Prospective Payment Systems for Nursing Home Care

In 1982, Congress mandated that the Department of Health and Human Services develop legislative proposals to provide for reimbursing skilled nursing facilities prospectively under Medicare. GAO believes that the State Medicaid systems for prospective reimbursement should be examined when developing the Federal Medicare system. Under the prospective reimbursement system developed in Texas, the per diem rates are determined on a State-wide basis and are insensitive to the costs reported by individual facilities. Thus, it is highly unlikely that a facility could manipulate the system to receive higher Medicaid payments by overstating or inflating reported costs. On the other hand, this methodology is not sensitive to the costs associated with the needs of individual patients. GAO stated that prospective systems do not eliminate the need for financial audits, but that the audits should be designed and implemented to support the reimbursement methodology which a State chooses to employ. GAO also found that prospective payment systems can apparently succeed in restraining rising health care costs by providing an incentive for nursing homes to operate within the overall rates. This same incentive also creates a greater need for the States to review and monitor the quality of patient care being provided. Finally, GAO noted that it is essential that cost savings not be achieved by providing care that fails to meet program standards.