Posthospital Care Before and After the Medicare Prospective Payment System

With the introduction of the Medicare prospective payment system (PPS) in 1983, hospitals faced strong new incentives to discharge Medicare patients as rapidly as possible. The PPS also provided new encouragement for the use of posthospital care provided by skilled nursing facilities and home health agencies — hospitals could reduce lengths of stay in some cases by discharging patients to some form of posthospital care. This report presents analyses of changes in the use of and the charges for Medicare-reimbursed skilled nursing and home health care from the period shortly before the introduction of the Medicare PPS to the period immediately following it. The analyses used databases that link together Medicare billing records for hospital and posthospital care, something that has not been done extensively before. The findings suggest that patterns of both hospital and posthospital care have changed since PPS was introduced, and that posthospital care is substituting for the last few days of hospital care.