Effects of prospective payment financing on rehabilitation outcome

A suspected benefit of paying hospitals per diagnostic related groups (DRGs), i.e. the prospective payment system (PPS), is that lengths of stay (LOS) and costs may be reduced. A potential adverse effect is that providers may discharge patients to reduce costs regardless of clinical consequence. The Veterans Administration (VA) is one of the first agencies to adopt PPS for rehabilitation. This study analyzed the effects of PPS on LOS, readmission rate, nursing home placement (NHP), and referral for Home Health Care (HHC) on a 22 bed rehabilitation unit. One hundred and eighty-seven patients discharged in 1987, prior to the program, were compared (using t-tests) with 215 discharges in 1988, after PPS was established. There were no significant differences in demographics, self-care ability, or in readmissions. Referrals for HHC decreased significantly. LOS decreased from 29.3 days (SD = 16.4) in 1987 to 26.4 days (SD = 14.1) in 1988 (t = 5.3, p less than 0.01). However, 24 more patients were discharged to nursing homes in 1988 (N = 54, 25%) than in 1987 (N = 30, 16%), which represents an increase of 64% (p less than 0.05). Findings suggest that PPS may defer home care in favor of placement. Clinicians need to assess whether reducing inpatient LOS justifies increased use of nursing homes. Further research on the effects of PPS is needed to determine: (a) impact on clinical aspects of rehabilitation; and (b) if other funding mechanisms are more appropriate.