The impact of PPS on hospital-sponsored post-acute services: a case study of Delaware Medicare providers

Hospitals were the first providers to experience the change in Medicare reimbursement from a cost basis to the prospective payment system (PPS). In the 1980s, this switch was accomplished through the development of diagnosis-related groups, a unique formula for Medicare reimbursement of inpatient hospital services. During that time, the concern was that, with the anticipated reduced payments to hospitals, adverse impacts on Medicare beneficiaries were likely, including premature release of patients from hospital care resulting in medical complications, increased readmissions, prolonged episodes of recuperation, and preventable mortality. The Balanced Budget Act of 1997 (BBA) mandated the implementation of the PPS for Medicare providers of skilled nursing home care and home health care. This change from cost-based reimbursement to PPS raised concerns that these providers would react as hospitals had done-that is, skilled nursing homes might limit their admission of Medicare patients and home health agencies might cut back on visits. As a result of that, hospitals might be faced with providing care for these post-acute patients without receiving additional reimbursement, and these changes in utilization patterns would be of critical importance to both providers and Medicare beneficiaries. This article examines the decisions that providers made in response to the perceived impact of the BBA. Qualitative data were derived from provider interviews. The article concludes with a discussion of how changes in Medicare reimbursement policy have influenced providers of post-acute care services to alter their level of participation in Medicare and the impact this may have on the general public as well as on Medicare beneficiaries.