Medicare Payment Policy Creates Incentives for Long-Term Care Hospitals to Time Discharges for Maximum Reimbursement

Published In: Health Affairs, v. 34, no. 6, June 2015, p. 907-915

Posted on on July 07, 2015

by Yan S. Kim, Eric C. Kleerup, Patricia A. Ganz, Ninez Ponce, Karl Lorenz, Jack Needleman

Long-term care hospitals are postacute care facilities for patients requiring extended hospital-level care. These facilities are reimbursed by Medicare under a prospective payment system with a short-stay outlier policy, which results in substantially lower payments for patients discharged before a diagnosis-related group–specific short-stay threshold. Using Medicare data, we examined the impact of the short-stay policy on lengths-of-stay and Medicare reimbursement among patients in long-term care hospitals who require prolonged mechanical ventilation. After accounting for case-mix and facility-level differences, we found that discharges for reasons other than death in the period 2005–10 were most likely to occur on the day of or immediately after the short-stay threshold; this held true regardless of facility ownership. In contrast, live discharges in 2002--the year before the prospective payment system started phasing out cost-based payment--were evenly distributed around the day that later became the short-stay threshold. Our findings confirm that the short-stay outlier payment policy created a strong financial incentive for long-term care hospitals to time patient discharges to maximize Medicare reimbursement. The results suggest that the new very-short-stay policy implemented in December 2012 could have a similar effect.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.