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Advising the Congress on Medicare issues
MedPAC > News > Post-acute care > March report highlight: MedPAC recommends site neutral payment for IRFs and SNFs

March report highlight: MedPAC recommends site neutral payment for IRFs and SNFs

Over the next several weeks, we’ll be posting highlights of new data, analysis and recommendations from MedPAC’s March 2015 report to Congress.

MedPAC’s March 2015 report continues the Commission’s focus on site-neutral payments with a recommendation to eliminate differences in payment rates between inpatient rehabilitation facilities (IRFs) and skilled nursing facilities (SNFs) for selected conditions.

Site-neutral payments are an important theme in MedPAC’s work. The Commission believes that, as a prudent purchaser, Medicare should not pay more for a given service just because it is provided in a more costly setting. In the interests of the taxpayers who support Medicare and the beneficiaries who pay copayments, Medicare should base its payments on the resources needed to provide high quality care in the most efficient setting. MedPAC previously recommended site-neutral payments for certain services provided in both hospital outpatient departments and physician offices, and for non-chronically critically ill cases cared for in both long-term care hospitals and acute care hospitals.

The Commission next focused on the suitability of site-neutral payments for some post-acute care (PAC) services. There is considerable overlap in the types of cases treated in PAC settings, yet Medicare’s payments for this care varies widely by setting. It is important to note that the services typically offered in IRFs and SNFs can differ in important ways. Many of these differences are driven by Medicare conditions of participation, coverage requirements, and payment policies. Stays in IRFs are shorter on average, and during their stay patients in IRFs receive more intensive therapy services supervised by a rehab physician, in part because patients admitted must be able to tolerate and benefit from an intensive therapy program. The Commission recognizes that the services in the two settings differ; however, it questions whether the program should pay for these differences when similar patients are admitted.

As in other settings, the Commission established criteria to identify conditions and services in SNFs and IRFs that would be eligible for site-neutral payment. We first identified conditions for which the majority of patients were treated in SNFs in markets with both types of providers. In other words, we selected conditions that are already treated in SNFs the majority of the time. Then we compared patient characteristics and risk profiles in both settings to assess whether SNFs and IRFs treat patients of similar complexity.

For the conditions identified, we did not find large differences in patient characteristics: Patients’ average functional status at admission, their risk scores, and their comorbidities overall did not differ substantially for the selected conditions. The two settings admitted similar shares of minority beneficiaries. SNFs treated considerably higher shares of beneficiaries dually eligible for Medicare and Medicaid and their patients were on average older compared with IRF patients. We also found that SNFs often care for more severely ill patients, likely because IRF patients must be able to tolerate at least three hours of therapy a day and the sickest patients have difficulty meeting this requirement.

We also considered outcomes for SNF and IRF patients admitted with our specified conditions. We did not find consistent differences. Because PAC providers do not yet collect uniform patient assessment information, it is difficult to compare risk-adjusted outcomes (under the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014, PAC providers will begin collecting uniform assessment data in 2018). Key measures (such as changes in patients’ function) are not uniformly collected and cannot be adequately risk adjusted. However, analysis of outcomes for SNF and IRFs participating in a CMS demonstration project that tested a uniform patient assessment tool found no consistent differences in risk-adjusted outcomes for beneficiaries treated in these settings.  Other researchers likewise have failed to find consistent differences in outcomes between the two settings.

Though the Commission found few differences in SNF and IRF patient characteristics and outcomes for the conditions we examined, we found that Medicare’s spending for beneficiaries who used IRFs was more than 60 percent higher than for comparable patients who used SNFs during the initial PAC stay, and IRF patients continued to have higher spending during the 30 days after discharge. Since IRF patients are often similar to those treated in SNFs but do not uniformly have better outcomes, it is not clear what Medicare is purchasing with its higher IRF payments for certain patients.

In its March report, the Commission recommended that the Congress direct the Secretary to establish site-neutral payments between IRFs and SNFs for select conditions, using criteria such as those the Commission examined. CMS should use its rule-making process to first propose criteria to select conditions appropriate for a site-neutral payment policy and then to identify conditions that would be subject to the site-neutral policy. In this way, the Secretary can gather input from key stakeholders.

For the selected conditions, the Commission recommends that the IRF base payment rate be set equal to the average SNF payment per discharge for each condition. The additional payments many IRFs receive for teaching programs and for treating low-income patients and high-cost outliers would not be changed by this policy. To allow IRFs to adjust their cost structures for these patients, IRFs should be relieved from the regulations governing the intensity and mix of services for the site-neutral conditions. The Commission recommends that the policy be implemented over three years to give IRFs time to adjust their cost structures and to give policymakers time to monitor the effects of the change on beneficiaries and providers.