FY 2002. We constructed a file of hospital characteristics that we used to analyze hospital costs and the...

  11. 3. CASE CLASSIFICATION SYSTEM
    (pp. 33-98)

    Case classification is a major step in developing a PPS payment formula. In this section, we describe the construction of a set of Functional Independence Measure-Function Related Groups (FIM-FRGs, or simply FRGs). FRGs partition the population into groups that are medically similar and that have similar expected resource needs.

    Facilities will ultimately be compensated for typical cases (i.e., cases that are discharged to the community after a full course of rehabilitation) according to a formula that depends primarily on their assigned class, adjusted by comorbidities, area wage rates, and other hospital characteristics. Here, we classify only typical cases, which we...

  12. 4. COMORBIDITIES
    (pp. 99-154)

    In this section, we discuss adding comorbidities and complications to the classification system. We began with a variety of hypotheses about which conditions affect cost, each suggested by a clinician. We tested each hypothesis to determine whether the nominated conditions were in fact associated with increased cost after controlling for FRG. These tests resulted in a list of conditions that are correlated with higher costs and that our clinical consultants believe actually cause an increase in costs. Finally, we evaluated alternative models for accounting for the cost of comorbidities. Some codes that were found to affect cost were eliminated from...

  13. 5. UNUSUAL CASES
    (pp. 155-188)

    The classification system discussed in the previous two sections was designed by analyzing more than three-fourths of all rehabilitation cases. However, in its design we deliberately omitted cases that might distort the analysis--i.e., transfer cases, in-hospital deaths, and very-short-stay cases. Here we consider how we should classify these unusual cases.

    Some cases are transferred to another health care institution before the patient has received the full course of rehabilitation therapy. Many of these transfers are to acute care facilities and occur because the patient has encountered a medical condition or event requiring acute care management. A small number of transfers...

  14. 6. RELATIVE CASE WEIGHTS
    (pp. 189-222)

    For any particular hospital, the payment for each case will be proportional to the relative weight assigned to the patient’s CMG. To ensure that beneficiaries in all CMGs will have access to care and to encourage efficiency, we want to calculate weights that are proportional to the resources needed by a typical case in the CMG. So, for example, cases in a CMG with a weight of 2 will typically cost twice as much as cases in a CMG with a weight of 1.

    The average of the relative weights for a set of cases is called the case mix...

  15. 7. FACILITY–LEVEL ADJUSTMENTS
    (pp. 223-286)

    In this section, we report on our analyses related to potential facility–level adjustments to the standard payment amounts.Facility-level adjustmentsare for systematic cost differences that are beyond the control of facility management and are appropriate to recognize in the payment system. In addition to the adjustment required by law for geographic differences in wage levels, our interim report recommended that adjustments be made for serving low-income patients and for location in a rural area (i.e., outside a Metropolitan Statistical Area, or MSA). This report updates the analyses in the interim report using more-recent data and improved measures for...

  16. 8. OUTLIERS
    (pp. 287-298)

    Outlier paymentsare additional payments, beyond the normal CMG payment, made for very expensive cases. Such payments can reduce hospitals’ financial risk from a PPS (Keeler, Carter, and Trude, 1988) and should reduce the PPS incentive for hospitals to underserve very expensive cases. Also, by targeting payments to cases where the CMG payment is much lower than cost, they may help mitigate problems with the classification system. Because outlier cases are not paid at full cost, they cannot completely fix problems with the classification system; they can only provide some compensation. Outlier payments have several drawbacks: Because outlier payments are...

  17. 9. CONVERSION FACTOR
    (pp. 299-318)

    This section describes the determination of a budget-neutral conversion factor. Thebudget-neutral conversion factoris a national payment factor that, along with facility adjustments, case weights, and outlier adjustments, determines the IRF PPS payment for each case.

    Congress mandated that the payment system in FY 2002 must be designed to bebudget neutral--that is, estimated IRF PPS payments per case must not exceed estimated TEFRA payments per case. The IRF PPS will be phased in over two years. During cost reporting periods that begin after January 1 in federal FY 2002, a hospital’s payment will be a blend of one-third...

  18. 10. DEVELOPING A MONITORING PLAN AND SYSTEM FOR THE IRF PPS
    (pp. 319-334)

    A major focus of our ongoing work will be the development of a system to monitor the impact and performance of the IRF PPS. This system will serve two primary purposes. First, it will track patient access to IRF care and changes in the costs, quality, and outcomes of IRF care.¹ Second, the system will monitor changes in the care delivered across post-acute care settings. This is important because the financial incentives created by the IRF PPS may affect the number and mix of patients using other types of post-acute care, and because changes in the payment systems for other...

  19. REFERENCES
    (pp. 335-338)
  20. Back Matter
    (pp. 339-339)