Medicare Nursing Homes Supply of Medical Services

MedPAC’s Analysis of Inpatient Rehabilitation Facilities

Inpatient Rehabilitation Facilities (IRF) provide rehabilitation to invidiuals recovering from serious illnesses such as strokes or hip replacements.  Today I review MedPAC’s analysis of Medicare payment policies for IRFs.

In 2002, expenditures on IRF totaled nearly $5.7 billion. This figure grew at an annual rate of 6.7 percent to $6.4 billion in 2004. Between 2005 and 2009, however, fell to about $6.1 billion aggregate FFS expenditures for IRFs fell as more beneficiaries enrolled in Medicare Advantage plans and as facilities adjusted to comply with a “compliance threshold.” The compliance threshold aims to distinguish IRF from regular acute care hospitals. [Enforcement of compliance threshold in place from 1984-2004 was suspended between 2002-2003, but in 2004 CMS revamped the threshold by: 1) by increasing the number of conditions that count toward the threshold to 13; 2)mandating that only a subset of patients with major joint replacement would count toward the compliance threshold; and 3) consistently enforcing IRFs’ compliance with the threshold.]

MedPAC notes that payments per case have grown faster than costs per case since the implementation of PPS in 2002. In 2009, IRF margins were 8.4 percent.

To become an IRF, a facility must:

  • Have a preadmission screening process
  • Ensure patient receives various services (e.g., physical, occupational, rehab therapy; social services; prosthetic services)
  • Use interdisciplinary approach with nurse, social worker and/or therapist
  • Meet compliance threshold: no fewer than 60 percent of all patients admitted to the IRF must have at least 1 of 13 conditions,
  • Initiate therapy within 36 hours after admission

Eighty percent of IRFs are hospital-based and 20 percent are freestanding facilities.

Most IRF cases are for stroke, fracture of a lower extremity (e.g., hip), joint replacement, debility, neurological disorders, or brain, cardiac or spinal cord injuries.

There were approximately 360,000 Medicare fee-for-service (FFS) cases in IRFs in 2009.  Relatively few Medicare beneficiaries use IRF services because IRF patients must be able to tolerate and benefit from intensive rehabilitation therapy, which typically consists of three hours of therapy per day for at least five days per week.

Before January 2002, IRFs were paid under the Tax Equity and Fiscal Responsibility Act of 1982, on the basis of their average costs per discharge, up to an annually adjusted facility-specific limit. Pursuant to the Balanced Budget Act of 1997, IRFs began to be paid in 2002 under a prospective payment system (PPS) based on per discharge rates that vary according to rehabilitation needs, area wages, and certain facility characteristics. As of 2004, all IRFs are paid under the IRF PPS.

Generally, stroke patients treated in IRFs have greater improvement and shorter stays than stroke patients treated in SNFs. Findings comparing outcomes for lower extremity joint replacement patients and hip fracture patients in IRFs and SNFs are not consistent across studies.  In most cases, however, comparing outcomes across post-acute settings is difficult due to selection bias.

Impact of PPACA

Currently, there is no public reporting of quality of care in IRF.   The IRF-Patient Assessment Instrument (PAI) does evaluate quality although it is not publicly available.  Additionally, starting in FY2010, IRFs must also submit PAI data for Medicare advantage patients.  The Patient Protection and Affordable Care Act of 2010 (PPACA), however, requires IRFs to submit data on quality measures beginning in fiscal year (FY) 2014 or receive a penalty of 2 percentage points off their payment update. By FY 2013, the Secretary of Health and Human Services must publish the quality measures that IRFs will be required to submit.

To assess quality of care in IRF, many researchers evaluate the difference between admission and discharge Functional Independence Measure (FIM) scores.  The 18 measures which make up the FIM are incorporated into the IRF-PAI. FIM measures the level of disability in physical and cognitive functioning and the burden of care for a patient’s caregivers. The total FIM score can range from 18 to 126, with a higher number meaning more functional independence.  CMS could also evaluate IRFs using process measures such as medication management, pain management, falls assessments, treatment of depression, pressure ulcer assessment, and discharge planning.  Outcome measures include change in functional status, discharge to the community, hospital readmissions, and SNF admissions.

Other PPACA provisions include:

  • Altering PPS payments based on a productivity adjustment starting in fiscal year 2012.
  • Market basket reductions from fiscal years 2010-2019 of between 0.25 and 0.75 percent.
  • Pilot to bundle all post-acute care services
  • Continuing care hospital pilot to evaluate the provision of multiple rehabilitations services (e.g., IRFs, LTCHs, SNFs) within the hospital setting.


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