Hospitals Medicare

Long-term care hospitals (LTCHs)

Today I review how Medicare pays for long-term care hospitals (LTCHs) based on information from MedPAC’s 2011 Report to Congress.

LTCHs furnish care to patients with clinically complex problems—such as multiple acute and chronic conditions—who need hospital-level care for relatively extended periods. These facilities can be freestanding or colocated with other hospitals as hospitals within hospitals (HWHs) or satellites. To qualify as an LTCH for Medicare payment, a facility must meet Medicare’s conditions of participation for acute care hospitals and have an average length of stay of greater than 25 days for its Medicare patients. Medicare is the predominant payer for most LTCHs, accounting for about two-thirds of LTCH discharges. In 2009, Medicare spent $4.9 billion on care furnished to roughly 400 LTCHs nationwide. About 116,000 beneficiaries had almost 131,500 LTCH stays.

Nationwide there has been marked growth in both the number and the share of critically ill patients transferred from acute care hospitals to LTCHs. Kahn and colleagues found that, though the overall number of Medicare admissions to acute care hospital ICUs fell 14 percent between 1997 and 2006, the number of Medicare ICU patients discharged to LTCHs almost tripled.

Since October 2002, Medicare has paid LTCHs prospective per discharge rates based primarily on the patient’s diagnosis and the facility’s wage index. Under this prospective payment system (PPS), LTCH payment rates are based on the Medicare severity long-term care diagnosis related group (MS–LTC–DRG) patient classification system, which groups patients based primarily on diagnoses and procedures. MS–LTC–DRGs are the same groups used in the acute inpatient PPS but have relative weights specific to LTCH patients, reflecting the average relative costliness of cases in the group compared with that for the average LTCH case.

Beginning in July 2007, CMS extended the 25 percent rule to apply to all LTCHs. The 25 percent rule limits the percentage of patients who could be admitted to an LTCH from any one referring acute care hospital during a cost-reporting period without being subject to a payment adjustment.

The number of LTCHs increased 6.6 percent between 2008 and 2009, despite a limited moratorium on new LTCHs and new beds in existing LTCHs from July 2007 until December 28, 2012. New LTCHs were able to enter the Medicare program because they met specific exceptions to the moratorium.

Unlike most other health care facilities, LTCHs do not submit quality data to CMS. The Patient Protection and Affordable Care Act of 2010 mandates that CMS implement a pay-for-reporting program for LTCHs by 2014. A panel convened by the Commission to provide input into the development of LTCH quality measures suggested that CMS begin with a starter set of 10 to 12 measures based on those that most LTCHs already use for internal quality monitoring.


  1. I used to work for a LTCH around 1990. At the time it was a novel loophole in the Prospective Payment System. The rules allowed our acute care (parent) hospital to transfer complex patients (who were the outliers on the DRGs) to our facility where their care was cost reimbursed based on a TERFA limit.

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