Medicare might save billions of dollars with lower post-acute care rates

The Urban Institute, a think tank, recently published a research brief examining the potential for reducing Medicare expenditures by controlling excessive rates of post-acute care. Currently, diverse payment arrangements are in use for post-acute care in various healthcare settings, including skilled nursing facilities, inpatient rehabilitation facilities, long-term care hospitals, and home health services.

Approximately 3 million individuals receive home health services, resulting in Medicare expenditures of $16.9 billion. In contrast, skilled nursing facilities are utilized by 1.2 million individuals, incurring costs of approximately $28.5 billion for the healthcare system. Inpatient rehabilitation facilities and long-term care hospitals also play a role in Medicare costs, collectively amounting to $11.9 billion.

The Urban Institute’s report outlined various strategies to curtail Medicare spending. These include reducing payments to post-acute care providers, implementing bundled payment policies to enhance patient care management in skilled nursing facilities, and transferring payments for home health services from Part A to Part B to alleviate the deficit in the hospital insurance fund.

Medicare’s hospital insurance component, responsible for covering post-acute services, relies on funding from payroll taxes levied on workers’ earnings. A recent Medicare report projected that the Hospital Insurance Trust Fund might face insolvency by around 2031, with a financing gap of approximately $333 billion from 2023 to 2032. The Congressional Budget Office (CBO) revised this estimate, suggesting that Medicare funds could be depleted by 2033.

The report estimated that a 5% reduction in payment rates for skilled nursing facilities, inpatient rehabilitation facilities, and home healthcare would have saved Medicare $2.7 billion in 2021 if implemented that year. However, the actual payment rate changes for fiscal year 2024 indicated a 6.4% increase for skilled nursing facilities and a 3.7% increase for inpatient rehabilitation facilities.

MedPAC had previously recommended a unified payment system for all post-acute care settings, basing payments on patient characteristics rather than the setting itself. This approach could generate significant savings for Medicare, potentially amounting to $79 billion over a decade, as indicated by a CBO report. The Centers for Medicare & Medicaid Services also evaluated a unified post-acute care proposal in June 2022.

MedPAC urged for a 3% rate reduction in skilled nursing facilities and inpatient rehabilitation facilities, along with a 7% reduction in home health for 2024. However, it emphasized that congressional intervention would be essential to align payment rates with these recommendations.

Shifting home health spending from Part A to Part B could redirect nearly $6 billion in annual spending away from the Hospital Insurance Trust Fund. However, this move could have broader implications, potentially impacting Part B premiums and requiring increased federal revenue for Part B. The report suggested potential provisions to mitigate premium increases for enrollees with lower incomes. Nonetheless, this shift wouldn’t address the broader, long-term challenge of ensuring Medicare’s sustainability.