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Medicare has instituted a prospective payment system (PPS) for patients receiving post-acute care (PAC). 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 cumulative effects of PAC payment system changes, specifically, effects on the Home Health Agency Interim Payment System, the Skilled Nursing Facility Prospective Payment System, the Home Health Agency Prospective Payment System, and the Inpatient Rehabilitation Facility Prospective Payment System. Access to care is measured by examining the changes in use of these facilities since implementation of PPS. The study focuses on elderly Medicare patients discharged from acute care facilities, with a diagnosis of hip fracture, stroke, or lower extremity joint replacement. Models are used to predict the probability that patients will go to a PAC location before and after each payment system was enacted. The authors find that the effects of each payment system differed, but they note that, overall, most of the payment system changes that were intended to contain costs had the effect of decreasing the use of the site of care directly affected. But, in many cases, they also had the effect of increasing the use of alternative care sites. These changes do not appear to have affected the severely ill more than others.

The analyses upon which this publication is based were funded by the Centers for Medicare & Medicaid Services, Department of Health and Human Services and conducted by RAND Health.

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