To address the impending insolvency of Medicare Part A by 2033, strategies to reduce spending on post-acute care are crucial. This includes lowering payment rates to skilled nursing facilities (SNFs), inpatient rehab facilities (IRFs), and home healthcare providers. A 5% reduction in payment rates could have saved $2.7 billion in 2021. However, recommendations from the Medicare Payment Advisory Commission (MedPAC) face challenges, with some providers receiving payment increases. Implementing bundled payment policies and introducing cost-sharing for home healthcare services may offer solutions to curb spending while ensuring quality care.
To tackle the issue of Medicare Part A’s impending insolvency by 2033, there are potential avenues for reducing spending on post-acute care, including skilled nursing facilities (SNFs), home healthcare providers, and inpatient rehabilitation facilities (IRFs). According to a briefing from the Urban Institute, lowering payment rates to these providers by 5 percent in 2021 could have saved a significant $2.7 billion in Medicare spending.
Post-acute care is a complex landscape, with variations in utilization and spending across different settings, including SNFs, IRFs, long-term care hospitals (LTCHs), and home healthcare. In 2021, SNFs served 1.2 million Medicare beneficiaries, with a total expenditure of $28.5 billion. Home health was utilized by three million beneficiaries, resulting in Medicare spending of $16.9 billion. IRF spending reached $8.5 billion with 335,000 users, while LTCH spending stood at $3.4 billion for just 71,000 beneficiaries.
These post-acute care services are financed through Medicare’s Hospital Insurance (HI) component, or Part A, which faces insolvency between 2031 and 2033. If the trust fund becomes insolvent, it could jeopardize patient care, as Medicare would only be able to cover 90 cents on the dollar for hospital services.
To address this issue, reducing spending on post-acute care could help extend the solvency of Medicare Part A. The Medicare Payment Advisory Commission (MedPAC) has already determined that payments to SNFs, IRFs, and home healthcare providers are higher than necessary relative to the cost of care.
The recommendation from MedPAC includes a 3 percent reduction in payments to SNFs and IRFs for 2024 and a 7 percent reduction in home health payments. However, SNFs and IRFs received payment increases for the next year, while home healthcare providers saw a 1.8 percent reduction.
The Urban Institute’s brief suggests that a 5 percent reduction in payment rates to SNFs, IRFs, and home health providers could have saved $2.7 billion in 2021. The savings from SNFs and IRFs would directly contribute to the HI trust fund, whereas less than half of the reduced home health spending would benefit Part A.
It’s worth noting that only a third of home health spending falls under Part A. Shifting all home health spending to Part B could reduce Part A costs but might result in higher Part B premiums and increased federal revenue requirements for Part B.
To further mitigate spending and promote efficient service use, bundled payment policies for post-acute care could be implemented. This approach would involve a single lump-sum payment to cover both the initial hospital stay and any subsequent post-acute care within a 90-day window. The Congressional Budget Office (CBO) estimated potential savings of $47 billion between 2014 and 2023 with this strategy.
Another effective strategy to curb post-acute care spending is implementing cost-sharing for home healthcare services within traditional Medicare. Currently, beneficiaries do not bear any cost-sharing burden for home health services. Introducing financial responsibility for enrollees could act as a check against potentially excessive or fraudulent service provision, a recurring issue in the home health industry.
It’s essential to recognize that beneficiaries using post-acute care services tend to incur higher costs than those who do not. Additionally, SNF and home healthcare users typically have lower incomes and are older compared to other beneficiaries. This highlights the potential for cost savings and quality improvements through comprehensive care management for post-acute care beneficiaries.
