Medicare Post-Acute Care

After relatively modest growth during the 1980s, Medicare outlays for skilled nursing facilities and home health care have soared during the 1990s. Expenditures for inpatient rehabilitation facilities have grown rapidly since the mid-1980s. Skilled nursing facility payments rose from $2.8 billion in 1989 to $11.3 billion in 1996, while home health care costs grew from $2.4 billion to $17.7 billion during that same period. Rehabilitation facility payments increased from $1.4 billion in 1989 to $3.9 billion in 1994. During those periods, annual growth averaged 22 percent for skilled nursing facilities, 33 percent for home health care, and 23 percent for rehabilitation facilities. This testimony focuses on the reasons behind the cost growth and the administration's legislative proposals for these three Medicare benefits.

GAO noted that: (1) Medicare's SNF costs have grown primarily because a larger portion of beneficiaries use SNFs than in the past and because of a large increase in the provision of ancillary services; (2) for home health care costs, both the number of beneficiaries and the number of services used by each beneficiary have more than doubled; (3) although the average length of stay has decreased for inpatient rehabilitation facilities, a larger portion of Medicare beneficiaries use them now, which results in cost growth; (4) the administration's major proposals for both SNFs and home health care are designed to to give the providers of these services increased incentives to operate efficiently by moving them from a cost reimbursement to a prospective payment system; (5) what remains unclear about these proposals is whether an appropriate unit of service can be defined for calculating prospective payments and whether the Health Care Financing Administration's data bases are adequate for it to set reasonable rates; (6) administration officials also have discussed their intention to propose in the future a coordinated payment system for post-acute care as methods to give providers efficiency incentives; (7) these concepts have appeal, but GAO has concerns about them similar to those it has for SNF and home health prospective payments; (8) finally, the administration is proposing that SNFs be required to bill for all services provided to their Medicare residents rather than allowing outside suppliers to bill; and (9) this latter proposal has merit because it would make control over the use of ancillary services significantly easier.