Developing payment refinements and reforms under Medicare for excluded hospitals

Four classes of specialty hospitals (children's, psychiatric, rehabilitation, and long-term) and two types of distinct-part units in general hospitals (psychiatric and rehabilitation) have been excluded from the Medicare hospital prospective payment system since it was enacted by Congress in 1983. The number of these facilities and the Medicare dollars expended have more than doubled in less than 5 years, prompting renewed policy interest in developing payment reform. In this context, the substantial research and policy development efforts to refine case-mix classification and payment policies for these facilities are reviewed and examined. Findings are discussed relative to possible legislative and regulatory directions.