Medicare's payment system: its effect on discharges to skilled nursing facilities from rehabilitation hospitals

To determine if Medicare's payment system for rehabilitation hospitals encourages discharges to skilled nursing facilities (SNFs). Medicare payments to hospitals are based on limits derived from a hospital's average allowable patient charge during a base year. Thereafter, payments are capped, but hospitals receive additional incentive payments if succeeding costs are reduced. It was a hypothesis of this study that discharges to SNFs would increase after the base year. In this way, rehabilitation hospitals would limit high-cost patients when under reimbursement limitation.

Medicare claims data for 162,239 discharges from 69 rehabilitation hospitals between 1987 and 1994 were analyzed. After controlling for patient and provider characteristics, we compared the odds of being discharged to a SNF before, during, and after the base year.

Before and during the base year, 4.7% and 6.6% of patients were discharged to a SNF. After the base year, 9% of patients were sent to a SNF. After controlling for temporal and seasonal trends, as well as for patient and provider characteristics, those discharged after the base year were significantly more likely to be sent to a SNF than those discharged during the base year. These odds increased with increasing length of stay in the rehabilitation hospital. For those with a length of stay of 29 days (75th percentile) the odds increased by 11% (odds ratio, 1.11; 95% confidence interval, 1.04-1.18).

The incentives of Medicare's reimbursement system may encourage an increase in the percentage of patients discharged to SNFs after the base year. These findings have significant implications regarding the structure of Medicare's prospective payment system currently planned for this class of hospital.