Changes in Patient Severity Following Implementation of the Inpatient Rehabilitation Facility 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. This report examines the effects of the IRF PPS on patient access to care, to determine if access for more severely ill patients is being restricted. The authors test three hypotheses: (1) Fewer patients with conditions costly to treat will be treated, (2) relatively costly cases within case-mix and comorbidity groups will experience reduced access to IRF care, (3) patients with conditions costly to treat will receive less-intense care. They found no evidence to support the first hypothesis and little evidence to support the second. However, the third hypothesis might be supported; the authors observed a decrease in patients’ average length of stay after implementation of IRF PPS, which might indicate that facilities are reducing the intensity of care. But they also note that this could be part of a trend that began before 2002.