The Medicare program spent over $428 billion dollars in 2007 providing health care coverage to primarily elderly and disabled populations (MedPAC, 2008). The largest share of these expenditures was associated with inpatient hospital care (30.0 percent) which was used by at least 15.0 percent of all beneficiaries (See Section 3). Post-acute care (PAC), including services provided by long-term acute care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), skilled nursing facilities (SNFs), and home health agencies (HHAs) accounted for $45.1 billion or nearly 10.0 percent of all Medicare spending (MedPAC, 2008). SNF expenditures alone accounted for $21 billion, home health, $14.1 billion, IRF spending was $5.6 billion, and LTCH expenditures accounted for $4.4 billion, despite the small numbers of LTCH users. While most of these services are used in combination with a hospital stay, past research and policy analysis has typically focused on the costs or use of individual providers.
Of beneficiaries with an inpatient hospital stay following 60 days without inpatient, HHA, LTCH, SNF, or IRF use, over one third are discharged to post-acute providers. Most are using skilled nursing facilities (41.1 percent) or home health agencies (37.4 percent) for continuing nursing or therapy services but many are also discharged to inpatient rehabilitation hospitals (10.3 percent), LTCHs (2.0 percent) or outpatient therapy providers (9.1 percent). This study builds on work completed last year for the Assistant Secretary of Planning and Evaluation (ASPE) to examine Medicare program costs on an episode of care basis. For beneficiaries with at least one hospital stay during 2006, we examine their total episode cost and utilization, including their relative use of index acute admissions, SNFs, IRFs, LTCHs, HHAs, hospital outpatient therapy (HOPD), and acute hospital readmissions. This year's work differs from last year's study because it broadens the analysis to include physician services, durable medical equipment, and hospice services that are used during an episode of care. This broader approach provides more comprehensive information on each beneficiary's complete episode of care. While per person physician costs are small relative to inpatient and PAC costs, they provide important information on patterns of care and may be useful for understanding the current role that physicians play and the potential for improving care with this broader approach to analysis. This study also examines how episodes vary by individual beneficiary characteristics, market characteristics, and the interorganizational, or financial relationships among providers associated with each episode.
This study is particularly unique because it begins to consider whether a formal or informal relationship between a hospital and a PAC provider influences the acute hospital discharge's likelihood of PAC use, and specifically the type of PAC service used, which in turn, may have a dramatic effect on individual episode costs of care. As noted in our earlier work (Gage, Morley, Spain, and Ingber, 2007), very little has been done in this area, particularly across an episode of care.
Local health care markets have continued to evolve over the past 20 years, as payment policies and population needs have changed. Many hospitals have subproviders or hospital-based PAC units. For example, about one-fifth of all acute hospitals in 2007 had a hospital-based SNF unit or an IRF unit or both (2007 POS, Table 3.1). Hospitals also frequently own HHAs, accounting for 17.0 percent of all HHAs (2007 POS, Table 3.1). LTCHs have also expanded over the last decade, opening hospitals-within-hospitals (HWH), which in effect, are units in acute hospitals that specialize in longer-stay patients.8 Hospitals with formal relationships, such as ownership of PAC providers, may have a financial incentive to discharge their patients earlier to a PAC site, and depending on the type of case and the relative Medicare payments, to one type of setting over another. The subproviders may or may not be profitable given that their role in the system may be to reduce losses for higher cost providers, such as the acute hospitals. Further, these relative roles may exist for providers located close to one another but without the formal ownership relationship. Other factors, such as service availability may also affect some of these decisions to transfer patients between sites of care. While these incentives may have a limited explanatory power relative to individual medical factors, their importance may vary by the type of case and level of severity; yet few studies have been done to examine these differences.
The informal relationships have been particularly difficult to study because satellite facilities of one PAC provider may be located in a complementary acute care setting across town. Satellite facilities are authorized in the regulations, but little information exists on where they are actually located. Their bed counts, billing addresses, and other program regulatory materials are tied to the parent organization masking the effects of these satellites while they operate as pseudo "subprovider units." Unlike PAC providers that are subproviders, satellite facilities have a choice to enter a market, suggesting they operate in areas with win-wins for both the hospital and the PAC provider. As shown in last year's study, these colocated providers, to the extent that we could identify them, were significantly associated with site of care choices, or determining the type of PAC used.
The goal of this study is to evaluate the impact of organizational relationships, both formal and informal, on the total cost and use of services across an episode of care. This study examines how acute-PAC provider relationships may affect transfer patterns across post-acute settings. Our analyses focus on the types of patients likely to use PAC, and after controlling for case-mix differences, examines the effects of organizational relationships on the PAC decisions, the types of PAC used, the likelihood of hospital readmissions, and the associated lengths of stay and costs of care in each setting. As with last year's study which focused on 2005 episodes, the primary focus of the multivariate work is on the relationship between the hospital with the index admission and the first PAC provider. Descriptive information is provided on the longer episodes and their service composition for episodes occurring within sets of related providers. This study also begins to examine the additional cost and frequency of physician, durable medical equipment (DME), and hospice services during an episode. This work will be continued as we begin to identify the role of physicians' services within the larger episode and examine the extent to which these services are provided concurrently in inpatient settings, the office, or the home and identify whether they precede hospitalizations, provide follow-up care, or are more frequent among beneficiaries with certain types of conditions.
In this study we also examine how provider organizational relationships may affect transfer patterns across post-acute settings. The analyses presented here use existing data sources and innovative methodologies, such as those developed by the medical geographers, to describe the current distribution of post-acute providers in the United States. Also included in the study are analyses of the average utilization and Medicare payments for a post-acute episode of care and the effects of organizational links between acute hospitals and PAC providers on the likelihood of transfers to a Medicare post-acute provider. This study examines transfer patterns across post-acute care settings using a 5.0 percent national sample of 2006 Medicare claims data. The results of these analyses provide information on how post-acute transfer patterns from the acute hospital to the first site of PAC are affected by the presence of hospital-based subproviders and colocated providers. Further, this study provides information on the roles of physicians throughout the course of the episode. These analyses all begin with an index acute hospital stay but they will be expanded next year as we also examine episodes that begin in the community as well as those initiated by an index acute hospitalization.
This year's study also introduces the effects of Medicare Severity Diagnosis Related Groups (MS-DRGs) as explanatory variables for variations in beneficiary costs and use. While last year's work incorporated All Patient Refined Diagnosis Related Groups (APR-DRGs) to explain the severity of individuals' health conditions, the Medicare program now uses the MS-DRG system to risk-adjust payments for inpatient acute stays. In this study, we examine the relative explanatory power of the two systems–one based on the presence of specific comorbid conditions with a particular primary diagnosis, and one based on the presence of certain complicating comorbidities with any primary diagnosis. We also explored the role of comorbid conditions in understanding costs and use using Hierarchical Condition Categories (HCCs). The HCCs were used in these analyses because they to provide a convenient method for collapsing ICD-9 codes into meaningful disease groupings to identify comorbid or complicating conditions. These three methods of measuring severity were important explanatory variables to our multivariate analyses predicting any use of PAC, first site of PAC, index acute admission length of stay, acute hospital readmission, and total episode payments.