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Post-Acute Care: The Next Frontier for Controlling Medicare Spend

More and more organizations are exploring how to integrate post-acute care (PAC) services into their care continuum, with the short-term goals of decreasing readmissions and minimizing the cost of an episode of care. More progressive organizations are rethinking their long-term PAC strategy and reimagining how they can use their post-acute care assets or partners to help patients avoid an expensive hospitalization.

Hospitals are not the only organizations focusing on post-acute care. Medicare, the dominant PAC payer, is targeting PAC sites and payment to help control overall spend. Overall changes will be top-down and may occur quickly. The implications of these changes will depend on your level of ownership of PAC sites. Regardless of ownership, all providers will feel the push to decrease PAC spend through the Value-Based Purchasing (VBP) efficiency measure. This measure, the Medicare Spending per Beneficiary (MSPB), is a calculation of the spend per fee-for-service (FFS) beneficiary from three days prior to admission to 30 days postdischarge.

Understand Your Medicare Spend
Starting this October, each hospital’s MSPB is tied to its Medicare FFS payments through the Value-Based Purchasing Program. The VBP Program started in 2013 and placed 1% of a hospital’s Medicare revenue at risk, which will increase to 1.5% in 2015 and 2% in 2017. When we speak with hospital executives, they quickly target inpatient costs as the prime driver of spend for an episode of care. However, the greatest divergence in average costs lies in the 30 days postdischarge, as illustrated in the following table.

Average Medicare Spending per Beneficiary for US and Highest- and Lowest-Cost PAC States

Period Average (US) Highest (NJ) Lowest (OR)
1–3 Days Before Admission $252 $239 $224
During Index Hospitalization $10,122 $10,017 $10,945
1–30 Days After Discharge $7,984 $9,508 $5,844
Complete Episode $18,358 $19,764 $17,013

Source: Medicare. Medicare hospital spending by claim web page. Accessed July 21, 2014.

While the national perspective illustrates the vast difference in cost, comparing like hospitals in a single market is even more telling. The data in the following table represent the MSPB for three of the large academic medical centers (AMCs) in Chicago. These data highlight how spend differs between competitors in one market. However, they do not tell the full story. For example, AMC 2 has a lower postdischarge spend than its competitors. Is its 24% higher spend for home health an indicator that the facility is substituting home health as a lower-cost option than skilled nursing facilities for appropriate patients? It is unclear with these data alone. A further analysis and understanding of your institutional post-acute data and market can highlight opportunities for improved PAC value.

Average Postdischarge Medicare Spending per Beneficiary: Three Chicago AMCs, by Claim Type

Claim Type AMC 1 AMC 2 AMC 3
Physician $1,063 $1,015 $1,218
Durable Medical Equipment $270 $145 $164
Home Health Agency $877 $1,076 $869
Hospice $127 $57 $70
Inpatient $3,766 $3,076 $3,316
Outpatient $1,180 $1,066 $772
Skilled Nursing Facility $1,902 $1,508 $1,836
Total Postdischarge Spend $9,185 $7,943 $8,245

Source: Medicare. Medicare hospital spending by claim web page. Accessed July 21, 2014.

Understand the Patient Journey
The cost of PAC will depend heavily on how the patient transitions across PAC sites and whether or not the patient is readmitted back to the inpatient setting. Hospitals can also start the process by asking themselves:

  • What is the discharge disposition of our patients? Understand how discharge disposition differs by patient acuity, service line and type of disease. Page 3 of our Restructuring Post-Acute Care report has national discharge disposition data by service line to help benchmark hospital performance.
  • Are patients going to the most clinically appropriate, lowest-cost site of care possible? Many organizations are using telehealth technologies to support and monitor patients at home rather than sending them to a more costly site.
  • Do we understand when and how patients transition after discharge from the first PAC site? Gather discharge disposition data from your PAC provider partners to understand the complexity of the patient journey.
  • Can patients transition between PAC sites of care earlier to decrease the cost of care and return home sooner? Some innovative organizations are seeking to make “dual referrals” from the inpatient setting. They refer to the first PAC site and plan for the discharge down to a lower-cost site of care when the patient is ready. This supports the patient transition to lower-cost, more clinically appropriate sites of care while helping to minimize leakage from the health system.

 Note: Sg2 Intelligence Manager Sue Fletcher, RN, contributed to this post.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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