Prospective payment for medical rehabilitation: the DHHS report to Congress

Since 1983, when Congress established the Medicare DRG-based Prospective Payment System (PPS) for inpatient hospital care, rehabilitation hospitals and units that qualify under federal regulations have been exempted from the system. Congress recognized that the DRGs were not designed to consider the specific circumstances of rehabilitation patients. It required the Secretary of the Department of Health and Human Services (DHHS) to report on the feasibility of developing a PPS for rehabilitation (and other excluded) hospitals and units. In October 1987, DHHS released its long-awaited report to Congress on "Developing a Prospective Payment System for Excluded Hospitals." The Report concludes that further research is necessary before DHHS can develop specific legislative and regulatory recommendations. Yet, the report also indicates DHHS' desire ultimately to implement a capitation-based PPS for rehabilitation. Until this goal is achieved, DHHS would like to develop a transitional PPS for rehabilitation. However, given that studies indicate that DRGs are an inappropriate basis for a rehabilitation PPS, and measures that would provide a better basis (eg, functional status or capitation) have not yet been fully developed for purposes of rehabilitation payment, it is uncertain how DHHS will achieve these goals in the short run. Until further studies are conducted, development of a transitional system appears ill-advised. Congress and DHHS should, therefore, continue to exempt rehabilitation hospitals and units until an appropriate payment system for rehabilitation can be developed.