Inpatient Rehabilitation Facility Care Use Before and After Implementation of the IRF Prospective Payment System

The Medicare program in 2002 instituted an inpatient rehabilitation facility (IRF) prospective payment system (PPS). IRFs are specialized hospitals or hospital units that provide intensive rehabilitation in an inpatient setting. Under the IRF PPS, Medicare pays facilities a predetermined rate per discharged patient, which depends on the patient’s age, impairment, functional status, and comorbidities. Some facilities receive special rates for short-stay transfer patients, high-cost outliers, and patients who die in hospital. Prospective payment gives facilities incentives to provide care efficiently, since they can keep any difference between the set payment and their costs. However, this also gives facilities incentives to change their care and practice patterns in other ways and to change their coding practices to increase revenue. For example, some facilities might stint on the amount of care delivered or might change their admission policies to restrict access for patients who might not be profitable to treat. They might also alter their coding practices to increase the payments they receive from Medicare. This report examines changes in the patterns of use within IRFs with respect to utilization, unusual cases, and resource use. Specific findings about changes in length of stay are noted.