Information Requirements for Evaluating the Impacts of Medicare Prospective Payment on Post-Hospital Long-Term Services

In response to a congressional request, GAO provided a preliminary report on the study of information needed to assess the impacts of the Medicare prospective payment system (PPS) on post-hospital, long-term care. PPS, which is a reimbursement system based on fixed payments for diagnosis-related groups, provides hospitals with incentives to limit costs incurred for Medicare patients by carefully controlling the amount of services provided or limiting the length of stay or both.

GAO found that the long-term care community is concerned about whether Medicare is adequately apprising beneficiaries of the changes resulting from PPS and whether Medicare is appropriately administering coverage determinations. GAO identified four key issues of concern: (1) patients' changing post-hospital care needs; (2) how those needs are met; (3) patients having access problems; and (4) how long-term care costs have been affected. The combination of PPS incentives for hospitals to discharge Medicare patients as soon as possible and weak incentives for nursing homes to admit Medicare patients leads to the possibility of inappropriate placements. GAO reported that problems with coverage and eligibility requirements, particularly for home health services, reflect a lack of clarity in the Medicare regulations. Under consistent application of those regulations, a fairly high proportion of home health claims paid by Medicare do not meet program requirements for coverage. More consistent enforcement of those requirements may lead to the denial of more claims. GAO believed that studies should be done to analyze the differences in state and local long-term care policies, in market conditions which shape supply and demand, and in the total cost of post-hospital, long-term care associated with PPS.