Preliminary Analyses of Changes in Coding and Case Mix Under the Inpatient Rehabilitation Facility Prospective Payment System

by Grace M. Carter, Susan M. Paddock

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The Balanced Budget Act of 1997 mandated use of a prospective payment system (PPS) to pay for Medicare patient stays at inpatient rehabilitation facilities (IRFs) and stated that changes in the payment amounts should accurately reflect changes in IRFs’ patient case mix — that is, the true cost of treating patients — and not be influenced by changes in coding practices. This RAND report uses characteristics of related acute care records to compare IRF case mix during 2002, the first year of the IRF PPS, with case mix during 1999, under the old system. Payments per discharge were 3.4 percent higher in 2002 than in 1999. There is some evidence that the patients admitted to IRFs in 2002 had lower resource needs than the patients admitted in 1999, although there also is substantial uncertainty about the amount of lower resources needed. The authors’ show that coding changes increased payment between 1.9 percent and 5.9 percent between 1999 and 2002 and that real change caused between a 1.4-percent decline and a 2.4-percent increase in needed resources. They recommend that CMS lower future payments under the IRF PPS by at least 1.9 percent to eliminate or reduce the effect of coding on future payments.

Table of Contents

  • Chapter One


  • Chapter Two

    Methods and Data

  • Chapter Three

    Factors Affecting Case Mix

  • Chapter Four

    Discussion and Implications

  • Appendix A

    Methodological Details

  • Appendix B

    Regression Models

The research described in this report was supported by the Centers for Medicare and Medicaid Services and conducted by RAND Health.

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